MAC Transparency Legislation Gains Momentum

Today’s guest post comes from Todd Grover, President & CEO of ChainDrugStore.net and Co-Founder of Glass Box Analytics.

Todd reviews the new Center for Medicare & Medicaid Services (CMS) final rule regarding the disclosure and updating of Maximum Allowable Cost (MAC) reimbursement limits. As Drug Channels readers know, a MAC establishes the reimbursement limit for a multiple-source drug.

He then describes Predictive Acquisition Cost (PAC), an alternative benchmark that aims to get closer to a pharmacy's true acquisition cost. Drug Channels readers can analyze MAC pricing by downloading the PAC – MAC Optimization Calculator, an Excel workbook with data on five key generic drugs.

Please contact Todd (tgrover@glassboxanalytics.com) with any questions about the article.

MAC Transparency Legislation Gains Momentum
By Todd Grover, President & CEO, ChainDrugStore.net; Co-Founder, Glass Box Analytics

Just two months ago, my article, Drug Pricing Transparency Legislation, noted that eight states had followed Kentucky, which in March of 2013, was the first to enact legislation that provides pharmacists with transparency into how health plans determine pharmacy reimbursement for generic drugs. In addition, federal legislation related to CMS rules for Medicare Part D was under consideration and 15 other states had drug price transparency legislation pending.

Since that time, CMS has finalized program changes for Medicare Advantage and Prescription Drug Benefit Programs, requiring Part D plans and their pharmacy benefit managers (PBMs) to make their MAC pricing standards available to network pharmacies, and four of the 15 states with pending legislation have passed MAC price transparency laws.

The new CMS ruling, which becomes effective January 1, 2016, requires all Medicare Part D plans and their pharmacy benefit managers to make their MAC pricing standards available to their network pharmacies, including the source or methodology for setting those prices. Here is the text:

Section 423.505 is further amended, effective January 1, 2016, by revising paragraphs (b)(21) and (i)(3)(vii) to read as follows:
(21)(i) Update any prescription drug pricing standard (as defined in Sec. 423.501) based on the cost of the drug used for reimbursement of network pharmacies by the Part D sponsor on January 1 of each contract year and not less frequently than once every 7 days thereafter;
(ii) Indicate the source used for making any such updates; and
(iii) Disclose all individual drug prices to be updated to the applicable pharmacies in advance of their use for reimbursement of claims, if the source for any prescription drug pricing standard is not publicly available. (source)

Medicare currently pays for 26 percent of drugs dispensed in the U.S. There are over 1,000 prescription drug plans available to Medicare patients nationally, so this ruling will obviously have a large impact. While CMS’s rule applies only to Medicare plans, the states are ruling more broadly and enforcing new laws for PBM’s in general. Here are four examples:

• Maryland’s S.B 952 and H.B. 793, signed into law May 5, 2014, requires PBM’s to disclose pricing methodology to pharmacies, specifying that PBM’s must identify the national drug pricing compendia or other source used to obtain the drug price and the methodology used to calculate the MAC. PBM’s must also have a process by which network pharmacies can appeal a MAC.

• Oklahoma’s H.B. 2100, signed into law May 12, 2014, regulates the conduct and transparency of PBM’s and specifies that they must reveal the basis of the methodology and sources used to determine MAC’s and also must update and share new MAC prices with their pharmacies every seven days. PBM’s are also required to provide a “reasonable” appeals process for pharmacies.

• Louisiana’s S.B. 410, effective August 1, 2014, requires that PBM’s make their MAC’s available to all pharmacies that are subject to the MAC list, no longer than seven days from a change in the MAC setting methodology or in the variable involved in the methodology.

• Tennessee’s H.B. 1554, effective January 1, 2015, regulates the use of Maximum Allowable Cost lists by PBM’s and covered entities, requiring them to provide to their contracted pharmacies the methodology and sources used to determine the MAC for multi-source generic drugs. In addition, PBM’s are prohibited from setting MAC’s at an amount lower than the amount found in the source used by the PBM to set the cost.

Generic drugs account for more than 80 percent of prescriptions dispensed. A PBM, as well as the health plan that monitor its MAC prices, must be able to point to a sound methodology around pricing and be prepared to justify MAC pricing for any particular drug. It is now law in twelves states with more pending. Beginning in January 2016, it is also required by CMS for all Medicare Part D plans.

Much of the drug price transparency legislation that is taking effect is due to lobbying by the National Community Pharmacists Association (NCPA). In addition to being compliant with new laws, establishing fair and transparent processes for reimbursement and MAC setting can improve and enhance pharmacy network relations.

Predictive Acquisition Cost (PAC) assists with both developing and demonstrating a sound methodology for setting MAC prices. PAC, along with supporting information displayed in the PAC Dashboard, facilitates compliance with new legislation while accomplishing improved pharmacy network relationships. A PBM, for example, currently points to PAC as part of how the organization satisfies network queries relating to such legislation.

Health Plans and PBMs can gain advantage in other states by showing that they have a clear and better methodology to drug pricing and reimbursement.

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Find out now if your MAC pricing is currently balanced and fair, download the PAC – MAC Optimization Calculator. This calculator allows you to enter your (or your PBM’s set) MAC price of five current example generic drugs and your average quantity dispensed per script. Based on assumptions to establish a minimum profit per script for pharmacies in your network, a low and high MAC price is computed.

Depending on your MAC price, a proposed action is suggested: increase MAC, reduce MAC or no change. A suggested decrease could result in significant financial benefits for the organization. A suggested increase could improve pharmacy network relations by quickly identifying situations where reimbursement is low. Ultimately, by using the PAC, you will gain justifiable, fair pricing based on the true acquisition cost of a drug.