Transparent Drug Pricing Is Good for All

Today’s guest post is from George Kitchens, RPh, President of Artia Solutions, and consultant for Elsevier.

In this new post, Kitchens revisits the topic of drug price transparency and discusses how Predictive Acquisition Cost (PAC) helps ensure accurate reimbursement rates for both pharmacies and payers. To learn more, download Elsevier’s most recent report on PAC use cases across the industry, entitled Achieving Cost Savings with Accurate Drug Price Information: Industry Use Cases for PAC.

Please contact George Kitchens (gkitchens@artiasolutions.com) with any questions about the article.

Transparent Drug Pricing Is Good for All
By George Kitchens, RPh, President, Artia Solutions

Last month I wrote about the impact of drug price benchmarks on payers and their pharmacy networks. Using Predictive Acquisition Cost (PAC) as an example, I noted that payers could see dramatic differences in their prescription drug costs simply by using a different price benchmark and that retail pharmacies could also benefit by using the very same benchmark. This conclusion prompted a question in the post’s comment section about how it could be possible for pharmacies to benefit if payers use PAC to reduce reimbursement rates. A fair question, to be sure.

I answered it by explaining that if payers use a price benchmark that tracks more closely to true pharmacy acquisition cost to set MAC pricing, payers will save in the cases where the original MAC price was significantly higher than the pharmacy’s cost. However, MAC prices are often set too low, and the payer needs to raise them in order to fairly reimburse the pharmacy. In the latter case, the pharmacy benefits from higher reimbursement rates.

A transparent drug price benchmark that more accurately reflects true acquisition cost truly benefits all stakeholders in the drug supply chain. The industry agrees that in theory, a transparent drug price benchmark—one that is accessible, comprehensive, immune to manipulation, and administratively simple—is ideal. Now that we have such a benchmark, we can begin to judge, in practice, whether it is ideal financially for all stakeholders.

The answer largely depends on individual circumstances. But we think that every type of stakeholder can benefit from the most transparent and accurate benchmark. Since its launch last year, PAC has been adopted by organizations representing many industry sectors, including:

• Retail Pharmacies
• PBMs
• Commercial Health Plans
• Wholesalers
• Medicaid Plans
• Long Term Care Organizations
• Pharmaceutical Manufacturers

The use cases and benefits differ among sectors, but there is one common denominator: each organization that adopted PAC conducted extensive analysis to understand the impact of its use and each one concluded that insight into the true acquisition cost of drugs was beneficial to its business.

[Click to Enlarge]

Since the launch of PAC in Q2 of 2012, it has been adopted by a variety of industries in the pharmaceutical supply chain (see above chart), making it clear that a transparent drug price benchmark that more accurately reflects true acquisition cost, such as PAC, truly benefits all stakeholders in the drug supply chain. PAC was first adopted by a retail chain pharmacy, then a PBM, then an insurance company, a long-term care organization, a wholesaler, a state Medicaid agency, and now in this year’s last quarter, a pharmaceutical manufacturer.

To view a report on PAC use cases across the industry, click here.