Still a runaway threat, mail order may be losing steam

Drug Store News, August 22, 2005 by James Frederick

Over the past decade, mail order's dollar share of the U.S. retail prescription market has gone from less than 10 percent to nearly 19 percent, and this year should hit or exceed 20 percent. Mail order pharmaceutical sales last year leaped 17.9 percent to $41.3 billion, according to IMS Health and the National Association of Chain Drug Stores, with units dispensed up 13.2 percent to 214 prescriptions.

That's more than 200 million prescriptions not filled at community pharmacies. And in both dollar sales and units dispensed, the growth rates for mail order far outpaced the gains made by any other retail trade channel.

That's clear cause for concern among chain and independent pharmacy leaders. So, too, is the biggest factor driving the growth of the segment: the increasing popularity among big employer-sponsored health plans of mandatory mail order plans, under which employees, retirees and their families are given no choice but to fill their long-term, chronic care maintenance medications through the company-approved mail order pharmacies.

Often, those mail order facilities are owned and run by the same pharmacy benefit management firms that are hired by the plan sponsors to direct the prescription drug portion of the health plan. The result, as pharmacy advocates complain about repeatedly and bitterly, is that PBMs are working both sides of the health benefit equation: selling plan sponsors on their ability to put together cost-efficient provider networks of community pharmacies on behalf of plan members, while pulling millions of those patients out of the retail pharmacy arena and funneling them right into their own mail order subsidiaries.

"Mandatory mail is the biggest problem we have as retailers," noted Bruce Roberts, head of the National Community Pharmacists Association. "It's absolutely critical that we as an industry come together and meet this threat head-on."

NACDS chairman Tony Civello agrees. Mandatory mail order pharmacy benefit plans present retail pharmacy with its single biggest challenge today, he said. "That's the No. 1 issue," Civello noted.

In a recent interview, CVS chairman, president and chief executive officer Tom Ryan echoed that thought. "Big payers are looking to lower costs to the health care plan, and right now they believe the only way to lower costs is through mail order," he observed. "Our job is to educate them on how you can actually lower costs at retail, whether it's a 30-day or a 90-day script."

The move to mandatory mail "has had an impact [and] taken away some business," agreed Happy Harry's president and chief executive officer Alan Levin.

And if mandatory mail has had a significant impact on the chains, the hit has been staggering for some independent operators.

"In my market, Microsoft went to mandatory mail in 2004, and we took a 25 percent hit on sales of our maintenance medications," said Kari Douglas, an independent pharmacy owner operating in the Pacific Northwest.

Microsoft is far from the only health plan sponsor to push its members into mandatory mail programs. GM, DuPont, the United Auto Workers and the state of Ohio have adopted similar measures, convinced that the switch is saving them big dollars.

The result has hurt both chains and independents. Rite Aid, for instance, was forced to lower its earnings projections earlier this year following the UAW's move to impose mandatory mail on millions of union members and their dependents, reducing the chain's pharmacy sales. And in general, said Jim Wilson, head of Wilson Health Information: "In-person visits to the pharmacy are decreasing. Use of mail/online pharmacies has nearly tripled in the past three years."

In response, many chains, including Walgreens, Rite Aid, CVS, Medicine Shoppe and Kerr Drug, have announced they no longer will serve pharmacy benefit plans that force their members to fill their maintenance medications exclusively by mail. And some, led by Walgreens, have gone further by actively promoting their own 90-day retail prescription programs, under which they can offer patients and their plan sponsors the same or even better long-term prescription savings on chronic care medications they could get through the mail.

"It's a myth that mail is always cheaper," said Greg Wasson, president of Walgreens Health Initiatives, the pharmacy benefits manager Walgreens owns. "Yes, 90-day prescriptions save money, but '90 days' is not synonymous with mail order. Our results show that choice reduces costs for employers without forcing workers to miss the counsel of their neighborhood pharmacist."

That message may be getting through. Some hopeful signs are emerging that the mandatory mail growth express may be slowing as more payers recognize the cost-saving and convenience benefits of the retail 90-day prescription option and as consumers themselves begin to chafe under the restrictions imposed by their health plans to keep them away from their neighborhood pharmacist. As much as anything, that growing backlash could swing the pendulum back toward community pharmacy.