Tuesday, October 16, 2012

For 2013, Preferred Pharmacy Networks Propagate in Part D

Yesterday, Medicare Part D kicked off its open enrollment period. Between now and December 7, America’s seniors will have the opportunity to keep their existing plan or switch to a new one. In 2010, Medicare Part D paid for about 20% of all retail prescription drugs.

In 2013, preferred networks will make a big splash in Part D. Listed below are the 16 prescription drug plans (PDPs) with preferred pharmacy networks, including five new 2013 plans. In this post, I look at these plans and provide some observations on the plans, the participants, and the economics.

We’ll have to wait until 2013 to know how successful these plans will be, but I stand by my earlier prediction that at least 40% of beneficiaries will be in a PDP with a preferred network. I’ll check back with these plans once CMS publishes the 2013 enrollment data.


For background, see The Narrow Network Revolution for a quick refresher on the three basic alternatives to pharmacy network design—Open Pharmacy Network, Preferred Pharmacy Network, and Limited Pharmacy Network.

Here is how the Centers for Medicare and Medicaid Services (CMS) defines “Preferred Pharmacies” to beneficiaries:
If your plan has preferred pharmacies, you may save money by using them. Your prescription drug costs (such as a copayment or coinsurance) may be less at a preferred pharmacy because it has agreed with your plan to charge less.” (source)
For more on preferred networks, see the section starting on page 90 of the 2011-12 Economic Report on Retail and Specialty Pharmacies. The report also explains why commercial payers are adopting new network models more slowly.


I identify 16 Medicare Part D prescription drug plans (PDP) with preferred network structures. In all of these plans, a Medicare Part D beneficiary has the option of using other pharmacies, although any copayment or coinsurance will (usually) be higher at a non-preferred pharmacy.
Let me know if I missed any PDPs with a preferred pharmacy network and I’ll update the list.


Here’s a summary of 2013’s 16 preferred network PDPs. Five plans are being newly launched in the October 2012 open enrollment period, so there is no data for current enrollment. Note that some of 11 currently-operating PDPs did not have preferred networks in 2012.

  • The 11 current plans have an impressive 8.1 million beneficiaries—41% of the 2012 total.
  • All plans have copayment differentials for generic prescriptions, which makes sense because that’s where pharmacies have the most margin to give away in exchange for store traffic. 
  • For preferred brands, the copayment differentials between preferred and non-preferred pharmacies are typically $5 to $10. Unusually, two plans—Aetna/CVS and Humana Enhanced—have no copayment differentials for preferred brands.
  • RxAlly, a new pharmacy group which claims to have about 14,000 independent pharmacies plus Walgreens drugstores, is offering the SmartD Rx plans. The SmartD company is currently held by private investors, and over time a controlling interest will migrate to RxAlly. As far as I know, Walgreen is the major investor behind RxAlly and SmartD. Surprise, independent pharmacy owners!
  • In case you don’t know, pharmacies typically pay a $1 to $3 per-prescription fee to the PDP to participate in a preferred network. Ouch.
The National Community Pharmacists Association (NCPA), which lobbies on behalf of independent pharmacy owners, remains very unhappy with preferred networks. I suspect NCPA will change its tune if RxAlly’s SmartD plans succeed.


  1.  Do you have any Idea of the rate increase for 2013 by Plan. It was my understanding the Human Wal-mart plan had one the higher % increases

  2. Yes, the HUM-WMT plan grew by 66.5% in the 2012 plan year. See Humana-Walmart Preferred Network Plan Wins Big in Part D.

    We won't know the 2013 growth until January or February, when CMS releases the new enrollment data.

  3. I'm sorry, you misundrrstood my Question .  By rate increase I meant the cost of the plan to the consumer. It's my understanding the Base Premium for Medicare D was almost unchanged, but a number of Plans had consumer premium rate increases in excess of 10%. I was wondering hkow the prices were impacted on the preferred plans.

  4. The HUM-WMT monthly premium went from $15.10 to $18.50. While that's a 23% increase, it's still a low-cost plan and will be LIS-eligible in every region. According to Avalere Health, the average monthly premium (for all PDPs) is $40.27, so HUM-WMT is less than half.

  5.  "All plans have copayment differentials for generic prescriptions, which
    makes sense because that’s where pharmacies have the most margin to give
    away in exchange for store traffic."

    While there is no question that "store traffic" is a motivator for giving away margin, are there any studies or other evidence that the strategy actually pays off for pharmacies, chain or independent?  I'm not looking here for "if it didn't work, they wouldn't keep doing it."

  6. What type of advantage do you feel SmartD has with being the largest preferred network of community pharmacies?  Do you think potential beneficiaries will take notice of this when selecting a plan?  

  7. As far as I know, Smart D doesn't have the largest preferred network of community pharmacies. According to the PPACA, retail community pharmacies also includes chains, supermarkets, and mass merchants.

    That said, SmartD has an advantage with seniors that want to shop at a particular independent  However, I note that the plan has comparatively high monthly premiums and no mail order, so it could be more expensive than other plans.

  8. I'm not aware of any reliable evidence, pro or con. I have heard anecdotal evidence that some early adopters had big store traffic gains.

  9. Update on Smart D.  It was revealed at the 2012 NCPA Convention in San Diego that Smart D has actually only enrolled 11,000 Independent Pharmacies, a far cry from the 22,000 being propagated by Rx Ally. 

  10. Thanks for the update. From the wording of their press release, I presumed that the total included 8,000+ Walgreen pharmacies. So, is the correct total 19,000?.

  11. Just to clarify SmartD 's Preferred network, currently we have over 20,000 pharmacies that include Community pharmacies, regional chains and Walgreens. No other chains or supermarkets or mass merchants, there is no other larger network currently with 12,000 independent pharmacies. The plan is focused on keeping seniors in their local pharmacies and for the SmartD saver plan it has competitive premiums ranging from $29..00 - $34.00 with $0 preferred generics and a 90 day retail benefit protecting the retail pharmacies business from going to mail

  12. Exceptional article. Describing the position of the independent in a preferred network and another go-around for the NCPA