Differences In Demand Drive Differences In Generic Dispensing Rates Between Retail Pharmacies And PBMs, Health Affairs Article Says

After Adjusting For Therapeutic Mix, Dispensing Rates Nearly Equal;
PBM-Owned Mail-Order Pharmacies More Likely To Substitute Generics

BETHESDA, MD — The differences in generic dispensing rates between retail and mail-order pharmacies owned by pharmacy benefit managers (PBMs) are predominantly the result of differences in demand, according to a new article posted today on the Health Affairs Web site.

The authors say that their findings rebut claims that PBM-owned mail-order pharmacies dispense a greater proportion of more expensive brand-name drugs because PBMs keep a portion of the rebates and discounts offered by drug manufacturers for listing their drugs on the PBM formularies, costing consumers more money.

Broadly, 48.5 percent of the drugs dispensed by retail pharmacies are generic, compared to 38.8 percent by mail-order pharmacies.

Marta Wosinska and Robert Huckman, economists at the Harvard Business School, analyzed claims from five large PBMs in the first six months of 2003 and found that after controlling for differences in the mix of conditions for which patients purchase drugs at mail-order vs. retail pharmacies, the difference in the generic dispensing rate narrowed to 1.26 percentage points, or nearly 87 percent of the difference in generic dispensing rates.

However, even drugs treating the same condition can differ in their characteristics, such as price, acuity of the condition and length of treatment. This can then lead to differing usage of mail-order and retail pharmacies. When the generic substitution rate is analyzed, which also measures how often pharmacies dispense a generic drug when one is available, mail-order pharmacies use generics more often. The mail-order generic substitution rate was almost one percentage point higher than the retail rate after adjusting for the mix of conditions for which patients purchase drugs at mail-order vs. retail pharmacies—92.99 percent generic percent substitution rate at mail-order pharmacies, compared with a 92.02 percent substitution rate at retail pharmacies.

“These results underscore the fact that it is impossible to make definitive judgments about pharmacy performance based on the generic-dispensing measure,” the authors say. “As a result, addressing the proposed conflict of interest ultimately requires direct analysis of whether the monetary benefits from rebates outweigh the cost of interventions for therapeutic substitutions and the obligations PBMs have to their clients.”

Wosinska and Huckman are assistant professors of business administration at the Harvard Business School in Boston. Huckman also is a faculty research fellow at the National Bureau of Economic Research.

The article can be read at content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.409.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Additional peer-reviewed papers are published weekly online as Health Affairs Web Exclusives at www.healthaffairs.org. Health Affairs Web Exclusives are supported in part by a grant from the Commonwealth Fund.

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©2004 Project HOPE–The People-to-People Health Foundation, Inc.