PBM Spread Pricing for Generic Prescriptions Explained

hello this is dr eric bricker and thank you for watching a healthcare z today we're going to be discussing pbm spread pricing so pbm's a pharmacy benefit manager and spread pricing is one of the ways that a pbm makes money now it's been in the news a lot because it is under uh investigation and so i thought it would be useful to actually examine in detail how spread pricing works okay so it involves a number of acronyms so let's start off here with number one the awp which is the average wholesale price then we have the mac or the maximum allowable cost and then thirdly we have the nadac which is the national average drug cost or just what's referred to as the acquisition cost sometime now in order to understand how these three acronyms relate to each other i feel like it's helpful to use a chart and so here we have a employee health plan it could be employer-sponsored it could be a medicaid plan etc and here they have the pbm that they work with that pbm then interacts with various pharmacies and then you have the employees of the plant members who are getting their medications at the pharmacy now what the p what the plan pays the pbm per pill is the awp but it's not the awp it's really 20 of the awp because one of the the the values that the pbm brings to the plan is that they give them an 80 discount off of awp okay so the plan pays 20 percent of the awp to the pdms that's the pbm's revenue and then the plan the pbm pays out the mac plus the dispensing fee so that's the pbm's cost now the pharmacy's revenue in turn is the mac plus the dispensing fee and then the pharmacy's cost is the acquisition cost from ws is the wholesaler okay so let's get down to profit so the pbm's profit is just the awp minus the mac plus the dispensing fee and then the pharmacy's profit is the mac plus the dispensing fee minus the acquisition cost now there is a fantastic article from health affairs that this information is based on there's also a not-for-profit pharmacy research institute in the state of ohio that i will also leave a link to in the show notes and let's look at a specific example from that research institute so they said for amlodipine which is very common blood pressure medication it's generic it's the generic form of norvasc that the awp is two dollars and 38 cents so if you take the 80 discount off of that you get the 2.38 times 0.2 that gets you 48 cents so that means that the plan is paying 48 cents per pill of ammunition and then the pbm is paying out some sort of unknown mac is the mac is unknown it is not published it is proprietary to the pbm now let's just say for example's sake that the mac plus the dispensing fee is total is 25 cents that means that the pbm is holding on to 23 cents and the pharmacy's taken in the full 25 cents but then the pharmacy has to pay out 1.9 cents to buy the drug so that's their cost right so then that if you basically take two cents off at 25 cents that gives you 23 cents so in this particular example the ppm is getting 23 cents and the pharmacy is getting 23 cents in profit each oh by the way that doesn't sound like i'm not because they're talking about pennies but keep in mind this drug cost about two cents and the plan paid 48 cents for it so that's almost exactly 25 times more now this specific situation is exactly happened what happened to the state of ohio medicaid program and that spread pricing cost them 208 million dollars just on their generic pharmacy spend not on their brand not especially pharmacy just their generic pharmacy spent alone cost them 208 million and it was in the columbus newspaper a lot i mean the articles are fantastic and i encourage you to read them and so my point today is that if this is happening in ohio medicaid and oh by the way it was happening in kentucky medicaid as well then what's going on at the municipality level what's going on at the school system level what's going on at the private employer level and i'll just ask you to think about that and that's my point for today thank you for watching a healthcare z

Channel: AHealthcareZ - Healthcare Finance Explained

Views: 7,114

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Id: 0XFk1m3yGuY

Length: 4min 19sec (259 seconds)

Published: Wed Jan 13 2021