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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.Â
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.
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