Wednesday, April 03, 2013

Will CMS Crack Down on Part D Preferred Pharmacy Networks?

On Monday, the Center for Medicare and Medicaid Services (CMS) released its 2014 Rate Announcement and Final Call for Medicare Advantage and Part D plans. For MA plans, the big news is a surprising 3.3% rate increase, rather than a 2.2% cut.

CMS also had some tough talk for preferred pharmacy networks in Medicare Part D Prescription Drug Plans (PDPs). Below, I explain CMS’s biggest concerns, which include network entry, pharmacy fees, and beneficiary communications. Plan sponsors: You have been warned!

P.S. Stay tuned for my forthcoming Pharmaceutical Executive article explaining why manufacturers should be worrying about narrow pharmacy networks.

As I note in Final 2013 Part D Data: Preferred Pharmacy Networks Still Win Big, But CMS is “Concerned”, seniors are increasingly choosing preferred networks. In 2013, more than four out of ten seniors enrolled in a Part D plan with a preferred pharmacy network. Here's a look at the biggest parent organizations and enrollment share in a preferred network plan.

CMS’s draft call letter expressed concerns about preferred network costs. But in Monday’s final letter, CMS went much further in its criticism. Here’s my summary of its three toughest messages.

1. Make it easier for pharmacies to join a preferred network.

CMS states: “We strongly believe that including any pharmacy that can meet the terms and conditions of the preferred arrangements in the sponsor’s preferred network is the best way to encourage price competition and lower costs in the Part D program.” (See “Preferred / Non-Preferred Pharmacy Networks,” on page 175.) While CMS does not mandate any policy changes, the statement is a clear warning to PDPs.

Done properly, consumers will win and pharmacies will lose. In today’s hypercompetitive environment, pharmacies are willing to boost store traffic in exchange for accepting lower prescription reimbursements. These reduced pharmacy margins will translate into consumer savings.

2. Account for per-prescription fees properly.

CMS raised concerns about the accounting for the per-prescription fees that pharmacies pay to participate in preferred networks. In CMS parlance, these fees are called Post Point-of-Sale Per-Claim Administrative Fees (PPOSPCAF; see page 164 and page 175.)  After mulling it over, CMS said: “Upon consideration, we believe that any such post-point-of-sale claim adjustments violate our current guidance on negotiated prices.”

If these fees are not accounted for properly, then CMS believes such fees overstate retail prices. CMS plans “notice and comment rulemaking would be necessary in order to require sponsors to consider these fees as part of the negotiated price.”

3. Be careful with communications regarding copayments. 

Beneficiaries eligible for the Low Income Subsidy (LIS) get reduced copayments at all pharmacies, not just preferred pharmacies. CMS issued the following warning: “Under no circumstances may sponsors inform LIS-entitled beneficiaries that they must fill prescriptions at preferred network pharmacies in order to get LIS copays.” While there is no policy statement, CMS will likely try to embarrass (or penalize?) plans that get it wrong.


I still expect narrow networks to grow, but won't be surprised by much more Part D regulations and guidance for 2014.


  1. Hey Adam, agreed with your assessment of Monday's final notice on PPN (preferred pharmacy network as we call it). The assertion that CMS won't disallow #2 for now suggests that those doing it objected strenuously to advance notice language in their comments and CMS (slightly) backed down. But I'm sure they're working on new regulations to close that loop hole such as it is.

    #3 in your list wasn't a surprise because they gave warnings this was coming, and it's kind of a "duh" subject to me. Why would a plan sponsor propose PPN to low income members, it makes no sense and they have no incentive to switch pharmacies. But CMS no doubt feels better about a public warning on what is a moot point.

    #1 is interesting, but they stopped short of telling plans that they have to let pharmacies into a PPN in an any willing provider type context. What CMS is ignoring is the actuarial side of this which makes it challenging to let everyone in and still have benefits that meet CMS's actuarial rules.

  2. Adam,
    Please elaborate on the last sentence in number one, "These reduced pharmacy margins will translate into consumer savings." I would like to better understand where the savings is, and is it in something specific or the net effect of several factors.
    As for me, I do not see savings for consumers in non-prescription purchases as pharmacy retailers are pressed to maintain GP levels in the front end to compensate for the continued, agreed upon contractual decreases in third party reimbursements. Lets face it, how much more can expenses like payroll and supplies be controlled and squeezed. And is there that much more leverage, at least in the short term, with wholesalers or direct accounts to meaningfully decrease the cost of goods sold? Same store sales must increase to keep stockholders and financial backers appeased. Hard to do when 95% of chain pharmacy dept rx transactions involve a third party.
    I also do not see net savings for consumers in regards to their overall Out Of Pocket Healthcare expenses on the pharmacy side. Some generic prescription copays will decrease and the Med-D donut hole will continue to narrow for several more years, at least for Brand Name Meds, but net expenses will continue to raise and be a greater share of living expenses as copay cost share tiers, deductable levels and premium amounts continue to rise.
    Lastly, and more to the point, I do not see immediate consumer savings in the 5% of pharmacy transactions that are still "cash and carry". Of course we are still feeling the paradign shift in consumer expectations every since the implementation of "the $4 list" or other in-house savings programs on 30day and 90day supply fills along with the more recent retailer/grocer campaigns of just "giving it away", such as antibiotics, diabetic meds, and atorvastatin. But overall, retailers are still pricing generics as a percentage off of the corresponding brand name drug's continually rising U&C price. I understand part of the reasoning for this in that pharmacies are required to transmit to a PBM the U&C price of a claim along with every ajudication. As bad as things are, no one (except in the insurance industry) wants a third party's reimbursement to be lowered because you normally charge a price that is actually below the contractual AWP minus formula calculation.
    Looking forward to your continued insight.......RM.