ObamaCare Big Boon for CVS


ObamaCare has winners and losers. One of the big winners is CVS.

Much has been made of the unholy alliance between Big Pharma – the pharmaceutical manufacturers – and the Obama administration that passed the ObamaCare legislation in 2010. Much less has been said about how the drug stores that serve as middlemen in the process have made a killing off ObamaCare, too.

The Wall Street Journal editorial board says CVS operates a pharmaceutical benefits manager (PBM) that acts as a middleman between insurers, pharmacies and drug manufacturers. PBMs decide which drugs are listed on a formulary, how much pharmacies are reimbursed and how much insurers pay.

For example, Ohio contracts with five managed-care organizations (MCOs) to administer Medicaid benefits, four of which outsource their drug benefits management to CVS Caremark, the CVS PBM. So CVS has 80% of the market in the state of Ohio.

The state uses drug claims data to set its annual drug budget. Therefore, if claims increase the state will allocate more Medicaid funds for drugs the following year. However, CVS appears to be billing the state for far more than what it is paying pharmacies, which drives up taxpayer costs. CVS does not report actual drug payments to the state or the MCOs.

WSJ says CVS is attempting to eliminate its competition from independent pharmacies. They interviewed eight current or former independent pharmacists in Ohio who complained CVS had slashed payment rates below the pharmacists’ wholesale drug costs. CVS then pockets the increased “spread pricing” – that is the difference between what the PBM pays the pharmacies and what they charge the state.

ObamaCare’s Impact

This situation has greatly increased as a direct result of ObamaCare. The Medicaid expansion encouraged by ObamaCare has increased Ohio’s Medicaid population by more than half to 21.4% of all Ohio residents. This is mostly due to the redefined eligibility for Medicaid under ObamaCare in those states that voted for expansion. The result is Medicaid is now the biggest insurer in rural areas where independent pharmacies predominate.

Ohio state Senator Dave Burke, who runs an independent pharmacy and also serves on the state Joint Medicaid Oversight Committee, says two-thirds of the Medicaid drug claims he processes are below what he pays for the drugs. He says CVS payment rates are “take it or leave it.” If pharmacists refuse to accept Medicaid prescription, they risk losing CVS contracts for Medicare Part D and commercial plans that are the main source of profit in their business.

The impact of all this on independent pharmacies in Ohio has been huge. In the last three years, Ohio has lost 164 independent pharmacies while CVS has added 68.

This problem is not limited to Ohio. Arkansas Independent Pharmacies found that CVS Caremark billed Medicaid plans more than twice as much on average as what their pharmacies got paid. Data from fully-insured commercial health plans showed that CVS paid itself over $60 on average more per prescription than independent pharmacists.

This is just more evidence that the expansion of Medicaid has been a costly exercise in government control of healthcare that is being exploited by private industry. The winners are CVS and others like them; the losers are Medicaid patients, independent pharmacies and taxpayers.

Pros and Cons of DTC Drug Ads


What may seem obvious to you can be wrong. I was reminded of that recently when I had dinner with a friend who reads my blog. (Drug Ads Disservice to Patients and Doctors) We both agreed that direct-to-consumer (DTC) drug ads didn’t seem effective. We marveled that the pharmaceutical companies were pouring so much money into these ads that we didn’t think were a good investment of their advertising dollars.

Then my friend did some research and pointed me to a web site called ProCon.org. They have a running debate format that included this issue in a recent survey. Some strong arguments were made, both Pro and Con, but the most startling discovery was that “For every $1 spent on DTC ads, sales of prescription drugs rose by $4.20.”

If that statement is even close to accurate we’d all better brace ourselves for more of these DTC ads in the future! In fact, Kantar Media, a firm that tracks multimedia advertising, says 771,368 such ads were shown in 2016, the last full year for which data is available. That was a 65% increase over 2012 figures.

Most of us probably react negatively to the endless list of side effects the FDA mandates these ads mention. But an unexpected reaction to these is enhanced credibility. Those who have the disease mentioned tend to think the heavy dose of negative information increases the perceived honesty of the ads.

Here is a sample of the arguments made, both Pro and Con, for DTC drug ads:

Pros for DTC Drug Ads

  • 64% of physicians surveyed believe ads encourage patients to contact a doctor
  • Lower income/education patients were more likely to see a doctor
  • 73% of physicians thought patients asked good questions because of the ads
  • 77% of people believe the ads increase awareness of new drugs
  • 81% of physicians thought ads had a positive impact on patient compliance
  • 88% of physicians said patients ask about drugs for conditions they have
  • 52% of physicians agree the ads help remove stigma associated with diseases
  • 44% of patients believe the ads help educate them about drugs and disease
  • DTC ads protect free speech of drug companies


Cons for DTC Drug Ads

  • 63% of physicians believe DTC drug ads misinform patients
  • 74% of physicians believe the ads overemphasized the benefits of the drugs
  • 84% of regulatory letters sent by the FDA were for minimizing risks and /or exaggerating effectiveness of drugs.
  • 68% of physicians agree that drugs are marketed before safety profiles are known
  • 43% of consumers believe drugs had to be 100% safe before being advertised
  • DTC ads create the idea that normal conditions are “bad.”
  • 81% of physicians say the ads promote drug overutilization
  • 80% of physicians say drug ads weaken doctor-patient relationships.
  • 78% of physicians believe drug ads increase healthcare costs.
  • 57% of U.S. adults support removing prescription drug ads from TV.


Notice that roughly the same percentage of doctors believe drug ads encourage patients to contact a doctor – but misinform the patients! Likewise, about the same percentage believe drugs ads increase awareness of new drugs – but overemphasize the benefits of those drugs.

Perhaps the strongest benefit for patients is that more patients seek medical care as a result of these ads. Perhaps the most adverse impact of these ads is that they weaken the doctor-patient relationship.

The United States and New Zealand are the only countries that permit DTC prescription drug ads. All other countries ban all forms of DTC prescription drug ads except Canada, which allows limited forms of reminder ads. The U.S. accounts for 42% of global prescription drug use even though our population is only 5% of the world. This certainly reflects differences in standard of living and the structure of our reimbursement system, but may also be influenced by DTC drug ads.  The World Health Organization (WHO) stated in 2000, “Advertisements to the general public should . . . not generally be permitted for prescription drugs,” and in 2007 “made a unanimous recommendation to prohibit direct-to-consumer advertising.”

Clearly most of the world believes these DTC prescription drug ads are a bad idea. But as long as drug companies are getting a return on investment of $4.20 for every dollar spent we’re going to see more of these ads, unless the government bans them.

Where do you stand? Are these DTC drug ads a good thing or a bad thing? Let me know what you believe.

Trump’s Plan to Lower Drug Prices – Part II

In Part I, we talked about the Trump proposals to lower drug prices. Avik Roy, healthcare economist writing in Forbes, says these proposals will go a long way toward lowering drug prices.

But Roy also says there is more that could be done. He has some criticisms of the Trump plan – and some suggestions on how to do more.

He says the Trump plan blueprint complains a lot about “high list prices for drugs” but worries that the real problem is the actual price, net of rebates and wholesaler discounts. Getting the net price down should be the real focus of the plan.

He also says the blueprint complains about “high and rising out-of-pocket costs for consumers.” This is certainly a concern, but rising insurance premiums is also a problem. The blueprint advocates measures that will cap out-of-pocket costs for seniors, but result in driving up Part D premiums and taxpayer spending on Medicare drugs.

Lastly, Roy says this is an over-emphasis on the idea that “foreign governments are free-riding off of American investment in innovation.” This refers to the fact that drugs can be purchased for less in foreign countries. The drug companies have long justified these differences by claiming that it is necessary to pay for the high cost of research and development of new drugs. Roy points out that drug companies are still making money off the sales of these drugs in other countries – it’s not charity!

What More Can Be Done?

The Trump plan proposals are a great step in the right direction, but more can be done. The key is competition – which always lowers prices and improves quality.

To improve competition some things must change. Where there is only one drug available to treat a particular disease, drug companies exploit this monopoly with irrational pricing. The Trump plan addresses this problem by capping growth of Part B drug prices at consumer inflation (CPI). Roy offers these other ideas:

  • Creating a safe harbor for private insures to jointly negotiate drug prices with a monopoly manufacturer in a given state. (a Swiss idea)
  • Eliminating requirements that force Medicare to pay for all FDA-approved drugs (open formularies)
  • Allowing the FDA to fast-track drugs that would compete with established monopolies
  • Allowing pharmacies to import a drug from other countries – if the manufacturer of an off-patent, monopoly drug takes a double-digit price increase.


We all want lower prices for needed drugs – and we want the best of research and development to find innovative new drugs. Until now we have been told that we can’t have both. It’s time to try these new proposals and find out if that’s a false choice.