Good news for plans sponsors who want to reduce their prescription drug costs: generics will continue to be used instead of brands. Bad news: these generics will continue to escalate in cost! The huge jump in many generics during 2014 was not a one-time anomaly. We expect that generics will continue to rise, and coupled with the exploding growth in specialty drugs, plan sponsors will be hard pressed to keep their prescription drug cost budgets in check. 
Teva Pharmaceutical’s intent to acquire Mylan cannot be a good thing for prescription drug plan sponsors. Prices for generics are expected to continue to rise for the rest of 2015 and 2016. This proposed consolidation of two generic manufacturing heavyweights will not assuage that trend!
Many plan sponsors rely on their PBM to help mitigate these cost trends, and PBMs point to their Maximum Allowable Cost (“MAC”) lists as a tool that will help protect out of control spending. PBMs even go so far as to agree to an overall Generic Effective Rate (“GER”) in their services contract, guaranteeing the client an average effective discount off of Average Wholesale Price (“AWP”).
PBM consultants get fooled into relying on this GER as a protection against manipulation of the MAC, market conduct that PBMs use to move generics on and off the MAC, depending on what discount they need to adjudicate the claim, and the use of “buy” and “bill” MACS. These multiple MACS are used to create pricing spreads between what the PBM pays the retail pharmacy, and what is used to bill or invoice the plan sponsor. The problem is not with the GER, but with the GER being built around AWP, a pricing benchmark that does little to expose any real cost transparency to the plan sponsor.
What is needed is a more accurate pricing model, one that will enable plan sponsors to see what generics actually cost, thus allowing them to test the quality and effectiveness of their MAC, and compare one PBM to another. Stay tuned. WBC will have much more to say on this topic in the coming weeks!
