Managed Care - September 2008 - (Page 31)

A PBM can change its MAC prices for any drug on its MAC lists whenever it wants to do so. If a PBM does not include a drug on its MAC list, the drug’s price will default to whatever other pricing exists in the contract. In short, PBMs’ control of MAC definitions allows them to manipulate the MAC concept in whatever ways they choose. Under the three-prong formula found in hundreds of contracts, a PBM can not only deprive its client of generic savings by excluding a generic drug from its MAC list, it can do so as well by including a generic drug on its MAC list. All a PBM need do is generate a MAC price that is weaker than AWP minus 18 percent, and the MAC price will not be the lowest of the three alternatives, meanA health plan ing the PBM will probably be able to invoice must eliminate its client at AWP minus 18 percent. PBMs’ pricing formulas loopholes in its PBM contracts, Even if a PBM includes a generic drug on Having inserted a MAC contract definition its MAC list and selects a MAC price that is that awards them complete discretion, PBMs says Linda Cahn, so that PBMs can’t better than AWP minus 18 percent, the PBM next ensure that their contract pricing formanipulate terms can still select any MAC price it wants, and mulas enable them to manipulate the MAC to drive up costs. change its MAC price whenever it wants, concept in whatever way they decide. thereby invoicing the client at a price that is far For example, here is a common contract forweaker than the AWP minus 70 percent that the mula establishing the pricing that PBMs will use to PBM is probably paying the retail pharmacy. invoice clients for retail generic drugs: Retail generic drugs: The lowest of (i) PBM’s MAC or (ii) the retail pharmacy’s U&C [usual and customary] or (iii) AWP minus 18 percent [82 percent of the average wholesale price]. Under this formula, if a PBM does not include a generic drug on its MAC list, the first of the three alternatives will not exist, and the PBM’s invoiced price to its client will be the lowest of the retail pharmacy’s U&C or AWP minus 18 percent. Since the U&C price is the “usual and customary price” for an uninsured, walk-in retail pharmacy customer, the U&C will typically be above a drug’s AWP. As a result, if a PBM does not include a generic drug on its MAC list, the PBM is very likely to invoice its client for that generic drug based on the last of the three alternatives, AWP minus 18 percent. Notably, a discount of AWP minus 18 percent is equivalent to a brand discount, which means a PBM that invoices its client for retail generic drugs at AWP minus 18 percent is robbing its client of the savings available from generic drugs. Tellingly, an AWP minus 18 percent discount results in enormous profits for a PBM, since PBMs pay retail pharmacies for dispensing generic drugs at average discounts of approximately AWP minus 70 percent. Other PBM pricing formulas Many other pricing formulas can be found in PBM/client contracts, but regardless of their structure, if they include a MAC component, PBMs can manipulate the formulas. For example, here’s a typical pricing formula that sets forth PBMs’ contractually obligated invoice pricing for mail generic drugs: Mail generic drugs: AWP minus 50 percent or PBM’s MAC. Note that this formula does not contain a provision for the PBM to invoice its client at the lower of the two alternatives. As a result, regardless of whether a PBM generates a MAC price for a drug, the PBM can take the lion’s share of generic drug savings. For example, if a PBM doesn’t generate a MAC for a generic drug, a PBM can invoice its client at AWP minus 50 percent, which is far below the average discount of AWP minus 80 percent at which most PBMs are purchasing generic drugs to distribute through their mail order pharmacies. On the other hand, if a PBM generates a MAC for a generic drug, and its MAC is equal to a weaker discount for the client than AWP minus 50 percent (say, AWP minus 20 percent), the PBM is free to invoice the client at AWP minus 20 percent. However, SEPTEMBER 2008 / MANAGED CARE 31

Table of Contents Feed for the Digital Edition of Managed Care - September 2008

Managed Care - September 2008 Editor’s Memo Contents Legislation & Regulation News and Commentary Medication Management Compensation Monitor Archimedes Lends Hippocrates a Hand Some Other Predictive Modeling Programs Messing With Medicare Advantage The Trouble With MAC MedPAC’s Suggestions Sound Familiar The Leader in Patient Satisfaction Formulary Files Plan Watch Tomorrow’s Medicine Ad Index Outlook

Managed Care - September 2008

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