Challenges of Managing Generic Pricing ––>
Generic drugs used to be the golden goose for retail pharmacies. Deflationary pricing meant that generics were usually priced as a percent savings off the corresponding brand drug. As the brand drug pricing changed, the pricing of the generic drug moved in tandem. This was an easy process for pharmacies to manage, with a few exceptions. For the most part, retail pharmacies had a hands-off approach to generics, and could be assured that they would make a respectable profit with their use.
Then came discount generic drug programs, more commonly known as the $4 lists. For generics available at a nominal cost, pharmacies could dispense these products and still make a small profit, not including pharmacy overhead costs. Pharmacies were able to add hundreds of drugs to these lists in the hope of enticing new customers and increasing sales of more expensive generics and brand pharmaceuticals, as well as increasing the sale of additional store merchandise. The trend became wildly popular, and before long, discount generic lists were the norm, and pharmacies without them were behind the curve. For pharmacies without discount lists, price-matching competitors became common.
In the past few years, generic discount lists have taken a back seat. While they are still available at pharmacies, advertising these lists is less common. For one thing, several generic drugs have seen price increases, making their inclusion on discount lists no longer profitable for pharmacies. Our research has shown that, as a result, most pharmacies saw a drop in the number of products offered on their discount generic lists.
Pharmacies need to carefully manage discount generic lists to ensure that they can remain competitive while still maintaining profitability. This includes monitoring the discount generic lists of competitors. Pharmacists may wish to include several products unique to their discount list to create a marketing advantage and attract new customers. The benefits of attracting new customers must be weighed against the cost of adding additional products. While most generic drugs still decline in price as their time on the market increases, several generic drugs have seen rising prices.
Managing Price Increases
Drug shortages have caused manufacturers to increases prices for several generics. Manufacturers seek to optimize their portfolios by eliminating less profitable generics from production, further leading to these shortages and price increases. For example, many faced problems with the doxycycline shortage last year. Doxycycline used to be included on discount generic lists, but the massive shortages caused prices to skyrocket, with some patients paying over $100 per prescription. Although there is nothing that retail pharmacists can do to prevent price increases caused by drug shortages, pharmacists should carefully monitor the market to both identify current shortages and anticipate those of the future.
With all of the changes taking place in the generic drug market, it is more important than ever for pharmacies to properly manage generic purchasing. This requires a greater time commitment on the part of independent pharmacy owners. The new generic world requires that pharmacy owners remain flexible in their sourcing by examining pricing from several primary and secondary suppliers. Switching between generic manufacturers should be considered and executed when savings can be realized. While this requires additional record keeping and patient counseling, or more labeling regarding the different appearance of the new tablet or capsule, it is often necessary in today’s dynamic generic marketplace. Purchasing larger package sizes for generics, especially for pharmacies using robotic automation, may also provide additional cost savings for some products. However, pharmacists should not always assume that large package sizes provide the lowest unit cost. Careful analysis of prices should always be done to ensure that the pharmacy is choosing the lowest-cost product. Finally, as insurance reimbursement adjusts, pharmacists must diligently ensure that their usual and customary (U&C) is raised accordingly, so as not to forgo profits. If U&C is invoked at a dollar amount lower than insurance reimbursement, available money is being lost.
As prices change, pharmacists will need to be more diligent about MAC (maximum allowable cost) pricing updates and may need to contact payers if rates do not adjust to compensate for purchasing costs. Without pharmacist pressure, MAC reimbursement changes can lag for some payers. When acquisition costs and MAC reimbursement no longer allow for any pharmacy profitability and instead result in a loss for the pharmacy, pharmacists may consider calling these payers to express their concern. This reimbursement delay is frustrating for many pharmacists, but it is important to realize that MAC decreases can sometimes lag as well, increasing pharmacy profitability.
No one size or strategy will work for all independent pharmacies. While generics used to be thought of as part of a hands-off management process, their constant cost changes and recent shortages have triggered the need to diligently review purchasing options, monitor utilization trends, update discount generic lists, evaluate U&C pricing, and monitor MAC reimbursement. Generics are still highly profitable for retail pharmacies, but they do require more time and work on the pharmacist’s part to manage generic purchasing. CT
Ann Johnson, Pharm.D., is a consultant with PHSI with a focus in analytics and pricing reimbursement, financial models, and market research. She can be reached at firstname.lastname@example.org.