Pharmacists Fight the Rise of [mandatory prescription] Mail Order
By REED ABELSON and NATASHA SINGER
Published: March 3, 2011
A fierce battle is being waged between retail pharmacists and mail-order companies over where people should be able to fill their long-term prescriptions.
Community pharmacists in New York are lobbying state lawmakers to pass legislation that would prevent health plans from requiring patients taking medications for chronic ailments to fill their prescriptions through the mail.
While some plans had shifted to mail delivery long ago because it was often cheaper for both employers and consumers, drugstores have been offering more competitive prices and pushing lawmakers to level the playing field by ensuring that people can still visit their local pharmacy for their drugs.
The proposed legislation, which was introduced in both state chambers in late February, would ban mandatory mail-order programs.
It would also forbid plans from demanding that people pay more for drugs if they buy them at the drugstore. "What we are asking is to make mail order an option, not mandatory," said Craig M. Burridge, the executive director of the Pharmacists Society of the State of New York, whose members traveled to Albany on Wednesday to plead their case. "We are not opposed to mail order as a convenience to the patients. But right now, they don't have a choice."
Pennsylvania is considering similar legislation. The federal Medicare program already requires drug benefit plans to allow members the option of filling their prescriptions at the drugstore.
In making their argument, the pharmacists say some people, particularly the elderly who are taking multiple medications, benefit from going into a store and having a pharmacist oversee their prescriptions. They say many customers prefer being able to shop at places where they have longtime relationships with pharmacists.
The large companies that manage prescription drug programs, known as pharmacy benefit managers, say mail order is attractive because it is less expensive and more convenient.
"There's going to be use of more home delivery, not less," said Mark Merritt, the president of the Pharmaceutical Care Management Association, which represents the pharmacy benefit managers. "It saves money and is pretty popular with consumers." He says employers choose mail-order programs because they believe them to be a better alternative, and the legislature should not take away their choice of plans.
But as the business of filling prescriptions also shifts from expensive branded pharmaceuticals to much cheaper generic alternatives, retail pharmacists, particularly large chains like Walgreen's, are having much more success in persuading employers and health plans to allow people the choice of using drugstores for their medications for chronic ailments.
To increase sales at their stores, "retail pharmacies can offer and compete with mail order" by being willing to make less profit on the prescriptions they fill, said Adam J. Fein, an industry consultant in Philadelphia. "They are essentially trying to offer these products at mail-order pricing," he said.
The decision by Wal-Mart several years ago to offer generic drugs for only $4 and the move by retailers to compete aggressively on price has damped the enthusiasm for mail order as the least expensive option, Mr. Fein said. Medicare's insistence on including retail drugstores as an option has also helped slow the growth in prescriptions being filled by mail-order pharmacies, which he said lost market share in 2009.
Mr. Fein also points to Walgreen's new marketing campaign, promoting its ability to fill prescriptions for the 90 days, the same as mail order. Walgreens, which claims many customers do not know their plans allow them to get three months' worth of medicine at a drugstore, says it filled nearly 700,000 more 90-day prescriptions in January than it did at the same time last year.
Some benefit managers say they are now less convinced that mail is always better than retail, even in trying to save money. "I don't know if mail service is a vastly superior cost containment tool today," said David R. Kwasny, the president of Restat, an independent pharmacy benefit manager that does not have a mail delivery service. He says employers and insurers can instead try to steer patients to certain retail pharmacists, including independent stores, that are willing to compete on price.
But he also emphasized the personal touch of a retail pharmacist. "We feel there's a lot of value and underutilization behind the pharmacy counter," he said.
Take the case of an elderly patient who came into Family Medical Pharmacy, an independent drugstore in Williamsville, N.Y., near Buffalo. The patient had run out of Aricept, to treat dementia. She had already been to a chain drugstore where the pharmacists told her they could not help because she had mandatory mail-order prescriptions. Dennis C. Galluzzo, a pharmacist who is the co-owner of Family Medical Pharmacy, said he called her plan to try to get permission to refill her prescription.
"I relentlessly stayed on the phone for hours until we finally get it resolved and had to get an override from two supervisors," he said. Only after he threatened to send the woman to a hospital to get the medication did the plan give the drugstore permission to fill her prescription, he said.
For their part, the prescription benefit managers say mail-order programs are better able to convert a patient to a less expensive generic drug, and that the plans they offer are better equipped to oversee a patient's prescriptions.
Because these companies have invested in sophisticated computer systems to monitor all prescriptions, they argue they can intervene when someone is taking drugs that interact. If a patient has a particular question and needs privacy, they can simply telephone one of the plan's pharmacists. In a drugstore, someone may feel rushed or uneasy about asking a question. "It's just not an optimal environment," said Timothy C. Wentworth, a senior executive at Medco Health Solutions, a large pharmacy benefit manager.
Some companies, however, are trying to develop programs that provide more flexibility. CVS Caremark, for example, has made use of its CVS retail drugstore chain to offer a program called maintenance choice, where people can go to one of their stores or use mail order to fill a long-term prescription. Express Scripts says it has developed a program that allows customers to choose whether to use mail order for all or some of their medications, and many people decide they would rather have their drugs delivered.
And while mandatory programs are still relatively rare, consultants say employers are increasingly likely to use financial incentives to try to steer workers to the least expensive options. In some cases, plans may have programs where customers pay less when they go to a limited network of retail pharmacists that are willing to offer less expensive prices or they may ask customers to pay more when they go to the drugstore.
Edward A. Kaplan, a benefits consultant with the Segal Company, recalls a recent client that instituted a co-payment when any of its employees used a retail pharmacist to fill a long-term prescription. Many of the employees happily paid for the privilege. "They didn't vote with their wallets," he said.
Drugstores Fret as Insurers Demand Pills by Mail
By MILT FREUDENHEIM
Published: January 1, 2005
Employer health plans across the country are forcing millions of consumers to change their drug-buying habits. And one side effect could be the decline of the neighborhood drugstore.
Instead of picking up their medicines at a local pharmacy, growing numbers of consumers will be required - starting this month when new health plans take effect - to buy dozens of widely used drugs, like insulin for diabetes or Lipitor to lower cholesterol, by mail order.
Employers and the companies that manage prescription drug insurance coverage favor mail-order pharmacies because they can get lucrative rebates and deep discounts from drug makers when they buy in volume. Those savings, which are said to amount to hundreds of millions of dollars a year, can then be shared with employers and health plans.
Distributing drugs by mail order also gives the drug-insurance managers - known as pharmacy-benefit managers - more control over which drugs are used, because they can ask doctors to change prescriptions before the drugs are delivered.
Across the country, many state and city governments, as well as private employers, already require employees to obtain their medications for chronic conditions through the mail. Early last year, General Motors, Ford, DaimlerChrysler and the United Automobile Workers introduced a mandatory mail-order requirement, which now applies to more than two million auto industry workers and retirees.
As drug costs continue to rise, the changeover is accelerating. The switch has already been met with resistance from some consumers who complain that they are losing the help of a knowledgeable, trusted friend - their local pharmacist. For independent pharmacists who depend on walk-in business, the shift to mail-order prescriptions can be devastating.
"It's going to kill the little guys," said Howard Baskind, owner of Prospect Gardens Pharmacy in the Park Slope section of Brooklyn. "We have a lot of teachers," he said.
The health plan of the United Teachers Federation in New York changed its rules last spring, forcing its members to turn to mail order for medicines for chronic conditions. Prescriptions for chronic conditions like some heart diseases, blood pressure problems and thyroid deficiency account for 40 percent of all retail drug sales.
Mail-order drug sales rose to $32.5 billion in the 12 months ending in September, a 16 percent increase compared with the same period in 2003, according to IMS Health, a pharmaceutical consulting company.
The big drugstore chains - Walgreen, CVS Pharmacy and Rite Aid - have said that they have already been hurt by the move toward mail-order sales.
But the hardest hit are independent drugstores, which lack the big chains' ability to demand discounted wholesale prices on generic and over-the-counter drugs. In Michigan, the effect of the auto industry's rules has been immediate.
"I was down 700 prescriptions in June," said Jack Poll, who closed Pfeffers, a 76-year-old pharmacy in Wyoming, Mich., outside of Grand Rapids, in September. Many of his customers were retired workers from a nearby former General Motors factory.
Pfeffers used to fill 6,000 prescriptions a month before the auto workers switched to mail order, Mr. Poll said. Like many drugstores, it was already under pressure from low-paying managed care plans and competition from Internet pharmacies and drugs imported from Canada, but "the U.A.W. contract really precipitated the closing," Mr. Poll said.
At least 30 pharmacies in the state were closed or sold to chains last year, according to the Michigan Pharmacists Association, a professional group that is lobbying the state legislature for a prohibition on making mail-order prescriptions mandatory.
Political pressure, however, is unlikely to reverse how drugs are purchased.
More than half of large employers will require mandatory mail-order drug purchasing in 2005, said Helen Darling, president of the National Business Group on Health, which represents more than 200 companies that provide benefits for 45 million people. She estimated that about 30 percent of the companies were already in mandatory mail plans. The New York Times, which has required nonunion employees to order medications for chronic conditions by mail for several years, recently added a mandatory mail pharmacy requirement for union employees.
"It's definitely a trend," Ms. Darling said.
General Motors, which spent $1.3 billion on prescription drugs for its workers and retirees in 2003, has been trying for years to persuade its employees to order prescriptions by mail. The auto companies have made mail order mandatory for more than 150 drugs for chronic conditions. The requirement applied first to nonunion workers and retirees, and was expanded in January 2004 to cover all 1.1 million people eligible for drug benefits from G.M. after the auto workers union accepted the idea.
Cost was only one of the considerations, said Cynthia Kirman, director of pharmacy in the G.M. corporate benefits office. Besides saving money, she said, the mail service is a convenience for retirees who go south in the winter. Mail also makes it easier for Medco Health Solutions, G.M.'s pharmacy benefit manager and the nation's largest mail-order pharmacy operator, to help monitor elderly patients' use of drugs like the tranquilizer Valium, which could be addictive, she said.
Retired auto workers like Mary L. Ettinger, 71, however, are unhappy about the change.
Ms. Ettinger, who used to work on the assembly line at Oldsmobile, said the company and her union "sold me down the river."
"My biggest worry is my insulin," said Ms. Ettinger, who has diabetes and also takes medicine for back problems that she said resulted from her time "pushing engine heads down the line." For her, shipping insulin makes little sense when she can pick it up at the drugstore that she has patronized for years.
Instead, a delivery truck drops off the insulin, chilled by gelatin packs in a foam cooler, at the front door of her house in Lansing, Mich. When she complained that cold packs were warm, possibly compromising the insulin, the customer service person at Medco offered to send a new batch - and charge her for the shipping, she said.
"They just don't care, period," Ms. Ettinger said. After a reporter called Medco to ask about her complaint, Medco promised Ms. Ettinger that it would notify her before each insulin shipment. Ms. Ettinger also said she finds it "a little scary" that other pills are left in her mailbox on the street. A passerby could steal the container, which rattles when shaken because the pills are shipped without protective cotton, she said. But Stephen Heller, 60, a retired senior manager at Verizon Communications, who receives a painkiller for arthritis in a mandatory mail program from Medco, said he was "very happy with the service," which he used several times last year. When his doctor's office was slow in completing paperwork on the order, Mr. Heller said, a representative from Medco called to offer to reimburse him if the delay forced him to pay a higher price at a pharmacy.
Consumers who use mail order for drugs for chronic conditions are often required to buy a 90-day supply, and typically pay a smaller co-pay amount on a 90-day order than they would pay at a pharmacy for three 30-day prescriptions.
Pharmacy benefit managers like Medco, Caremark Rx and Express Scripts check the customers' eligibility and handle payments to manufacturers and stores electronically, for which they receive fees. But they make most of their profits by selling drugs by mail order, according to Wall Street analysts.
These companies buy drugs from manufacturers at discounted prices and are paid for them by employers and other health plans, as well as members of the plans.
Lawrence Marsh, a health care securities analyst at Lehman Brothers, estimated that Medco, Caremark and Express get 7 percent to 8 percent of their annual revenues, about $500 million total, as their share of rebates from drug makers, mainly through mail sales.
The pharmacy benefit managers say that they inform the health plans about the rebates they receive from the drug makers, but Sean Brandle, a health benefits expert with the Segal company, a benefits and compensation consulting firm, said that not all of this money was passed along and the pharmacy managers' actual costs were hard to determine. The benefit managers, he said, "would never disclose their actual purchase cost of a drug at mail order."
Medco said its mail sales rose to $3.4 billion in the third quarter, up 21 percent from the same period in 2003. Express Scripts' mail-order sales increased 41.7 percent, to $1.4 billion, in the three months ending Sept. 30. Caremark, which in March bought AdvancePCS, a big pharmacy benefits manager, doubled its mail revenues to $2.19 billion in the third quarter, a prime reason, it said, for a 41 percent increase in quarterly profits.
These results from mail orders, not surprisingly, are considered a serious threat by drugstore chains, which are fighting back. "Mom-and-pop stores are going out of business," said Meredith Adler, a retail drugstore analyst at Lehman Brothers. "But the chains would like to play in the mail-order game."
Walgreen and CVS, the two largest chains, have come up with defensive tactics on several fronts. Walgreen, for example, has created its own pharmacy benefit management unit to serve health plans, with a network of 40,000 pharmacies, including 4,700 Walgreen stores, to try to compete with companies like Medco.
Walgreen offers customers a choice of buying a 90-day supply by mail service or in the stores, said Michael Polzin, a company spokesman. The chain also uses MedImpact, another drug benefit manager, that arranges for discounted 90-day prescriptions that can be picked up at a drugstore. MedImpact offers that choice to health plans at the same price as mail-order service.
Walgreen saw an opportunity to announce that it would no longer fill orders for state employees in Ohio at any its 161 Ohio stores after state employees switched their mandatory mail contract from Medco to Express Scripts in 2004.
"If we become aware of any mandatory features as contracts take effect, we will drop them," Mr. Polzin said. The stores said they also would not accept drug cards from Ohio state employees for short-term medications like antibiotics, even though those drugs are not on the mandatory mail order list.
CVS, which has 5,300 stores, has also stopped serving a few health plans that have mandatory drug mail-order provisions, said Dave Rickard, an executive vice president at CVS. The chain is planning to offer 90-day prescriptions in the stores, for the same price as by mail. CVS bought one of the nation's largest pharmacy benefit management units from the Eckerd chain this year.
Mr. Rickard said that filling a 90-day prescription in a store was "less profitable than filling it for 30 days three times, but more profitable than watching the business go off to mail order that you don't participate in."
Rite Aid, the third-largest drug chain, blamed the loss of auto workers' business as one of several reasons for disappointing financial results in 2004. (It said another factor was the relatively late start of the flu season.) Mary Sammons, chief executive of Rite Aid, also said in a conference call with analysts in December that Rite Aid had been considering acquiring or starting its own pharmacy benefit management unit.