Last week MedPAC, the Medicare advisory committee to Congress, had a really interesting session on generic drug pricing in the Medicare prescription drug program (Part D.) There is always so much focus on branded drugs that an opportunity to flip the script and learn about the 90% of prescription drug utilization in Part D (and just under 20% of spending) is spent.

MedPAC did an analysis on generic drug pricing for 108 drugs with a focus on highest fills/highest spending; these drugs accounted for 60% of generic spending. They looked at generic drug pricing at the point of sale (POS) and saw that often the prices were higher than cash prices but with wide variation between drugs and locations. Post-sales fees on the pharmacies drove a lot of variation but results with inconsistently consistent so even small variations on small prices are large percentages. So MedPAC did stakeholder interviews.

Findings …

• For the most part, beneficiaries had either no cost-sharing or cost-sharing based on copayments so the variation didn’t impact them.
• The variation on the prices of the drugs themselves came from the wholesalers – not generic manufacturers. Large chains obviously have more leverage in negotiation and this holds true for generics or brands. But many pharmacies are in tying arrangements where are locked into buying generic drugs (sometimes at a slightly higher rate) in order to get discounts on branded drugs (so they don’t lose money there, or at least as much money.) As an aside, I know it is crazy but wholesalers have traditionally lost money on branded drugs because of these discounts, they make it up on the generic side.
• Generic reimbursement of pharmacies from the pharmacy benefit managers (PBMs) doesn’t acquisition costs. Reimbursement is based on Maximum Allowable Costs (MAC) although some pharmacies are moving to Average Wholesale Price. Either way, wide variation in reimbursement.
• Pharmacies have a difficult time figuring out how much they are making on generic drugs because of the variation of reimbursement, dispensing fees and clawbacks of post-sale fees. Post-sale fees are not transparent – it difficult to know what pharmacies are getting paid and why and they really negotiate reimbursement with PBMs.

MedPAC said that they will continue to monitor the landscape.