Generic Prescription Drug Program As Case Study

Recommended Pricing Strategies:

As a pharmaceutical benefit manager, I have several primary stakeholders to whom I am responsible. These include: my organization, the employer as my client, the employees of the client as plan participants, the pharmacists dispensing the medications, and the pharmaceutical manufacturers and/or distributors. My job is to develop a plan that is profitable for my organization. I must also develop a plan that is cost-effective for the employer. The employees of the client must find the plan valuable and beneficial in the maintenance of their healthcare. The pharmacists must be compensated fairly for their time, and the pharmaceutical manufacturers and/or distributors must be able to make a profit in an increasingly competitive, rapidly changing industry. Developing a pricing strategy to meet these competing stakeholder needs is challenging and will require looking at each employer's unique pharmaceutical needs to determine the best pricing plan possible.

The MAC pricing strategy meets the needs of my organization, in that it limits our costs and therefore enhances profitability; however, for this type of strategy to meet the needs of both the employer and their employees, AWP needs to be utilized to determine the MAC values. This can be used for both generic and branded pharmaceuticals. In fact, most states, as of 2009, use AWP to determine their MAC values.

For brand drugs with no generic equivalent, reimbursement varies from state to state, but it is usually based on AWP minus 5% to 15%. This formula recognizes that the AWP,

published in the Red Book, is usually higher than the actual cost a pharmacy pays to acquire a pharmaceutical.When a generic pharmaceutical is available, pharmacists often reimbursed AWP minus 10% to 25% for the generic ("Maximum allowable cost," 2009).

Given this accepted governmental standard of determining MAC, this strategy is likely to provide a competitive and valuable plan for my client. This can then be enhanced by looking at each individual employer to determine if rebate contracts for certain pharmaceuticals can help further offset costs to the employer and provide even more benefits to the employees, while also helping the pharmaceutical companies garner more market share.

Although it may be tempting to hide administrative and dispensing fees within other portions of the pricing strategy, to make the client think they are getting a better deal than they really are, in the long-run, this will become evident and the client will likely feel like they've been taken advantage of. An unhappy client often equates to a lost client and lost referral business. For this reason, the pricing strategy I recommend would include denotation of reasonable administrative and dispensing fees, along with an explanation to the client about how other pharmaceutical benefit managers may try to hide these fees, so they can compare apples to apples.

References

Jones, J.D. (2003). "Developing an effective generic prescription drug program." Benefits Quarterly, 19(1), p. 14-18.

Maximum allowable cost. (17 Feb 2009). Retrieved February 24, 2011, from http://www.gphaonline.org/resources/2009/maximum-allowable-cost-mac.

McClurg, J. (Jan 2009). "Understanding the Rx financial….....