Tuesday, January 13, 2015

The Newest Benchmarking Numbers on Retail and Specialty Pharmacy Reimbursement

The Pharmacy Benefit Management Institute (PBMI) recently released its 2014-2015 Prescription Drug Benefit Cost and Plan Design Report. (Free download with registration.) IMHO, it provides invaluable insight into employer-sponsored pharmacy benefits. Drug Channels again toasts Takeda Pharmaceuticals North America for having sponsored the research.

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 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.


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.

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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.

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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!


  1. Hello Dr. Fein,

    This is interesting data on brand name drugs. The 2014 NCPA Digest states that the average pharmacy dispensed 78% generics. Generic drugs are reimbursed at a lesser of an AWP minus formula or an arbitrary MAC (maximum allowable cost).

    Despite a possible appearance that PBM owned mail order companies may receive lower generic drug reimbursement than retail pharmacies based upon the AWP minus rate, the fact of the matter is that most generic drugs are priced at MAC. PBMs establish multiple MAC tables for generic drugs and no one seems to know just how many MAC tables there are. A MAC price table for the mail order pharmacy could be much higher than a MAC table for a retail pharmacy and no one would ever know.

    Often, employers think they are saving money using the PBM's mail pharmacy, but this may not be the case. It would add a greater level of depth and credence if you were able to incorporate generic data into the equation.

    Thank you,

  2. The PBMI report (pages 37-40) provides some data. For 30-day retail generic prescriptions, 74% of employers use Maximum Allowable Cost (MAC) reimbursement limits instead of AWP discounts, while 69% use MAC limits for mail pharmacies.

    My forthcoming report will have detailed analysis of generic reimbursement, including MAC and alternative benchmarks.

  3. So, according to this data, if a retail pharmacy would dispense a so called specialty drug versus a specialty pharmacy - the AWP discount is higher for retail by 1%. How then are specialty pharmacies saving the healthcare system dollars or this this another way to drive market share to a pharmacy the PBM owns at a higher cost?

  4. Does this mean that 74% of all generics are priced at MAC, or exactly what it says, "74% of employers use MAC"?

    If exactly what it says, then what percentage of generic "drugs" are paid at MAC for retail and for mail pharmacies?

    And if 69% use MAC limits for mail pharmacy, then does this mean that 5% less (74%-69%) employers employ MAC pricing for mail than retail?

    Thanks for clarifying

  5. If only mail waste could be bench-marked

  6. It is "percentage of employers." See Figure 31, on page 38.

    Yes, fewer employers use MAC at mail. The data also show that larger employers use MAC more than smaller employers. (See table 24, on page 38.) Note that product mix differs between mail vs. retail.