Tuesday, March 11, 2014

Run Away: CMS Abandons Part D Preferred Pharmacy Network Changes

Not content to rest on its laurels after October’s impressive healthcare.gov launch, the Centers for Medicare & Medicaid Services (CMS) proposed drastic changes to almost every aspect of the popular Medicare Part D program in January. To no one’s surprise, CMS has now run away from reconsidered this radical overhaul.

As I describe in CMS Wants It That Way: Big Medicare Part D Pharmacy Changes, CMS wanted far-reaching revisions that would have effectively killed preferred pharmacy networks. Medicare Part D is the rare government program that generally works wells and has widespread support from seniors. CMS proposed so many other changes that it created a diverse opposition, including a bipartisan group in Congress.

The final 2014 open enrollment data for Medicare Part D Prescription Drug Plans (PDPs) document the consumer appeal of preferred pharmacy networks. Consistent with the preliminary numbers, three out of four (75%) seniors enrolled in a PDP with a preferred pharmacy network design. See the updated summary—and the full text of CMS’s about-face—below. Plus, you can see our exclusive behind-the-scenes video of CMS's deliberations.


For 2014, there are 60 Part D plans with preferred pharmacy networks. These plans operate 851 regional PDPs, which account for 72% of the total regional PDPs for 2014. Consistent with the initial enrollment figures, these 60 plans enrolled 14 million people, or 75% of the total. As of January 10, 2014, the nine largest organizations (shown below) accounted for 89% of total PDP enrollments.

[Click to Enlarge]

The full methodology and analysis behind the chart are in my previous article: For 2014, 3 out of 4 Seniors Choose a Narrow Network Medicare Drug Plan—and Humana, UnitedHealthcare Win Big.


After CMS announced its proposed revisions, here’s what happened:
  • More than 400 trade associations, patient advocacy groups, health plans, manufacturers, and other organizations sent a letter asking for the rule’s withdrawal. Read the letter. CVS Caremark and Walmart both signed the letter.
  • The Medicare Payment Advisory Commission (MedPAC), an independent agency that advises Congress on the Medicare program, wrote to criticize the changes. Read the MedPAC letter

Perpetually self-interested pharmacy owners were pretty much the only beneficiaries of the proposed rule. The National Community Pharmacists Association (NCPA) was especially enthralled with the Any Willing Provider provision.

However, the Federal Trade Commission (FTC) has long contended that such Any Willing Provider laws reduce competition and increase healthcare costs. (example) As I noted in January:
CMS blithely disregards the fundamental economic question: With Any Willing Provider, why would any pharmacy now want to offer a “preferred cost-sharing” deal to a Part D sponsor? If these proposals are adopted, we could see preferred networks shrink substantially.
The administration of Part D preferred networks may not be perfect, but the purported problems with preferred networks are fairly small and could be handled with minor rule changes.

For instance, CMS’s study of preferred networks found that, on average, preferred pharmacies had prescription costs that were about 6% cheaper than those of non-preferred pharmacies. While preferred pharmacy costs were higher in 5 of the 13 plans studied, these plans accounted for only 4% of total claims. See New CMS Study: Preferred Pharmacy Networks are Cheaper (Except When They’re Not).

Given this latest development, I will reiterate the forecast from Chapter 8 of our 2013–14 Economic Report on Retail, Mail, and Specialty Pharmacies.
Payers’ use of the more tightly controlled pharmacy network model will keep growing as they seek additional drug spending savings. Consumers are accepting the new plans, encouraged by the out-of-pocket prescription savings opportunities. Retail pharmacies are willing to accept lower reimbursements in exchange for increased store traffic.

Here is an exclusive video of CMS Administrator Marilyn Tavenner getting ready to implement the proposed rule, followed by the marketplace's reaction. Click here if you can’t see the video.

Dear Senator/Member of Congress:
Thank you for your recent letter on our proposed rule on the Medicare Advantage (Part C) and Part D prescription drug program. We believe that both of these programs have proven to be successful. Beneficiary satisfaction remains high, quality of care is improving, and premium growth has remained low – in part, thanks to changes in the Affordable Care Act. Yet, we see many opportunities to improve the programs to promote greater transparency, to reduce fraud, to simplify the benefits for beneficiaries, and to reduce the costs to the program. To ensure that the Medicare program remains solvent and affordable for beneficiaries, we believe we need to continuously review the benefits and premiums.
The proposed rule included many important provisions related to the Medicare Part C and D prescription drug program. During the rule’s comment period, we received numerous concerns about some elements of the proposal from members of Congress and stakeholders. In particular, we heard concerns about the proposals to lift the protected class definition on three drug classes, to set standards on Medicare Part D plans’ requirements to participate in preferred pharmacy networks, to reduce the number of Part D plans a sponsor may offer, and clarifications to the non-interference provisions. Given the complexities of these issues and stakeholder input, we do not plan to finalize these proposals at this time. We will engage in further stakeholder input before advancing some or all of the changes in these areas in future years. That said, we plan to finalize proposals related to consumer protections (e.g., ensuring access to care during natural disasters), anti-fraud provisions that have bipartisan support (e.g., strengthening standards for prescribers of prescription drugs), and transparency (e.g., broadening the release of privacy-protected Part D data) after taking into consideration the comments received during the public comment period.
In addition, we are committed to continuing to work with Congress to continue to ensure that Parts C and D work best for Medicare beneficiaries while remaining affordable. We look forward to working with you through our future rulemaking process and pledge our assistance as Congress considers any adjustments to these programs.
Marilyn Tavenner


  1. Adam, I am confused.

    As a taxpayer that is helping fund the Med-D program, why can't our pharmacy have the opportunity to participate in these preferred networks?

    It seems strange that we should at least have the option to participate if it is our dollars sponsoring it.

    Can you help me understand this please?

  2. Steve,

    It's about the economics of negotiation. Here's a key excerpt from the FTC letter linked above:

    "When insurers have a credible threat to exclude providers from their networks and channel patients elsewhere, providers have a powerful incentive to bid aggressively. Without such credible threats, however, providers have less incentive to bid aggressively, and even managed care organizations with large market shares may have less ability to obtain low prices.”

    Thus, if every pharmacy (provider) could get into the network, then no pharmacy will be willing to lower its costs and become "preferred." As a result, "any willing provider" laws have the anti-competitive effect of keeping prices higher and raising costs, which is why pharmacy owners lobby for them.

    Here's a useful working paper that provides further details and documents the cost increases: The Effect of Any Willing Provider and Freedom of Choice Laws on Health Care Expenditures


  3. Thanks Adam. That does seem to make some sense.

    But what if I don't even get a chance to participate in the negotiation piece? I mean, that when I reach out to the folks directly with the Med-D plans, and their processors/PBM's, I'm told that I cannot be part of a preferred network. This seems strange.

    Shouldn't I at least have that opportunity to negotiate?

  4. So damn funny, we were cracking up this morning. Especially resonates
    with me because of the Holy Grail reference.

    I think I heard church bells ringing yesterday somewhere about the
    time the email from Tavenner came out

  5. This is a great topic to discuss with your PSAO.

  6. yeah, but the drugs don't work. so what does your analysis say about the effectiveness of antidepressants and antipsychotics?

    don't BS me, because i know they don't work.

    for further references, i encourage people to consult the following articles that show the corruption of the APA and AMA. These companies have not only drugged children in the foster program to enjoy their government subsidies, they're doing it to seniors as well. these companies need this program to survive. these drugs do not work. however adam fein needs to keep his job.

    failure of zoloft discussed here:http://1boringoldman.com/index.php/2014/02/20/44137/
    failure of lurasidone discussed here:http://1boringoldman.com/index.php/2014/02/14/or-both/
    failure of DSM-5 (used for DIAGNOSIS, or GOING to be used):http://1boringoldman.com/index.php/2014/03/03/ludicrous/

    drugging foster children (as a revenue/profit stream):

    here is a letter signed by APA/AMA (among others, as there is a BUNCH of other medical groups that show the blatant disregard for public health) concerning the Sunshine Act's reporting requirements:


    Notice in the end how they try to glue two completely orthogonal ideas together? On one hand they're saying that educational literature is very useful to doctors (of course it is!), but then says that reporting requirements will cause a "disincentive" in using this literature....

    The only way I can say this is possible is if the doctors are complaining about carrying a few more sheets of paper, which is absolutely ridiculous and inadmissible.

    these all outline different issues; forged trials, conflict of interests with many doctors running the trials. you guys have no idea.

    many of these drugs flat out don't work, and adam fein is here to protect his paycheck.

  7. Adam,

    Does “economics of negotiation” work when thousands of pharmacies are excluded from negotiating? Pharmacies like mine have zero opportunity to negotiate our way into a preferred network.

    Medicare’s own star ratings show my pharmacy to provide a level of care higher than big box stores by measures shown to save hundreds of
    millions of dollars by decreasing hospital and nursing home admissions. We organize our patient’s medications in pill sets, provide home delivery, and counsel these patents and their caregivers on a daily basis.

    Receiving auto-shipped mail order medications in a large box or auto-filled prescriptions from a chain puts some patients at risk. There is no incentive to provide a high level of care when you only have kick back money to be a preferred pharmacy. Big box stores can then use slow service to
    increase cigarette and over the counter sales to make up the difference.

    My pharmacy has no opportunity to enter preferred networks. The big box stores most commonly preferred do not offer the patient care services and adherence levels that create outcomes based cost savings.

  8. Adam- I am confused as well. How are WalMart and CVS NOT "perpetually self interested"? I think their opposition to more competition is quite telling.
    I am a community independent pharmacist (not an owner) who has had patients at the window in tears because they have to go across the street to CVS because they are "preferred" in their Part D network. The idea that competition raises prices seems flawed to me from ECON 101. To think that WalMart would drop out of a preferred relationship with Humana because other pharmacies could participate seems highly unlikely. In that event, I'm sure some other chains would jump at the chance for the business. Which ultimately means NO INCREASE IN COST. We should have the opportunity to evaluate the contract and participate at the same terms. If my business operation can't afford the terms, then I should lose the business. However, I'm quite confident in our ability to compete with CVS (and any chain), not only on price, but the services we provide, including MTM and immunizations.
    Are community pharmacists "self interested"? SURE! But I think it goes beyond selfish greed as you imply for most of us.... we are invested in our communities and committed to improving patient outcomes. We are employers and taxpayers. We go to church with our patients, go fishing with them, run a medication over to their house after the work day, and give back to our community. Did you go to school and have you worked hard to be an expert in your field so you can provide for your family? Are you "self interested"?
    Just my thoughts. I welcome your feedback and I really appreciate your insights (usually). Thanks! Chris

  9. Adam, I'm surprised you didn't go for this one?

  10. Sorry, I couldn't resist the perfection of the MP video as an analogy. ;)

  11. Yes, of course, the large chains are self-interested. As a card-carrying economist, I will always agree that people respond to incentives in their own self-interest. I'm reacting to all the blather about "pro-patient" changes, when just about every single patient advocacy group opposed the Part D changes.

    For more on the economic logic and lower costs of narrow networks lower costs, see this 2012 post: The Narrow Network Revolution

  12. One last thing Adam....As you probably know, this has nothing to do with "pro-patient".

    This deals with our rights and options as citizens...the option or opportunity to simply request to participate in the process.

    Again, how would you handle this if you were in our shoes?

  13. So what you and the FTC are saying is: Back room deal that exclude a large number of potential competitors and don't appear to save any money is preferable to an open bidding process?

    All the federal, state, county, and cities that use open-bidding are just doing it all wrong?

  14. You are incorrect - multiple studies (including the one by CMS) show savings from preferred networks. The problems with preferred networks can be fixed with minor rule changes, not by blowing up the Part D program.

  15. I am puzzled. I think this table for total enrollment last year reported 22.4 M (2012). For 2013, this looks like about 18.7 M. Am I missing something, or is total enrollment down?

  16. The 2014 figures exclude Employer/union only group plans (contracts with "800 series" plan IDs). This segment grew due to the ACA. See the methodology notes in my original post: For 2014, 3 out of 4 Seniors Choose a Narrow Network Medicare Drug Plan—and Humana, UnitedHealthcare Win Big.

  17. Adam, you seem to be missing the point here, and I don't quite understand why.

    SeedyCharacter above is simply looking to open up the bidding process. Doesn't really seem that complicated and it increases the number of providers bidding, thus driving down the price - in theory.

    In addition, it's a Federal program and the Feds encourage all citizens to become involved in "the process".

  18. We'll from what I've read the "savings" ranged quite a bit. Some "preferred" plans cost the plan sponsor (CMS) more than the non-preferred plans. Some saved, but if even one cost more than than the non-preferred networks doesn't that blow the theory?

    Regardless, take the savings out of the picture and answer the questions. Government programs should be open, transparent, accessible, and give people reasonable choices. Otherwise it's just a good-ol-boys party. Not every patient can (or should) go to one of the Wals.

  19. As I said above, you should check with your PSAO. Many PSAOs have contracts in preferred networks.

  20. Read the study results, not just the propaganda: New CMS Study: Preferred Pharmacy Networks are Cheaper (Except When They’re Not). Problems with the 5 higher cost plans (4% of claims) can and should be fixed, but it doesn't require blowing up the whole Part D program.

  21. I have checked with my PSAO. Most, but not all, preferred networks do not offer contracts to PSAOs. A couple offerings that I've seen expressly state they will exclude one (or more) of the major chains or PSAOs. But, even if a PSAO is offered a contract how would they know if they are getting the same reimbursement as the big chain when there is no transparency? It seems obvious that the PBMs wouldn't like an open, transparent, process. They'd have to disclose all the kickbacks they're getting that raise the cost of healthcare...