The article's first half, excerpted from Chapter 8 of the 2012-13 Economic Report on Retail, Mail, and Specialty Pharmacies, analyzes the narrow pharmacy network trend and highlights its economic appeal to payers and pharmacies.
The article's second half contains my heretofore unpublished views on:
- How the narrow network revolution will affect pharmaceutical manufacturers’ commercial activities
- How manufacturers can best prepare for and respond to the risks and challenges of narrow pharmacy networks
The following excerpt comes from an article originally published in Pharmaceutical Executive, May 2013.
Pharmacy Benefit Networks: The Big Squeeze
By Adam J. Fein, President, Pembroke Consulting, Inc.,
US drug manufacturers face significant risks from a trend toward a more controlled approach to the operation of pharmacy benefit networks (PBNs) that deliver medicines to patients. Instead of letting patients choose to fill their prescriptions from an open network that includes a wide range of pharmacies, these benefit designs use financial incentives or explicit restrictions to direct consumers to specific pharmacies that agree to meet the PBN’s conditions. The popularity of these new pharmacy network models is exploding in both commercial and Medicare Part D plans.
The risk is the shift in the balance of power to payers in the decisions on if, how, and when patients get access to medicines provided under their pharmacy benefit plans. These so–called narrow networks will give more control to third-party payers, alter promotion and marketing activities, and shift market share between different payers and pharmacies. Payers’ use of the more tightly controlled pharmacy network model will keep growing as they seek additional drug spending savings. Over the past two years, plans have taken further steps to enforce formulary control and limit manufacturer marketing practices, such as copay offset programs. More important, consumers are accepting the new plans, encouraged by the out-of-pocket savings opportunities on their prescriptions. Likewise, community retail pharmacies are willing to accept lower reimbursements in exchange for the increased store traffic.
To preserve market position and access, manufacturers must start by recognizing that the economic interests of payer-defined pharmacy channels are diverging from traditional branded drug makers. It is thus important to analyze this crucial trend, highlight its economic appeal to payers and pharmacies, and outline how manufacturers can best prepare for and respond to the challenge.
Continue reading the article on the Pharmaceutical Executive website...