CVS CVS Health Corporation

By Patrick Thomas 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 9, 2018).

CVS Health Corp. Chief Executive Larry Merlo said Wednesday that industry middlemen aren't responsible for increasing U.S. drug prices, noting that prices are rising faster for medicines with smaller manufacturer rebates.

CVS owns Caremark, one of the biggest pharmacy-benefit managers, which process prescriptions for insurers or companies that pay for medicines and use their size to negotiate with drugmakers and pharmacies. Mr. Merlo said CVS expects 3%, or about $300 million, of its 2018 earnings to come from rebates it pockets.

President Donald Trump has periodically criticized high drug prices and recently pressured drugmaker Pfizer Inc. to abandon plans to raise list prices. In May, the president proposed various initiatives to curb drug prices. The administration has said that rebates paid to PBMs lead to higher drug prices.

Drug companies have sought to shift blame for the high prices, and have been increasingly vocal in blaming PBMs for drug-price increases and high out-of-pocket costs confronting patients.

"Drug manufacturers want you to believe that increasing drug prices are a result of them happy to pay rebates and that PBMs are retaining these rebates. And this is simply not true," Mr. Merlo said on a conference call Wednesday. "Our data showed that list price is increasing faster for drugs with small rebates than it is for medications with substantial rebates."

Mr. Merlo said that his company has generated tens of billions of dollars in rebates and that 98% of those funds are passed through to its clients, which are insurers, companies and groups that pay for medicines. He said drug prices rose 0.2% for its clients on a per capita basis last year.

The new Health and Human Services Secretary Alex Azar is a former drug company executive, and in an effort to control prices, HHS has been proposing moves that analysts say would target middlemen more than drugmakers.

CVS is becoming a bigger target as it expands beyond its retail pharmacy origins and tries to capture more of what consumers spend on health care. In December the Woonsocket, R.I.-based company reached a deal to buy insurer Aetna Inc. for $69 billion in cash and stock. It expects the transaction to close later this year.

On Wednesday, CVS reported its second-quarter revenue rose 2.2% to $46.71 billion. The unit that includes Caremark reported $33.2 billion in revenue, up 2.8% from a year ago.

For the quarter, CVS posted a loss of $2.56 billion, compared with a profit of $1.1 billion a year earlier. The second quarter included a $3.9 billion impairment charge for its Omnicare long-term care business.

CVS has struggled to grow the Omnicare business, which is acquired in 2015, due to lower occupancy rates in skilled nursing facilities and low client retention rates. Omnicare provides pharmacy services to nursing homes and other clients.

CVS is also facing fresh competition from new entrants into its business, notably Amazon.com Inc. which spent $1 billion to buy online pharmacy startup PillPack back in June.

CVS, which operates about 9,800 pharmacies and offers mail-order medicines, enlisted the U.S. Postal Service earlier this summer for a new home delivery service where customers will be charged $4.99 per delivery.

Jonathan D. Rockoff contributed to this article.

Write to Patrick Thomas at patrick.thomas@wsj.com

(END) Dow Jones Newswires

August 09, 2018 02:47 ET (06:47 GMT)

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