Thursday, October 24, 2019

Winning? CVS, Kroger, and Walmart Expand in 2020 Part D Preferred Pharmacy Networks

In Preferred Pharmacy Networks Rebound in 2020 Medicare Part D Plans, I highlighted how those networks will again dominate next year’s Medicare Part D prescription drug plans (PDP).

Today, I examine chain pharmacies’ participation in the major 2020 Part D preferred networks that the nine largest plan sponsors offers. Some highlights:
  • CVS will retain its position as a preferred pharmacy in many 2020 networks, while Walgreens will pull back on its preferred pharmacy participation. 
  • For the first time in years, Rite Aid will expand its participation in plans that are independent of its EnvisionRx subsidiary.
  • Walmart will regain its position as the chain most committed to preferred networks. Kroger and Albertsons will maintain the strong positions that they have established over the past few years.
Below, we provide you with a handy table for scoring each chain’s participation and all changes from 2019 to 2020.

The winners will gain and/or retain Part D prescription volume, but profits will suffer due to direct and indirect remuneration (DIR) price concessions, a.k.a., DIR fees. The retail chains have never clearly disclosed how they tradeoff prescription volume for profits. Remember: you can’t spell “pyrrhic victory” without victory.


Preferred network models have grown rapidly within the Medicare Part D program. The Centers for Medicare & Medicaid Services (CMS) calls them preferred cost sharing networks. CMS calls the pharmacies in such networks preferred cost sharing pharmacies.

For 2020, 905 of the total 948 Medicare Part D regional prescription drug plans (PDP) have a preferred network. See our previous analysis for more details on next year’s market.

We examined the 26 Part D plans offered by nine major companies. There will be 24 major multi-regional Part D plans with preferred cost sharing pharmacy networks, 1 smaller plan (EnvisionRxSecure) with a preferred network, and 1 plan (Humana Basic Rx) with an open retail network. These companies will operate 840 regional PDPs, which amounts to 89% of total regional PDPs. For the 25 plans with preferred pharmacy networks, we identified the preferred status of the largest six retail chains.

You can find our analysis of retail chain participation in 2019 plans here: Compared with Battle Royale: CVS and Kroger Gain, Walgreens Slips in 2019 Part D Preferred Pharmacy Networks .


The table below summarizes retail chain participation as preferred pharmacies. The shaded boxes indicate (1) a change in a chain’s participation from 2019 to 2020, and (2) a chain's participation in a plan that is new for 2020. Click here to download the list as a PDF.

[Click to Enlarge]

Here are the highlights of pharmacy participation in 2020 Part D preferred networks:
  • CVS. Since the 2018 plan year, CVS Health’s retail pharmacies reversed course and pursued preferred status in Part D plans. For 2019, CVS retail pharmacies were preferred in 13 of the 22 major plans. For 2020, CVS pharmacies will be preferred in 14 of the 25 plans tracked in the table above. CVS is the sole preferred pharmacy chain in one of the six Wellcare plans.
  • Walgreens. Walgreens continues to reduce its participation in preferred networks. For 2019, Walgreens is preferred in 10 plans. For 2020, it will be preferred in only eight plans. It did not gain preferred position in the five new plans with preferred networks and was replaced by Walmart in the SilverScript Plus plan.
  • Walmart. Walmart has been more willing than any other pharmacy to compete on price. For 2019, Walmart lost position and was a preferred pharmacy in only 11 of the 22 major preferred cost sharing networks. For 2020, it rebounded strongly, becoming a preferred pharmacy in 19 of the 25 plans. Notable changes include Walmart’s addition to the two CVS Health SilverScript plans and the five new plans with preferred networks.

    Medicare history buffs should note that Walmart and Humana launched the first Part D preferred network plan in 2010. For 2020, this plan was renamed—from the Humana Walmart Rx Plan to the Humana Walmart Value Rx Plan.
  • Rite Aid. Rite Aid also made a major change to its Part D strategy. For 2020, Rite Aid will participate as a preferred pharmacy in three plans that are sponsored by external companies. It will also participate in the two plans sponsored by EnvisionRx, its in-house PBM.
  • Supermarket chains. Kroger and Albertsons both increased their participation in the 2020 preferred networks. For 2020, Kroger— the seventh-largest U.S. pharmacy—will be preferred in 17 of the 25 plans, exceeding all other major chains except Walmart. Albertsons pharmacies will be preferred in 12 plans.

Over the past few years, pharmacy profits have been significantly affected by the use of price concessions paid by pharmacies to the Part D plan sponsors. These price concessions, which are collected from pharmacies after claim adjudication, are considered direct and indirect remuneration (DIR) under federal requirements. In the Medicare Part D program, DIR fees operate similarly to the rebates that pharmaceutical manufacturer pay to plans. For more on DIR in Part D, see Section 11.4. of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

We estimate that DIR fees reduce a typical pharmacy location’s revenue by 1% to 2% and lower its total gross profit by 5% to 10%. That may not sound like much, but these fees put enormous pressure on the already-low average per-prescription gross profits at a retail pharmacy. That’s why pharmacy owners hate DIR fees.

Last year, the pharmacy services administrative organizations (PSAOs) that represent independent pharmacies opted out of many Part D preferred networks. Next week, I’ll delve into how smaller pharmacies will participate in the 2020 Part D plans to see whether their resolve held for 2020.

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