The report offers the only public benchmarking data on pharmacy reimbursement rates. Below, I summarize its numbers for brand-name drugs, by dispensing channel.
As you will see, retail pharmacies received the highest reimbursements, even as the gap with mail pharmacies has narrowed. The retail reimbursement rate, as measured by the percentage discount from Average Wholesale Price (AWP), has remained surprisingly steady in recent years.
Drink up the details below. And don't forget about PBMI’s 20th Annual Drug Benefit Conference in March.
THE BARREL-AGED DATA
The PBMI survey collects data from employers, not pharmacy benefit managers (PBMs). The 2014-15 edition includes responses from 353 employers, accounting for more than 29 million covered lives. The sample population of the PBMI survey is similar to (but smaller than) that of the Kaiser/HRET survey that I discuss in How Employers Are Managing Pharmacy Benefits in 2014. Since the PBMI research goes much deeper than the Kaiser/HRET report, it’s the only publicly available resource for important plan design data.
PBMI presents the results by employer size. It defines “smaller employers” as having fewer than 5,000 covered lives (employees plus dependents), and defines “larger employers” as having more than 5,000 lives. Methodology wonks can scour the Profile of Respondents (page 7 of the report) for more details.
Just so you know, I was on the report’s Advisory Board, which meant that I was paid a small fee to review a pre-publication version of the completed research. Final responsibility for the report’s content rests with PBMI.
BENCHMARK MY WORDS
Specialty and retail pharmacies are reimbursed primarily using the Average Wholesale Price (AWP) list price benchmark. A pharmacy’s acquisition cost for a brand-name drug can be reasonably approximated using the AWP benchmark. If you don't know why, see Chapter 5 of our Economic Report on Retail, Mail, and Specialty Pharmacies. (The new 2014-15 edition is coming soon!)
The chart below summarizes the average percentage of AWP paid by employers for various dispensing formats. Note that these reimbursement rates exclude dispensing fees, which averaged $1.87 in 2014.
[Click to Enlarge]
Traditional Brand-Name Drugs at Retail Pharmacies. For 2014, employers report paying 84% of AWP, i.e., “AWP minus 16%,” as the ingredient cost reimbursement for a 30-day retail brand-name prescription. (See Exhibit 62.)
In 2014, 61% of employer plan sponsors allowed plan members to fill 90-day prescriptions in retail pharmacies, an increase from 55% in 2013 and 49% in 2013. These programs increase the AWP discount to 18%, i.e., 82% of AWP.
Traditional Brand-Name Drugs at Mail Pharmacies. For traditional brand-name drugs, mail pharmacies receive lower reimbursement than do retail pharmacies. In 2014, mail pharmacies received 79% of AWP. In theory, this differential encourages payers to substitute mail pharmacies for retail network pharmacies. Recent results, however, show retail chains outpacing mail pharmacies by a wide margin. See 2013 Pharmacy Market Analysis: Chains Up, Mail Down.
Specialty Drugs. Employers paid 83% of AWP, i.e., “AWP minus 17%,” as the ingredient cost reimbursement for a specialty drug prescription dispensed by a specialty pharmacy. This AWP discount is comparable to that of commercial health plans, per The Latest Data on Specialty Pharmacy Reimbursement.
Retail vs. Mail Over Time. In recent years, the ingredient cost gap between retail and mail pharmacy reimbursement has narrowed. The chart below compares reimbursement rates of retail pharmacies with mail pharmacies. From 2008 to 2012, reimbursement averaged 678 basis points more for retail pharmacies than for mail pharmacies. In 2014, the reimbursement gap was 500 basis points (21 minus 16, per Exhibit 62). As the chart above shows, the gap for 90-day prescriptions was only 300 basis points.
[Click to Enlarge]
BOTTOM OF THE BARREL
The AWP reimbursement formulas determine a pharmacy's revenues, not its gross or net profits. As I note in various posts, overall profitability of pharmacies and drugstores has been fairly stable over time. (See, for example, Profits Up Again for Independent Pharmacy Owners.) There are also alternative reimbursement methods, beyond AWP. I'll have a comprehensive update in the forthcoming 2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies.
FYI, the PBMI report has loads of other interesting data on pharmacy benefit design, formulary management, rebates, and more. Highly recommended.
P.S. Yes, Benchmark is an actual bourbon, manufactured by Buffalo Trace. Treat your favorite consultant to a wee dram!