I have been hearing complaints about Allowable Drug Prices (ADPs) in the pharmacy community for years. Most recently, I have listened as pharmacists have described significant prices drops on medications during the current Covid-19 pandemic.
The trouble with these prices, and by extension, any complaints about them, is that most ADPs are MAC (Maximum Allowable Cost) applied to generic medications, and these are considered proprietary information by the Pharmacy Benefit Managers (PBMs). For this reason, one cannot just download the data and analyze what is happening. Furthermore, because every pharmacy has a slightly different profile of medications it dispenses each month, each pharmacy is impacted by these prices and their changes differently.
Like online reviews, people are much more likely to take time to complain about a bad experience than they are to take the time to provide positive feedback. It is possible that I am only hearing the unsatisfied pharmacies complaining while many, perhaps even a majority, might be satisfied.
I am skeptical of my last statement, of course. ADPs, and especially MAC prices, serve only the PBM. Which brings me back to the question: How are these prices changing, and do they make sense?
There is not a good way to answer this. It would take data from an aggregator like a switch to do a proper analysis across all regions, PBMs and drugs, and I don’t have that type of access. But I do have access to my own pharmacy’s data, and I thought it might be timely to look at where my own ADPs have gone in the last 6 months.
To do this, I calculated the an ADP per unit (tablet, capsule etc) for each month the past 6+ months. This represented 3715 different medications from claims processed between October 2019 and early April 2020. ADP was calculated by subtracting the dispensing fee allowed from Adjudicated Amount and dividing it by the units dispensed. These results aggregate the allowable price over one or more different insurance plans during any given month.
Because I wanted meaningful trends, I further segregated the data to look only at medications where I had dispensing data in every one of the 7 discreet months sampled. The net result was 855 medications with data in all 7 month. Below is a histogram of items dispensed at my pharmacy during one month, March, grouped by their Allowable Drug Price per Unit.
The shape of this histogram is definitely not a normal distribution. It shows that a majority of medications dispensed–nearly 70%–are adjudicated at less than $0.50 per unit. These low cost medications also represent a majority of all claims (53%) during the month. To put this into perspective, if a PBM pays the pharmacy a high (by PBM standards) $1 dispensing fee, a medication with an allowable cost of $0.50/unit equates to a $16 transaction for a 1 month supply. That is not profit, that is the total paid to the pharmacy.
Because the raw Allowable Cost data represented multiple carriers, many medications showed a some variability in price from month to month. For this reason, regression lines were run on all 855 medications over the 6+ month period. Allowable Price increases were defined as a slope of at least $0.01 per month and Allowable Price decreases were similarly defined by a slope of -$0.01 per month.
| Change in Price (slope) over 6+ months | # of Medications | Ave ∂ /unit/month |
| Increased by > $0.01/unit/mo | 245 | $0.15 |
| Decreased by >$0.01 /unit/mo | 202 | $0.10 |
| Unchanged (slope between -$0.01 and 0.01 | 408 | $0.00 |
The average change up or down in the price of a medication was actually much higher than the $0.01/month used to define changing prices, with price increases averaging $0.15 per unit per month and decreases averaging $0.10 per unit per month.
Looking at this table, one see that price increases appear to outpace price decreases. This runs contrary to what I regularly hear. A closer look is probably in order. Perhaps we should look at how prices change with respect to the allowable cost of the medications. Below is a graph showing the price changes broken down by the overall allowable cost per unit.
This begins to paint a picture that agrees more closely with what I have long observed. In short, price decreases outpace price increases for all inexpensive medications. Only after about $0.70/unit do price increases outpace decreases. Remember, left third of the graph represents almost 70% of products in the sample, and well over half of all claims.
The nature of these decreases at the low end of the price scale are actually amplified by the low dollar nature of the claims: a change of only a few cents per unit can create a 10-30% decrease in reimbursement for a medication with a cost of less that $0.30 per unit. Remember that these items are the most commonly dispensed items.
The increases in ADPs are predominantly on the higher priced medication. The problem with this type of “balancing” is that every pharmacy sees a significant number of price decreases because they are happening mostly to inexpensive maintenance medications that represent a majority of prescriptions filled. Price increases, which are skewed toward the more expensive medications, happen less often and are a smaller percentage of total sales. A pharmacy must fill a significant mix of prescriptions that pick up enough winners on this end just to keep level on the low end. There is no skill involved. It is random, and this is the reason so many pharmacy complain.
Which brings be back to the original question: are prices continuing to be pushed lower during the COVID-19 pandemic. The answer for me appears to be yes. This is disappointing, as both independent and pharmacies are being asked to man the front lines to ensure continued access of medications for everyone. While operating expenses are going up due to changes we have to make to work around the current crisis, the PBMs are doing business as usual and continuing to drive prices to the floor.
But it is not all doom and gloom. The prize here is the opportunity for pharmacies to show that they are more than just a provider of drug product. We are seeing many new opportunities during these trying times. These opportunities further our goal of being paid not for product, but for the value and service we provide. So be sure to watch your bottom line, but don’t forget to Make Every Encounter Count. Especially now.
