This is one of those questions that eludes many people so let me try to explain it here. It’s one of the major constraints for PBMs in terms of driving mail order volume. Most (all) PBMs select patients to target for retail to mail programs based on a win-win-win criteria.
- Does the patient save money?
- Does the plan sponsor save money?
- Does the PBM make money (net of costs of acquisition)?
In most cases, the patient will save money since the default plan designs incent mail use. Typically plans are set up to be roughly 2x the retail copay meaning that you get a 90-day supply for twice the cost of a 30-day retail supply. The only time that this sometimes doesn’t work is on generics where the mail order price could be more than the retail price. Which shouldn’t happen if you have a MAC (maximum allowable cost) list being used at both retail and mail.
BUT, the problem for clients is that over time as copays have gone up it’s possible that the copay savings they give to the patient as an incentive to choose mail could outweigh the savings they get from the PBM. For example:
- Let’s assume it’s a brand drug.
- Let’s assume that the average cost for a 30-day supply is $100 (and therefore $300 for a 90-day mail order supply).
- Let’s assume that the average discount at retail is 18% and the average mail order discount is 23%. (i.e., the client pays $82 for a 30-day supply at retail and $231 for a 90-day supply at mail)
- Let’s assume that the copays are $30 at retail for the brand drug and $60 at mail. (i.e., the client is passing on $30 of their savings to the patient)
- Therefore, in this case, the client is saving (pre-copay) $15 by moving a drug to mail order. (5% incremental discount times the $300 drug cost)
- The client saves $15, BUT they pass on a $30 copay savings to the consumer meaning that they pay an extra $15 for each of these brand scripts moved to mail. PROBLEM!
So, the question is what to do here. Well, first most PBMs or consultants should be recommending mail order copays that are 2.5x or more the retail copay. AND, they should be recommending differences in the copay multiplier based on the tier and the actual discounts received to make sure that the plan sponsor is not upside down.
At this point, you should be saying “well this seems so easy”, BUT it’s not. Plan sponsors don’t want to reduce the copay savings for consumers because it’s viewed as a takeaway or viewed as not being competitive. They are stuck with this 33% savings framework that worked when copays were $10-15. It’s a real issue which every account team within the PBMs should be focused on.
Now, on the final point…the PBM making money. I’ve already talked about this many times. The PBM makes money on generic medications at mail. This margin underwrites all the other business which is often a loss leader. [Or at least this was the model a few years ago as some people remind me.]