New medications, higher prices on existing drugs, costly specialty drugs, fewer patent expirations—the list of reasons for ever-increasing pharmacy claims costs is extensive.
But the impact remains the same with higher costs for employers and employees. This is why controlling pharmacy costs is the number one priority for employers in 2018.
To curb these costs, many employers rely on pharmacy benefit managers (PBMs) to manage the cost of medications. PBMs negotiate with drug makers and pharmacies to secure more competitive pricing.
However, with PBMs consolidating, and questions arising regarding their transparency and independence, it is essential that a thorough analysis is conducted to ensure your organization is receiving the best PBM contracts and actively collaborating with PBMs to manage costs.
What is WAC (wholesale acquisition cost)?
The wholesale acquisition cost is the drug’s list price determined by the manufacturer and the price the wholesaler pays to the manufacturer.
What is AWP (average wholesale price)?
This is the average price for drugs purchased at the wholesale level. This is the price that the PBM uses to reimburse the pharmacy specifically for brand drugs.
What is MAC (maximum allowable cost)?
A price established by the PBM that sets a “fixed” price for multi-source generic products. When a generic first enters the market it’s given an abbreviated new drug application (ANDA) to exclusively market the product for 180 days before other manufacturers are allowed to market that drug. The PBM picks a MAC which helps manage drug spend regardless of which generic is dispensed at the pharmacy. MAC pricing can benefit the employer, but the PBM is typically not very transparent on the MAC price.
What is a drug rebate?
Rebates are incentives pharmacy companies give to promote their drugs. Rebates can be shared in whole or in part by PBMs to the employer through a negotiated contract. Rebates for smaller groups are reimbursed based on an administrative fee credit and for larger groups, a percentage of up to 100 percent can be returned.
What is a network discount?
The PBM negotiates a network discount from the pharmacy. This discount is required to participate in the PBMs in-network pharmacy. It is typically a fixed percentage discount off the AWP price for every drug they dispense. The discount can vary by the type of pharmacy and by type of drug.
What is a dispensing fee?
A dispensing fee is the amount the pharmacy retains for their services. This can be negotiated with some PBMs based on employer size.
From formularies to financial incentives, cost-sharing to clinical coverage rules, managing pharmacy costs is a complex enterprise that changes by the day. If you’re not asking these essential questions, it’s likely your pharmacy benefits program needs improvement.