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MAIL ORDER Rx COSTS ARE 5% HIGHER THAN CONVENTIONAL DRUG PLANS

Executive Summary

MAIL ORDER Rx COSTS ARE 5% HIGHER THAN CONVENTIONAL DRUG PLANS, according to a study conducted by Sieben & Associates on behalf of McKesson's Pharmaceutical Card System (PCS) subsidiary, a Scottsdale, Arizona-based processor of third-party Rx drug claims. The results of the study showed that the actual Rx charges by a patient group using mail order services exceeded the charges of a control group of patients utilizing conventional pharmacy services by 5%. "Although the mail order drug option groups did experience lower unit costs of 4%, these unit savings were wiped out by increased volumes of ingredients and days of fill of slightly over 9%," Sieben reported. "While the unit cost savings in mail order fills are significant, they are more than eliminated by the increased volumes dispensed," the study concluded. "These increased volumes represent an acceleration of plan sponsor costs, since there is a prepurchase of future monthly refills; and they increase exposure to the cost of spillage, or wastage, that results from either patient noncompliance with the therapy or physician modification of the treatment." Sieben noted that the more mail order was used, the higher the excess costs to a third party drug plan due to the excess volumes dispensed. "The data for the several drug classes was analyzed by relative mail order pharmacy usage, and a strong correlation was identified between the extent of mail order usage and the degree of excess actual to expected mail order drug option charges," the study states. In addition, with the excess costs representing from 56% to 70% of the separate costs for Rxs filled at mail order pharmacies, Sieben suggested that it is "unlikely that further reductions in mail order pharmacy unit costs can overcome the increased volumes of ingredients dispensed to mail order patients." PCS noted that the mail order groups included some with both 90-day and 180-day dispensing limitations. Because there is more wastage with a 180-day limitation, Sieben conducted a separate analysis of the data, which determined that mail order charges would have exceeded conventional pharmacy charges by 2.7%, instead of 5%, if all the plans established a 90-day maximum. Based on the study conclusions, PCS recommended that plan sponsors "limit the dispensing limitation to no more than 90 days." PCS also suggested that sponsors exclude antiarthritics as a drug available under mail order plans "as it is obvious that wastage is very high for this class of drugs." Commenting further on the question of drug class usage, PCS acknowledged: "While the Sieben study clearly indicated that total costs were higher under a mail order plan, the study indicated that there were potentially large mail order savings for certain classes of Rx drugs." These classes, PCS added, "consist of drugs where the amount of Rx-switching and resulting wastage is relatively low." PCS said it initially decided to review its experience with mail order drug plans in 1984 when it finally had a "large enough block of mail order cardholders to produce statistically valid analysis." At that time, PCS commissioned Sieben & Associates to analyze PCS data. The study includes claims activity from April 1, 1984 through March 31, 1984. As a follow-up, the McKesson subsidiary has commissioned Sieben to analyze a second year's data; engaged Towers, Perrin, Forster & Crosby to perform pre- and post-mail order studies to better analyze mail order costs; and contracted Milliman & Robertson to make recommendations on how to develop a "truly cost effective plan."

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