EP 11: Trends & Outlook for Specialty Pharmacy: A Chat with CVS Health

With the world waiting in anticipation for a vaccine to COVID-19, the role of specialty pharmacies has never been more essential. As the largest provider of specialty pharmacy in the United States, how does CVS Health think about providing the highest level of quality and service at the lowest cost possible to ensure optimum healthcare outcomes? 

To find out, Head of Pharmacy Investment Banking Syed Husain hosts the latest episode of PJ SOLOMON Presents. He is joined by his good friend and former colleague Prem Shah, Executive Vice President of CVS Specialty and PBM Product Innovation at CVS Health.  

Transcript

Syed Husain : 0:03

As the largest provider of specialty pharmacy in the United States, how does CVS health think about providing the highest level of quality and service at the lowest cost possible to ensure optimal healthcare outcomes for everyone in the United States? For joining us for another episode of PJ SOLOMON presents our podcast series, where we speak with key industry leaders, who are at the forefront of the verticals that we cover. I am Syed Husain, managing director and head of PJ SOLOMON's pharmacy investment banking practice. I am joined today by my good friend and former colleague Prem Shaw. Prem is executive vice president of CVS specialty and PBM product innovation at CVS health. In his role, Prem has oversight and responsibility for the company's specialty pharmacy strategy and pharmacy benefit management innovation pipeline. This includes identifying opportunities for business growth, as well as focused on bringing to market innovative cost management and patient care solutions that deliver the right drug at the right price from the start. So before I get into this conversation, you know, one of the things that I wanted to talk about is I've known Prem a number of years now, Prem and I both participated in a leadership program at CVS health and having been at CVS health for over 25 years, it's a large organization and any large organization, has its challenges of when you come into it. And I have to tell y'all that Prem coming into this organization was like the easiest, best thing that I've ever seen in terms of integration. He easily assimilated into the CVS health and immediately became kind of the go-to person in terms of innovation, PBM knowledge, specialty knowledge. And I give him a lot of credit for that. Knowing this organization and knowing Prem, I would tell you, there are really two key factors. One prem has a really strong passion for innovation and transitioning healthcare in the United States to make a difference in people's lives and two his leadership style. His leadership style again is one of empowerment and innovation in today's environment. There's very few people that kind of couple that together in my mind and Prem is definitely one of them and just been great, knowing your Prem and watching you grow within this organization.

Prem Shah: 2:37

Thank you for those kind remarks. I really appreciate being here today with you. It's been a privilege to work at an organization like CVS health and really help our customers lower their healthcare costs.

Syed Husain : 2:49

Thanks, Prem jumping kind of into some discussion points, you know, with healthcare and the cost and everything else around specialty pharmacy wanted to get you some of your thoughts in terms of, you know, the trends, right? What do you see are the trends in specialty pharmacy? And why do you think that an integrated specialty pharmacy management can make a difference for payers?

Prem Shah: 3:12

Yeah that is a great question Syed and is a question I get a lot. And if you take a step back and you look at the history of pharmacy spend in total from the early two thousands to now, typically pharmacy spend would be around 15 to 20% of overall healthcare expenditures depending on the year. And if you look at specifically inside of the pharmacy spend over the course of the last 10 years, it's gone from being approximately 10% of the pharmacy spend. And now it's around 50% of the pharmacy spending. If you incorporate in the drugs that are on the medical benefit, it's approximately 65% or so today. So it continues to be a tremendous area of innovation from pharma. So I'd start there and say that the innovation that they brought to market to help treat cure diseases, rare diseases like hepatitis C or cancer continues to be fascinating. If you look at the things that they've done in gene therapies with ultra rare conditions continues to be an extremely powerful and creating many innovations in areas where there's a lot of clinical unmet need in the industries. But the burden of paying for these medications ultimately falls on our plan sponsors, which can be employers. It can be the government, it could be Medicaid, and they have the burden of really ensuring that the medications are affordable. People can continue to afford these new products that come to market. And it's been somewhat challenging in the recent years, right? So specialty pharmacy trends have been growing since the early 2000 tens in the mid-teens that continued pressure on the budgets of planned sponsors is challenging. And so we really look at it's very integral part in helping to bring down the cost of these products. We do it through a few critical things. One is we like to create incremental competition where possible to bring down the cost of these products for our clients, we're able to manage these patients more holistically. So over the course of the last decade, we've invested in terms of really driving a better patient experience and, you know, digitally engaging with patients differently. And that's absolutely critical. And the third, you know, I'd say paradigm shift that's happening now is really the ability to drive CVS specialties, connectivity into health records and into EHR. So, you know, we have now approximately a 40 or 50% of our physicians where we're able to actually feed into their electronic health record. The last thing that we do, you know, that's also critical is making sure we manage the overall cost of these patients. So we want to make sure they're on the lowest site of care, CVS health acquired Quorum, which is a home infusion company, which allows patients to have the flexibility, to have these medications infused in their home versus having to go to their physician office or to their hospital, outpatient. And really in the light of COVID, the home is a much place to be serviced or treated for these rare conditions. These patients are typically chronically ill. They have multi disease diagnosis and, you know, having them go into areas that have higher risk of infection and other things are sometimes challenging. So great opportunity for us to leverage that at the end of the day, we created the competition. If we have the best member and provider experience, we know that by being in an area where the pharmaceutical pipeline is rich, that will continue to be successful. And it's always going to be a balance of managing our client's costs with ensuring that there's affordability and room for these medications in the future. As, as a pharma pipeline continues to be very rich in cancer and in gene therapy,

Syed Husain : 6:44

Thanks for that Prem and taking some of those points and maybe expanding a little bit, you know, one of the things that you've mentioned is the billing component that many of these drugs are built on the medical side versus the pharmacy side. What do you think about the future there? Do you think as more of these complex therapies that are infused come online, it's going to continue to be on the medical side, or is there a movement to try and get more of these drugs to be paid on the pharmacy side, which is much cleaner adjudication process? I think it really d epends.

Prem Shah: 7:14

That's on the type of drugs. So with specialty drugs, there's many types of drugs. Some are using a physician office and, you know, the right area and place for those medications to be billed will be the medical benefit. And then there's other drugs that are administered in the patient's home or their oral tablets that patients take. So I think it'll continue to be a mix of both. What I will say is our goal is to get them to the lowest cost site of care and get them the administration of that medication in the most convenient setting. So for example, if you think about your question around medical or pharmacy benefit, we really look at it and say, how can we create an environment in which reduces the cost and drives down our client costs by getting into lower side of care, like the patient's home or an ambulatory infusion suite or a physician office. I'm trying to keep them out of the more expensive sites of care, like hospital outpatient or in-patient hospitals

Syed Husain : 8:02

When you really think about it, everybody's out there trying to drive down c osts yet, deliver terrific care. A nd really, if you look at the trends, everybody is trying to head towards home-based care. How can you do that when it's an expensive s ite of care pure and, simple?

Prem Shah: 8:22

Absolutely true. These businesses require scale too, right? So we, you know, us in the top three or four specialty pharmacies in the country have the scale we're able to get this product to the members of the lowest cost. We have been in this industry for a long time. So historically we have a very good cost of goods profile on our products as well because of our size and scale. So those are all things that our customers benefit from and they get consistent service, right? So part of it is to make sure we manage these patients consistently. When you have multiple integrated health system or multiple pharmacies in your network, you don't always have a integrated platform. You don't have the ability to manage these patients in a integrated, coordinated, reproducible fashion.

Syed Husain : 9:02

It just seems to me that if you truly wanted a fully holistic look, seems like the payer has that if everything is going through that payer, a clinician would get a better view of that patient.

Prem Shah: 9:16

Ultimately. You know, the payer is the one paying for these products, these very expensive products. And so they should have the information they need in the manner that they want it that really drives the best care for their patients and their members and their employees. Right? And so they help really inform how we structure our networks. They help inform how this care is delivered. And we obviously advise them as their plan benefit manager, but, you know, they play a tremendous role in that. And I couldn't agree more. So right Syed at the end of the day. You want to be able to understand these costs. You want understand what's happening, the drivers, and, you know, ultimately you want to make sure these patients are cared for, with all the right tools so that, you know, you can leverage that to help improve Quality of care.

Syed Husain : 9:56

So Prem, CVS has multiple different assets that are engaged in this at your office, you also hyour c ore infusion division, which also you're very involved with bearing in mind and looking at all the assets that CVS has p laced. What are your thoughts around CVS h as role in gene therapy as the buzzword and the future of one aspect of specialty care?

Prem Shah: 10:20

Yeah. We view ourselves as playing really an integral role in treating rare diseases, right? And gene therapy is one of those. And you know, what I would say is maintaining health with rare complex conditions, often presents a challenge. Patients can be, feel overwhelmed by the condition, their side effects, the very complex dosing, where do they go? The comorbidities? You know, there's many things here as they try to navigate the healthcare system around gene therapy. And as you think about this new ground in the healthcare industry, you know, we share the excitement of what it means around the boards of these products as well. We actively engage with the manufacturers, the pipeline of products that are available. And it's very exciting. I mean, candidly, we're talking about, you know, drugs for sometimes young children or for patients that previously were treated with a infusion many times a day or many times a week that now are intentionally cured of these diseases. So a phenomenal opportunity to really improve the quality of care for patients, you know, from a regulatory perspective or trying to help lead gene therapy discussions across the industry, to ensure that we have the right supply chain for the products all while keeping, you know, the patient at the front center of all of our decisions. And it's still an industry that's very young, there's a few products that are out, but it's going to play a critical role. And the role is going to really be dependent on many things, the type of manufacturers that, you know, these products come from cold chain and the logistics, you know, some of these products have restored a negative 50 degrees or the pharmacy service providers, how the drugs are administered. The fear for plan sponsors is it could be a one or 2 million dollar treatment to treat someone with one of these gene therapies. What does that mean to a small employer who has to bear the burden of the cost? So there's a lot of considerations around costs as it relates to this. And then there's a lot of consideration around will the drugs work long-term is there durability in gene therapy? And you know, those are things that payers want assurances up previously. It was a chronic medication paid over many years to treat that indication. And now you're getting that all as one price. How do you absorb that sticker shock into the industry? How do clients bear that cost today versus over a longer period, the industry is still grappling with, but it's an extremely exciting time for patients. And you know, the innovation here just shows you the power, how far we've come as an industry.

Syed Husain : 12:40

So Prem. That's a great segue into my next discussion is around biosimilars. You have a biosimilar first strategy. If you could chat a little bit about that.

Prem Shah: 12:50

From our viewpoint, anything that creates competition or adds competition to the marketplace, we welcome. And we know that if that happens, we can help lower our plan sponsors and our client's costs. And so we will always evaluate all categories based on the ability to have interchangeability the ability to get to the lowest net costs, the ability for us to ensure that we can really drive down and drive a solution that is beneficial for our customers. And so if you look at the biosimilars that have launched over the course of the last five years, they've primarily been on the medical benefit. So Remicade, Inflectra, renal, plexus, all biosimilar launched about three years ago. The good news is, and I'm not sure the industry would have fully predicted this. The good news is we've seen the price of that category and the cost of those drugs come down dramatically since the biosimilar is launched, which is great. It hasn't come down the same way that we've seen the cost of traditional generics come down where there's a material decrease. After six months of exclusivity on the generics, it's come down over time and it continues to go down, uh, at the right level. So I would say it's a great opportunity for the marketplace to get incremental value out of the system. And have you already encouraged the use of lower-cost agents? It will always be part of our strategy and be welcome, you know, biosimilars to the specialty pharmacy landscape, because we know it creates extra competition and will help drive down cost for our clients and improve the quality and hopefully create the headroom needed to pay for other things like gene therapies. Right? So, you know, as, as these biosimilars come to market at a lower cost, that's really good because now our plan sponsors and our clients have potential ways to absorb the cost of other higher cost medications for new innovation that the pharmaceutical pipeline and the pharma companies are creating.

Syed Husain : 14:44

How do you think M&A will play a role in terms of both a straight kind of bolt-on add-on acquisition, but also at, towards a capabilities acquisitions plan?

Prem Shah: 14:55

That's a great question. And then if you look at our history, right, we've been very thoughtful about the acquisitions that we do. And I'd say the way I think about it from my seat is probably twofold. First is the cost of healthcare is just too much. So everything that we do should be focused on how we can help improve the cost of healthcare in the United States for our customers improve the quality of healthcare in the United States, which will then reduce the costs. Lastly, lower the administrative burden of the cost of healthcare, right? There's a lot of still what I would say when I started the specialty pharmacy industry and I came to CVS health. I made one simple statement. I wanted to remove faxing and telephonic communication because to me they're not valuable, right? How do you get to a place where you're leveraging technology, where you can do things more digitally in the world that we're in? How do we get to a place where you can communicate with physicians in a better format than a fax machine? So we will continue to be a creative in areas in which we see adjacent opportunities for us. And then at the other side, we do see size and scale matters. And so to the extent that you see well-performing or well-run specialty pharmacies, similar to well-run retail pharmacies will be thoughtful and incorporate any of those specialty pharmacies into our assets. But at the end of the day, we're focused on delivering value to our customers and the view that there's an asset or a capability that we don't have that can create value for our customer. Then we will look at that and we will discuss if it makes sense for us to think about that from an M&A perspective,

Syed Husain : 16:33

Is there anything, or are there a couple of things that are around the corner that is on your mind that you're comfortable discussing and talking about?

Prem Shah: 16:42

Well, from my perspective, we view the world as if you continue to serve your customers and you serve them really well, that you will always be successful. So all the things that we think about, and, you know, we do from our perspective is really thinking about that. If I were to say, there's a few things that come to mind, one would be affordability, right? These medications continue to be very expensive. How do we bear the cost of these two or 3% of members that are driving 50% of the drug costs across larger populations? I fear that sometimes if you start to really kind of continue to narrow this down, that you may not have accessibility for some of these medications, if they become unaffordable for all of us. So that's something that we had to tackle as an industry, as a country in ensuring that, you know, these drugs remained to be affordable for the folks that need them. And I think one of the ways that we serve a role in that is by ensuring that we continue to create the competition needed and the space needed to help fund some of these. The second thing I would say is regarding how we get these medications to show the value that they claim to have, right? So we spend a amount of our healthcare dollars on these specialty pharmaceuticals. I think it will be critically important to show that value to our customers, to the plan sponsors from the pharmaceutical industry, because they are very expensive and candidly cost is continuing to be a really big challenge for our customers.

Syed Husain : 18:06

Well, this has been another fantastic episode of PJ Solomon Presents with an industry leader and getting his thoughts around what's probably at the top of mind of most Americans is healthcare and, you know, one of the more expensive ends of healthcare, but also the future of healthcare in terms of new treatments and therapies. So we really appreciate you listening in. We hope this was valuable and we'll continue to bring you insights into new aspects of the verticals that we cover at PJ Solomon. Thanks again, and have a great day. For more information, visit PJsolomon.com