Plans scramble to optimize shifting generic drug costs

March 1, 2012

This year might be remembered for its generic pipeline, with as many as 37 drugs coming off patent.

Key Points

"With so much money at stake, payers and pharmacy benefit managers are focusing attention on generics," says Leon Edelsack, president, TPG Data Services in Glastonbury, Conn. "When consumers can buy generics for $4, what do they really cost?"

Optimal pricing of generics can be difficult to manage among stakeholders. PBMs' dynamic and discretionary maximum allowable cost (MAC) is often used to price generics at retail, but the information is usually proprietary.

The benchmark for MAC is often the average wholesale price (AWP) minus a percentage discount, ranging widely from 20% to as much as 95%. However, based on information reported by manufacturers, AWPs are often inflated when compared to actual market prices.

"There is no 'correct' price for generics since it depends on utilization, volume, inventory and competition," says Mark Merritt, president and CEO, Pharmaceutical Care Management Assn., the national organization representing PBMs. "Generics are a commodity whose prices move up and down. Aligning all stakeholders is a million-dollar problem."

David Calabrese, vice president, clinical operations, MedMetrics Health Partners, a non-profit PBM, says that a MAC pricing list establishes a standard rate of reimbursement to pharmacies for dispensing, and prices are typically developed after extensive review of standard prices paid by pharmacies to wholesalers.

Unfortunately, many payers are unaware of what PBMs pay retailers and how the PBM determines payment amounts.

"Plans can be caught off guard in signing PBM contracts that have guarantees for generic or MAC pricing that cannot be independently verified," says Craig Stern, founder, Pro Pharmaceutical Consultants Inc.

Richard Bruzak, vice president, pharmacy services for HealthPartners in Minneapolis, says that MAC prices change daily and manufacturers and pharmacies continually change their prices, so reimbursement to providers is on a constant merry-go-round. Not to mention, there are 2,400 generic products on the market, he adds, three times more than a decade ago.

"Our biggest goal is keeping incentives aligned for all stakeholders-having the health plan able to negotiate minimum discounts off AWP with the PBM, and either have dollars at risk for the PBM if they aren't achieved, or have incentives in place if the PBM performs better," Bruzak says. "We stay on top of increases and decreases to remain fair and equitable and build assurances into our contracts."