CVS' Larry Merlo defends rebates, touts pending Aetna deal at Morgan Stanley conference

CVS Pharmacy
CVS CEO Larry Merlo said rebates exist largely because of the expansion of formularies as an effective cost-savings tool. (Getty/Serenethos)

With the Trump administration's focus on curbing high prescription costs, drug rebates negotiated by pharmacy benefit managers have become a popular whipping boy. But CVS CEO Larry Merlo said he doesn't foresee either going away anytime soon.

"We’re confident whatever transpires here, there’s going to be some sort of discounting," Merlo said, referring to President Trump's blueprint plan to address prescription costs in the U.S. "The value PBMs bring to the marketplace in terms of managing formularies are not going to go away."

He was addressing analysts at the Morgan Stanley Global Healthcare Conference in New York on Thursday, where Health and Human Services Secretary Alex Azar spoke just a day earlier. Azar has argued rebates on prescription drug purchases create perverse incentives to continuously raise drug prices.

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Merlo said rebates exist largely because of the expansion of formularies as an effective cost-savings tool.

"The big debate is: What happens to rebates? And its hard to answer that question because there isn’t a specific proposal from which we can react to," Merlo said. "If we look at rebates today, from our perspective, what are the facts around that? First of all, let’s acknowledge that rebates are a form of discounting."

RELATED: CVS to acquire Aetna in $69B deal

While PBMs have gotten flak for their role in the rebate system which has been blamed for driving up list prices for prescription drugs, Merlo said his company passes discounts back to its clients. But those clients typically use them to buy down monthly premiums.

In an example of an alternative, he pointed to one of CVS' clients, which covers about 10 million lives. They "made a conscious decision to apply those discounts directly at the point of sale reducing the consumers out of pocket costs at the pharmacy counter," he said. "I think there’s a bigger possibility there."

"They are talking about what services and plan design can we bring to the market that actually takes real cost out of the system," he said. "That’s the next advancement we have in our business model when we think about the future and having these two companies together."