Our Maximum Allowable Cost (MAC) Pricing is a Commonly Used Tool to Manage Drug Costs

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, which is generally higher than the rate for national chain pharmacies in our network (including CVS Pharmacy). There are instances where 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. We recognize this can be a challenge, so at CVS Caremark, we have invested in new analytics and processes to help us better predict when independent pharmacies may be overly impacted by potential MAC pricing changes to enable us to adjust as appropriate.