Blog Archives

State MAC Laws – Unintended Consequences

Earlier this decade, retail pharmacies were adversely impacted by increasing generic prices on a number of multisource products.  This occurred when some Pharmacy Benefit Managers (PBM’s) did not increase their MAC (Maximum Allowable Cost) prices in a timely fashion to prevent the pharmacy from losing money for generics where the pharmacy cost had increased.  At that time, MAC prices were typically updated by the PBM on a monthly or quarterly basis.  Pharmacy owners complained to their state legislators, and there are now over 30 states with MAC laws that define timeliness for MAC price updates and mandatory access to published MAC prices.  In response, most MAC prices are now updated on a weekly basis.

At first glance, more frequent MAC updates should address the retail pharmacy issue of losing money on generic products where there had been a sizable price increase.  However, there is an unintended consequence that impacts retail pharmacies.   As PBMs are updating their MAC prices more frequently, they are also examining drugs where the cost to the pharmacy continues to decline.  On these products, PBMs are lowering their MAC prices.  These dynamics were discussed in the PHSI webinar “Drugs, Dollars and Dynamics: The Ups and Downs of Generic Pharmaceutical Pricing Webinar”.

The overall impact on pharmacy profitability is negative. PHSI research indicates that the overall Generic Effective Discounts (GER) for multisource drugs continues to decline.  There are many more multisource products declining in price than those increasing.  The unintended consequence is the MAC increases have been more than offset by the reduction in MAC prices.

PHSI has extensive experience in pharmacy purchasing, PBM contracting and reimbursement, including MAC prices and GER calculations.   If you have an interest in learning more about these topics, please feel free to contact Don Dietz by filling out our contact form.


Published August 2017

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Price Changes of Hydrocodone Combination Products

Following a scientific review of hydrocodone combination products that began in 2009, the FDA recommended in December 2013 that the DEA reclassify these as Schedule II Controlled Substances. The DEA ruling was published August 22, 2014 and rescheduling of hydrocodone combination products took effect on October 6, 2014. For retail pharmacists, this is old news. By now, problems such as patient and physician education of the changes have been recited hundreds of times, and pharmacists have learned to comply with the stricter DEA schedule.

Six months after rescheduling, PHSI looked back to see what effect this had on the pharmacy cost of hydrocodone combination products. Our findings show that the rescheduling of hydrocodone containing products did result in increased pharmacy costs for three common strengths of these products. Manufacturer published prices began to increase approximately one week before the rescheduling. While the published AWP and WAC increased by 25%-35%, the pharmacy acquisition cost per tab doubled between October 2014 and December 2014. At a time when many generic drug prices are increasing rather than decreasing, this is not a surprise. Pharmacies now pay wholesalers and manufacturers more for hydrocodone combination products to cover higher costs of storage and reporting, and possibly with the concern of a lower volume of sales due to the Schedule II classification.


Brand Drug Patents and Exclusivity –Timed Locks on a Safe Analogy

Brand drugs in the U.S. have two main methods of protection from generic competition. 1) The U.S. Patent and Trademark Office protects innovation by awarding patents. 2) The U.S. Food and Drug Administration offers exclusivity protections.

The following analogy helps to illustrate the difficulty in predicting a generic launch date due to complex brand protections. Think of the brand drug as being protected by a safe. The door to the safe may Safehave one or more locks. Each lock has a timer that is counting down. Once the time runs out on the lock, it opens and remains open. Those locks represent the patents and exclusivities that protect the brand from generic competition.

There are two main scenarios for this analogy. First, without doing anything, all of the locks will open automatically at some point in the future. Generic drug manufacturers could wait for all patents and FDA exclusivity to expire. For the opportunists and/or impatient, actions can be taken to open the safe early instead of waiting.

To open the safe early, you must have certain capabilities in picking locks (proving invalidity or non-infringement in a Paragraph IV challenge). The type of lock (a patent protecting an indication vs. a patent protecting a dosage form) must be taken into consideration. Some locks (exclusivities and patents) are very advanced and essentially unable to be bypassed in the time remaining before it opens automatically (expires). Other locks are easily “picked” once you have the basic knowledge and capabilities.

Each brand drug will have a unique combination of patents and exclusivities that may have varying expiration dates (timed locks). Beating a patent (picking a lock) on one drug may or may not help you with future patent challenges. All of these factors demonstrate why it is so difficult to predict a generic launch date.

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CMS FUL Finalization Announced

The Centers for Medicare & Medicaid Services (CMS) announced on November 27, 2013 that the new Federal Upper Limit (FUL) for multi-source generic drugs will be finalized in July 2014.  The new FUL is at least 175% of weighted Average Manufacturer Price (AMP) for multi-source products with at least two A-rated generics available to retail pharmacies nationwide.  This is a significant change from the previous FUL calculation (150% of the lowest Wholesale Acquisition Cost [WAC]).  The new FUL is expected to decrease prices for most drugs while a select few drugs may see FUL increases.

Many states have implemented their own Maximum Allowable Cost (MAC) list (also known as SMAC) for Medicaid to achieve savings greater than the previous FUL.  If the state uses a SMAC list, a review and adjustment may be required to comply with the new FUL.  The SMAC list must deliver the same or more savings to the state when compared to the new FUL.

States may also use the National Average Drug Acquisition Cost (NADAC) similar to the AAC implementation in Alabama, Oregon, and other states.  If States decide to use NADAC pricing, they must submit state plan amendments (SPAs) to CMS to clarify and gain approval to update their pharmacy reimbursement methodology.

PHSI constantly works with payers, pharmacies, and pharmaceutical manufacturers to explain how FUL and NADAC impact each organization.  Do not delay in preparing for these changes.  It will be important to monitor your state(s) to determine if they will be adjusting the SMAC list or changing to NADAC as the basis for reimbursement.

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Drastic Generic Product Cost Increases

PHSI routinely tracks industry trends and changes to provide timely and valuable information to our clients.  One recent, notable change has been unusually large price increases (500% to 3000%) for a variety of multisource generic products. We are accustomed to the daily price changes that exist in the “sea of generics”.  However the recent changes are seismic in nature and are creating “tidal waves”!

Through our research we have identified six factors that seem to be contributing these drastic changes.

  1. Generic industry consolidation – Recent mergers and acquisitions have led to fewer suppliers in the market and higher prices due to less competition.  Examples include Actavis/Watson and Sandoz/Fougera/Falcon.
  2. Supply issues with global market products – Ranbaxy’s regulatory, Lockhart’s import ban, Apotex supply issues are all leaving limited suppliers in the market.   This leads to price increases and increased demand as retailers are spec buying where possible and the remaining suppliers cannot supply the market.
  3. Companies reviewing product portfolios – Cost to make product vs. price it can be sold at in the marketplace.  We have seen this for years with injectable generics in the hospital market.  This trend has moved over to oral solid generics leading to manufacturers deciding to cease making a product resulting in less competition and higher prices.
  4. E-Pedigree  – Future 2D Barcoding requirements will increase supplier costs forcing a decision to either increasing the price or exiting the market on some products.
  5. Quasi-Exclusive or Exclusive –  Many suppliers are re-evaluating their position in the market and increasing prices when they identify limited supply situations.
  6. Difficult to make products – Products such as creams, ointments, patches, ophthalmic products have higher barriers of entry for generic suppliers.  This impacts price competition and leads to higher prices across the board for these dosage forms.

The impact of these drastic generic cost increases affects all stakeholders.  Pharmacies are seeking product at the “old, lower costs” and buying up all they can when they learn about these drastic price increases. This impacts the supply chain and creates shortages in the distribution channel.   Payers are facing increasing complaints about generic reimbursement rates that are now below cost for these products.  Payers are challenged with when to increase their reimbursement when some pharmacies have guarantees on product pricing or have ordered in additional product in advance of the price increase while other pharmacies are buying at the much higher prices.  Patients with deductibles and percentage co-insurance are being impacted with higher out-of-pocket copay costs.

PHSI will continue to monitor this key area and we welcome your input and insight on generic product cost increases, reasons behind this, and the challenges it creates for your organization.  Please send your comments to