Pharmacies have an ever-growing number of generic suppliers that provide product selection and variety. Gone are the days when pharmacies would purchase virtually all of their generics from a "preferred" generic supplier. Today, pharmacies can rely on players who have been in the marketplace for decades, augmented by an increasing mix of newer entrants to the generic manufacturer field. The established players have grown via acquisition and successful patent challenges and by finding niche opportunities to successfully introduce products.

For "experienced" pharmacists (this author included), there seems to be many more new generic competitors for each product launch. To offset the mergers and acquisitions in the generic industry, new generic manufacturers enter the market daily, including domestic companies and a growing number of companies from India, Eastern Europe, and China. What does this mean for pharmacists? In my opinion, competition is good and reduces prices for pharmaceuticals. While consolidation may lead to the loss of recognized and well-established generic suppliers, there will be new competitors to meet our supply needs.

As this article is written, we are awaiting publication of the final AMP (average manufacturer price) regulations. This will have a widespread impact on generic manufacturers, wholesalers and distributors, and retail pharmacies. For more than a generation, commerce surrounding generic drugs has focused on a model where pharmacies engage in competitive generic purchasing to minimize acquisition costs while maximizing the discount from list price. Pharmacists have enjoyed this arrangement and have accepted lower-margin brand reimbursement rates offered by pharmacy benefit managers and payers. Furthermore, generic profitability has enabled pharmacies to continue to accept dispensing fees for prescriptions that do not cover the cost of dispensing.

If AMP regulation is introduced as proposed, expect several thousand pharmacies (independents and small chains) to shutter their doors and sell their files to one of the large chains that will be very willing to purchase the prescription files and offer the pharmacists jobs.  AMP will move us toward increasing pricing transparency and a cost-plus reimbursement mode. AMP will become the basis for Medicaid reimbursement of multisource products whenever there are two or more generic suppliers. Based on the Government Accountability Office study published earlier this year, 36% of generics dispensed will result in pharmacy reimbursement less than the cost of the product. This will cause pharmacies and wholesalers to apply increasing pressure on generic suppliers for reduced prices.

New generic suppliers, consolidation, and a watershed change in pharmacy reimbursement that leads to published generic pharmacy costs for multisource products--what does it all mean? For both generic suppliers and pharmacies, it means you need to be savvy and able to make lightning-quick informed business decisions.

Due to authorized generics, generic manufacturers no longer enjoy true 180-day exclusivity, even after a successful patent challenge to a brand product. This complicates the strategic product decisions for generic manufacturers regarding what products to pursue, pricing, and the amount of product to make.

Pharmacists must make quick choices--whether they relate to reimbursement rates on a new third-party contract, which generic supplier to purchase from, or whether to rely on your wholesaler to select the best product.

Regardless of what your role is in the generics industry, the dynamic changes we encounter force us to make faster, more informed decisions. I propose that the following actions be implemented:

1. Actively track industry changes, and determine how these changes will impact your business.
2. Monitor your competition to determine how their strategic decisions and tactics are changing.
3. Utilize information within your pharmacy computer system and from your wholesaler to analyze purchase and reimbursement data.

Armed with this information, you should be able to perform a basic cost–benefit analysis and improve the timing of your decision making, which will facilitate successful choices in the future!

Don Dietz is Vice President of Pharmacy Healthcare Solutions, Inc. (PHSI), located in Pittsburgh, PA (www.phsirx.com). The health care consulting firm provides innovative solutions for pharmaceutical manufacturers, pharmacy chains, and managed care organizations that focus on delivering clients' desired results while improving their profitability through business strategy and management consulting services.