Feds push generics while creating disincentives for R.Ph.s

April 3, 2006

It is ironic that pharmacists, who are in the best position to promote the use of generics, are only marginally encouraged to do so. The difference in dispensing fees paid by pharmacy benefit management companies to pharmacies averages less than 30 cents. And even though the markup for new generics is greater than that for brand drugs, that markup still allows for an aggregate profit margin of only about 2%.

It is ironic that pharmacists, who are in the best position to promote the use of generics, are only marginally encouraged to do so. The difference in dispensing fees paid by pharmacy benefit management companies to pharmacies averages less than 30 cents. And even though the markup for new generics is greater than that for brand drugs, that markup still allows for an aggregate profit margin of only about 2%.

The Deficit Reduction Act of 2005 passed by Congress in February may make that damage inevitable. The law reduces average payment per generic prescription under Medicaid by 17%, an average of about $4.25 per Rx. "On a scale of one to 10 of potential disasters, this ranks as a 10 plus," said John Coster, R.Ph., Ph.D., VP for policy and programs of the National Association of Chain Drug Stores.

As drastic as the Medicaid reimbursement cuts for generic drugs are, there's more to come. In his 2007 budget proposal, President Bush has called for even more reductions in what Medicaid pays pharmacies for generics. In commenting on the cutbacks, he told a group of businessmen, "it's not immoral to make sure that prescription drug pharmacists don't overcharge the system." Pharmacy leaders said such remarks are ill advised and demonstrate a failure by the Administration and Congress to understand how pharmacies are paid.

"In fact, nearly all Medicaid prescriptions have a cap placed on them by Medicaid programs designed specifically to make it impossible to overcharge the system," said James R. Rankin, R.Ph., president of the National Community Pharmacists Association, in replying publicly to the President's remarks, adding that his comment was "offensive."

Even more worrisome than offensive, that failure of understanding virtually eliminates incentives for dispensing generics. That's because the reimbursement reductions affect generics far more than brand drugs. "The move has created a Medicaid pricing for generic drugs that is very, very low," said Mary Ann Wagner, NACDS senior VP of pharmacy, policy, and regulatory affairs. "It means that pharmacists could make more money dispensing brand-name drugs than generics."

In fact, "it looks like the Administration is anxious to protect the big pharmaceutical companies," said John Rector, NCPA senior VP for government affairs and general counsel.

He's not the only one who feels that way. "Instead of standing up for those who are most vulnerable, Congress voted to protect the interests of the pharmaceutical and managed care industries," observed William Novelli, CEO of AARP.