Your PBM's MAC list impacts your bottom line

December 1, 2008

If MAC lists were not in place, prices for drugs would vary dramatically. Discounts for generic drugs would also decrease significantly.

According to a national survey, 92% of large employers state that they have a Maximum Allowable Cost (MAC) price list in place through their pharmacy benefit manager (PBM). While it may seem like just another industry expression, plan sponsors of pharmacy benefits have a vested interest in understanding what MAC is, how it works and its impact on their bottom line.

MAC prices are the upper limits that a plan will pay for generic drugs and brand drugs that have generic versions available (multi-source brands). Generic drugs often have a huge range of Average Wholesale Prices (AWPs), and the MAC prices are needed to reconcile the differences between an inflated AWP and the price the pharmacy actually pays.

To determine a MAC price for a product, the PBM must research the prices pharmacies pay for drugs to approximate each drug's acquisition cost. Ultimately, in a well-run MAC program, pharmacies will receive a reasonable markup on each product. This allows pharmacies to receive a reasonable margin to prompt the use of generics, wherever possible.

No two MAC price lists are alike. In other words, every PBM tends to pick and choose products for their MAC lists, using different criteria to derive and apply prices to the lists. Common criteria for inclusion of products on MAC lists include:

It's a balancing act. The PBM's goal is to work on behalf of its clients and members, bringing the best value, without unduly creating unrest among pharmacies.

There are basically two ways the PBM can handle the MAC price list: 1) they can operate a MAC list to generate revenue for the PBM or, 2) they can fully pass-through all MAC discounts directly to the client.

PBMs with a more traditional business model typically allow for price spread in exchange for reduced or eliminated administrative fees. It can generate a significant percentage of its revenue by retaining the spread from the MAC list. In some cases, this may be disclosed; however, plan sponsors are often not aware of how much revenue the traditional PBM retains. Auditing of this process is often very difficult.

With this method, the traditional model PBM uses an aggressive MAC price list to buy from their contracted pharmacies and a different, less aggressive list of prices when they sell to their clients. In essence, these PBMs buy low, and they sell high with their MAC price lists, marking up what they buy. The money derived from using multiple MAC lists goes into the pocket of the traditional PBM.

In contrast, a PBM with a transparent, pass-through business model does not keep the spread. Instead, this type of PBM uses one MAC list for all purposes: buying from the pharmacies and selling to the client, and then passing through the same drug cost, without markup, to the client. All discounts accrue directly to the benefit of the client (and member).

One important note: "transparent" PBMs are not necessarily "transparent pass-through" PBMs. While it may seem like a trivial distinction, it really isn't. PBMs can be transparent and still keep a spread using their MAC lists.

Transparent, pass-through PBM's only revenue source is an administrative fee that is typically calculated on a per-member, per-month (PMPM) basis. Any gains in pricing negotiated with pharmacy networks or pharmaceutical manufacturers are passed directly on to the client, at the beginning and throughout the course of the contract.