Mail-Equivalent Reimbursement - A Disruptive Approach for Retail Pharmacies vs PBMs

An injunction to stop the Express Scripts-Medco merger, requested by the NACDS, NCPA, and some  other assorted individual pharmacies, was tossed out in April.  The lawsuit continues, but the plaintiffs can't be optimistic.  Retail pharmacy is worried, as an industry, by the merger.  Pharmacy benefit managers, or PBMs, manage the pharmacy benefit for employers or health insurers, processing claims, contracting with pharmacies, and negotiating with manufacturers for rebates.  The story goes that, by having a knowledgeable middleman who can squeeze discounts from pharmacies and rebates from pharma, the payer, whether it is an employer or insurer, saves money.  The deal between Express Scripts (ESRX) and Medco (MHS) consolidates and increases negotiating power of PBMs over pharmacies even further; together the two will handle a little over a third of all the prescriptions processed in the U.S.  In addition, Express Scripts and Medco both operate massive mail-order pharmacy operations, contributing a significant percentage of both firms' revenues.  The current trend of PBMs encouraging, or requiring, members to use mail-order for chronic medications further threatens retail pharmacies profitability, and the industry is justifiably worried that the combined ESRX/MHS company will become even more aggressive in pushing their mail-order business.

From a payer perspective, the argument for mail order makes sense; the same prescription can typically be filled at a lower cost to them than at a brick and mortar pharmacy.  So, plan sponsors save money when the members receive their meds through the mail.  From a PBM perspective, filling the prescription via mail order captures the prescription revenue completely instead of flowing to a retail pharmacy.  Of course, from a retail pharmacy perspective, you're simply losing business to a competitor who doesn't have to operate physical stores. 

Retail pharmacy has fretted publicly about the loss of the patient relationship with their pharmacist when mail order is required.  This tactic won't convince those footing the bill however.  For retail pharmacies to attempt to stem or reverse  mandatory mail order, the argument must focus on the payer.  It is the plan sponsor who is the client of the PBM, and it is the plan sponsor who agreed to the benefit arrangement that allowed or required mandatory mail-order to save money in the first place.  Retail pharmacies should offer to accept mail-equivalent reimbursement; the same amount the plan sponsor pays the PBM for a mail order prescription should be offered to the retail pharmacy to accept or decline once a prescription would be required or incentivized to be filled via mail-order. 

Under such an arrangement, if the retail pharmacy contracts to accept mail-equivalent reimbursement, the PBM would simply continue its function of processing claims, paying the pharmacy, and billing the plan sponsor client.  The plan sponsors still save money, members have more choices in how they receive their prescriptions, and the ancillary benefits of regular contact with the pharmacist are maintained.  Pharmacies would have to determine whether the lower reimbursement is worth it, but it certainly would be for some.  This appeal has to be to payers, as PBMs have little incentive to surrender mail-order revenue.  If retail pharmacy can present this approach to payers as a three pronged argument, helping keep costs in line while increasing access and helping focus on patient care, then PBMs will not have much of a counter-argument.  Mail-equivalent reimbursement could be the new paradigm the industry needs to avoid large shifts in prescription volume to mail-order.