BACKGROUND Plan sponsors encourage the use of mail order pharmacies because they believe mail order dispensing will lower their prescription drug costs. Health plans and pharmacy benefit management companies (PBMs) usually offer patients substantially lower copayments to incentivize them to use mail order pharmacies. A number of health plans and PBMs now require patients to use these pharmacies for maintenance prescriptions. OBJECTIVE To (a) compare costs for prescriptions dispensed through mail order and retail pharmacies in Medicare Part D plans and (b) examine whether mail order or retail pharmacies provided lower all third-party costs for each of the top 300 products; the relationship between whether a product was available generically and whether mail order or retail pharmacies provided lower prices; and the generic substitution rates at mail order and retail pharmacies. METHODS The sample for this study consisted of 2010 Medicare Part D prescription drug data for the 300 products with the highest sales at mail order pharmacies. The prescriptions included in the study were dispensed in the initial coverage limit phase of Part D by retail or mail order pharmacies to patients who were insured by Part D for 12 months in 2010, who received no Part D subsidies, and who were alive for the full year in 2010. Mean-per-unit costs were calculated for both mail order and retail prescriptions for each of the top 300 products. Products were defined by Medi-Span Generic Product Indentifier. Summary statistics for the overall costs of mail order and retail prescriptions were calculated as the weighted mean-per-unit costs of the top 300 products. The weighting factor for both mail order and retail prescriptions included both the mail order quantity dispensed per prescription and the number of prescriptions dispensed. Weighting both mail and retail prescriptions by mail order quantities dispensed and numbers of prescriptions ensured that the results reflected actual cost differences rather than differences in the mix or quantities of prescriptions dispensed. These calculations were made for total costs, costs covered by the Medicare Standard Benefit (MSB), costs paid by all third-party payers (including Medicare), and patient costs. RESULTS The top 300 products accounted for 84.8% of mail order costs. Among all prescriptions in the sample--both mail order and retail--mail order prescriptions accounted for 7.8% of prescriptions dispensed and 14.1% of total spending. Comparison of 90-day or greater supplies indicated that costs per unit of medication for retail pharmacies were lower for total costs ($0.94 for retail pharmacies vs. $0.96 for mail order pharmacies), MSB costs ($0.59 for retail pharmacies vs. $0.63 for mail order pharmacies), and all third-party payer costs ($0.64 for retail pharmacies vs. $0.72 for mail order pharmacies), but higher for patient costs ($0.31 for retail pharmacies vs. $0.24 for mail order pharmacies). Retail pharmacies had lower all third-party payer costs for 244 products, while mail pharmacies had lower costs for 56 products. Retail pharmacies were more likely to have lower costs for products that included generic alternatives, while mail order pharmacies were more likely to have lower costs for products that included only branded drugs. Generic substitution rates were 91.4% for retail pharmacies versus 88.8% for mail order pharmacies. Results from secondary analyses that compared all prescriptions which met the inclusion criteria, regardless of days supply, and that compared exactly 90-day supplies, yielded similar results. CONCLUSIONS Third-party payers, including Medicare, paid more for prescriptions dispensed at mail order pharmacies than for those dispensed at retail pharmacies in the Medicare Part D program. The higher payments appeared to result, for the most part, because of higher patient cost sharing at retail pharmacies. Further, total costs--including both third-party payer and patient payments--for 90-day and 90-day or greater supplies were lower at retail pharmacies than at mail pharmacies. These results suggest that, all other things being equal, Medicare Part D plan sponsors do not realize savings when patients use mail order pharmacies.