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MAIL SERVICE PHARMACY DRUG "WASTAGE RATE"

Executive Summary

MAIL SERVICE PHARMACY DRUG "WASTAGE RATE": about 2.5% of a 90-day mail order supply is not used compared with approximately .8% for typical 30-day supply from a retail outlet, according to a recent study prepared for the Medco mail order pharmacy services group. The larger 2.5% "wastage rate" has "minimal" impact on the potential cost savings from mail service plans, the study maintains. The study, a cost comparison of mail service, traditional major medical and third-party card dispensing plans, was conducted for Medco by the Boston Consulting Group. The amount of unused drugs found in 90-day mail service plans "is not a serious problem," due to factors offsetting the cost of wasted drugs, a summary of the report said. However, the report adds, "the unused drug rate does increase substantially . . . to 6.1% for 180-day MSP [mail service pharmacy] plans." Therefore, the "optimal range of days dispensed" in terms of cost savings is between 72 and 120. Despite more unused drugs and higher drug utilization, the study found that the potential per unit cost savings on maintenance drugs from mail service plans is 30%-35% higher than with major medical or card plans. Medco says it has confirmed this cost savings potential in a second study, scheduled to be released "shortly." Because mail service plans offer first-dollar coverage, the expected utilization rate is 10%-20% higher than major medical plans, which usually include a deductible, the report notes. Factors contributing to lower mail service costs include an estimated 10%-30% in ingredient price discounts to customers on the average wholesale price (AWP) of ingredients. Card plans "generally offer no discounts" and major medical plan ingredient prices "are marked up substantially over AWP," the report stated. Higher generic dispensing rates in mail service plans also reduce costs, the study said, estimating that generic dispensing rates for mail service plans are approximately 24% for maintenance drugs versus 12% at retail pharmacies. Further, the report noted, most mail service plans charge no administrative fees, which may account for over 15% of total costs in major medical plans. Maintenance drugs "typically represent 70%-80% of total drug expenditures," the study noted. Therefore, when mail service unit cost savings of 30%-35% are translated to the total drug bill, savings are reduced somewhat, to 20%-25%, the report said. The total drug bill represents the net cost for the employer and employee, per employee, per year.
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