Paying pharmacies more for dispensing medications will raise prescription drug costs without improving value.
A lot goes on behind the scenes when a patient picks up their prescription from the pharmacy. One important component is the compensation a pharmacy receives from a pharmacy benefit manager (PBM) for dispensing a drug to a patient, typically reimbursement for the cost of the medication plus a dispensing fee. Dispensing fees are negotiated between pharmacies (or organizations representing pharmacies) and PBMs on behalf of plan sponsors and vary by contract.
As independent pharmacies seek more income, many states, such as West Virginia and Illinois, are considering mandating a certain level of reimbursement for pharmacies in the commercial market (which includes fully insured and self-insured employer-sponsored insurance, and non-group individual insurance). Action in state legislatures on mandatory, fixed, pharmacy dispensing-fee reimbursement has become such a prevalent issue that we thought we’d take a look at the potential costs associated with such a mandate.
Despite lobbyists’ and consulting firms’ cries to the contrary, peer-reviewed research from independent academics has found that pharmacy reimbursement mandates do not save state Medicaid programs money. As noted in that study, the big-spender pieces of these reimbursement policies are the dispensing fee mandates. Not surprisingly, paying pharmacies more for dispensing medications will raise prescription drug costs. This kind of requirement does nothing to actually lower drug costs or improve value for patients; rather, higher dispensing fees guarantee profits for pharmacies at everyone else’s expense.
The average dispensing fee in the commercial market is currently less than $2, while in comparison, $10.50 is a common dispensing fee in many states’ fee-for-service (FFS) Medicaid programs. Many of the pharmacy reimbursement bills have set the mandatory dispensing fee at the state’s Medicaid FFS rate.
To better understand just how much this type of policy would cost patients and those providing health coverage in states, we made hypothetical projections of the cost impact a $10.50 dispensing fee would have on states’ commercial insurance market prescription drug spending, and the results are eye-popping. If all states adopted a $10.50 dispensing fee on every commercial prescription filled, drug spending across the country would increase by over $16 billion in the first year alone.
For patients and employers paying for health insurance in states that have a lot of patients filling prescriptions, a mandatory ($10.50) dispensing fee paid to pharmacies would have a huge financial impact. For example, Texas had over 178 million scripts filled in 2019, and mandating a $10.50 dispensing fee would cost patients and employers in the state over $1.5 billion in one year. But even small states with comparatively fewer script fills will see skyrocketing costs and negative financial impacts. For example, Rhode Island had just 7.8 million scripts filled, and the increase in the dispensing fees, expressed in per capita terms, would cost those in the state an additional $109 per commercially insured patient.
Prescription drug costs are the product of many components. It’s well-known that drug costs start with drug manufacturer’s initial list price, which is then reduced through PBMs negotiating for price concessions. But every player in the prescription drug supply and payment chain plays a role, and pharmacy reimbursement and dispensing fees are a factor. And, just as they negotiate price concessions on list prices, PBMs are working to keep dispensing fees at a fair level for patients and pharmacies.
Pharmacies are important actors in serving consumers and providing access to prescription drugs. The best way pharmacies can be treated fairly is through free market negotiations. As it does for most products and services, the free market should determine contract terms and reimbursement, without government rate-setting through mandates. The bottom line is mandating high dispensing fees will lead to skyrocketing costs and a big patient and employer payout that goes directly to pharmacies. This would directly affect the over 177 million people using commercial insurance.
Use the interactive map below to see increase in drug spending per state.
