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Brainstorm Health: CVS Benefits Change, Grail IPO, What Amazon and Location Say About Health

Hello and happy hump day, readers.

With its $69 billion mega-merger with Aetna officially closed, pharmacy giant CVS is making one of its first major shakeups in its business structure after combining forces with the insurer, offering a new option to pass on 100% of drug rebates to its health plan sponsors (i.e., companies or organizations that sponsor health benefits for their employees and members).

One of CVS’ most important factions is its Caremark arm—one of the big three pharmacy benefits mangers (PBMs) alongside Express Scripts and Optum’s PBM unit that serve as (largely opaque) gatekeepers and middlemen in the drug pricing supply chain. PBMs negotiate discounts with drug makers to their products’ list prices and take a cut from those rebates.

However, these discounts don’t necessarily make it down the supply chain to health plan sponsors or consumers themselves. That’s drawn increasing ire from lawmakers and the Trump administration, who have recently pointed to PBMs’ role in propping up drug prices as an issue that needs to be addressed.

CVS’ new “Guaranteed Net Cost” pricing option would reportedly tackle some of these concerns, including a lack of transparency in list-versus-net price negotiations, by ensuring a pass through of drug rebates to plan sponsors. It would apply to retail, mail order, and specialty pharmacy prescriptions alike, according to CVS.

“We see a real opportunity to offer clients a simpler economic model that leverages proven PBM cost management strategies to provide predictable drug costs,” said Derica Rice, president of CVS Caremark, in a statement announcing the new option.

To be clear, while this is a significant change in business structure for CVS-Aetna, the 100% rebate pass through may not ultimately reach consumers, or at least not in full. The decision on whether or not to do that will rely on whether or not the plan sponsors (at first, employer-sponsored health plans, and potentially government health programs in the future) decide to further pass through such discounts to their beneficiaries at the point of sale.

But it is a notable first step in changing the basic relationship between drug makers, PBMs, and plan sponsors. And that likely has a lot to do with the Aetna merger. Mark Bertolini, CEO of Aetna prior to the CVS sale, has argued the two firms’ vertical integration will allow for these precise sorts of changes, as well as shifts in the very way that primary care and chronic disease management is developed on a community level.

“Build a marketplace for a community around health,” Bertolini said of the merger’s possibilities during Fortune‘s Brainstorm Health conference this past March. “Why not eliminate benefits as a notion? Let’s say, we’re going to do what we can in the community to help you, we’re going to build a supply chain, and that supply chain is going to provide you a service at a better cost.”

Read on for the day’s news.

Sy Mukherjee
@the_sy_guy
sayak.mukherjee@fortune.com

DIGITAL HEALTH

Did the controversial CRISPR gene edited baby experiment even work? By now, readers are probably familiar with the recent shock claims by a Chinese scientist that he successfully orchestrated the birth of CRISPR gene-edited twins who were more resistant to contracting certain HIV strains. But the scientific community (on top of its sharp criticism of the ethical and transparency concerns raised by the alleged milestone) are questioning whether He Jiankui actually even pulled off the feat, The Scientist reports, questioning He’s basic study methodology. “[Two prominent] researchers point out that He did no work to demonstrate that any of the twins’ mutations had the intended effect, and weren’t harmful, in animal models. He did test the effect of one mutation of the CCR5 gene in mice, but this was a 23-base-pair deletion—not even one of the mutations in the girls’ genomes,” writes the publication(The Scientist)

Grail may be plotting a U.S. IPO. The aptly named “Grail,” an upstart seeking the holy grail of detecting cancer as early as possible via blood tests, may decide to go for a public offering in the U.S. before it pursues one in Hong Kong, according to Bloomberg. The Jeff Bezos-backed biotech is awash in private funding and holds a titanic private valuation of more than $3.2 billion; while a number of biotechs have been seeking primary and secondary listings in Hong Kong amid new rule changes allowing for pre-revenue biopharma IPOs, the early market situation has been rocky amid a major vaccine scandal and investor skittishness. (Bloomberg)

INDICATIONS

Trump cheers death penalty for Chinese fentanyl ‘pushers.’ President Donald Trump said Wednesday that if China follows through on its plans to impose the death penalty on drug traffickers pushing the deadly, potent opioid fentanyl, “the results will be incredible!” Negotiations over fentanyl imports that make their way to the U.S. from China have been a big part of recent trade talks between the two countries. In recent years, overdose deaths from the synthetic opioid have risen sharply. (Fortune)

THE BIG PICTURE

Amazon’s new HQ and health’s ‘place’ in life. Sandro Galea, dean of the Boston University School of Public Health, has been writing a regular column for Fortune focused on the intricacies of health policy and public health. (I strongly encourage you to follow his striking commentaries if you haven’t been already.) I wanted to share his latest on what Amazon’s HQ2 decision shares in common with American health care—namely, that location is everything in business and health alike. “[E]ven a company with the wealth and power of Amazon must take place into account when making its decisions. For Amazon to succeed, it must be in a place that facilitates success,” he writes. “It is equally true that, to be healthy, we must be in a place that facilitates health. Where we live—the design of cities, towns, and neighborhoods, their density, the social cohesion of communities, and the basic services and public goods that are maintained in an area—are core to our ability to live healthy.” (Fortune)

REQUIRED READING

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Facebook Struck Deals Over Data and Burnt Rivals, Say Lawmakersby Bloomberg

Rape Kits Have Been Destroyed Nationwide. Now, States Are Respondingby Erin Corbett

Volkswagen Will Stop Making Gas Powered Cars in 2026by Chris Morris

Produced by Sy Mukherjee
@the_sy_guy
sayak.mukherjee@fortune.com

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