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Those of us who have a very long hind-sight of the working of our profession, we should have seen this coming. At the beginning of my career, the average Rx price was $4 -$5, there was no such thing as a “drug card”, the number of available generics could be counted on one or two hands and wholesale prices were so stable that we often had them memorized. Medicare & Medicaid were in their infancy, prescriptions collectively were ~ 6% of all medical costs.
The industry that we know today as the PBM’s was started in 1969-1970 with the UAW contract. Payments to pharmacy was ~ AWP + 2.00..but the only discount from AWP from the wholesaler was a 2% for prompt payment… so AWP was THE COST of the meds… the pt’s co-pay was typically $2.00… the pt paid the “dispensing fee” and the insurance company paid for the “cost of the drug”. The gross margins were in the 40%-50% range .. similar to all the cash Rxs.
In the early 70′s as the numbers covered by Medicaid increased dramatically, Congress pursued the MAC program (Maximum Allowable Price).. for Medicaid while states implemented some sort of mandatory generic substitution programs for everyone. The growth of the per-cent of overall generic utilization was set in place.
Over the years, the increase in generic utilization blunted the overall growth in dollars spent on medications, while the PBM’s whittled away at our gross margin profits. Until a few years ago, it was believed that the generic utilization ceiling would be around 75%… Today that ceiling is to believed to be 85%. Irregardless, we are quickly approaching where increasing generic utilization will not long be part of containing overall medication costs.
Likewise, entities such as Walgreens, have decided that they can no longer generate a profit with the ever decreasing margins that the PBM’s wish to pay. It has been stated by Walgreens that Express Scripts’ net profit per Rx is THIRTEEN TIMES that of Walgreens. It would seem that it is only a matter of time before some of the other entities come to the same conclusion, that they cannot make up losses with volume.
So as we seemingly approach this point of maxing out generic utilization and the “no where to go” of further lowering gross profits at the retail level. Is the gross expenditures for medications about to start of significant uphill climb just when all of healthcare is going to start looking for ways to get more “bang for their buck”.
Is all these decades of pharmacy helping to “holding the line” on increased medication expenditures going to be over-looked, discounted, ignored because we will be dealing with “what have you saved us today” mentality.
Steve has been a licensed Pharmacist for four decades and counting.
The viewpoint expressed in this article is the opinion of the author and is not necessarily the viewpoint of the owners or employees at Healthcare Staffing Innovations, LLC.
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