Articles on Pharmacy Benefit Management

PBM Mail Order Rx Services Are Expanding, But The Cost Savings Are Not Clear

The opening of Prescription Solutions' new mail-service pharmacy in Overland Park, Kan., on Oct. 20 marks the latest milestone in the pharmacy benefit manager (PBM) industry's rapidly expanding Rx mail-order business. The 190,000-square-foot facility more than doubles the firm's current capacity to distribute prescriptions via the mail. While PBMs tout mail service for its convenience and ability to cut Rx costs, other stakeholders contend the savings may not always materialize as promised. States, meanwhile, continue to push legislation that purportedly would level the playing field with retail pharmacies.

Prescription Solutions built its new facility, which can distribute 6,000 prescriptions per hour, in anticipation of increased demand resulting from the Medicare Part D prescription drug program, the company said. At full capacity, the facility will fill nearly 30 million prescriptions per year, according to Prescription Solutions, a PBM unit of UnitedHealth Group.

Growth in mail-order service industrywide has accelerated over the past year, says RJ Correia, vice president of mail-service operations at Prescription Solutions. In 2004, the PBM industry filled roughly 14.4% of its prescriptions though mail service, and in 2006 that figure is expected to be about 18.5%, he tells DBN. Independent studies project mail order will account for roughly 25% of prescriptions in 2011, Correia adds.

"Every year it is increasing in overall penetration," he says. "But overall consumption of pharmaceuticals industrywide is growing as well. Retail is growing, but at a slower pace than mail." He credits mail order's stronger growth to its convenience and lower costs.

The Pharmaceutical Care Management Association (PCMA), which represents PBMs, also claims mail order is more cost-effective. PCMA recently released a study from health care consulting firm The Lewin Group that concludes mail service is projected to save at least $85 billion on drug costs over the next 10 years. Key findings of the Lewin study include:

• Prescriptions dispensed through mail-service pharmacies are estimated to cost approximately 10% less than do equivalent retail-pharmacy prescriptions.
  
  
• If used to their full potential, mail-service pharmacies could save as much as $167 billion for consumers, Medicare and private health plans by 2016.

But other health industry stakeholders say the cost savings don't always materialize. A recent study by The Ohio State University College of Pharmacy found a 3.4% increase in drug utilization among members of the Ohio Public Employees Retirement System (OPERS) who filled their prescriptions via mail order.

Scott Streator, Pharm.D., director of health care for OPERS, said the system spent $44 million in 2005 on mail-order pharmacy. Mail order has experienced a ninefold growth in recent years, while community pharmacy has seen a fourfold growth, he told a session at last month's Academy of Managed Care Pharmacy (AMCP) educational conference in Chicago that examined differences between community and mail-service pharmacy.

While mail order provides convenience to some members, it may not necessarily be less expensive to health plans, Streator said. "The real study is does 90-day supply save more than 30-days supply," he said, adding that The Ohio State University study shows that OPERS has a 3.4% increase in days supply of mail versus community pharmacy. "Some plans could actually lose money if discounts are not steep enough at mail to account for this increased utilization," Streator said.

In addition, depending on the contract, plans may have different average wholesale prices (AWPs) for drugs at mail versus retail. The cost of dispensing fees also may not be so different for drugs at mail versus retail, Streator said. "The conclusion: While savings can get cheap at mail, if you aren't paying for dispensing fees, over half of the saving could be attributed just to dispensing costs," he said. "If the community pharmacy wanted to offer 90-day supply, they may offer a lower dispensing fee."

Pressure Continues to Level Playing Field

Rick Goebel, vice president at Pharmacy BenefitDirect, a PBM that promises full transparency, says mail order is actually "really expensive to the payer." One reason for this is that most health plans, in order to entice the use of mail, allow members to drop a copayment, he tells AIS. "They will say for a 90-day supply, you only have to pay two copays instead of the normal three copays in a retail setting," Goebel says.

But that copay can be as much as $30 to $40, he adds. Even though the plan gets a bigger discount through mail versus retail — which might be the difference between AWP less a 21% discount versus a 16% discount — "that 5% is not going to offset enough the additional copay the payer had to eat," Goebel says.

In addition, he contends there is more wastage in mail order. "You start a prescription for a 90-day supply and you're seven days into the regimen, and you find out this drug is not working, and you have just wasted 83 days," Goebel says.

Meanwhile, state legislators are continuing to push legislation that aims to level the playing field between mail order and retail pharmacy. The Lewin Group said three common policy proposals would erode the mail-service pharmacy option, and increase costs by $47 billion over the next 10 years. The three legislative proposals are:

1. "Any willing pharmacy," which means if a pharmacy is willing and able to accept the requirements of the contract, it has to be allowed to participate, whether it is mail or retail;

2. "Uniform cost sharing," which is the requirement that copays and any out-of-pocket expenses have to be the same regardless of the channels; and

3. "90-day at retail," which is a law appearing in many places that says if you offer 90-day supply through mail, you also have to allow a 90-day supply at retail.

The value of mail order rests in the fact it's a fully integrated system, Dorothy Moller-Tiger, vice president of The Lewin Group, told the AMCP conference. Unbundling the system would remove the incentives that keep mail-order prices down, she said. "Often mail order is often bundled with PBM as well, and [it] is able to gain efficiencies through the PBM. But more importantly, because of the highly automated nature of the mail-order operation, you have lower overall acquisition costs," she said.

For its part, Medco Health Solutions, Inc. contends that the playing field already is level. "Retail pharmacies have been increasingly profitable over the years and have wider profit margins than PBMs," says Medco spokeswoman Jennifer Luddy. "And retail can dispense a 90-day supply," she tells DBN. "They don't because it either reduces foot traffic, or because some plan designs don't allow for it because it is not cost effective, as the negotiated retail price for a medication is usually higher than the mail price."

Retail and Mail Finding Common Ground

Prescription Solutions' Correia acknowledges that tension exists between retail and mail-order players, but he also contends the two sectors need to work together in light of the 42 million seniors who now have drug coverage under the new Medicare Part D program.

"There is a balance between patient choice and cost savings," he says. "What's real clear is that mail service is very well received by the people who use it and the cost savings are quite beneficial. But there is going to be a need in a world in which there is a national shortage of pharmacists, and stores don't have the staff to keep up." Mail service and PBMs help cover for the lack of retail personnel that is needed to serve this population, he says.

This point is echoed by Medco, which has the capacity to fill more than 2 million prescriptions each week via mail. In 2005, Medco managed 87 million mail-order prescriptions, or 261 million when adjusted for 30-day supplies, says Luddy. "Now imagine that volume making its way through the already overloaded retail channel," she adds.

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