PBM Contracts Explained: Brand vs. Generic Pricing Simplified

Each year, your PSAO or PBM updates reimbursement rates—and like clockwork, the same question comes up: “What does this really mean for my bottom line?”

It’s tempting to set the paperwork aside and get back to serving patients. But as every independent pharmacy owner knows, understanding your reimbursement is how you care for your patients—by keeping your business healthy and sustainable.

At RxConnexion, our goal is to help pharmacies decode the financial side of pharmacy operations. In this article, we’ll demystify the two core categories in every PBM contract—brand and generic drugs—explain how their pricing models work, and show you how to quantify what just a 1% change can mean to your profitability.

The Two Pillars of Your PBM Contract

Brand Drugs

Brand medications are typically single-source, patent-protected products. Pricing is based on list benchmarks such as:

• Wholesale Acquisition Cost (WAC) — what you pay

• Average Wholesale Price (AWP) — what reimbursement is based on

Most contracts follow a structure like: AWP minus X%, plus a dispensing fee.

This model is designed to maintain a predictable reimbursement structure, but it often fails to track with real acquisition costs—especially when market prices shift faster than contract terms.

Generic Drugs

Generic drugs, on the other hand, are multi-source products where pricing is governed by Maximum Allowable Cost (MAC) lists.MAC lists are updated frequently, serving as reimbursement caps that encourage pharmacies to buy smart and competitively.

A typical contract clause might read:“The lesser of AWP minus X% or MAC.”

Generics are where pharmacies can win—or lose—profit margins daily. Understanding how these caps fluctuate is key to maintaining strong gross profits.

Effective Rates: BER, GER, and DFER

Your contract might include three key acronyms:

• BER: Brand Effective Rate

• GER: Generic Effective Rate

• DFER: Dispensing Fee Effective Rate

  
  

Think of these as average performance commitments—not guarantees for every claim. Instead of each claim paying at the same discount, the PBM ensures your average reimbursement aligns with these rates.

However, where the PBM measures these rates matters:

• Pharmacy level → measured per location

• PSAO level → averaged across all member stores

• Plan level → blended across a much larger group

This can dramatically affect your individual performance—and is one reason RxConnexion helps pharmacies monitor and analyze reimbursement patterns across all payers using our TabulaRx Analytics platform.

Why Pricing Metrics Matter

The AWP-minus model was originally meant to act like a cost-plus structure—paying pharmacies fairly for both the product and the service component.

Over time, though, the service component (your dispensing fee) has eroded, and the drug component hasn’t always kept pace with acquisition costs.

That’s why pharmacies must rely on data—not assumptions—to understand real profitability. With RxConnexion’s data-driven dashboards, you can see exactly how your effective rates compare to benchmarks and spot where your reimbursements are falling short.

Quantifying a 1% Change: The Power of Precision

Let’s translate numbers into reality.

Say your Plan 1 total annual brand reimbursement was $400,000 under a contract of AWP–17%.If next year it drops to AWP–18%, that’s a 1% deeper discount.

Here’s what that means:

Metric	Calculation	Result
AWP Basis	$400,000 ÷ (1–0.17)	$481,928
New Reimbursement	$481,928 × (1–0.18)	$395,181
Total Loss	$400,000 – $395,181	–$4,819

That’s nearly $5,000 in lost reimbursement from a single plan—even if you dispense the same prescriptions next year.

By running these comparisons across all plans, you can quickly see which PBMs are improving, which are eroding, and where you might need to adjust your dispensing strategy.

With TabulaRx Analytics, RxConnexion makes this analysis simple. Upload your dispensing data, your plan rate sheets, and let our AI assistant project the impact—plan by plan, payer by payer.

Generic Drugs: MAC, GER, and the Profitability Puzzle

Generic profitability can be even trickier.

Because MAC lists fluctuate, benchmarking is hard. But here are two crucial watchpoints:

• MAC Volatility: Prices shift frequently—often without notice.

• Market Movements: Drug costs can rise even when the MAC cap stays flat.

If your contracts are tied to GERs, use the same method as with brands to measure percentage changes.

Keep in mind: not all NDCs are created equal. Two versions of the same molecule may have vastly different AWP spreads—and therefore, different profit margins.

Using AI and Analytics to Stay Ahead

Gone are the days of manual Excel calculations and guesswork. With RxConnexion’s TabulaRx platform, pharmacies can now:

• Upload dispensing data

• Run real-time reimbursement simulations

• Identify low-margin plans and drugs

• Predict reimbursement trends using AI

• Medicare Fair Price (MFP)

  
  

Our goal is simple: equip independent pharmacies with enterprise-level intelligence—so you can negotiate smarter, buy better, and plan for growth with confidence.

Conclusion: Advocate for Your Value

Understanding your PBM contract isn’t just about numbers—it’s about advocacy.

When you can quantify your impact, you can tell a stronger story—to PBMs, to prescribers, and to patients.

Pharmacies are more than dispensaries; they’re healthcare anchors in their communities.As the reimbursement landscape evolves, RxConnexion is committed to helping community pharmacies thrive—by combining data transparency, AI-powered insights, and strategic support.

Let’s build a future where independent pharmacies don’t just survive PBM pressure, they master it.

Ready to see how your contracts stack up?👉 Schedule a demo of TabulaRx Analytics and discover how data-driven insight can transform your pharmacy’s profitability.

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