Coventry, one of the largest Prescription Drug Plan (PDP) sponsors, joined the Part D party with its First Health Value Plus Plan. See Coventry Health Care Joins Forces with Walgreens, Walmart on New 2012 Medicare Part D Plan Available Across the Continental U.S. Aetna is launching a plan with CVS Caremark (NYSE:CVS). See Aetna and CVS/pharmacy Team up to Offer Co-Branded Medicare Prescription Drug Plan.
These PDPs join Humana (NYSE:HUM) and Walmart (NYSE:WMT) in offering Part D beneficiaries lower-cost generic drugs in exchange for using a preferred pharmacy network. Comparatively high generic prescription margins create the opportunity for pharmacies seeking volume and market share. The Coventry network includes the pharmacy locations of Walgreen (NYSE:WAG), Walmart, and Target (NYSE:TGT), while Aetna only includes CVS retail pharmacies.
Medicare Part D is a clear success for seniors. The program’s flexibility and innovation will continue to contain costs, as evidenced by pharmacies’ price competition to be part of a preferred pharmacy network. So I guess that’s why some of our nation’s oh-so-brilliant legislators want to change Part D? Yeah, whatever.
PREFERRED PLANS IN PART D
A preferred network gives the consumer a choice of pharmacy but provides financial incentives to use the particular pharmacies that offer lower costs to the payer. These networks work because of super-low generic costs. As the new AMP data show, more than two-thirds of the generic drugs sell for less than 25 cents per pill. See the table in Hello, Transparency: CMS Publishes its First AMP Data. Pharmacies are looking to get traffic to their stores in exchange for accepting lower reimbursements on prescriptions. The consumer and the payer both save money while other pharmacies risk losing business.
Preferred pharmacy networks are fine under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173), at least as the Center for Medicare and Medicaid Services (CMS) interprets the law. Here’s the text from page 4 of CMS’ Legislative Summary of Public Law 108-173:
“The PDP sponsor must permit any pharmacy willing to meet the plan’s terms and conditions to participate, though the plan may also set up a more restrictive pharmacy network and use reduced cost-sharing to steer enrollees to in-network pharmacies. Any such reduced cost sharing cannot increase government subsidies to plans.”Seems clear to me.
COME TO THE PART D PARTY
The first major Part D PDP sponsor with a preferred design was the Humana Walmart Preferred Rx Plan. See Walmart-Humana: An Inevitable Surprise for Pharmacies and PBMs. The plan became the fifth largest national PDP within three months of its launch, per the data in 2011 Part D Market Share: A Win for Humana and Walmart.
Coventry’s First Health Value Plus Plan (PDP) is similar in spirit to the Humana Walmart Preferred Rx Plan. Coventry’s plan has a higher monthly premium but the network includes three retail chains with 14,000 pharmacies:
- Walgreen—7,760 pharmacies
- Walmart—4,400 pharmacies at Walmart and Sam’s Club stores
- Target—1,610 pharmacies
- $0 co-pay on Tier 1 formulary prescriptions (most generics and select branded drugs) at preferred pharmacies during the Part D initial coverage period; $7 co-pay on Tier 1 formulary prescriptions at other contracted pharmacies
- Lower co-pays on Tier 2 and Tier 3 formulary prescriptions when filled at preferred pharmacies
- $3 copayment for preferred generic prescriptions
- $10 discount on copayments for non-preferred generic and preferred brand prescriptions
As Auric Goldfinger once observed: "Once is happenstance. Twice is coincidence. The third time it's enemy action." Rather than complaining, why don't independents rock the house with an all-independent pharmacy network in a Part D plan?