The news that in 2016, CVS Health will drop coverage of Viagra, the little blue pill that spawned a multibillion dollar industry of erectile dysfunction drugs, would seem to offer a window into one of the curious paradoxes of drug pricing.
After all, CVS is replacing Viagra with Cialis -- another brand name drug that does pretty much the same thing -- and has said the changes it is making will result in cost savings. But this wasn't the obvious case of a cheaper generic drug unseating the more expensive brand name version. Both Viagra, which is made by Pfizer, and Cialis, made by Eli Lilly and Co., are still protected by patents.
So why would a price difference prompt CVS to drop Viagra altogether?
Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development, said that the difficulty in providing an answer is a window into the mysterious and slippery world of drug prices. How much a medicine costs and why, he said, is a much harder question to answer than most people appreciate.
"I have no idea, and in fact people within the companies often don’t have any idea about pricing strategies," Kaitin said. That's because the companies that cover drugs for patients -- the pharmacy benefit managers, like CVS/caremark -- aren't buying drugs at list price. And they aren't even negotiating each drug price one by one, but typically are buying bundles of them.
Maybe, for example, a drug company will give a better discount if the pharmacy benefit company not only buys its erectile dysfunction drug, but also a bunch of cardiovascular treatments and its cancer drugs. That makes the decision to drop one individual drug from a formulary -- the list of drugs covered by the pharmacy benefit company -- a change that's hard to dissect. It could have been about the price of that individual drug, or it could be about discounts applied to a complicated bundle of treatments.
Kaitin noted that the negotiations between pharmacy benefit companies and drug companies tend to be highly secretive, so he can only speculate, but that in general companies like CVS are trying to get the best bang for their buck from the drug companies. Another thing that could have come into play, he said, is that Cialis is also approved for a condition called benign prostatic hyperplasia, which causes urinary problems.
"We don’t disclose specifics of our discussions with payers," an Eli Lilly spokesman said in an e-mail.
A Pfizer spokemsan said, "Viagra continues to be available to millions of patients in the marketplace, including many patients whose pharmacy benefit is managed by Caremark."
CVS wouldn't say much about why it was substituting Cialis for Viagra, which is one of more than two dozen drugs it is dropping for 2016.
"For those drugs that are removed, equally effective products with lower overall costs remain available on the formulary," CVS spokeswoman Christine Cramer wrote in an e-mail. "Since introducing our industry-leading and rigorous approach to formulary management in 2012, we have delivered significant savings for our plan sponsors."
Beyond that, it's surprisingly hard to know for sure the real price of a brand name drug because it can depend on who is buying it and how well they've negotiated. IMS Health, a vendor of prescription data, tracks the total revenue from sales of drugs. But even with that level of detail, a spokesman cautioned that you can't really say what the average price of any brand name drug is because the data doesn't track manufacturer coupons, rebates, or other discounts.
If you look at the total revenue per prescription from these drugs, they're not markedly different, though. According to IMS Health, Cialis did $1.4 billion in revenue in 2014 for 7.5 million prescriptions, while Viagra did $1.3 billion for 7.2 million prescriptions. That actually suggests that Cialis was a bit more expensive per prescription, though not by much.
If anything, Kaitin says, the lack of transparency about drug prices highlights a problem in the U.S. health care system, in which physicians need to keep track of which pharmacy plans cover which drugs -- an ever-changing list for each company.
"I think most people are in the dark about the way these formularies work and we’ve had such a robust discussion in the U.S. about rationing and not wanting to have a European system, restricting people’s access to important new drugs," Kaitin said. "In effect, that’s what we’re doing: formularies are a way of restricting people’s access to important new drugs."