Why are the Costs of Medications Increasing and What Can Be Done About It? William H. Shrank, M.D., M.S.H.S. April 15, 2016

The data show that drug costs increased substantially in 2014 into PERCENTAGE GROWTH IN HEALTH SPENDING BY CATEGORY Source: CMS.gov, HospitalsPhysicians, ClinicalPrescription Drugs

Double digit inflation in 2014 was driven by a number of factors COMPREHENSIVE LOOK AT 2014 TREND DRIVERS 2014 Trend After Rebates: 11.8% SPECIALTY BRAND INFLATION $1.86 HEP C COMPOUNDS GENERIC INFLATION PBM MANAGEMENT BRAND INFLATION $6.80 UTILIZATION ($5.50) $2.75 $1.21 $0.81 $1.62 $80.94 $90.49 Prescription drug trend is the measure of growth in prescription spending per member per month (PMPM). Trend calculations take into account the effects of drug price, drug utilization and the mix of branded versus generic drugs as well as the positive effect of negotiated rebates on overall trend. The 2014 trend cohort represents CVS Caremark commercial clients—employers and health plans.

Detailed analysis of 2015 reveals some moderation and key targets for controlling costs Prescription drug trend is the measure of growth in prescription spending per member per month (PMPM). Trend calculations take into account the effects of drug price, drug utilization and the mix of branded versus generic drugs as well as the positive effect of negotiated rebates on overall trend. The 2015 trend cohort represents CVS Caremark commercial clients—employers and health plans. COMPREHENSIVE LOOK AT 2015 TREND DRIVERS SPECIALTY BRAND INFLATION $2.53 BRAND INFLATION $6.88 PBM MANAGEMENT UTILIZATION $1.18 GENERICS INFLATION $ $ Trend After Rebates: 5.0% ($6.71) $95.00 HELPING DELIVER LOWEST NET COST Intelligent Purchasing Versatile Cost Management Strategies Real-time Surveillance & Dynamic Management

Expensive PCSK9 inhibitors vs. Inexpensive Statin therapy Focus on reducing cardiovascular disease risk Emphasize lifestyle modifications Recommend statins, dosed at the appropriate intensity, in at-risk patients and those with cardiovascular disease CURRENT TREATMENT GUIDELINES STATIN INTOLERANCE SUB-OPTIMAL RESPONSE TO STATINS FAMILIAL HYPER- CHOLESTEROLEMIA ACC/AHA (American College of Cardiology/American Heart Association). ASCVD (Atherosclerotic cardiovascular disease). Source: Stone NJ, Robinson JG, Lichtenstein AH, et al ACC/AHA guideline on the treatment of blood cholesterol to reduce atherosclerotic cardiovascular risk in adults: a report of the American College of Cardiology/American Heart Association Task Force on Practice Guidelines. Circulation. 2014;129:S1-S45.

Lowering net cost is only half the story; improving care can matter more Source: CVS Health Pharmacy Care Economic Model, 2013 data. Center for Financing, Access and Cost Trends, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey, $11.2B $77.4 DRUG SPEND $389M TOTAL SPEND $7.7M INFLATION $16.7M SAVINGS FROM IMPROVED ADHERENCE Health care costs for a 100K life commercial client Need lowest net cost and improved health

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