In the United States, approximately 62.7 million people are Medicare Beneficaries(1). As enrollment is expected to increase every year due to an aging population, pharmacies can expect a greater proportion of their prescription sales dedicated to Medicare payers. Generally, senior Medicare members are filling more prescriptions and require hightened diligence by pharmacists related to polypharmacy, drug-drug interactions, adherence, and other quality & cost concerns. One primary mechanism for prescription drug plans to compensate pharmacists for dispensing medications is by paying a "Dispensing Fee" to the pharmacy for prescriptions filled.
Centers for Medicare & Medicaid Services (CMS) defines Dispensing Fees for pharmacies as "amounts paid to the pharmacy for dispensing the medication...activities related to the transfer of possession of the drug from the pharmacy to the beneficiary, including charges associated with mixing drugs, delivery, and overhead.."(2). The dispensing is set by Medicare PDP plans based on a number of factors determined by each organization's priorities.
We decided to investigate popular Medicare PDP Plans across various pharmacy types (National Chain, Regional Chain, Independents) among the top 90% of drugs by utilization and cost in Medicare. Here are some of our findings:
- The mean overall dispensing fee across plan, pharmacy and drug (NDC) for:
- all in-network pharmacies: $0.65 (N=316,687, std=0.5485, min=0.00, max=7.15, 75%=0.50)
- preferred network pharmacies: $0.68 (N=132,416, std=0.6804, min=0.00, max=1.75, 75%=0.75)
- non-preferred network pharmacies: $0.62 (N=184,271, std=0.6082, min=0.25, max=7.15, 75%=0.75)
- Humana, under contract (S5884), utilizes Floor Pricing on generics, providing a $7.15 reimbursement fee for 196/1530 (12.8%) generic drugs.
- Silverscript SmartRx is the only observed plan with a $0.00 dispensing fee, which resides in their preferred network.
- Variability exists across PDP plans and Pharmacies (in-depth review below)
*Mail Order Pharmacies excluded
*CMS PDP Region 14 (Ohio)
*1530 generic drugs, 809 brand drugs, 10 pharmacies, 17 PDP Contracts, Feb 2022
*Findings are not utilization weighted
A Deeper Look
In order to understand the various strategy among Plans and Pharmacies, we dissected the data to shed light on the differences among the plans. Generally, within a Contract/Organization, dispensing fees appear similiar, but there are important and nuanced differences as we look closer. We explore the data below:
1) PDP Dispensing Fees (All Drugs, Plan Grouping)
Below groups all drugs by Plan first, splitting by Preferred or Non-Preferred Pharmacy type.
2) PDP Dispensing Fees (Non-Floor Priced, Plan Grouping)
Below groups all drugs by Plan, removing floor priced generics, splitting by Preferred or Non-Preferred Pharmacy type.
3) PDP Dispensing Fees (All Drugs)
Below maps all drugs assigned to a Plan, splitting by Prferred or Non-Preferred Pharmacy type
4) (Mean) of PDP Dispensing Fees by Plan & Pharmacy (All Drugs)
Below maps all drugs to Plan, Pharmacy and aggrgates the mean value
5) (Mean) of PDP Dispensing Fees by Plan & Pharmacy (All Drugs, Non-Floor Priced)
Below removes floor priced drugs, maps all drugs to Plan, Pharmacy and aggrgates the mean value
6) PDP Dispensing Fees by Plan & Pharmacy (Generics, Non-Floor Priced)
Below removes floor priced drugs, includes only generics (as defined by CMS), maps all drugs to Plan, Pharmacy and aggrgates the mean value
7) PDP Dispensing Fees by Plan & Pharmacy (Brands)
Below removes floor priced drugs, includes only brands (as defined by CMS), maps all drugs to Plan, Pharmacy and aggrgates the mean value
It is clear that plans take a differing approach to dispensing fees reimbursed to pharmacies. Leverage exists among large plans, utilizing preferred networks and other strategic tactics to maneuver between a rational dispensing fee without compromising comparable drug costs for Medicare member searching new plans.
For non-LIS Medicare members shopping for new plans, the dispensing fee can have a big impact on overall drug costs. Higher plan dispensing fees can potentially sway consumer shoppers away from a pharmacy (seems contradictory). Pharmacies are focused on lowest acquisition costs among generics to improve margin and combat additional incurred fees (such as DIR, higher salaries, etc..), while additionally expanding into clinical services, POC Testing and vaccinations.
From a retail Pharmacist's perspective, many of these rates are certainly a tough pill to swallow.
Using our domain expertise alongside our proprietary data & algorithms, we can assist Medicare Plans, PSAOs, Retail Pharmacies and other industry stakeholders develop a more strategic position and become more competetive in the market.
To request further analysis of the underlying data (available both blinded and unblinded), please Contact Us and send a request.