Recently I have been in a discussion about several 2016 Medicare Part D plan that are appearing at the top of the savings lists when comparing plans with Medicare.gov and iMedicare.com (a third party plan comparison tool using the Medicare information). The issue we are regularly seeing is generics being listed around $1.00 per month. That is not a copay, but the entire reimbursement for the product. Examples include:
- Atenolol 50 mg #30: $1.02
- Simvastatin 20 mg #30: $1.21
- HCTZ 25 mg #30: $1.40
- Doxazosin 2 mg #30: $1.20
- Captopril 25 mg #90: $5.29
- Lantanoprost 2.5 ml: $1.37
- Warfarin 6 mg #30: $1.38
Note that this is not an extreme example: this is a reproducible trend.
There are two possible explanations for this consistent low valuation for generic drugs by the plan: 1) the numbers are correct or 2) the numbers are incorrect and have not been updated on the Medicare web site since being published in October
Case: If the Number are Correct:
Let us consider the implications of the above mentioned reimbursement levels being correct. The plan in question lists a dispensing fee for 30 day supplies for 2016 of $1.00/rx. This means that the product reimbursement in each of the above cases is actually lower (by $1.00) than the number above. Let that sink in for a moment.
These prices would be MAC (Maximum Allowed Cost) prices set by the plan. When a contracting organization looks at signing contracts, one of the items it considers is GER (Generic Effective Rate). This is the average discount on Average Wholesale Price (AWP) taken by the plan for generics. GER is typically specified in contracts. Historically, GERs for plans have been in the ballpark of AWP – 78%. Some very aggressive plans this year quote a GER greater than AWP – 90%.
If the prices above are correct, the effective GER for the 7 drugs listed is AWP – 99%. This GER (granted that it is on just 7 drugs) is significantly lower than even the most aggressive GER listed by our contracting organization (and is much lower than the GER listed in this plans contract). Theoretically, the plan is required to reimburse network pharmacies for the difference if their GER is higher than that specified in the contract, though this might not happen until well into the next plan year. It is also worthwhile to note that the captopril actually costs a pharmacy about $65 after rebates, so the MAC price for this single drug loses the pharmacy $60 by itself. Any GER greater than 43% would result in a loss on this product, but contracts do not have address cases where AWP is not high enough.
There is not a pharmacy in existence than can make a reasonable profit on numbers as low as these. Given that a prescription vial, lid, and label cost nearly $0.20 alone, the remaining $0.80 certainly does not come close to covering overhead, labor, and a reasonable profit, even if one fills many hundreds of prescriptions an a day. A pharmacy filling 1000 prescriptions a day would show revenue just over $1000 before expenses. If the pharmacy filled 100 prescriptions per hour over only 10 yours, this revenue does not even cover the salaries for a single pharmacist and three technicians (what many might consider the bare minimum necessary to fill this volume) for the day. The pharmacy would not be capable of providing any care at this pace, either.
Case: The Numbers are in Error:
This scenario is just as troubling as the previous one, because if the numbers are systematically lower now than they will be starting January 2016, the patients that chose the plan will effectively be subject to a bait-and-swith scheme. Remember, the plan consistently shows up at the top of the Medicare.gov plan finder only because the adjudicated about for the medications are so much lower than other plans for the same medications. This makes the plan have the lowest reported total cost when considering both premiums and copays.
The copays are so low, in fact, that the plan actually does not share any of the drug cost. An analysis of the plan often shows that the patient pays 100% of the drug cost for the entire year because they do not meet the deductible for the plan. Let that sink in for a moment. The patient pays a premium to the plan for the privilege of paying 100% of their drug expenses. Once the patient does meed the deductible, the patient continues to pay most of the drug cost because the copay is lower than the advertised copay for a generic drug.
If the prices are significantly higher in January, the patient’s actual out of pocket would be significantly higher, resulting in a patient reaching the coverage gap sooner than they anticipated or having a much higher than anticipated True Out-of-Pocket (TrOOP) expense.
Only Losers?
A similar bait-and-switch also occurred in the Medicare Part D landscape last year. One plan last year advertised a much larger pharmacy network during enrollment, but come January patients were told that their plan had a much more limited network of pharmacies. This meant that many patients would be forced to switch pharmacies despite choosing a plan than originally allowed them to continue to use their pharmacy of choice. Last year, Medicare stepped in and gave pharmacies the opportunity to sign-up or patients to switch.
It would seem that a similar scenario is on tap for January. Either pharmacies and their contracting agents are going to complain about lower than contracted reimbursement due to a GER close to 100%, or patients will be duped into a plan that does not perform as advertised. If I had to make a guess, I would lean toward pharmacies being slighted by the plan, because Medicare is less likely to censure the plan unless significant numbers of pharmacies terminate their contracts, leaving the plan with insufficient pharmacies to meet federal Medicare access requirements.
Medicare, pharmacies and patients are all being abused by the pharmacy benefit managers. Unless Medicare and Congress take steps to hold the PBMs accountable, this will continue. With the recent hearings on PBM transparency, now is the time for pharmacy leaders and grassroots pharmacists to make themselves heard.
