Community Pharmacists Leading the Way on Generic Drug Utilization, While PBMs Addicted to Brand Name Rebates

New data affirms an important, if under-appreciated trend: Community pharmacists continue to achieve significant savings for patients and payers through dispensing generic drugs and at rates significantly higher than at the largest mail order pharmacies.

Consider the following data released in conjunction with third quarter 2010 earnings of major pharmacy benefit managers (PBMs) Medco Health Solutions, Inc., CVS Caremark and Express Scripts, Inc. Medco reported a generic dispense rate (GDR) of 62.8% via its mail order pharmacies. CVS Caremark’s numbers were nearly identical: 62.4% GDR for Caremark mail order. And Express Scripts’ mail order GDR was slightly lower at 60.5%.

By contrast, the 2010 NCPA Digest, sponsored by Cardinal Health, found that community pharmacies’ generic dispensing rate was 69% in 2009. For 2010, that figure should be about 73% if recent, upward trends in GDR continue.

Community pharmacists do this while also providing critical medication counseling and patient care that was recognized by patients in the recent J.D. Power and Associates 2010 U.S. National Pharmacy Study. Independent community pharmacies were singled out for some of the highest marks in customer satisfaction.

Most state laws allow local pharmacists to recommend or substitute a medically equivalent generic in place of a name brand drug. Only pharmacists can perform generic substitutions.

According to congressional testimony, PBMs apparently profit greatly from generic drugs. Susan Hayes of Pharmacy Outcomes Specialists testified in 2009 that PBM “spread pricing,” or reimbursing the pharmacy one amount for dispensing a drug and then charging the health plan far more, amounts for “perhaps as much as 5% of drug spend.” With roughly $300 billion spent annually on prescription drugs, that’s significant.

So why, despite this, are PBM-owned mail order generic dispensation rates lower than retail pharmacies?

Expensive, name brand specialty drugs only offer a partial explanation. PBMs often mandate that these drugs be dispensed only via their own mail order pharmacies. But, while these drugs account for an increasing dollar share in prescription drug benefit plans, their percentage share of drugs dispensed is too low to have much impact on the overall generic dispensation rate of a PBM-owned mail order pharmacy.

That leaves brand-name manufacturer rebates as a prime candidate. According to that same 2009 testimony from Ms. Hayes, PBMs retain as much as 50% of rebates paid by brand-name manufacturers, rather than passing those dollars on to health plans and patients. That creates an enormous conflict-of-interest for PBM companies hired with the expectation of being an honest broker to lower drug benefit costs.

Indeed, in recent years, the top three PBMs paid over $370 million to settle allegations of fraud. Central to these claims was the contention that PBMs allegedly switch patients onto more expensive drugs in order to secure greater rebates.

Could it be addiction to brand manufacturer rebates is behind the lagging generic dispensing rate of PBM-owned mail order pharmacies?

Perhaps.  That’s one of the reasons Congress supported a bipartisan proposal for greater PBM transparency in the state health insurance exchanges envisioned in the Patient Protection and Affordable Care Act. It’s another argument for expanding those benefits to all patients, such as through H.R. 5234, the PBM Audit Reform and Transparency Act.

5 Responses to “Community Pharmacists Leading the Way on Generic Drug Utilization, While PBMs Addicted to Brand Name Rebates”

  1. 1 Joshua Lambert November 13, 2010 at 8:28 am

    I feel there is a need for a third party company with rebate tracking and co-opp type of experiance to manage and make sure these rebate monies get into the right hands. If any one would like to chat about this I have experiance in this area and see not only a solution, but an opportunity. I would like to learn more about this situation and talk with someone business minded and with a passion for a solution. Thanks Josh

    • 2 David January 6, 2011 at 3:23 am

      I am working on a program designed to counter some of the shanigans of the PBMs. I have many influential individuals in businesses who have signed with the big 3, and tell me about their ‘experiences’ dealing with these guys.

      I am laying the groundwork to offer a solution that will help mine and other pharmacies improve reimbursement, transparency, and the customer service that payors receive when it comes to their pharmacy benefit.

      I welcome feedback and replies!

  2. 3 anon January 6, 2011 at 3:25 am

    Yay hooo!! I agree 100%!

  1. 1 Express Scripts’ 2011 Drug Trend Report (Part 2 of 3): Real Cost Savings Generated by Independent Community Pharmacies « NCPA's The Dose – The Voice of the Community Pharmacist Trackback on May 2, 2012 at 9:14 am
  2. 2 Express Scripts' 2011 Drug Trend Report (Part 2 of 3): Real Cost … | The Community Pharmacist Site Trackback on May 2, 2012 at 3:31 pm

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