Tuesday, October 17, 2017

EXCLUSIVE: Preferred Pharmacy Networks Will Dominate 2018 Medicare Part D Plans (Plus: We Review the Top Plan Sponsors)

The Centers for Medicare & Medicaid Services (CMS) has just released the initial raw data on the 2018 Medicare Part D plans.

Our exclusive analysis of these data reveals that preferred cost sharing pharmacy networks have officially won. For 2018, 99% of Medicare Part D regional prescription drug plans (PDP) will have a preferred network. This figure exceeds those of the past four years. The three largest open network plans from 2017—CVS Health’s SilverScript Choice and WellCare’s Classic and Extra plans—have given up and will have preferred networks.

Below, I provide historical data on preferred networks’ growth and then discuss the top eight companies behind the 2018 plans. As I predicted many years ago, narrow pharmacy networks—whether preferred or limited models—have become an unstoppable force in benefit design.


A preferred network gives consumers a choice of pharmacy. It also provides them with financial incentives to use the pharmacies that offer lower costs or greater control to the payer. A consumer with a preferred network benefit design retains the option of using any pharmacy in the network. However, a consumer’s out-of-pocket expenses will be higher at a non-preferred pharmacy.

Preferred network models have grown most rapidly within the Medicare Part D program, where CMS now calls them preferred cost sharing networks. CMS calls the pharmacies in such a network preferred cost sharing pharmacies. According to federal regulations, preferred pharmacies in Part D must offer “covered Part D drugs at negotiated prices to Part D enrollees at lower levels of cost sharing than apply at a non-preferred pharmacy under its pharmacy network contract.”

To identify the 2018 Part D preferred cost sharing pharmacy networks, I used the 2018 Drug and Health Plan Data and the 2018 PDP Landscape Source Files (v 09 22 17). My analysis includes only stand-alone PDPs. I eliminated these plans from the sample:
  • Employer-sponsored plans
  • Medicare Advantage PDPs (MA-PDP)
  • Plans from U.S. territories and possessions (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, Virgin Islands)
  • Employer/union-only group plans (contracts with "800 series" plan IDs)
My final sample included 74 plans, which operate 782 regional PDPs.
  • Sixteen plans are being offered in all 34 regions, for a total of 544 PDPs (=16*34).
  • Six plans are operating in 14 to 33 regions and account for a further 149 regional PDPs.
  • The remaining 52 plans are operating in anywhere from 1 to 7 regions and account for 89 PDPs.

In 2018, preferred cost sharing networks have overtaken the Part D landscape. The chart shows the growth of preferred networks in stand-alone prescription drug plans. In 2011, only 7% of total regional PDPs had a preferred network. In 2018, 99% of PDPs will have preferred pharmacy networks. I detect a trend!

[Click to Enlarge]

This chart updates Exhibit 106 in our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

From 2015 to 2017, the share of plans with a preferred network remained fairly steady. During this period, however, the total number of plans declined significantly, from 1,169 in 2014 to 746 in 2017. For 2018, the total number of plans increased by 5%, to 782. The number of plans with preferred networks, meanwhile, increased by 22%, from 633 in 2017 to 772 in 2018.


There are 38 companies that will offer PDPs for 2018.

Here are the 2018 highlights from eight major companies. These companies account for 674 (86%) of the total 782 PDPs. One plan does not have a preferred network in one region, so there are 673 plans with a preferred network.
  • UnitedHealthcare is offering the same four plans in 2018 that it offered in 2017: two AARP-branded plans, a co-branded AARP MedicareRx Walgreens plan, and Symphonix Value Rx.
  • Humana is offering the same three plans that it has for the past four years: Humana Enhanced, Humana Preferred Rx Plan (its original plan with Walmart), and the co-branded Humana Walmart Rx Plan. All three plans have a preferred network.
  • CVS Health’s SilverScript Choice plan has switched from an open network to a preferred pharmacy network featuring CVS pharmacies. In previous years, the SilverScript Choice plan had been the largest open network plan. The SilverScript Plus plan, which will continue to have a preferred network, did not garner very many enrollees for 2017.
  • Express Scripts will offer three plans for 2018. Two of these plans—Express Scripts Medicare-Choice and Express Scripts Medicare-Value—were also offered last year. For 2018, Express Scripts has added Express Scripts Medicare-Saver, a new plan that will have a preferred pharmacy network with CVS Pharmacy and the Kroger family of pharmacies.
  • Aetna will continue to offer its Aetna Medicare Rx Saver plan, which has a preferred network. Aetna has added the Aetna Medicare Rx Select plan. It will also offer two plans under the First Health name. For 2018, however, the primary pharmacy chain in all four plans will switch from Walgreens to CVS. 
  • Wellcare switched its two plans—Classic and Extra—from preferred cost sharing to open networks in 2016. For 2018, the Wellcare plans will have preferred networks. It also added the Wellcare Value Script plan, which will be offered in only 4 regions.
  • Cigna-HealthSpring plans were under sanction during the 2017 open enrollment period. For 2018, however, its two plans will be able to accept new enrollees. Both plans have preferred cost sharing networks.
Narrow network models encourage or require consumers to use designated pharmacies or channels instead of allowing those consumers to choose from an open network containing nearly all pharmacies. Payers’ use of the more tightly controlled pharmacy network model will keep growing as they seek additional drug-spending savings. Seniors have accepted these plans, encouraged by the out-of-pocket prescription savings opportunities. Retail pharmacies are willing to accept lower reimbursements in exchange for increased store traffic. For more on the economics and strategies of narrow network models, see Chapter 7 of our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

COMING ATTRACTIONS: I’ll examine which chains have been absorbed by the major preferred networks. Beware the Blob!

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