Rising Generic Drug Prices Affect Pharmacies, Insurers Alike, Reports AIS Newsletter

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Generic drug inflation has caused financial issues for drug stores and led insurers to create two generic drug tiers, which some researchers say is limiting access to needed drugs, according to Atlantic Information Services’s Drug Benefit News.

Generic drug prices are on the rise, with half of all retail generics increasing in price in the last 12 months. For its Sept. 26 issue, Atlantic Information Services, Inc.’s (AIS) Drug Benefit News (DBN) interviewed a plan sponsor and a financial analyst about what this trend means for pharmacies and health plans.

“When MAC [maximum allowable cost] limits don’t keep pace with rising generic acquisition costs, these cost increases squeeze pharmacies’ profits,” explains Adam Fein, Ph.D., president of Pembroke Consulting, Inc. This won’t last long, however, because when MAC limits catch up, pharmacies will stand to profit from price fluctuations. “Pharmacies can ultimately benefit from price increases, because gross profit dollars per script will grow,” Fein told DBN. “Once prices start declining again, pharmacies will also benefit, because reimbursement lags behind the lower acquisition costs.”

One way insurers are responding to rising generic drug prices is to create a tiered system for generics. “Some payers are already establishing a ‘non-preferred’ or ‘more costly’ generic tier for products that have experienced significant inflation,” Fein told DBN. “If generic inflation continues, I expect to see more plans with multiple generic tiers.” PBM Prime Therapeutics LLC, for example, has seen interest and growth of two-tier generic benefits among its plan sponsors. Prime’s approach to tiering generics involves “new generic entries, non-MAC’d products, and low-volume agents that have experienced significant price increases as part of the higher cost tier,” explains David Lassen, Pharm.D., chief clinical officer at Prime Therapeutics LLC.

This tactic is not without criticism, however, with some researchers saying it limits access to needed drugs. “When insurers designate clinically important generic medicines ‘nonpreferred’ and there are no therapeutically equivalent ‘preferred’ alternatives from which to choose, it cannot be argued that patients are thereby motivated to become more prudent consumers,” opine Gerry Oster, Ph.D., and A. Mark Fendrick, M.D., in an essay published in American Journal of Managed Care. “Without choice, such policies are simply punitive and run counter to established principles of formulary design and management.”

Visit http://aishealth.com/archive/ndbn092614-02 to read the article in its entirety.

About Drug Benefit News
Published biweekly, Drug Benefit News delivers timely news and proven cost management strategies for health plans, PBMs, pharmaceutical companies and employers. Coverage includes up-to-the minute news of industry consolidation, strategies for participation in exchanges, generic promotion tactics, formulary decisions, innovative benefit designs, drug pricing methodologies, PBM contracting, changes in Part D and other federal initiatives, and much more. Visit http://aishealth.com/marketplace/drug-benefit-news for more information.

About Atlantic Information Services
Atlantic Information Services, Inc. (AIS) is a publishing and information company that has been serving the health care industry for more than 25 years. It develops highly targeted news, data and strategic information for managers in hospitals, health plans, medical group practices, pharmaceutical companies and other health care organizations. AIS products include print and electronic newsletters, websites, looseleafs, books, strategic reports, databases, webinars and conferences. Learn more at http://AISHealth.com.

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