(Bloomberg) — Just as he’s about to retire, George Paz’s strategy to rein in drug companies’ price increases is starting to show results.
A new analysis shows that attempts by drugmakers to raise prices on their prescription medications are being wiped out in negotiations with managers of drug insurance benefits, led by Paz’s company, Express Scripts Holding Co. (Nasdaq:ESRX), and his biggest rival, CVS Health Corp. (NYSE:CVS).
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Express Scripts said Wednesday that Paz will retire in May, making way for the company’s president, Tim Wentworth, to take over.
While list prices for drugs continue to rise rapidly, the analysis published this week by SSR Health found that after rebates and discounts, U.S. brand-name drug prices rose just 0.7 percent in the second quarter from the previous year. That compares with a 4.4 percent rise in the second quarter of 2014. That’s because companies like Express Scripts and CVS have embarked on strategies to exclude big-selling treatments from lists of covered drugs unless their makers offer better prices, according to the report from SSR, an investment research firm.
Express Scripts and CVS negotiate discounts with drug companies on behalf of insurers and employers. Increasingly in the last few years, they have inked deals to offer one drug company’s medicine exclusively in exchange for a lower price, shutting out competitors.
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Brand-name drug price inflation “is about as low as it has been in a very long time,” said Richard Evans, an analyst at SSR Health in Montclair, N.J. His analysis found that most of the change was driven by price declines in a handful of disease categories including hepatitis C and diabetes.
In December, Express Scripts said it would exclude Gilead Sciences Inc.’s hepatitis C treatment Harvoni from its main list of covered drugs this year, in favor of a competing treatment from AbbVie Inc. That move set off a price war over hepatitis C drugs, with several other insurers and payers covering only the Gilead medicine.
With the discounts that followed, hepatitis C therapy prices declined 25 percent in the second quarter, SSR estimated. Meanwhile, prices for long-acting insulin drugs declined 18 percent. Lantus from Sanofi and Levemir from Novo Nordisk A/S are the main medications in that category.
Paz helped gain negotiating leverage for Express Scripts by bulking up, acquiring rival Medco Health Solutions Inc. in 2012. Wentworth joined the company through that acquisition.