February 9, 2011 
I continue to be frustrated by NCPA (National Community Pharmacists Association). While I agree that the pharmacist – patient relationship is important, they continue to blatantly misrepresent the facts to make their point. On Tuesday, they sent a letter to Kathleen Sebelius, Secretary of HHS, stating the following:
While we strongly support your efforts to provide the states with measures to drive pharmaceutical program costs down, we respectfully disagree with the statement that mail order is a potential cost-savings program strategy. Experience has shown that mail order pharmacies almost never deliver the savings they promise and are often ultimately more expensive than community pharmacies. In 2009, retail pharmacies drove a 69% generic dispensing rate (GDR) while the three dispensing services of the largest PBMs – Medco Health Solutions, Inc.; Express Scripts, Inc.; and CVS Caremark – had GDRs under 58% for the exact same time period – leaving potential savings on the table resulting from increased brand usage.
Either they are naïve or they think HHS is. You can’t compare the GDR at retail pharmacies to the GDR at mail order pharmacies without significant adjustment for acute medications and seasonal medications that aren’t appropriate for mail order. Historically, those medications have had higher generic utilization than other conditions (e.g., antibiotics).
On the other hand, maybe they aren’t a history fan. The only independent study that I’ve seen comparing the two channels specifically on this issue was published in 2004 by Harvard in Health Affairs. It looked at claims from 5 PBMs across both channels, made the adjustments, and concluded that while retail had a slightly better GDR than mail, it had a lower generic substitution rate. It also pointed out that the majority of the different was attributed to the statin class which was over-represented in the mail order channel (and at the time was mostly brand prescriptions).
Or, maybe they haven’t looked at the chain GDR versus the independent GDR…In this presentation, you see what I would expect – chain GDR > independent GDR. Combine that with the percentage of scripts dispensed (i.e., weighted average) and the normalized GDR from the Health Affairs study probably would favor PBMs over independents.
Since PBMs make over 50% of their profits on generic at mail, it wouldn’t make sense for them to sub-optimize this area. Given the changes in drug mix over the past 7 years (i.e., more generics), I would hypothesize that if this study were done again you would see mail order matching or exceeding retail GDR especially GDR for independents.
Enabling Healthy Decisions 
Preston – You can’t really think that there are less errors at retail than mail. Those studies have been around for a while. Automation for accuracy is an obvious value prop.
The other thing which has to be taken into here is whether you are including cash claims in the analysis. Uninsured patients are more likely to use generics and don’t have access to a mail pharmacy. Therefore, generic fill rate is higher.
You still do not get it, concerning the roll the face to face dispensing value to prevent interations, and dispensing errors which could lead to enormous costs to the payers, you are talking penney vs dollars! It also stands to reason that in order to reduce costs, generic replacement and patient education at the point of despensing is a must in order to accomplish the goal of reducing Rx costs for the payers.
George, well at least you and NCPA can agree on the importance of the pharmacist-patient relationship!
Respectfully, that study is now a relic of 2003, comparing generic dispensing rates (GDR) when mail GDRs were below 40% and retail GDRs were below 50%. Even if one accepts it and “acute” medications are “normalized,” the retail generic dispensing rate is higher. The so-called “aggregate” GDR for mail is still 10 percentage points under retail – today. Even a 1-2 point delta is significant. IMS Health concluded that every 2% increase in generic utilization in Medicaid programs saves taxpayers an additional $1 billion annually.
As to the profit motivations of pharmacy benefit managers (PBMs), that is more complex. Linda Cahn argues in Managed Care Magazine that PBMs continue reaping huge brand drug rebates by manipulating brand and generic drug definitions:
“…when it is in PBMs’ interests to classify more drugs as generics, they magically recharacterize the drugs as generics. For example, PBMs wanting to make their generic substitution rate appear greater reclassify drugs that they invoiced as brands as generics when calculating the number of generic drugs dispensed. Similarly, if a contract calls for a PBM to pay a specified rebate ‘per brand drug claim,’ it can reclassify drugs that were invoiced as brands as generics for the purpose of calculating rebates…”
http://www.managedcaremag.com/archives/1009/1009.cahn_generic.html
ORIGINAL BLOG POST CRITICIZING NCPA:
I continue to be frustrated by NCPA (National Community Pharmacists Association). While I agree that the pharmacist – patient relationship is important, they continue to blatantly misrepresent the facts to make their point. On Tuesday, they sent a letter to Kathleen Sebelius, Secretary of HHS, stating the following:
While we strongly support your efforts to provide the states with measures to drive pharmaceutical program costs down, we respectfully disagree with the statement that mail order is a potential cost-savings program strategy. Experience has shown that mail order pharmacies almost never deliver the savings they promise and are often ultimately more expensive than community pharmacies. In 2009, retail pharmacies drove a 69% generic dispensing rate (GDR) while the three dispensing services of the largest PBMs – Medco Health Solutions, Inc.; Express Scripts, Inc.; and CVS Caremark – had GDRs under 58% for the exact same time period – leaving potential savings on the table resulting from increased brand usage.
Either they are naïve or they think HHS is. You can’t compare the GDR at retail pharmacies to the GDR at mail order pharmacies without significant adjustment for acute medications and seasonal medications that aren’t appropriate for mail order. Historically, those medications have had higher generic utilization than other conditions (e.g., antibiotics).
On the other hand, maybe they aren’t a history fan. The only independent study that I’ve seen comparing the two channels specifically on this issue was published in 2004 by Harvard in Health Affairs. It looked at claims from 5 PBMs across both channels, made the adjustments, and concluded that while retail had a slightly better GDR than mail, it had a lower generic substitution rate. It also pointed out that the majority of the different was attributed to the statin class which was over-represented in the mail order channel (and at the time was mostly brand prescriptions).
Or, maybe they haven’t looked at the chain GDR versus the independent GDR…In this presentation, you see what I would expect – chain GDR > independent GDR. Combine that with the percentage of scripts dispensed (i.e., weighted average) and the normalized GDR from the Health Affairs study probably would favor PBMs over independents.
Since PBMs make over 50% of their profits on generic at mail, it wouldn’t make sense for them to sub-optimize this area. Given the changes in drug mix over the past 7 years (i.e., more generics), I would hypothesize that if this study were done again you would see mail order matching or exceeding retail GDR especially GDR for independents.
Zach – I think you would find we agree on lots of things – role of pharmacists, value of MTM, 90-day retail, limited networks, but I suspect we disagree on the value of the PBM.
Since mail marketshare has been flat for a while, I think independents have lost share to chains not PBMs.
My problem is the blatant overstatement of the delta. If it’s 1-2 percent than argue that point to HHS don’t play up a misleading data point.
I thought I would follow-up with a few older posts to look at:
1. Future of Pharmacists – https://georgevanantwerp.com/2010/11/03/the-future-of-pharmacists/
2. Back to the Future: The Role of Pharmacists – https://georgevanantwerp.com/2010/07/29/back-to-the-future-the-role-of-the-pharmacist/
And, I believe you would find a key role for independent pharmacies in limited networks since they do address many coverage gaps in rural areas. But, in busy urban areas, they have find ways to justify themselves in a competitive environment.
Does NCPA have studies that show improved health outcomes of patients served at their stores versus others?
Having been in Pharmacy at Store level management, and calling on the Pharmacies for 40 years, as a rep, one important fact you are not considering at all: The community Pharmacists has and will see the patient eye to eye and consul patients when despensing meds, Most Chains do not see the patients when the Meds are dispensed and Mail order, well, I rest my case. How do you factor in the cost savings for proper explanations to the patient on the method of taking the drugs, interactions with other prescriptions, and OTC ingestion and how it may adversely effect the patient’s?, and the list goes on. The piece of paper that explains this usually is not understood or even read by the patient. How many lives are positive effected by this interation by the community Pharmacists?
Preston – I never have said that I’m against the independent pharmacy model or the pharmacist – patient relationship. I’m a big fan. I just disagree with distorting facts to try to defend a business model that needs to be updated. We need to find a model that reimburses and rewards pharmacists for helping patients understand their medications and conditions. I’m all for it.
The answer is to separate the IT piece (the PBM), the Rx distribution piece, and the clinical piece into different payment categories.
Return PBMs back to an adjudication system for maximum cost reduction and patient/payer convenience reducing the PBM maximum cost to ~$2.00 per Rx in total, use Acquisition Plus pricing with a 90 supply regardless of distribution point, pay a small dispensing fee for distribution, and add a professional dispensing fee only for distribution systems that show documented overall medical cost reductions and/or documents results like reduced cholesterol numbers, i.e. improved patient health over time.
This payment system will let the market decide what is best for the payer and patient. Be it mail order, PBM, retail, or direct to consumer.
This model is available but the momentum of the existing system is huge and consultants are constantly trying to figure ways for the existing momentum to continue, rather than tackle the real problem of health outcomes.
You lost me with your last paragraph. Why would the generic profitability incentive be any different for mail than for retail? Furthermore, why would your premise (“i.e. more generics”) favor the performance of mail over retail?
George – Thanks for your comment. (BTW – Are you the George Saunders from ABC who I met years ago with Dan Cordes?)
I was trying to hit two points:
* The letter from NCPA implies that the PBMs want brands to be dispensed. My point is that that’s not true. It may have been true circa 2002, but now, brand drugs are generally money losers and the rebate dollars go to the clients.
* With the comment about “more generics”, I was trying to address the fact that in 2003 when the study was done there were several maintenance drug classes (e.g., statins) which were mostly brands. That has changed so mail order is less likely to be disadvantaged after adjusting for acute medications.
Does that help?