Generic Drug Pricing (MAC)
Balancing Affordability and Stability
Another proposal under discussion in Massachusetts would change how generic prescription drugs are priced and reimbursed, through rules governing so-called “maximum allowable cost,” or MAC.
While less visible than rebates or spread pricing, MAC plays a central role in keeping prescription drug costs affordable.
What is MAC?
Maximum allowable cost (MAC) is a pricing tool used by pharmacy benefit managers (PBMs) to set a reimbursement limit for generic drugs that have multiple manufacturers.
It is a tool used to ensure manufacturers are constantly competing on price and to keep costs lower for plans.
Because these drugs are widely available from different sources, there is no single fixed market price. Pharmacies may acquire the same medication at different costs depending on supplier, timing, and purchasing arrangements.
MAC establishes a standard reimbursement level for these drugs, helping ensure that plan sponsors are not paying widely varying prices for therapeutically equivalent products.
Why MAC matters for costs
While a lesser share of overall prescription drug spending, generic drugs account for the vast majority of prescriptions filled in the United States.
That is largely because tools like MAC help keep generic prices lower.
By setting reimbursement limits across equivalent drugs, MAC:
• Encourages pharmacies to purchase lower-cost generic options
• Promotes competition among manufacturers
• Helps prevent price spikes from being passed directly to plans
For union health plans and employers, this is a key mechanism for controlling pharmacy spending. Those reasons above are also why drug manufacturers and pharmacies are promoting policies to lower their effectiveness.
Why MAC is controversial
At the same time, MAC has been the subject of debate.
Pharmacies have raised concerns that:
• Reimbursement may not always reflect current acquisition costs
• Price updates may lag behind rapid market changes
• Appeals processes can be complex or time-consuming
What proposed changes would do
Some proposals would require PBMs to:
• Reimburse pharmacies at or above their acquisition cost
• Update pricing more frequently
• Expand or standardize appeals processes
These changes are often framed as “fair reimbursement” policies. But fair for who?
THE TRADEOFF FOR UNIONS AND EMPLOYERS
While these proposals may provide more predictability for pharmacies, they come at the determent of plans and consumers by taking a valuable cost savings tool away from the PBM.
If reimbursement is required to meet or exceed pharmacy acquisition costs, it can:
• Establish a floor under generic drug pricing
• Reduce the ability to negotiate lower costs
• Increase overall spending on commonly used medications
Even small increases in generic drug costs can have a significant impact when applied across large populations.
Policy decisions involve tradeoffs
At a time when prescription drug costs continue to rise in Massachusetts, plan sponsors rely on a range of tools to manage spending and protect coverage.
Policies that standardize reimbursement may provide predictability for pharmacies, but they also limit the ability of plans to respond to changing market conditions and manage costs over time.
As with other aspects of prescription drug policy, the challenge is to improve the system without weakening the mechanisms that help keep coverage affordable for employers, union health plans, and the members they serve.