Narrow pharmacy networks are booming
Narrow pharmacy networks are booming. On the Medicare side, 75% of Medicare Part D beneficiaries have signed up for a prescription drug plan that uses a preferred pharmacy network this year. That’s up from 43% of seniors who opted for narrow network coverage in 2013.
On the commercial side, 70% of those who signed up for prescription drug coverage under the Affordable Care Act selected a plan that uses narrow provider networks.
“Plan-sponsor savings drive narrow networks,” says Adam Fein, PhD, president of Pembroke Consulting in Philadelphia. “Pharmacy savings drive plan savings, which is why pharmacies don’t like narrow networks.”
That’s not strictly true. Some pharmacies love narrow networks-if they happen to be the ones that made the cut.
CVS, Walmart, Walgreens, RiteAid and other chains compete aggressively to gain preferred provider status. So do pharmacy services administrative organizations such as McKesson’s Health Mart and AmerisourceBergen’s Good Neighbor Pharmacy franchise brands.
Independent pharmacy is less enamored of preferred provider networks. One reason: Independent pharmacies and small chains are at an economic disadvantage when it comes to reduced copays and network prices.
They are also at an administrative disadvantage. Plan sponsors and managed care organizations obviously would rather negotiate a single contract that covers thousands of pharmacies than keep track of thousands of contracts that each cover a single provider.
Provider networks under both public and commercial plans come in three basic models, says Charles Cote, vice president, strategic communications, for the Pharmaceutical Care Management Assn. (PCMA): open, narrow and closed. As a general rule, the more restricted the network, the lower the costs.
The Aetna CVS/pharmacy Prescription Drug Plan narrow network, for example, uses $2 copays for 800 generics and $1 copays on generics for hypertension, hypercholesterolemia and diabetes to entice beneficiaries into preferred CVS, Walmart and Sam’s Club pharmacies. Plan members can use other, non-preferred pharmacies, but copays are higher.
“The narrower preferred network offers an opportunity for a deeper discount to provide more value for members,” says Terri Swanson, vice president and head of Medicare Part D for Aetna. “We use benefit design to reinforce the use of preferred providers.”
The alternative is a closed network, and the best-known is Kaiser Permanente, which requires its 9 million members to use its own pharmacies. There are exceptions for emergency care, however.
Creating a narrow network is as much art as science. Payers must balance the financial savings that stem from restricted provider networks with beneficiaries’ need for pharmacy access.
There are more than 60,000 pharmacies in the United States. That is more than the total of the top eight fast-food franchises combined, according to PCMA. There are also geographic areas with just one or no pharmacies within a reasonable distance of where patients live and work-generally in rural areas.
Patient access rules also play a role. Medicare Part D pharmacy access is governed by rules set by the Centers for Medicare and Medicaid Services (CMS). For 2015, CMS is considering changes that might limit the use of narrow networks.
According to the National Community Pharmacists Assn. (NCPA), currently, in an urban area, at least 90% of Medicare members in a Part D service area, on average, must live within two miles of an in-network retail pharmacy. In suburban areas, at least 90% must live within five miles of an in-network retail pharmacy. And, in rural areas, at least 70% of Medicare beneficiaries, on average, must live within 15 miles of an in-network retail pharmacy. However, the standards only apply to the plan’s primary pharmacy network. Plans are not required to meet these same standards when establishing preferred pharmacy networks, according to NCPA.
And, CMS does not apply the “any willing provider” provision to pharmacy networks.
Medicaid pharmacy programs are governed by other rules, including state requirements, while commercial plan access is influenced by the plan sponsor.
“There is no magic rule,” Swanson says. “We need to drive enough volume to entice pharmacies to participate without impeding members’ access. Pharmacy benefit plans in the commercial space have been around for a long time, so there is quite a bit of experience to rely on.”
The typical preferred pharmacy network for Aetna includes 10,000 to 20,000 pharmacies nationally, Swanson says. Fein offers an alternate definition: any network that includes less than 50% of providers, which would benchmark at 30,000 pharmacies nationally.
Consumer resistance is generally not an impediment to narrow networks, Fein says. Kaiser Permanente, for example, gets high marks for quality and patient satisfaction despite having a closed network. Most consumers are willing to use a specific pharmacy as long as they see concrete benefits such as lower copays.
Last year, CMS found that negotiated pricing for the top 25 brands and 25 generics in the Part D program at preferred retail pharmacies is lower than at non-preferred pharmacies. However, when mail-order costs were included, some preferred network pharmacies were offering “somewhat higher negotiated prices,” according to CMS.
“Preferred provider networks are a very common part of healthcare that pharmacy has successfully avoided for decades,” Fein says. “Narrow networks already dominate Part D and are starting to penetrate commercial networks.”
CMS preferred pharmacy price analysis:
The Drug Channels Institute chart of retail pharmacy participation 2014: