NCPA Executive Update

NCPA Executive Update delivers insights on legislative, regulatory, policy, and industry developments from NCPA CEO B. Douglas Hoey, Pharmacist, MBA, to NCPA members and pharmacy leaders every Friday.

Counterintuitive wisdom to the CEO suite | NCPA Executive Update | November 16, 2018

by NCPA | Nov 16, 2018

Dear Colleague,

Doug Hoey

It was a few years ago at one of those stiff D.C. dinners in a reserved room at some overpriced, fancy restaurant. I was invited to attend along with disease support groups, advocacy groups, and more. At the head of the table was the CEO from Ultra-Mega Pharmaceutical Co. (fictional name, real CEO). His thinking about community pharmacy profitability was wrong then, and a recent study confirms it's wrong now.

At the dinner, the corporate CEO made some opening statements, most of which I agreed with. He talked about the importance of medication adherence and the role of health care providers like pharmacists in making sure medications are used optimally to lower overall health care costs. But he went on to say that due to the way prescription drugs are paid, community and chain pharmacists are motivated to use generic prescriptions because they are more profitable than the dispensing of brand-name prescriptions. "Excuse me" I said. "That used to be true. It is no longer the case."

I'm not sure this individual was accustomed to being corrected, especially in front of a group. I told him his statement used to be correct and makes complete sense – generic prescriptions cost less and community pharmacists should be rewarded for helping keep costs low when it is the right choice for the patient. But that conventional wisdom has been turned on its head over the last several years as dispensing gross margins for generic drugs are significantly below the pharmacy's cost of dispensing prescriptions, while dispensing gross margins for brand prescriptions are more in line with the average pharmacy's cost of dispensing.

The study titled "Third-Party Reimbursement for Generic Prescription Drugs" was published in the July-August issue of the Journal of the American Pharmacists Association.

There were a number of findings from the study that will probably not come as a huge surprise for those dealing day in and day out with MAC reimbursements. For example, the study found that 15.1 percent of generic prescriptions were paid below actual acquisition costs. The study also highlighted the importance of:

  • The pharmacy's therapeutic product mix – some therapeutic categories were paid below cost more than other therapeutic categories.

  • The plan mix – some PBMs paid significantly worse than others.

  • The prescription mix – the median gross margin dispensing fee on generic prescriptions was less than 30 percent of the median gross margin dispensing fee on brand prescriptions.

Thirty-nine states have passed MAC laws, which have only provided a small amount of relief. PBMs have morphed their model to work around the laws, but it has further highlighted how MACs are a primary tool for spread pricing charges to plan sponsors. The state laws have also caused the PBMs to try to move to generic effective rates in order to work around state MAC laws. NCPA dedicated an entire program to the impact of GERs on community pharmacists during last month's NCPA Annual Convention.

The study in JAPhA did a nice job providing data to reinforce what community pharmacists are seeing in the marketplace. For the CEO of Ultra-Mega Pharmaceutical Co., it should quantify the counterintuitive changes in pharmacy reimbursement. And it speaks to why the pharmacy payment model needs to be reinvented and realigned so that patients benefit first, providers are recognized for the practice of patient health care, and processors are recognized for facilitating a claim payment.

Doug Hoey

P.S. Executive Update is taking the Thanksgiving holiday weekend off. Have a safe and happy holiday. We'll be back with a new Executive Update on Nov. 30.