Mail order fallacy.

Implications: The number of mail order prescriptions dispensed in this country continues to rise. The major retail pharmacy chains all own or have a financial interest in the the PBM/mail order drug business. Large corporate benefit managers are beginning to question some of the dubious practices of PBM's.

Analysis:  Prescription drug costs continue to increase at a rate greater than that of most other health care expenditures. Increasing expenditures on prescription drugs can, in some cases, be a positive thing. In the case of medication therapy management services (MTM), many times drug expenditures will go up while other corresponding medical costs will decrease.

Despite the fact that the proper use of prescription drugs can lower overall health care costs, most corporate benefit managers are looking for ways to trim drug costs. In an effort to control or reign in drug costs, many uninformed or misinformed benefit managers look to PBM's and mail order pharmacies for their panacea.

Since most PBM's own their own mail order pharmacies it is not surprising that they self-refer and recommend a mail order option (or mandate) for their clients.

On the surface, these pharmacies offer a significant savings to their clients. This is ostensibly achieved by economies of scale related to their large purchasing power and their use of automated dispensing devices.

However, many coprorate benefit managers do not understand the intricacies of the retail pharmacy industry. The sophistry proffered by the PBM's is too often eagerly accepted by corporate managers in an effort to deal with ever-increasing drug costs. Most benefit managers do not understand the complicated pricing policies of drug manufacturers or PBM's, nor do they understand the differences in terms such as AWP, WAC, MAC, AMP, FUL, DP, etc.

What may appear to be a very attractive contract from a mail order pharmacy compared to a retail pharmacy often has manifold untold profit components for PBM's and mail order pharmacies. A large discount off of AWP on brand name drugs will often be more than offset by huge margins on generic drugs. When there are no generics available, drug formularies can be manipulated to maximize rebates on brand-name drugs from drug manufacturers to PBM's. These drug formularies often are based more on PBM profitability than product efficacy.

This recondite industry may be changing however. Until recently, most PBM's claimed to have have no fiduciary responsibility to their clients. Recent court decisions have found otherwise. In addition to this, many benefit managers are beginning to question PBM practices and are demanding full disclosure and transparency from PBM's and their mail order subsidiaries.

All the recent attention being cast on PBM's and their arcane business practices has spurred the development of newer "second generation"PBMs'. PBM's whose business models espouse transparency and disclosure to their clients. URAC, an independent, non-profit organization has recently developed accreditation standards for PBM's.

Will mail order pharmacies go away? I doubt it. As our population grows older and more patients take more prescription drugs, mail order prescription numbers will undoubtedly increase, although the trends may flatten out a bit. Are PBM's necessary and do they serve a purpose? Absolutely. PBM's are an essential element to maintaining and determining patient eligibility for drug benefit plans and for prescription claims processing. However, unless they are willing and able to provide full disclosure to their clients, they may be on the way out.