April 3, 2014
MAC (Maximum Allowable Cost) is a savings tool used by Medicare, Medicaid, large employers, and other health plans in order to prevent overpayments for generic prescriptions. A MAC is simply the maximum amount that a health plan will reimburse a pharmacy for a given strength and dosage form of a particular generic drug. A drugstore that participates in a plan’s pharmacy network has contractually agreed to accept the plan’s MACs (along with dispensing fees) as reimbursement for generic prescriptions.
MACs are needed because generics—unlike brands—often have inflated manufacturer “list” prices that don’t reflect a pharmacy’s actual cost to buy the product. To determine MACs, plans research the actual prices that pharmacies pay to purchase generic medications. Without MACs, drugstores could earn excess profits by dispensing generic drugs made by manufacturers with the highest list prices. MACs have proven highly successful at saving money for both government programs and private-sector health plans.
A recent analysis from the HHS, Office of Inspector General (OIG) demonstrated “the significant value MAC programs have in containing Medicaid drug costs.” The OIG recommended that states strengthen MAC programs. In contrast, some states are considering legislation that would restrict the use of MAC programs for many hundreds of drugs.
Based on Visante’s analysis of more than 800 drugs that are likely to be impacted by MAC legislation, we find:
- MAC legislation could increase costs by 31% to 56% for affected generic prescriptions.
- If MAC legislation were enacted nationwide, expenditures on generic prescriptions could increase by up to $5.5 billion annually.
- States implementing MAC legislation could see overall drug costs increase by 2%.
These findings are based on legislation prohibiting the use of MACs for non A-rated generics and generics that have fewer than three nationally available, therapeutically equivalent, multiple source products. In the absence of MACs, reimbursement for these drugs would be more costly.
We believe the above estimates are conservative and that the actual cost of MAC legislation could well be higher and would likely be passed on to state health programs, businesses, and unions in the form of higher health plan costs and increased patient out-of-pocket expenditures.