Of the $11.8 billion spent on 45 generic drugs by Medicare Part D in 2021, 70% went to intermediary gross profit, according to a new study.
The analysis, which appeared in JAMA Health Forum Oct. 20, estimated Medicare Part D spent, on average, $22.50 per claim on generic drugs, resulting in a gross profit of $9.18 for pharmacy benefit managers, $3.87 for pharmacy gross profit, $2.71 wholesaler gross profit and $6.73 manufacturer revenue.
It showed that many members of the pharmaceutical supply chain rely on spread pricing to earn profits, not just PBMs.
Curbing spread pricing practices by PBMs has been a rare point of bipartisan consensus for lawmakers in Congress. Most recently, the Senate Finance Committee continued its barrage against PBMs in September, introducing the Modernizing and Ensuring PBM Accountability (MEPA) Act. Spread pricing was one of the major components of the bill, also discussed during a July markup hearing.
The House unveiled its own legislation, which included a provision to ban spread pricing in Medicaid and to ban PBMs that contract with managed care organizations from utilizing spread pricing.
Traditionally, PBMs will charge payers more for a drug than the amount a PBM pays a pharmacy and then keep the difference as a profit.
“Policy efforts prohibiting spread pricing practice of PBMs may lower claim-level revenue retained by PBMs for generic drugs,” concluded the study’s authors. “However, absent sufficient market competition, PBMs may raise administrative fees to sustain revenue. Therefore it remains unclear how much spread pricing reform focused on PBMs alone would lower drug spending or strengthen the generic pharmaceutical supply chain.”
Total intermediary gross profit ranged from -12.3% for oxycodone HCL at the low end to 88.6% for ezetimibe at the high end of Medicare Part D spending.
The study’s authors said the analysis was limited by the “lack of information on direct and indirect remuneration offered by manufacturers or pharmacies,” making it impossible to estimate net profits generated.
“Additionally, without access to the proprietary agreements between Centers for Medicare & Medicaid Services (CMS) and PBMs or plan sponsors, we were unable to determine what proportion of gross profits earned on generic drug transactions was returned to CMS or used to reduce premiums,” the study said, adding that the estimated PBM spread pricing may be underestimated.