Tuesday, October 29, 2019

Even More Independents Avoid 2020 Part D Preferred Pharmacy Networks

Last week, I highlighted the largest pharmacy chains that will participate in next year’s Medicare Part D prescription drug plans (PDP).

Today, I examine how independent pharmacies will participate as preferred cost sharing pharmacies via the pharmacy services administrative organizations (PSAOs) that that represent these pharmacies in negotiations with plans.

For most independent pharmacies and their PSAOs, the profit sacrifices of Medicare Part D preferred networks are apparently no longer worth the incremental volume. As I predicted last year, they are starting to reject preferred networks:
  • McKesson’s Health Mart Atlas will be the only PSAO whose members’ level of participation in preferred Part D networks will be comparable to that of the big chains.
  • Pharmacy members of AmerisourceBergen’s Elevate network will again skip preferred status in the major Part D networks.
  • Members of Cardinal Health’s PSAOs and the independent Arete Pharmacy Network will be preferred in many fewer 2020 networks compared with 2019.
You’ll find details and a handy scorecard below.

With independents fleeing preferred networks, will the Centers for Medicare & Medicaid Services (CMS) take a closer look at the market? And are independents really ready to say that they are never ever, ever, ever getting back together with preferred networks?

I USED TO THINK THAT WE WERE FOREVER

This is our third article about the 2020 Medicare Part D market. Here are the first two of the series:
For a deep dive into the economics and strategies of narrow network models, see Chapter 7 of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

AND I USED TO SAY, NEVER SAY NEVER

Large pharmacies interact and negotiate directly with PBMs and other third-party payers. However, nearly all smaller pharmacy owners participate in pharmacy services administrative organizations (PSAOs) to leverage their influence in contract negotiations with PBMs and other third-party payers. The PSAO relationship is crucial for independent pharmacies, because independents generate more than 90% of their total sales from prescription dispensing.

Here are the four largest PSAOs:
  • Cardinal Health operates three PSAOs that serve different segments of its business. LeaderNET services Cardinal’s drug distribution customers; MSInterNet services Medicine Shoppe International franchise members; and Managed Care Connection services small chains. (For the table below, Cardinal provided us only with information on the first two of these PSAOs.)
For our latest data on PSAOs and their services (along with a list of the top eight PSAOs), see Section 2.2.4. of our new 2019-20 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

BUT THIS TIME I'M TELLING YOU

To complement our analyses of retail chains, the table below summarizes the preferred network status of pharmacy members that belong to the top four PSAOs. The shaded boxes indicate (1) a change in a PSAO’s participation from 2019 to 2020, and (2) a PSAO’s participation in a plan that is new for 2020. Click here to download the list as a PDF.

[Click to Enlarge]

Here are highlights of PSAO participation in 2020 Part D preferred networks:
  • Only the independent pharmacies that belong to McKesson’s Health Mart Atlas (HMA) will have preferred status comparable to the participation of the largest chains. HMA apparently decided that participation at reduced margins is better than having members included only with higher cost sharing for seniors.
  • For the third year, AmerisourceBergen’s Elevate is an outlier. Its members will not be preferred in any major plan for 2020, though Elevate members had preferred status in two plans for 2019.

    The PSAO’s 2020 status was a strategic choice that is consistent with its strategy in previous years. An Elevate spokesperson told me that its goal is “to offer our members access to all Part D patients but to do so in a thoughtful way that protects pharmacy profitability.” Elevate stated that year-over-year prescription growth among Elevate PSAO members was +2.5%, compared with an overall decline of -0.2% for all independent pharmacies. (I was unable to validate these figures.)
  • Cardinal’s PSAOs and Arete both sharply cut their members’ participation as preferred pharmacies for 2020. For 2019, Arete members are preferred in 11 major plans. For 2020, its members will be preferred in only 5 plans. Members of Cardinal’s PSAOs experienced a similar decline.

    Note that Cardinal told me its participation in the three Cigna plans is "pending," despite the fact that open enrollment is already underway. Cardinal declined to clarify this odd situation.
  • Plans from Humana and UnitedHealthcare do not have any independent pharmacies participating via PSAOs as preferred pharmacies. Two of the six WellCare plans will have participation from only Health Mart Atlas. None of the other WellCare plans will have any major PSAO contracting.
WE ARE NEVER EVER, EVER GETTING BACK TOGETHER

As independent pharmacies flee preferred networks, it’s possible that the Centers for Medicare & Medicaid Services (CMS) will reevaluate beneficiary access to lower cost sharing pharmacies or implement greater oversight of direct and indirect remuneration (DIR).

CMS last evaluated geographic access to preferred cost-sharing pharmacies for the 2017 plans. (See Exhibit 115 of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.)

For 2017, CMS found that urban and suburban beneficiaries’ nearest preferred pharmacy was less than a mile farther from the nearest standard network pharmacy. Most beneficiaries (92% or more) were within the CMS distance access thresholds for a preferred pharmacy location. Nearly all (98%+) beneficiaries had ready access to standard cost-sharing pharmacies. These generally positive results suggest that access was not comprised.

Unfortunately, I don;t expect CMS to update its analysis. It’s more likely that CMS will allow the underlying economics to drive the pharmacy market’s evolution. The margin reduction from direct and indirect remuneration (DIR) appears to encourage pharmacies to remain in networks with standard cost sharing for seniors.

The largest retail chains will accept this profit hit for 2020. But this time, independents and their PSAOs are telling plans that we are never ever, ever getting back together.

Like, ever.

EXCLUSIVE VIDEO

Drug Channels has obtained top secret footage showing the president of an unnamed PSAO discussing the organization’s strategy for 2020 Medicare Part D plans. Click here if you can’t see the video.



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