Mail-Order Study Draws Strong Criticism
From PBM Industry, Which Calls It 'Flawed'

Drug Cost Management Report, July 30, 2004

A recent study by RxEOB and a professor of pharmacy at Virginia Commonwealth University is drawing criticism from some large PBMs. The study highlights the experience of one health plan that implemented a mail-order program, which instead of lowering total pharmacy costs, resulted in higher costs for the plan.

DCMR's coverage of these findings prompted a letter from the Pharmaceutical Care Management Association on behalf of its PBM members, calling the study "flawed" and noting that it has not been peer reviewed. Mark Merritt, PCMA president and CEO, cautions in the letter that broad-based conclusions should not be drawn from the study because it is "based solely on a data sample pulled from only one company's misguided experience."

"We're not necessarily trying to extrapolate this data, but we think they are at least compelling enough to suggest to all health plans that they at least look at their savings," responds study author Norman Carroll, Ph.D. The report was designed as a modeling study to help determine if payers are actually realizing savings from mail-order.

The health plan studied was using a mail-order pharmacy that was not owned by a large-size PBM, "which means the plan was not benefiting from the scale, technology advantages or experience of larger PBMs…scale and implementation expertise are essential to maximizing savings," Merritt writes. In addition, he contends that the sample of the precise maintenance drugs used in the study could have produced skewed results.

Sure, say the authors. One could skew the results by manipulating the list of drugs studied, but that's not what happened here. Carroll and RxEOB President Robert Oscar agree that a larger-size PBM may have advantages in scale. But they contend that there are other factors in contracts with large PBMs that raise questions about alignment of incentives with payers. "The contract terms [in the case studied], at least from what I've seen, seem close to or consistent with rates quoted by other mail-order pharmacies. There may be other issues of scale, but we didn't study that. As is true with every study, if you change the assumptions, you might get different results," says Oscar.

PCMA takes issue with the study's premise that brand discounts in mail-order are 17%. "PBMs achieve substantially deeper discounts on brand-name drugs than the average of 17% - by as much as 20% or more," writes Merritt. Carroll counters that the 17% figure was not a premise, but was calculated from the actual data that the PBM in the study used to bill the health plan. "So if there are other discounts that are not reflected in their bills," then those were not taken into account.

Also not taken into account, however, were generic discounts in retail and mail, which PCMA notes "are a standard in the industry. The mail-order environment affords more opportunities to…have physicians prescribe therapeutically equivalent cost-saving generic drugs."

When a health plan drives utilization to mail-order, with a typical 90-day fill at a lower copay, the plan loses the monthly copay revenue that it would have received if those prescriptions were filled at retail every 30 days. Both PCMA and Oscar agree that it is important for the benefit structure to be carefully designed to prevent this type of misalignment of interests. The disparity shown in this particular example "represents poor plan design and should have been forecast, and modified, before the program was put into place. An experienced PBM would have provided counsel to avert a 'negative return' situation," contends Merritt.

Carroll and Oscar say that mail-order definitely has a place in the pharmacy benefit when done correctly. While the identity of the health plan and PBM involved in this example are confidential, the study authors say that a real health plan lost money by implementing a fairly typical mail-order benefit structure with the help of a PBM. They advise all health plans to analyze the impact of lost copay revenue when determining savings from mail-order.

Article provided to Prescription Solutions by Atlantic Information Services, Inc., Washington, D.C. Copyright © 2004 Atlantic Information Services, Inc. All Rights Reserved.

© 2004 Prescription Solutions. All rights reserved.

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