PBM Reimbursement Significantly Varies for Generic Drugs

Pharmacy benefit manager (PBM) reimbursement for generic drugs significantly varies by medication and plan, and does not respond to price hikes, according to a study from 3 Axis Advisors.

Researchers launched the study with one main concern: If generic drug inflation occurred due to the COVID-19 pandemic, would pharmacy benefit managers (PBMs) adjust their private and unregulated maximum allowable (MAC) pricing lists to ensure that retail pharmacies generate revenue to continue to dispense medications to their patients?

Analyzing information from 1,392 pharmacies in 23 states on claims from January 1, 2018, to March 26, 2020, researchers found that out of the top 50 health insurance plans in the US, there were 4,312 total occurrences in which the National Drug Acquisition Cost (NADAC) per unit experienced a 50 percent or more increase in generic drug inflation. 

Out of the population of claims, average pharmacy-dispensing fee was $0.70 per prescription. If this were the only source of revenue for pharmacies, they would generate a profit of just $0.70 on each claim filled for patients, researchers stressed. 

This is a small percentage of the ten dollars per claim required to cover operating costs. The dispensing fees leaves ingredient cost, or Medicare Administrative Contractor (MAC) rates, as the primary source of pharmacy revenue.

To further understand how MAC rates can vary across plans, experts focused on potential COVID-19 drugs, azithromycin and hydroxychloroquine. Azithromycin was acquired in a smaller range over the past 27 months, with a range of $0.53 to $0.69 per unit. The ingredient costs paid by PBMs to pharmacies did not show this same level of stability, ranging from $0.11 to $3.53 per unit.

When experts focused on claims processed by only one of the top three PBMs in the US, they found that there was a great amount of variability. The differences in payments by the PBM for the same drug were due to the different prescription drug plans that PBMs were administering. 

When the drug cost was $0.53 per unit, the PBM paid pharmacies anywhere between $0.29 per unit, which is 45 percent below costs, and $1.48 per unit, 179 percent above costs.

There were 711 total occurrences in which the ingredient cost per unit experienced a 50 percent or more increase and in 16 percent of instances, the prescription drug plans increased reimbursement for drugs that experienced pricing increases of more than 50 percent. 

But experts are concerned how the disconnect between PBM-set reimbursement rates and China and India’s strategies to the spread of COVID-19 will impact supply of US Generic drugs imported from abroad.

“On a typical generic prescription drug claim, ingredient cost is one of two components of reimbursement: the other being dispensing fee. We have shown in this study the variability and unpredictable nature of ingredient-based reimbursement to pharmacies,” researchers stated.

Many factors that may affect cost include import and export restrictions, political leaders promoting protectionism, inventory stockouts, and generic drugs used to treat coronavirus, could increase the probability of unpredictable and sharp generic inflation of an unknown number of generic drugs. 

There is already shortages of key drugs used to combat COVID-19.

At the end of March Vizient recently announced that there was a 6,842 percent and 2,196 percent increase in orders by members for two promising COVID-19 drugs, chloroquine and hydroxychloroquine. 

Unfortunately, as the COVID-19 outbreak continues to worsen, the pharmaceutical supply chain has been unable to keep up with the significant demand, with fill rates dropping as low as 1.4 percent and 12.1 percent for those medications. 

As various potential coronavirus treatments and therapies are created, the supply chain must be protected to ensure value-based care for all individuals.

“Our analysis of the population of claims data in our study arrives at an average dispensing fee of just $0.70 per prescription. If this were the only source of revenue for pharmacies, this would mean they would generate a profit of just $0.70 on each claim filled for patients, a fraction of the ten per claim required to cover operating costs,” researchers highlighted.

“Consequently, these minuscule dispensing fees leaves ingredient cost, or MAC rates, as the primary source of pharmacy revenue.”