New York is considering limiting the abilities of pharmacy benefit managers concerning maximum allowable costs for drugs.
Two bills in committee in the New York State Legislature, sponsored by Sen. Kemp Hannon (S4794) and Assemblywoman Linda Rosenthal (A674), would implement an appeals process for contracted pharmacies to dispute maximum allowable cost (MAC) schedules set by pharmacy benefit managers and change the framework for MACs, raising concerns about the confidential nature of the methodology used to calculate those costs.
By allowing pharmacies to dispute the MAC prices, costs per pill could be driven up, some groups say. Further, by knowing how far they can raise prices, pharmacies could be allowed to charge that rate without strong incentive to compete with other pharmacies on cost.
The MAC prices are seen as being non-transparent and stringent policies that pharmacies must adhere to in order to be part of a manager’s exclusive network. But the competition to be in those networks and policies like MAC are seen as allowing costs to be kept lower for the manager, which ultimately leads to lower premiums for the consumer.
“It’s not a lack of transparency that’s the problem, it’s a lack of competition. Transparency is just the symptom,” said Devon Herrick, senior fellow at the National Center for Policy Analysis.
Before MACs existed, benefit managers paid the pharmacy list price for prescription generics, which was and still is often a significant mark-up over the actual cost of the prescription. MACs were designed to combat this markup by ensuring pharmacies were not overpaid for dispensing generics.
By taking much of the power away from MACs, pharmacies can operate much like they did before, marking up a generic equivalent of a prescription and being overpaid by managers. The result would be higher premiums as managers have to cope with the rising costs of dealing with pharmacies.
The Business Council of New York said in a statement; “In an age of ever-increasing health care costs, the state needs to be looking for ways to increase flexibility in cost management rather than creating market distortions that favor one party over another.”
Another discussion sparked by the Hannon-Rosenthal legislation about MACs was the idea that the methodology used to calculate them ought to be public, a proposal the Business Council is strongly opposed to.
Where in most markets price transparency benefits the consumer, in healthcare most bills are picked up by insurers. This means that price transparency doesn’t necessarily lead to competition in the pharmacy market, but instead leads to a form of collusion, where it is in the best interest of pharmacies to charge the most they can for a prescription.
Other groups opposing the Hannon-Rosenthal bills include the Academy of Family Physicians and the New York State Catholic Conference.
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