Pharmacy Reimbursement Continues to Drop

Just when it seems that reimbursement for prescription medications can't go any lower, the rates drop again. Even as ingredient costs have increased steadily, reimbursement for both retail and mail-service pharmacies continue to decrease. Findings are from a survey conducted annually by the Pharmacy Benefit Management Institute (PBMI) and are based on data collected from 403 employers (approximately 11 million beneficiaries). The survey is funded by Takeda Pharmaceuticals North America.

The average AWP and dispensing fee paid to retail pharmacies for brand-name drugs is now 85.5% and $2.05, respectively, for an average reimbursement rate of 87.7%, as calculated by PBMI (Cover Figure). Pharmacies are able to make up part of the deeper discount from higher copayments that patients are being charged. Average AWP and dispensing fee paid to mail-service pharmacies for brand-name drugs is now 79.6% and $0.56, respectively, for an average reimbursement rate of 79.7%. Ingredient costs for 2003 averaged $91.77 per prescription for retail and $305.90 for larger-quantity mail-service prescriptions, up from 2002 costs of $79.80 for retail and $266 for mail service.

PBM administrative fees for both retail and mail service have also decreased each year. In 2003, the average administrative fee paid for each retail prescription was $0.24, down from $0.28 in 2002 and $0.38 in 2001. The average administrative fee paid per mail-service pharmacy claim in 2003 was $0.15, down a penny from $0.16 in 2002 and down from $0.23 in 2001. These decreases have been largely offset by revenues generated through rebates.

The use of formularies continues to increase. In 1995, just 54% of respondents reported using a formulary. By 2003, this percentage had increased to 92%. Incented formularies are now the dominant approach, growing from being used by just 25% of employers in 1999 to 71% in 2003 (Figure). Typically, plans use a 3-tier design. Use of an open formulary decreased from 67% of employers in 1999 to 26% in 2003. Use of closed formularies also decreased.

Incented formularies have largely replaced open formularies in pharmacy benefit plan designs.

Retail copayments increased by 10% or less for all tiers from 2002 to 2003. Copayments for mail service, however, increased by 14% for first-tier, 20% for second-tier, and 11% for third-tier medications. In the past, mail-service copayments were kept low relative to retail copayments to encourage greater use. However, employers found that copayments set too low resulted in mail-service prescriptions costing more than retail. In the past few years, plan sponsors have increased mail-service copayments at a greater rate than retail.

Use of coinsurance has also increased. The percentage of employers using coinsurance for second-tier retail cost sharing rose from 26% in 2002 to 30% in 2003. Coinsurance is used much less frequently for mail service.

Mail-service prescriptions as a percentage of all prescriptions increased from 13% in 2002 to 15% in 2003. Use of mail service almost doubles when mail is required by a plan for maintenance prescriptions, from 14% for voluntary use to 27% for mandatory use.

Average retail ge neric utilization rose from 41.5% in 2002 to 44.1% in 2003. Average mail-service generic use also increased, from 31% in 2002 to 34% in 2003.

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