Pharmacy benefit managers (PBMs) calculate the reimbursement for retail pharmacies in their network based on a standard measure called maximum allowable cost, or MAC. MAC pricing has been widely used in the industry, including by the Centers for Medicare and Medicaid Services (CMS) to establish fair reimbursement pricing. CVS Health regularly assesses aggregated information (not specific to any particular pharmacy) from drug wholesalers and third party sources, including publicly available lists such as those published by Medicaid, CMS and pharmacy feedback, to determine market pricing for generic drugs to establish our MAC pricing. Given the complex and dynamic nature of market pricing for generic drugs, the MAC will change throughout the year. We believe our MAC prices reflect current marketplace pricing and our best understanding of the marketplace and product availability.
We believe our MAC process establishes a fair, but competitive reimbursement price that incentivizes pharmacies to negotiate competitive acquisition costs, including volume discounts. Independently-owned pharmacies in our network receive a fair and competitive reimbursement rate, that is generally higher than the rate for national chain pharmacies in our network (including CVS Pharmacy), sometimes an individual pharmacy may be disproportionately impacted by a MAC pricing change. This can occur because the pharmacy has a higher than usual share of their business concentrated in one area, such as Medicaid, or has a history of high levels of dispensing for a particular drug or category of drugs. There are other factors that may influence generic pricing, such as supply and demand, so at CVS Caremark we have invested in analytics to help us better predict trends and necessary adjustments.