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MAIL-ORDER PHARMACY ANNUAL SAVINGS FOR RETIREES RANGE UP TO 21%

Executive Summary

MAIL-ORDER PHARMACY ANNUAL SAVINGS FOR RETIREES RANGE UP TO 21% if 90% of the beneficiary's maintenance prescriptions are filled via a mail order service, according to a study sponsored by the Health Insurance Association of America and conducted by the Wyatt Company. Assuming a 90% mail-order fill rate for maintenance drugs, the report suggests that mail service "produces savings of more than $100 per retiree each year." The Wyatt Company report assumes a baseline average of 15 prescriptions filled per retiree each year using retail pharmacies at an average annual cost of $489.99. The report estimates that the number of prescriptions filled a year would drop to an average of 9.4 if 90% of a beneficiary's maintenance prescriptions were filled using mail order given the larger size of mail service prescriptions (an average of 73 days versus 30 days for retail) at an annual cost of $386.04. The report estimates savings based on a 70% mail-order usage for maintenance prescriptions of 16.5% and savings of 11.8% if one-half of a beneficiaries maintenance prescriptions are filled via mail-order. The report uses two different formulas to estimate prescription drug costs from a retail pharmacy and a mail-order pharmacy. To compute retail pharmacy cost estimates, the report uses the formula -- AWP plus 8.25% plus $4.00. For mail order prescription costs, the report uses a different formula -- AWP minus 13% plus $2.50. "The mail service savings would be even greater for populations that use more prescriptions, or for plans that have negotiated better discounts," the report states, adding: "One national medical plan recently negotiated a mail service discount of AWP minus 22% with no dispensing fee." The report, released at an Aug. 25 press briefing, analyzes the impact of three types of what HIAA terms "anti-managed care" laws for prescription drug pricing -- "same state license," "any willing pharmacy" and "benefits differential" laws. The report lists 16 states that currently have same-state license laws, which require that beneficiaries receive prescription drugs only from in-state pharmacies. Mail-order pharmacies in these states would, in most cases, be required to have at least one pharmacist licensed in the state to which a prescription is sent and to meet a defined set of facility standards. Same-state license bills have been introduced in two other states this year, according to HIAA. HIAA VP-Managed Care Anthony Masso declared at the briefing that prescription drugs represent "one of the last frontiers" in controlling costs through managed care systems. He noted that approximately 150 "anti-managed care" bills affecting pharmaceuticals have been introduced in state legislatures this year. Two have been passed so far this year. Masso added that HIAA is not actively lobbying for the repeal of currently established state "anti-managed care" laws, but rather attempting to prevent the implementation of additional ones. The survey also considered the cost implications of "any willing pharmacy provider" laws, which exist in 14 states and have been proposed in an additional 11 this year. Under these laws, according to the report, managed care pharmacy plan sponsors are required "to establish a specific, objective set of criteria for selection of participating pharmacies and to allow any pharmacy that met these criteria to participate." HIAA argues that such laws "undercut the negotiating position of pharmacy [preferred provider organizations] because they are no longer able to deliver additional market share to participating pharmacies." The study concludes that a network with 30% of a market's prescriptions and 40% of a community's pharmacies (without a "willing provider" mandate) produces an overall claims cost reduction of 17.7% in relation to a "worst case scenario" where all pharmacies are included in the network. "Benefit differential" laws, which establish a maximum difference in benefit payments for drugs dispensed by participating and nonparticipating pharmacies, "may deflate the purchasing power of PPO plan sponsors by limiting their ability to steer beneficiaries to participating providers, thereby reducing the economic value of the contractual relationship between the sponsor and the pharmacy," the report says. Six states currently have these mandates, and five others have proposed them in 1992. Moving from a 30% payment differential to 15% would increase direct claims cost by an estimated 1.7%, according to the report; however, the report adds that the administrative cost impact of complying with the more stringent regulations was not included in the estimate, and could add significant costs. In arriving at the estimated impact of the three "anti-managed care" provisions on savings, Wyatt estimated the baseline costs of prescription drugs in an unmanaged retail environment, then defined the percentage savings available in a typical managed pharmacy PPO and through a typical mail service organization. Wyatt found a "savings of 18.6% from the retail baseline considering the PPO discount alone"; the projected savings increased to 21.2% when it was assumed the managed care plan could "increase the generic dispensing rate from the retail baseline of 19.3% to a PPO standard of 26.4%." Wyatt notes that "key determinants of modeled savings are price discounts, generic substitution and the market penetration achieved by preferred providers."
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