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Why does one particular anti-psychotic drug cost $1.06 at one point of sale, and $102 at another? Members of the Medicare Payment Advisory Commission (MedPAC) looked for answers to that tricky question at their meeting in Washington last week.

The anti-psychotic drug is just one example of the mysterious supply chain complexities that influence the dramatic and "irrational" variation in availability and prices of generic Medicare Part D prescription drugs -- sometimes even within the same pharmacy chain.

From a developed by MedPAC staff, commissioners learned that the price of a generic Part D drug was based on the cost of the ingredients, a dispensing fee, and a pharmacy fee, which pharmacies pay to the plan sponsor but are not public, although they are reported to the Centers for Medicare & Medicaid Services (CMS). However, there are many other elements that influence the price at the point of sale, and much of it is unknown.

Generic drug pricing and availability are important issues for the commission because generics account for 90% of the drugs filled under Part D, and 20% of gross program spending. Although they are a fraction of the cost of their brand-name counterparts, their price reductions have slowed in recent years, adding to the cost of the Part D program overall.

Is that variation "because they're often used in specialty pharmacies, and many of them are vertically integrated or not vertically integrated?" asked Commissioner Gina Upchurch, MPH, executive director of Senior PharmAssist in Durham, North Carolina.

Shinobu Suzuki, a principal policy analyst for MedPAC, replied, "I don't think we have very good insight on why these particular classes have large variations."

In fact, staff said that research studies and their own inquiries have not illuminated the causes for the variation that occurs.

Drug Availability

Commissioner Lawrence Casalino, MD, PhD, of Weill Cornell Medical School in New York City, pointed to the frustration many Medicare beneficiaries feel in trying to understand and get benefits from their Part D plans, using his own generic cardiovascular drug as an example.

"I recently started to get emails from one of the largest PBMs [pharmacy benefit managers] saying that 'this drug is out of stock, talk to your doctor about a substitute.' Actually, there isn't really a good substitute," he said.

He tried calling the PBM, which serves as his mail order pharmacy, but after 15 minutes on hold, he hung up. He called back and after another 5 minutes, found someone "who knew what they were talking about. She said, 'we don't have it and we don't know when we'll have it,'" he explained. "This is one of the biggest PBMs in the world ... and you don't know if it's going to be a month or 6 months?"

The person on the phone said to call around to local pharmacies, but that didn't resolve the issue. "How would one pharmacy chain be able to have this drug, and this big PBM with its own mail order [service] not be able to have it, not just for a week or two, but over months?" he posed.

Suzuki noted that there are frequently "multiple manufacturers for cheap generic drugs, and each wholesaler may choose one out of multiple manufacturers and the supply chain disruption could be related to that particular generic manufacturer."

The commissioners said they want information on whether consolidation of the pharmacy marketplace has affected the price or the accessibility of prescription drugs, as well as the common, apparently legal practice of making "tying arrangements."

Such deals are "agreements between wholesalers and pharmacies that explicitly tie the size of the discount on brand-name drugs to the volume and prices of generic drugs that a pharmacy purchases," explained Pamina Mejia, a MedPAC research assistant. "Under such arrangements, wholesalers may charge higher prices for generic drugs in exchange for larger discounts or lower net prices on brand-name drugs."

Independent pharmacies often consent to "avoid losing money on branded drugs, even if it means paying more for generics," she added.

A 'Hairball'

MedPAC staff spent several months interviewing a variety of stakeholders to learn more about the supply chain interactions that influence such wide variability.

The stakeholders told staff that they often face different acquisition costs for the same generic drug due to different prices from wholesalers, not the prices set by manufacturers. And differences in bargaining leverage played a role in costs, with large chains having more clout than independent pharmacies.

"Many voiced concerns about the lack of transparency in how PBMs set MAC [maximum allowable cost] prices," Mejia said.

The mechanisms behind pharmacy drug pricing appeared to be so complicated that Commissioner Scott Sarran, MD, MBA, chief medical officer of MoreCare in Chicago, called it a "giant ball of yarn with all these threads, or maybe a hairball."

Upchurch said the impact has been hard on Medicare beneficiaries, especially since Part D began in 2006. The idea was that you would have a negotiated price at the pharmacy as long as it was in-network. Now, she added, with "irrational drug prices ... beneficiaries in the know have to strategize multiple means to access their meds. GoodRx over here and a mail order for Mark Cuban over there, a patient assistance program over there, and the many other methods that ... bypass the local pharmacist."

Getting their prescriptions in this way often misses inclusion in the electronic health record, and thus increases the risk that clinicians will not be able to see potential drug interactions and other potential medication-related problems, she said. "It's bad enough that the plans can dramatically change what medicines they cover and what costs for each year with different utilization management tools. But then to have multiple sources of the least expensive drug is just too much for older adults and adults with disabilities."

MedPAC Chair Michael Chernew, PhD, of Harvard Medical School in Boston, called the staff's presentation "eye-opening" and agreed that the problems with generic drugs in Part D are difficult to understand, much less solve.

"It's very hard to figure out what the solution will be," he said. "There have been attempts to make reforms in a range of ways that we thought would help the problem. And then a bunch of other things seem to happen around that because of the complexity here."

The session was not set up for a vote on recommendations, but Chernew noted that the commission will continue investigating the issue going forward.

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