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Generic Drug Pricing Transparency: Kentucky, North Dakota and Arkansas Fight the Good Fight

June 17, 2013 (3 min read)
At the heart of the health care crisis in this country are rising drug costs. How do we control drug costs, particularly generic drugs that account for 80 percent of prescriptions?
This year Kentucky became the first state in the nation to enact a generic drug pricing transparency bill that provides the state’s 500+ independent community pharmacies information on how large corporate health plans or their agents—i.e., pharmacy benefit managers (PBMs)—calculate generic drug reimbursement payment levels (aka “maximum allowable costs” (MACs)) to retail pharmacies as well as timely updates to those payment levels to reflect market prices. The bill also establishes an appeals process when disputes occur over the payment levels [see Kentucky SB 107]. North Dakota and Arkansas have also enacted legislation in 2013 to address this need for generic drug pricing transparency [see North Dakota HB 1363 and Arkansas SB 1138].
Antitrust attorney David Balto explains that the PBM market is controlled by two entities—ESI/Medco and CVS Caremark—who own 80 percent of the market for large health plans. Profits for PBMs have dramatically increased from $900M a year in 2003 to over $7B a year in 2010. But little is known about their operations, including how MACs are set up and calculated.
The MACs set forth the maximum amount or upper limit that a PBM will pay for certain products. Clearly, the MAC prices are arbitrary with, as one journalist noted, “wildly different prices for essentially the same generic medicine.”
Balto also reports that some PBMs secure rebates and kickbacks in exchange for exclusive arrangements, the result being that lower priced drugs are kept off of the market and thus not available on the MAC lists.
According to the National Community Pharmacists Association (NCPA), PBMs often maintain multiple MAC lists for the same health plan, usually one for the health plan and one for the pharmacy, and neither client has any way of knowing how or why they are paying the price for a drug because those lists are confidential to the client. NCPA claims that PBMs have the ability to generate significant revenue for themselves through what NCPA calls “deceptive practices”. Specifically, the PBMs use aggressively low MAC price lists to reimburse their contracted pharmacies, while using a higher MAC price list to sell the drugs to the clients of plan sponsors, thereby pocketing the difference in this huge price spread.
Another area of concern is that neither plan sponsors nor retail pharmacies have any idea when a product is added or removed to the MAC list. Balto explains that a member’s co-pay may increase because the generic drug they need is not listed on the MAC, and the health plan will need to pay a higher price to the PBM. The transparency bill calls for timely updates to the MAC list.
NCPA points out that pharmacies are often given “take-it-or-leave-it” contracts with large corporate health plans or the PBMs and have no idea what the reimbursement price will be for generic drugs. Now, under the transparency bill, pharmacies can better negotiate contract proposals with health plans or the PBMs.
State Net, A LexisNexis Company, also available on and Lexis Advance.
National Community Pharmacists Association (NCPA), Re: Support of S.B. 1138—Transparency of Maximum Allowable Cost.
David A. Balto, Esq., Re: House Bill No. 1363, Letter to Senator Judy Lee (March 25, 2013).
When a Drug Costs 30 Times What It Once Did,” by David Lazarus, Los Angeles Times (March 7, 2013).