PBM pricing is still a mystery to most plan sponsors of pharmacy benefits. At WBC (www.wbcbaltimore.com), we’re continually seeing spreadsheet comparisons of one PBM’s versus another. Is that AWP-58% or AWP-62%? Which one is better? Which one represents lower cost of the plan sponsor? On the surface, a reasonable person might surmise that -62% is a deeper discount than -58%, thereby yielding a lower net cost. Ah, but not so fast!
The answer to which is better. i.e., which costs less is “It depends.” It depends on what the AWP price is that’s being reduced by the discount. This is particularly true when trying to compare costs of generics. There may be 5 or 6 or more manufacturers of the generic drug that could be filled at the pharmacy, either at retail or mail. Here’s an example: Fluoxetine (generic Prozac) has an AWP of between $0.72 and $3.55 per pill when compared between five manufacturers of the generic. Obviously, taking 60% off of the $3.55 option yields a higher payment from the plan sponsor than a 58% discount off a $0.72 pill. One answer to this dilemma is the creation and application of a MAC list.
MAC is the acronym for Maximum Allowable Cost (“MAC”) and serves as a reference price to establish a maximum cost that the PBM will pay for a generic drug. Each PBM applies a “secret sauce” that they usually view as a proprietary methodology to come up with their MAC list and pricing, but for simple illustrative purposes, think of it as an arithmetic mean to reach a price (i.e., five manufacturers with pricing ranging from $.72 to $3.55, add up the individual prices and divide by 5). In the example of the Fluoxetine, the MAC price may be $2.22. This will be the maximum cost that a PBM would pay to the pharmacy.
Simple enough, and pretty straight forward if this is where the story ends. Again, not so fast! Many PBMs confuse the solution by creating multiple MAC lists. Each one may represent different pricing and a different number of drugs. Some lists may only include a relatively small number of drugs (300 for example), while others can be very broad (over 2,000 drugs). It serves the interest of the plan sponsor to receive the broadest possible MAC, since the MAC pricing represents the largest equivalent AWP discounts (some MAC pricing is equal to AWP-95% or more). When a generic drug is not on the MAC list, it will receive a much lower discount and may be as low as the brand discounts (AWP-18% for example). Some PBMs have what are known as the “Bill MAC” and the “Pay MAC.” This may come as a shocker to the plan sponsor, but a PBM may submit one Bill MAC to the plan for payment and turn around and use a Pay MAC to the pharmacy, which has entirely different and higher pricing. The PBM pays a lower price to the pharmacy, but bills the client and inflated cost, creating a pricing spread that makes the PBM’s shareholders very happy.
Another Big Mac attack is when the PBM only applies MAC pricing at retail, leaving mail order generics as their holy grail for PBM profit potential. For PBMs that provide a true pass-through pricing model, it doesn’t matter, because you will receive whatever the discount turns out to be. Under traditional pricing, however, MAC pricing at mail will reduce the plan sponsors cost through that channel. The PBMs typically don’t volunteer to offer MAC at mail. The plan sponsor has to request or negotiate it as a feature in their PBM contract.
What’s the take-away to this story? First, decide if undisclosed pricing spreads are acceptable to your view of vendor relationships; second, make sure your PBM offers you a broad MAC list; and third, if you use a PBM that has your plan on a traditional pricing model, require that MAC pricing be applied at mail.