3:06 PM
Aug 09, 2018
 |  BC Extra  |  Company News

CVS earns less off rebates than the Street thought

CVS Health Corp. (NYSE:CVS) reported lower-than-expected contribution of retained rebates to its 2Q18 earnings and drew closer to completing its acquisition of Aetna Inc. (NYSE:AET) -- a move expected to cut its healthcare costs.

CVS revealed that it expects to bring in retained rebates of $300 million for the year, or about 3% of annual adjusted EPS.

Mizuho Americas Healthcare Services Analyst Ann Hynes told BioCentury she had estimated that rebates account for 14% of CVS's earnings and believes the Street's estimates fell within the 20% range.

The 2Q18 earnings marked the first time CVS disclosed expected retained rebates for a given year, according to a company spokesperson. CVS declined to disclose 2017 retained rebate amounts.

HHS Secretary Alex Azar has repeatedly stated he believes that rebating practices harm consumers by driving up list prices. In public comments on the Trump administration's drug pricing blueprint in July, PhRMA called on CMS to “delink supply chain payments from list price," while the Pharmaceutical Care Management Association (PCMA), which represents PBMs, placed responsibility for drug costs solely at the feet of drug manufacturers. Shortly after the comment period, HHS signaled that it is moving forward with initiatives to regulate drug rebating practices (see "Biopharma, PBMs Battle Over HHS Drug Pricing Blueprint").

However, during its earnings presentation Wednesday, CVS argued there is no correlation between PBM rebate retention and increased drug prices. "Data shows list prices are increasing faster for drugs with small rebates than for drugs with substantial rebates," the PBM said, but did not cite a source to corroborate the claim.

In July, CVS threw its support behind Trump administration's drug pricing blueprint in public comments. Its cover letter to Azar pointed to the company's point-of-sale rebates and CVS Pharmacy Rx Savings Finder program as contributors to lowering patients' out-of-pocket drug costs (see "CVS Releases Prescription Savings Finder Tool").

Separately, CVS announced Thursday a public hearing next week in Utah regarding the PBM's pending acquisition of Aetna. CVS has said the deal, expected to close by early 4Q18, will help it address growing healthcare expenditures (see "Value-Based Models a Driver of CVS-Aetna Deal").

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