Generic Medications Contribute to Increased Profits for Pharmacy Benefit Managers
The increasing popularity of generic drugs is making pharmacy benefit managers more profitable, Dow Jones/Wall Street Journal reports. PBMs Caremark Rx, Express Scripts and Medco Health Solutions all reported record or near-record second-quarter earnings, and each company cited a shift to generic drugs as a leading reason for their improved financial performance.
Medco said 51% of the drugs it dispensed in the second quarter were generic, up from 45.5% in the second quarter last year. Medco CFO JoAnn Reed said clients saved $530 million because of the increased use of generic drugs. At the same time, Medco's gross profit margin rose from 4.8% to 5.1%.
Ann Smith, a spokesperson for Medco, said, "Generics are 30% to 60% less costly than brand-name drugs, so with more generic dispensing, income is lower but margins are better."
However, some employers believe that PBMs make it difficult to know whether the best drug prices are really being delivered. A large group of companies earlier this month endorsed a new purchasing model that would require PBMs to tell companies how much the PBMs pay for drugs and pass rebates on to the companies.
Tim Watson, a partner in Texas-based Pharmaceutical Strategies Group, said the shift to generic drugs strengthened the case for new pricing models, adding that PBMs "have to find a pricing model that matches the value added" (Jones, Dow Jones/Wall Street Journal, 8/18).