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Executive Summary

MEDCO CONTAINMENT WILL OPEN MASSACHUSETTS PHARMACY BY JAN. 1, 1992 as part of its contract to provide a mail-order pharmacy service to Massachusetts Medex (Medigap) subscribers. The projected opening date, pending regulatory approval, follows by eight months the initiation of Medco mail-order services in the state. If Medco can meet that date it will live up to a commitment made during its initial negotiations with the state. Medco is currently providing service to Massachusetts from a pharmacy in Tampa, Fla. The firm operates 10 pharmacies: two each in Tampa and Columbus, Ohio and one each in Albany, N.Y.; Harrisburg, Penn.; Dallas; Las Vegas; Spokane, Wash.; and in New Jersey, where Medco is headquartered. The proposed use of the Tampa pharmacy to fill Mass-Medex prescriptions was questioned by the Massachusetts Medical Society (MMS) and the Massachusetts State Pharmaceutical Association (MSPA) at a 28-day hearing in late 1990 conducted by the state Division of Insurance. The MMS and the MSPA argued that Blue Cross/Blue Shield's plan to accommodate the differences in the Florida and Massachusetts' formularies would cause confusion among patients and physicians and compromise patient safety in certain instances of generic substitutions for brand drugs. Florida uses a "negative" formulary which specifies drugs that cannot be substituted while Massachusetts has a "positive" formulary identifying drugs that are interchangeable; as a result, approximately 36 drugs are substitutable in Florida but not in Massachusetts. MMS estimates that those 36 drugs represented 8,794, or 0.9%, of the 1 mil. prescriptions filled by the Medex program during the 1990 third quarter. BC/BS put the percentage at 0.3%. While orders are filled in Florida, the Blues suggested having Medco contact Massachusetts physicians in those instances to give the prescriber the option of substituting a generic drug. The Insurance Division approved the plan, agreeing with BC/BS that a lack of national uniformity for substitution standards suggests that such differences pose "no significant threat" to patient safety. In addition, the division noted BC/BS's assurance that an in-state pharmacy would be operational within six months of offering the mail service benefit to 10% of its membership, as per its agreement with Medco. The Massachusetts BC/BS estimates that Medex subscribers using the Medco mail service will reduce their out-of-pocket prescription drug expenses by almost 30%, or an average savings of $ 1.94 per month. The result will be a total savings of $ 5 mil. a year for the 214,000 subscribers to Medex 3 or Medex Standard. The MSPA argued at the 1990 Medex hearing that the cost benefit to mail-order users discriminates against Medex subscribers who prefer retail pharmacies, because they will be subsidizing the new program without benefiting from it. Medex mail order users benefit from a provider-submit plan which requires a $ 2 copayment for generic and a $ 10 copayment for brand-name maintenance drugs; Medco bills BC/BS for the remainder. BC/BS projects an initial shift of over $ 35 mil. in prescriptions from retail pharmacies to mail-service, or 27% of the prescription volume and 36.6% of the dollar volume as a result of the benefit design.

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