Community Pharmacies Reducing Costs through Generic Drug Use; Mail Order Pharmacies Continue to Lag Behind


By Zachary French

Local pharmacists are consistently cutting costs for patients, employers and other health plan sponsors by maximizing the use of less-expensive generic drugs, where appropriate. By contrast, mail order pharmacies owned by major pharmacy benefit managers (PBMs) dispense generics 10 to 13 percent less frequently, according to their own data. New PBM arguments to explain away that gap simply don’t add up.

Specifically, the big PBMs’ trade group recently asserted that the reason for this discrepancy is that mail order pharmacies dispense maintenance medications that often have no generic alternatives, such as drugs that control patients’ cholesterol. To support this, they pointed to two pre-2006 studies. These studies might have had some relevance in 2005, but changes to the prescription drug market since then have largely invalidated such a rationalization today.

In 2006, simvastatin, a generic alternative to the brand drug Zocor that controls cholesterol levels, logged in with just 14 million prescriptions according to IMS. 2010 saw 94 million prescriptions of simvastatin; in fact, it was number two on the list of most highly utilized drugs. Lipitor, a brand name competitor lagged far behind in total 2010 prescriptions at just 45 million.

Beyond cholesterol drugs, total generic market share has risen significantly over the last 5 years, according to IMS:

  • In 2006, the generic market share was just 63 percent; in 2010, it is 78 percent
  • The prescription drug market available for generic substitution rose from just 70 percent in 2006 to 84 percent in 2010
  • Twenty-two of the top 25 most-prescribed products in 2010 are generics, versus three brand drugs
  • Within six months of brand patent loss, patients received the generic form of the drug 80 percent of the time in 2010. This compares to just 55 percent in 2006
  • For patients starting therapy for chronic conditions in 2010, 3.2 million more patients started their therapy with a generic while 6.6 million fewer patients started therapy with a brand

Does this sound like we are living in a world where generic alternatives to brand name maintenance medications are scarce?

Despite these trends, the difference between community pharmacy and mail order pharmacy generic dispensing rates remain virtually unchanged. Year after year, from 2007 to 2010, community pharmacies dispensed generics 10 to 13 percent more often than mail order.

For patients, employers and health plans, that difference adds up quickly. For example, IMS Health concluded that every two percent increase in generic utilization in Medicaid programs saves taxpayers an additional $1 billion annually.

The most obvious explanation for this gap is the big PBMs’ pursuit of brand name manufacturer rebates. Industry analyst Linda Cahn has argued in Managed Care Magazine that PBMs also reap 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…”

In fact, the major PBMs have paid out $370 million in recent years to settle allegations of deceptive conduct and fraud. Further, the common practice of cost shifting 33 percent of the patients’ cost sharing responsibility for 90-day supplies of brand drugs back to the health plans reduces the financial motivation for mail order patients to move away from expensive brand drugs.

Clearly, community pharmacies have established a generic dispensing rate that is the “gold standard” for the industry. In 2010, retail pharmacies dispensed generics 72.7 percent of the time while the Big 3 PBMs’ mail order dispensing facilities had generic dispensing rates of 60.5 to 61.5 percent.

2 Responses to “Community Pharmacies Reducing Costs through Generic Drug Use; Mail Order Pharmacies Continue to Lag Behind”


  1. 1 Craig Seither, R.Ph. May 5, 2011 at 10:13 pm

    Not to play devil’s advocate, but don’t you think that Retail Generic Substittuion Percent would be higher since many of these generics are cheaper going around the insurance/PBM therefore allowing patients to choose where they want to purchase their own medication without the intrusion of a third party.

    I would think that the PBM industry would not want to report this to be fact because then they would have to admit that most patients enjoy the convenience of picking up their medication at a pharmacy of choice rather than mandate.

    Independent and Chain pharmacists all have patients, that due to the unlevel playing field, receive their expensive brand name medications through the mail but their generics at retail. This will always skew the generic percentage.

    • 2 Dr. Kate Wilder Adams, PharmD June 22, 2011 at 4:48 am

      I am the owner of an independent pharmacy and I do everything I can to make medications more cost effective for my patients, and in turn, I make more money through insurance companies, typically, when I dispense a generic vs. a brand name alternative (a win-win situation). I have no doubt that mail-order pharmacies, including CVS/Caremark, Humana/Wal-Mart, and all the others which have affiliation with both insurance companies and the pharmacies themselves, are reaping benefits by dispensing medication with the greatest monetary benefit to them. (Does anybody else see this as a direct conflict of interest that the pharmacies own the insurance companies or vice-versa?) This is why drug formularies are created. In essence, the insurance company is giving you it’s list of “preferred” drugs. Why are they “preferred”? Because these are the drugs they make the mosest money on currently. Why else would Dexilant be a preferred drug over generic omeprazole for crying out loud? With no additional cost to the patient, mind you. No, I am not making that up. Not because clinical trials determined Dexilant had better outcomes than omeprazole (I had a doctor actually do a PA for omeprazole in one case, but did not require one for Dexilant), but because of monetary compensation for the insurance company (also known as a kick-back).
      At some point, legislation will realize that millions of tax dollars are being misused in many cases through Medicare (as well as Medicaid), because many (most?) different Medicare D plans are not looking out for the patient, but for their own deep pockets. Independent pharmacies need to be lobbying against the blantant conflict of interest of mail-order pharmacies (such as Caremark and Humana), which literally force the patients to use mail-order against their will. My own sister had to fight to fill at my independent pharmacy for her son with seizure order because her husband’s insurance said one-time fill at a CVS than mail-order, no exceptions. I managed to get an exception after threatening a lawsuit, because of the nature of his disorder and his age. Something has to change before the independent pharmacy is a thing of the past.
      Dr. Kate Wilder Adams, PharmD
      Wilder’s City Pharmacy, Owner
      Columbus, OH


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