90-Day versus Mail

For those of you that are academics, here is a classic business school case type situation.  If you are a PBM who owns their own mail, what do you do if a retailer offers you a 90-day retail rate where you could make high margins with limited costs?

Here are a few options:

• Implement a new custom network which includes the retailer’s 90-day pricing.  Assuming you make spread, this allows you to make money with much lower support costs per Rx and limited infrastructure.  The downside is that as your mail decreases then you lose some negotiating leverage in the future.  (I.e., The implied politics here are that by having a strong mail order presence you can negotiate with retail for better retail rates.  Is this true?  Not sure.)
• Don’t implement the 90-day network.  This allows you to continue driving mail order, but it doesn’t allow you to make more spread on patients that don’t want to go to mail but want 90-day scripts.  But, you also leave money on the table for your clients who should be saving money with the 90-day network.

This is where the business model gets tangled up with the financials.  Obviously, there is some optimal mix to create the best win-win, but the retailers and mail order pharmacies are often in disagreement with limited apples-to-apples data.

But, while we are at it, why limit prescriptions to 90-days.  Depending on the drug (i.e., maintenance, risk of abuse) and the probability of the patient not being covered, it certainly makes sense to a mail order company to offer 180-day fills (for example).  From a retail perspective, you want the continuous foot traffic so longer is not better.  90-day (I believe) is only as a response to mail.  It is not an optimal situation.

Obviously, I could debate the merits of patient choice here.  The patient should be able to get their desired prescription at whatever channel especially if their copayment amount keeps the payor whole.  (For example, if it costs the plan $5 more per month to get the drug at retail, why shouldn’t the patient pay for that privilege.)   I wonder what would happen if we reversed the market positioning not to say you save money with mail, but to say you are penalized if you use retail for maintenance drugs.  Not required…just pay more.  (Today, everyone is conditioned that they get a 90-day supply at mail for the price of a 30-day supply at retail versus paying an additional $5 to get a 30-day supply at retail.)