Special delivery: most studies show mail-order pharmacies save money for insurers and consumers, but retail stores are demanding to be an option, particularly for Medicare beneficiaries.

Neither snow nor rain nor heat nor gloom of night can keep consumers from receiving prescription medications when it comes to mail service. That convenience is driving up the number of individuals choosing to fill chronic maintenance medications via mail order. But it's not just the convenience factor that's adding to the appeal. Financial incentives, such as fewer copays, and lower-cost drugs are keeping dollars in consumers' pockets. Studies show that drugs by mail are about 10% cheaper than those bought at retail outlets.

Savings also are carrying over into the Medicare program. A recent study by the Pharmaceutical Care Management Association, the national association representing pharmaceutical benefit managers, revealed that ordering prescription drugs by mail rather than at a store pharmacy could save the nation's insurance program for the elderly and disabled up to $86 billion over 10 years.

But retail pharmacists have been up in arms over making sure Medicare beneficiaries have a choice when it comes to where their prescriptions are filled.Two years ago, the retail pharmacy industry waged a debate over the issue--a debate that continues today--and pushed for changes to the Medicare program to level the playing field so that beneficiaries have a choice between retail and mail order when it comes to filling 90-day supplies of medications. However, Medicare Part D plans retain the ability to charge differential copays between mail and retail, and while retail will be able to provide 90-day dispensing, some industry experts say mail order remains less expensive for seniors in Medicare.

By Leaps and Bounds

Prescription drugs are the most rapidly increasing component of U.S. health-care costs. In 2003, $179.2 billion was spent on medications, according to the Federal Trade Commission.

A growing number of those prescription fills are being dispensed via marl service. In 2003, $33.9 billion in sales was generated by mail-order drugs, an 18% increase from the prior year, according to IMS Health Inc. That year alone, 213.9 million prescriptions were filled via mail service in the United States.

Driving the lower prices that make mail-order drugs attractive are bulk purchasing and lower overhead costs, according to research by the national health-care and human services consulting firm Lewin Group.At its current level of market penetration, according to the group, mail service will save the health-care system slightly more than $78 billion in drug expenditures from 2006 through 2015, including $44.3 billion for Medicare and $34.6 billion for the commercial sector. Jenny Bryant, vice president of Lewin Group, said that if all prescriptions that could appropriately be filled through mail service were filled through the channel, the drug expenditures would be reduced by an additional $99 billion from 2006 to 2015, including $42.2 billion for Medicare and $56.8 billion for the commercial sector. The result: cumulative savings of about $177.9 billion to the health system during the next decade.

And consumers realize a large part of that savings. "A consumer who pays about $5 for a prescription at a retail pharmacy may pay only half of that through mail order," said Bryant.

Pick and Choose

Health plans have generally encouraged the use of marl service for members requiring multiple refills on chronic maintenance drugs, such as high blood pressure and diabetes medications. But not everyone is as convinced that mail order should be incentivized as a distribution channel of choice. A challenge several years ago from the retail industry prompted some changes to be made to the Medicare program.

In 2003, during the congressional Medicare prescription drug debate, retail pharmacies sought to prohibit Medicare prescription-drug plan sponsors from being able to offer plans with a "captive" mail-service pharmacy benefit. Today, under the Medicare Modernization Act beneficiaries can choose where to fill 90-day supply medications--either through mail service or a community pharmacy.

In addition, beneficiaries have similar consumer choice provisions in the new Medicare Part D, which is slated to go into effect Jan. 1, 2006. The program, which is expected to cost $724 billion by the year 2014, will provide beneficiaries the option to receive drugs by mail order or in person. Lewin Group estimates that about 23.6% of drug spending for Medicare beneficiaries will be for drugs filled by mail in 2006--about the same proportion as today.

A debate between the retail pharmacy industry and traditional pharmacy benefit managers over the issue prompted a look into the savings of the various distribution channels. Section 110 of the Medicare Modernization Act required the FTC to conduct a study to determine whether group health plans using PBMs incur higher costs than plans using "non-integrated" mail-service pharmacies and/or retail pharmacies. In a unanimous ruling in September, the FTC found that PBM mail-service pharmacies offer large employers, unions and health insurers lower prescription drug prices than the retail pharmacy industry's chain drugstores and mail-service pharmacies. The FTC examined 26 PBM contracts with plan sponsors in its study, as well as data from retail pharmacies.

When asked what the FTC report means for the retail industry, Mary Ann Wagner, senior vice president of pharmacy, policy and regulatory affairs for the National Association of Chain Drug Stores, said as of the beginning of October, the industry had not yet finished its analysis of the report. She said the findings' release coincided with Hurricane Katrina, and retail pharmacies were concentrating efforts on making sure medications and other needed supplies were sent to assist evacuees.

Eric Elliott, vice president of Aetna and president of its pharmacy management business, is a former retailer. He said he understands the logic around the retail and PBM debate. "From a PBM standpoint, what retailers most object to is a mandatory program where a person gets a few prescriptions at retail and then has to go to mail order." Aetna doesn't require such programs unless an employer adds it into its benefit design. Aging population studies, he said, indicate that older patients are more dependent on their pharmacists, and retail pharmacists argue that if their distribution model continues to provide value, then members shouldn't be forced to leave their stores. "I think as it exists now, the Medicare legislation is pretty open to allowing consumer choice and not force them away from retail and into mail order. It should be an option." said Elliott.

Blue Cross and Blue Shield of Minnesota was one of the first companies in the United States to allow members to buy a 90-day supply of prescription drugs for chronic conditions from retail pharmacies as an alternative to mail-order services. The Minnesota Blues' "90dayRx" program is available through more than 600 participating Minnesota retail pharmacies, which include single- and multiple-location pharmacies, discount retail store Target and pharmacy chain Walgreens.

Finding Value

Some individuals and health plans point to specific benefits garnered from the use of mail order.

Fewer copays are one benefit. Humana Inc. members, for instance, generally pay two or two-and-one-half copays for a 90-day supply of medications, compared with the three copays they pay at a retail pharmacy for the same quantity. But as copays continue to rise, it's becoming more challenging for payers to give up full copays from members, said William Fleming, vice president of pharmacy and clinical integration for the Louisville, Ky.-based health plan.

Mail order also provides a good opportunity for health plans and PBMs to communicate with patients about more cost-effective and higher-value medications, said Rob Seidman, vice president and chief pharmacy officer for WellPoint Inc. "Since patients aren't waiting at a pharmacy, we have a good window of opportunity to communicate with members or physicians about the gold standard generics currently available, or soon to be available, like generic Zocor for lowering cholesterol."

Outreach for mail service begins with a value proposition about money and getting an advantage from the service's use, said Fleming. "We must think of it as a service model and deriver a good model that makes people want to use it--that's when you'll see a rise in utilization."

But when it comes to prescription dispensing, retail pharmacists believe they also have a lot to offer. "Our greatest asset is the face-to-face interaction with pharmacists, especially to certain populations like seniors and Medicare beneficiaries." said Wagner. "If they have questions, are taking a medication for the first time or are confused about directions on a medication, it's important to have a talk with a trusted pharmacist. I don't know that you can put a price on that."

The problem is that there's been a perception that mail order is cheaper, Wagner said. "For some reason, people thought it was a law or something that only mail service could sell in 90-day quantities, but now many employers are starting to see that they can get 90 days at retail just as easily as through mail."

While some health plans believe mail service helps drive down costs, others, such as Pennsylvania health insurer Highmark Inc., see it somewhat differently. "It's a convenient tool for many people and we're happy to provide it as one of our offerings, but the reality is that we've had to make sure copay amounts for mail service actually don't end up costing us money," said Robert Wanovich, director of clinical pharmacy services.

Buying in Bulk

Despite the choices consumers have when it comes to filling their prescriptions, many health insurers anticipate a continued increase in mail-order utilization. The aging population will help drive the rise, said George VanAntwerp, senior director of prescription distribution for Express-Scripts. "There are favorable trends in terms of home delivery use. With copays increasing and utilization going up, mail order offers savings and services that make it an increasingly attractive feature."

The future trend will be volume purchasing--either at retail or via mail order, said Humana's Fleming. "The jury is still out as to whether consumers will buy bulk at retail or not" The bottom line, however, comes down to the consumer. "They are the ones who have to decide where they want to buy. The more the price goes down, the more they can get advantaged by that and the better off they will be ... and the better off the plan or employer will be because they'll choose the cheaper distribution side," Fleming said.

Key Points

* Drugs by mail are reported to be about 10% cheaper than those bought at retail outlets.

* Convenience, safety and fewer copays are some benefits consumers and health plans link to mail-order drugs.

* The new Medicare Part D continues the choice Medicare beneficiaries have between mail order and retail pharmacies when filling a 90-day supply of medications.

Learn More

Aetna Health and Life Insurance Co.

A.M. Best Company # 08189

Distribution: Brokers, consultants, retail networks (pharmacy products)

Blue Cross and Blue Shield of Minnesota

A.M. Best Company #60077

Distribution: internal agents, independent agents, direct

Highmark Inc.

A.M. Best Company # 64010

Distribution: Captive sales force, brokers, direct

Humana Health Plan Inc.

A.M. Best Company # 68898

Distribution: Agent/brokers, direct to employees, direct

WellPoint Group (Blue Cross of California)

A.M. Best Company # 68970

Distribution: Independent agents, brokers, consultants, direct

For ratings and other financial strength information about these companies, visit www.ambest.com.

Potential for Growth in
Mail-Service Drug Spending
In 2006

Non-Medicare consumers show
a slightly greater total potential
for mail-service spending than
the Medicare group.

                                                       Non-Medicare
                                                        Commercial
                                Medicare Population     Population

Potential New Mail Service              $26.6              $35.8
Existing Mail Service                   $25.1              $19.6
Not Amenable to Mail Service            $54.5              $54.3

Note: Table made from bar graph.

Potential 10-Year Savings From Using
Mail-Service Pharmacies

          Added savings at       Savings at current
        maximum market share    market share (18.5%)
         (50%) 2006-2005=$99      2006-2015=$78.9
               billion                 billion

2006           $6.2                    $5.0
2007           $6.9                    $5.5
2008           $7.6                    $6.1
2009           $8.4                    $6.7
2010           $9.3                    $7.4
2011          $10.2                    $8.2
2012          $11.1                    $8.8
2013          $12.1                    $9.6
2014          $13.1                   $10.5
2015          $13.9                   $11.1

Note: Table made from bar graph.

Source: Lewin Group