Pharmacy Benefit Managers Drug Pricing and Appeals

Pharmacy Benefit Manager Drug Pricing and MAC Appeals – PBM MAC Appeals

Pharmacy Benefit Managers drug pricing uses several metrics and Standards. Pharmacy Benefit Managers (PBMs) may use Maximum Allowable Cost or “MAC” pricing on multi-source generics to avoid being overcharged. Establishment of a MAC allows payers to pay the same price for a drug, no matter who manufacturers it. Newer generic products, compared to older generics, may not have as favorable of a spread, thus the need for MAC.  It is important to understand the contractual provisions regarding how MAC is determined with specific pharmacies and PBMs and to them perform analytics with full data elements available to determine whether the PBM has performed in adherence to the contractual provisions.  To perform PBM MAC appeals it is important to understand how PBMs work, the MAC definition, how to source data to analyze adherence to MAC, and what data must be produced for most PBM MAC appeals.

PBM Fundamental Concepts

Pharmacy Benefit Managers (PBMs) evolved over a few decades in the drug pricing business and intersect the flow of physical drugs, flow of funds, and medical necessity determinations for health plans.

Pharmacy Benefit Manager Flow of Funds

PBMs collect payments from health plans and receive share of rebates from manufacturers are issued back to the health plan.  PMBs manage a complex task in the drug supply and beneficiary reimbursement segment of health care.  Pharmacy Benefit Managers drug pricing has several facets.

Pharmacy Benefit Manager experts must understand the flow of funds.  The Drug manufacturers issue negotiated discounts and rebates for drugs based on volume, market share, formulary placement). PBMs issue contracts to health plans, generally pricing their coverage for drugs at WAC. WAC can be used correctly or it can be manipulated, based for example on last in first out (LIFO) or first in first out (FIFO) pricing. The purchase / payment lots can vary from a small volume of drugs at high price point, or the same drug purchased in high volume at a lower price point. If Pharmacy Benefit Managers contract for a LIFO based WAC they can purchase in high volume at low price to decrease the price point, then purchase a small amount at high price and charge based on LIFO. This can yield artificially high profits. This is not to say that all PBMs operate in this manner, but the use of analytics combined with a detail knowledge of drug classification taxonomies is essential to determine if contractural arrangements are being met.

Appealing MAC Pricing Upon Reimbursement from a Pharmacy Benefit Manager

MAC pricing continues to be one of a highly challenging issue for independent pharmacies because it is a) one of the primary ways in which PBMs reimburse independent pharmacies in the United States, and b) MAC price lists are created entirely by PBMs and kept confidential by PBMs.

In some jurisdictions such as California(see AB 627 (*)) and Georgia, if there is a successful MAC appeal:

  1. The PBM must adjust the MAC price appealed effective on the day after the appeal is decided;
  2. PBMs should apply the adjusted MAC pricing to all similarly situated pharmacies;
  3. A PBM should permit a pharmacy that successfully appeals to rebill / reconcile with the PBM for any financial difference in the claim appealed.

If an appeal is denied, the PBM must provide the reason for the denial.

Data Quality for Analytics to Support PBM MAC Appeals

It is essential for a any entity that has a PBM contract to have good data records, maintained in Standard formats.  Generally a MAC appeal requires completing a form that includes these elements. Forms and data elements may vary by payor. Pharmacy Benefit Managers drug pricing using MAC for an appeal may require solid data including but not limited to:

  • Appeal date
  • Contact information
  • NCPDP number
  • NDC number
  • GPI number
  • Pharmacy name
  • Rx#
  • Fill date
  • Quantity
  • Acquisition cost
  • Invoice number

Another payer lists these items as pertinent for a MAC appeal:

  • Filled Date
  • BIN
  • PCN
  • RX #
  • NDC
  • Compound
  • Reason for Appeal

Data type and data quality are essential in filing appeals.  One payer lists these points regarding the data formats, states that these are mandatory, and that it will reject any appeal that does not contain them as follows:

Reason for Review

  • MAC Unit is below cost
  • Drug is experiencing supply issues, please review MAC.
  • Dispensed least expensive generic
  • Other – Please use the notes section to explain

Compound Y/N

  • Y (select Y to indicate a compound)
  • N (select N to indicate  a non-compound)
  • If more than one ingredient is to be reviewed fill out individual lines for each
  • NDC.

PBM MAC Appeal State Standards and Legislation

* According to the California Pharmacists Association, AB 627 for PBM MAC Appeals was developed through negotiations  with stakeholders. The California Pharmacists Association worked with multiple PBMs and health plans to arrive at mutually agreed upon Standards to address pharmacists’ concerns in a way that is acceptable to the needs of the PBMs and health plans. The provisions in this bill closely mirror those of bills in other states that PBMs have also agreed to.

Related Topics

Drug Pricing Expert and Drug Classification Systems

I. In healthcare the intersection of demand, price, quality and sources of suppliers alone does not determine whether pricing is appropriate. Medical necessity, a complex method of determining whether a product or service should be used is also a factor. Medical necessity is used by payors, including private insurance, Medicare and Medicaid to determine whether a medical procedure should be provided at all. (See Drug Pricing Legislation and Inefficient Markets Theory – No World Borders)

II. Drugs are categorized by over 10 different classification systems, however the National Drug Code (NDC) (see National Drug Code Directory), the Generic Product Identifier (GPI) (see Medi-Span® Generic Product Identifier (GPI)), and RxNorm used extensively for electronic prescribing are important standards. (See…), (see also RxNorm Overview)

III. There are three concepts that are important to understand in pharmaceutical / drug pricing. The first is the flow of physical drugs. The second is flow of funds. the third is eligibility determination for coverage of drug costs by insurance.

(for more information see my recent answer that discusses this on Quora at

Formulary Management by PBMs

From 2014 to 2020, the number of medicines excluded by at least one of the three largest PBMs from their standard formularies increased by an average of 34% per year. With this development, those patients who rely on a PBM for access to their medications with commercial insurance may not be able to access the treatment prescribed by their doctor through their normal insurance coverage.

See also:

Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

Leave a Reply