New pricing for online drugs proposed

The head of Rx.com says a separate category could make online pharmaceuticals cheaper -- and that could help doctors who accept pharmacy risk. But some are skeptical.

By Tyler Chin, AMNews staff. Feb. 21, 2000. Additional information

An Austin, Texas-based online pharmacy is urging managed care companies and pharmacy benefit managers to adopt a new prescription pricing category under which prices of prescriptions bought online would fall between the negotiated retail and mail order prices they now pay.

With his proposal, Rx.com Chief Executive Officer Joe Rosson is attempting an end-run around pharmacy benefit managers, which administer the pharmacy benefit on behalf of health plans.

Rosson said his proposal would benefit physicians who take on pharmacy risk. The 2-year-old private company claims it has contracts with 150 managed care companies representing about 73 million members.

"It should help them because the actual amount of money they will have will be greater because the pharmacy benefit will cost them less." It also would give physicians a greater margin of error, Rosson said.

When physicians assume pharmacy risk, health plans pay them a set fee per patient per month. If the total cost of prescriptions filled by their patients exceeds the monthly payment, then doctors eat the extra cost. If the total cost of prescriptions is lower than what they were paid, doctors keep the extra money as profit.

But doctors shouldn't count on pocketing that money yet.

Rosson's proposal "will be very difficult to implement because it will lower margins Internet pharmacies get, and they are having a hard time making a dollar as it is," said Claudine Singer, health analyst at Jupiter Communications, a New York market research company. "It's questionable whether it will find broad appeal on that side of the equation, but on the other side anything that lowers cost is interesting and will make HMOs' ears perk up."

Some insurance companies cover the cost of prescriptions bought over the Internet. But they pay the negotiated retail price, although the price of dispensing prescriptions online should be lower because online pharmacies have lower operating costs than the corner drugstore, Rosson said. "The real value of the Internet is that we take some of the cost out."

Many PBMs exclude online pharmacies from their networks, meaning that insured members would have to pay full price for an online prescription rather than just the co-payment of $5 or $10 they would normally pay at a retail pharmacy. Consumers can seek reimbursement from the PBMs later, but the process is so time-consuming that most don't bother to fill prescriptions online, Rosson said.

To get around that obstacle, Rosson has mailed certified letters detailing his proposal to about 500 managed care companies, employers and PBMs since December 1999.

Rosson hopes that the lure of lower online prescription prices will encourage more managed care companies and self-funded employers to reimburse for prescriptions bought online because it would lower their costs. He also hopes that health plans and employers adopting his proposal will pressure PBMs to open up their pharmacy networks.

Open access, of course, would be good for Rx.com and other online pharmacies because most consumers would rather go to a retail pharmacy store and fork over a co-pay of $5 or $10 for a prescription than pay $50 or more for an online prescription and then get reimbursement.

Some of the country's largest PBMs -- PCS Health Systems Inc., Scottsdale, Ariz.; Merck-Medco Managed Care LLC, Franklin Lakes, N.J.; and Express Scripts Inc., St. Louis -- enable their members to buy and refill prescriptions online.

Those three companies have partnered with Drugstore.com Inc., Bellevue, Wash.; CVS.com, Seattle; and PlanetRx.com, South San Francisco, Calif.

PCS Health Systems, Merck-Medco and Express Scripts Inc. did not return calls seeking comment.

Savings boost promised

To sell his proposal, Rosson is telling health plans and employers that they could reap substantial prescription savings if they adopt it.

For example, say the average savings per Internet prescription is $1. If only 10% of the 3 billion annual prescriptions were bought online, that would result in total savings of about $300 million, he said.

Rosson claims that some managed care companies already have bought into his plan and signed contracts with Rx.com. But he declined to identify them for what he said were competitive reasons.

Independently of Rosson, some managed care companies already are moving toward enabling customers to fill prescriptions online.

WellPoint Health Networks Inc., a managed care company in Thousand Oaks, Calif., and its pharmacy benefit manager unit, WellPoint Pharmacy Management, are looking for a partner, said Robert Seidman, PharmD, a vice president and pharmacy director at WellPoint. The parent company's health plans insure 7.2 million people around the country, and its PBM manages the pharmacy benefit of more than 20 million people.

WellPoint is assessing what value online pharmacies can deliver to its members and is working out the details of how to move forward, Dr. Seidman said. The company is moving in that direction because customers are asking it to, he added.

As for pricing, that decision is not up to WellPoint. "The marketplace will decide what the pricing will be; it's not something we can determine arbitrarily," Dr. Seidman said.

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                   1999         Increase 
                   volume       over 1998 
                   -----------  ---------
Chain stores       1.5 billion    10%
Independent stores 724 million     4%
Food stores        357 million    17%
Mail order         134 million     9%
Long-term care     115 million     7% 
Total              2.8 billion     9% 

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