Friday, May 17, 2013

Will Narrowing Pharmacy Networks Squeeze Manufacturers?

Pharmaceutical Executive's May 2013 issue includes Pharmacy Benefit Networks: The Big Squeeze, a new article by yours truly.

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The article's second half contains my heretofore unpublished views on: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
Read the article's introduction below. As always, I welcome your comments.

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...


  1. GREAT stuff! I shared with my whole payer marketing team. We don't look outside our four walls enough to see how payers are always finding new ways to control our product access.

  2. Thanks Adam for posting. This is a good topic. While Payer directed networks are indeed gaining popularity, so are manufacturer directed networks, and in the food chain, manufacturers have more pull than Payers, usually because the provider or patient works through the patient services center for the product or is directed by the provider to the preferred Specialty Pharmacy network controlled by the manufacturer. When attempting to optimize the patient and provider journeys or experiences associated with a particular product, if the manufacturer doesn't design the network to ensure a positive experience, patients will experience a nasty world of challenging economics, step edits and prior authorizations, let alone a lackluster experience around adherence and medication compliance.

  3. Hi Bill,

    Agreed. Most pharmaceutical manufacturers limit the number of specialty pharmacies authorized to dispense their specialty products. However, these networks are used for different reasons than are the retail pharmacy networks described in my Pharm Exec article. I discuss the factors behind manufacturer-designed specialty networks on pages 126-7 of my most recent economic report.

    Don't forget that pharmacy benefit networks exist for specialty drugs, too. Health plans typically limit the number of specialty pharmacies available to a beneficiary. A health plan or PBM can also require patients to use the specialty pharmacies owned and operated by the plan or PBM.