Third-party reimbursement for generic prescription drugs: The prevalence of below-cost reimbursement in an environment of maximum allowable cost–based reimbursement

Abstract

ObjectivesTo examine average prescription gross margin (GM) for prescriptions and to evaluate the prevalence of below-cost reimbursement for generic prescriptions across different third-party payers and therapeutic categories. DesignA retrospective descriptive study using 2015 dispensing data from a single independently owned pharmacy in Iowa. To calculate GM, the pharmacy's actual acquisition cost was subtracted from the third-party reimbursement rate for each generic prescription. The frequency of negative GMs was calculated for the top 6 plans and the top 10 therapeutic categories by prescription volume. SettingA single, independently owned community pharmacy in Iowa. ParticipantsPrescription dispensing records for the pharmacy's largest private and public payers by prescription volume. InterventionGross margins were calculated on a payer and United States Pharmacopeia (USP) medication category level. Main outcome measuresGM for generic prescriptions reimbursed under cost for specific payers and USP medication categories. ResultsThe 2015 prescription volume for the study pharmacy was 70,866 prescriptions, of which 88% were generic. For all prescriptions, the mean GM was $6.63 per prescription, and the median GM was $3.49 per prescription. Generic medications had a mean GM of $4.66 (median, $2.86), and brand name medications had a mean GM of $21.83 (median, $16.15). The percentage of generic prescriptions paid below acquisition cost was 15.1% overall and ranged from 4.1% for Iowa Medicaid to 25.9% for one of the private payers. The most common USP medication category by prescription volume was cardiovascular agents, representing 25.2% of generic prescriptions. For the 10.9% of these prescriptions reimbursed below cost, the mean GM was –$6.80. The 2 USP medication categories with the largest negative mean GM for generic prescriptions were analgesics and anticonvulsants, with mean GMs of –$10.10 and –$11.30, respectively. ConclusionThe current maximum allowable cost–based reimbursement system often results in inadequate payment for generic prescription drugs. The amount of underpayment varies substantially by payer and therapeutic class.