Tuesday, October 15, 2013

EXCLUSIVE: For 2014, more than 70% of Medicare Part D plans have a preferred pharmacy network

Today, Medicare Part D kicks off its open enrollment period. Through December 7, America’s seniors can keep their current plan or switch to a new one. But the big story is the narrow network boom.

In 2014, preferred pharmacy networks will dominate Part D. There will be 56 plans with a preferred network, up from only 16 plans in 2013. Our analysis reveals that 72% of the nearly 1,200 regional prescription drug plans (PDP) have a preferred network. By the beard of Zeus!

When the first enrollment data are released in January, I predict that a majority of seniors will have chosen a PDP with a preferred pharmacy network.

Read on for our exclusive look at the 2014 Part D landscape, which includes insights on the major health plans behind the PDPs. As always, Drug Channels brings you the news—so you don't have to get it yourself.


Here’s some brief background.

In an open pharmacy network, a consumer’s out-of-pocket costs and copayments are identical regardless of which pharmacy in the retail network dispenses the prescription.

In a preferred network, consumers choose any pharmacy in a plan’s network, but get financial incentives to use the subset of preferred pharmacies that offer lower costs or greater payer control. Thus, the consumer’s out-of-pocket expenses will be higher at a non-preferred pharmacy.

Here’s how the Centers for Medicare & Medicaid Services (CMS) defines “Preferred Pharmacy” to beneficiaries:
“A pharmacy that's part of a Medicare drug plan's network. You pay lower out-of-pocket costs if you get your prescription drugs from a preferred pharmacy instead of a non-preferred pharmacy.” (source
The Part D preferred pharmacy network wave began in 2011, when Humana and Walmart launched their first plan. As I wrote at the time, it was An Inevitable Surprise for Pharmacies and PBMs.

In 2013, more than four out of ten seniors are enrolled in a Medicare Part D PDP with a preferred pharmacy network design. See Final 2013 Part D Data: Preferred Pharmacy Networks Still Win Big, But CMS is “Concerned.” A May 2013 survey found seniors in these plans are satisfied with their pharmacy choices.

CMS has questioned these networks, but its recent study clearly demonstrates the cost savings. See New CMS Study: Preferred Pharmacy Networks are Cheaper (Except When They’re Not). These cost savings come from reduced pharmacy profit margins, because a pharmacy typically pays a per-prescription fee to be preferred in a Part D plan’s network.

For more background, see “The Narrow Network Revolution,” starting on page 115 of the 2012–13 Economic Report on Retail, Mail, and Specialty Pharmacies. Manufacturers can prepare for these networks by reading Pharmacy Benefit Networks: The Big Squeeze, my article in the May 2013 edition of Pharmaceutical Executive.


This year, I went the full wonky: I dug into the raw CMS data files. You can replicate my analysis using the Medicare Plan Finder database and the 2014 PDP Landscape Source Files (v.09.30.13).

My evaluation includes only stand-alone PDPs. I eliminated the following plans from the sample:
  • Employer-sponsored plans
  • Medicare Advantage PDPs (MA-PDP)
  • Plans from U.S. territories (American Samoa; Guam; Northern Mariana Islands; Puerto Rico; Virgin Islands)
I included plans placed under sanction as of September 3, 2013. CMS provides information for these plans, but they can’t accept new enrollees. All of these plans are either the SilverScript PDPs, offered by CVS Caremark, or the SmartD Rx PDPs, which were acquired by Express Scripts.

My final sample included 95 plans operating 1,169 regional PDPs. Seventeen plans are being offered in all 34 regions, for a total of 578 PDPs (=17*34). The other 78 plans are operating in anywhere from 1 region to 33 regions, and account for 591 regional PDPs.


Preferred pharmacy networks dominate the 2014 PDP landscape. There are 56 plans with preferred networks, up from only 16 plans in 2013. These plans operate 841 regional PDPs, which account for 72% of the total regional PDPs for 2014.

Here is our exclusive list of every multi-regional plans with a preferred pharmacy network. The single-region plans with a preferred network fall under our catch-all category “Single Region Plans.” Click to enlarge the image. Or, click here to download the list as a PDF.

2014 highlights:
  • Humana rebranded its legacy plan with Walmart as the Humana Preferred Rx Plan. It also launched two new plans: Humana Enhanced and Humana Walmart Rx Plan. All plans have a preferred network and are being offered in all 34 regions.
  • All three of UnitedHealthcare’s AARP plans will have preferred pharmacy networks.
  • Two of CVS Caremark’s three SilverScript plans have preferred networks. However, the CMS sanctions prevent these plans from adding new members.
  • Express Scripts launched a preferred network in its Express Scripts Medicare - Choice plan. It also offers a plan without a preferred network.
  • Three of the four Cigna plans have preferred networks. Last year, no Cigna plan had a preferred pharmacy network.
  • The Aetna CVS/pharmacy Prescription Drug Plan is the only one of Aetna’s three plans with a preferred network.
  • MedicareRx Rewards Plus, marketed by UniCare, is Wellpoint’s first plan with a preferred network.
  • Symphonix Rite Aid Value Rx is a new plan in 18 regions. This is Rite Aid’s second attempt at a co-branded plan, after the failed Rite Aid EnvisionRxPlus plan.
The preferred networks include 20% to 50% of all retail pharmacies. Many of these networks include both chain drugstores and independent pharmacies. In a future article, I’ll look at the pharmacy networks behind the major plans. (UPDATE: See Walmart Plays to Win in 2014 Part D Preferred Networks, while CVS and Rite Aid Lag.)

We’ll know preferred networks' popularity when the enrollment data are released, in February. Until then, you stay classy, Drug Channels.

P.S. Anchorman 2 will be in theaters shortly after the Part D open enrollment period ends!


  1. Where do the Specialty Pharmacies fit in to these preferred networks?

  2. Very interesting coverage of PDP Preferred networks, thank you.

    A few thoughts and questions:

    ”In an open pharmacy network, a consumer’s out-of-pocket costs and copayments are identical regardless of which pharmacy in the retail network dispenses the prescription.”

    True from the standpoint of co-pay cost if fixed dollar co-pays are in place. However, if the plan has a % co-pay and there is variability in individual pharmacy pricing which is passed through to the member in terms of drug cost, a member could indeed be paying more to use Pharmacy A then Pharmacy B.

    I have really been troubled by this pay-to-play approach that you highlighted previously in reports on the growth of Preferred PDP networks. It seems a bit confounding that the PDP premium can be more favorably impacted by monetizing the $ pharmacy will provide for preference into a DIR rebate rather than a rate differential – but that appears to be how CMS set the regs up. They certainly may be digging into this more now recognizing that was a loophole they may have inadvertently created that didn’t necessarily benefit them.

    I would be curious to know of the products listed, how many operated off a DIR rebate scheme for preference versus an approach where pharmacy is providing enhanced rates in order to be in the preferred tier. I’m not sure that is discoverable, but it would be interesting to know.

    Thanks, and as always, I enjoy your timely and valuable reporting.

  3. I'm curious how you think this would affect someone thinking about opening an independent LTC pharmacy?