Tuesday, October 27, 2020

Battle of the Giants: CVS, Kroger, Walgreens, and Walmart Expand in 2021 Part D Preferred Networks

In Preferred Pharmacy Networks Dominate in 2021 Medicare Part D Plans, I highlighted how those networks will again rule next year’s Part D prescription drug plans (PDP).

Today, I examine the largest retail chains’ participation in the 27 major 2021 Part D preferred networks that the nine largest plan sponsors will offer. 

As you will see, most major chains increased their position as a preferred pharmacy in many 2021 networks. Only Rite Aid lost position. As usual, we provide you with a handy table for scoring each chain’s participation and all changes from 2020 to 2021.

The chains’ expanded participation may turn out to be a trick, not a treat. COVID-19 has not fundamentally altered the negative industry trends haunting retail pharmacies. Narrow networks force pharmacies to trade volume for profits. Expect another scary drop in the number of U.S. pharmacies. 

As the African proverb says: "When elephants fight, it is the grass that suffers."


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 2021, nearly all of the total 996 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 27 Part D plans offered by nine major companies. There will be 26 major multi-regional Part D plans with preferred cost sharing pharmacy networks and 1 smaller plan (Elixir RxSecure). These companies will operate 888 regional PDPs, which amounts to 92% of total regional PDPs. For each plan, we identified the preferred status of seven large retail chains.

You can find our analysis of retail chain participation in 2020 plans here: Winning? CVS, Kroger, and Walmart Expand in 2020 Part D Preferred Pharmacy Networks.


The table below summarizes retail chain participation as preferred pharmacies. The green shaded boxes indicate (1) a chain’s addition to a 2021 network (vs. 2020), and (2) a chain's participation in a plan that is new for 2021. The red shaded boxes indicate a chain's removal from a 2021 network (vs. 2020).  Click here to download the table as a PDF.

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Here are the highlights of pharmacy participation in 2021 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 2021, CVS pharmacies will be preferred in 16 of the 27 plans tracked in the table above. That’s an increase of two plans compared with the 2020 figure. CVS pharmacies will be preferred in the new SilverScript SmartRx plan and in one of the three Cigna plans.
  • Walgreens. Walgreens reversed course and will increase its participation in preferred networks. For 2020, Walgreens was preferred in only 8 plans. For 2021, it will be preferred in 12 plans. It gained preferred position in five of the six WellCare plans, but was replaced by CVS in the Cigna Secure Rx plan.
  • Walmart. Walmart remains willing 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. Walmart’s position will hold steady, with preferred position in 19 plans. It lost preferred status in two WellCare plans, but will be preferred in two of the three Express Scripts plans and all three of the Humana plans.

    Medicare history buffs should note that Walmart and Humana launched the first Part D preferred network plan in 2010. This plan is now known as the Humana Walmart Value Rx Plan. Surprisingly, Kroger and Public will both be preferred for this plan in 2021.
  • Rite Aid. Rite Aid lost position for 2021. For 2021, Rite Aid will participate as a preferred pharmacy in only one plan that is sponsored by external companies. It will also participate in the two plans sponsored by Elixir, its in-house PBM.
  • Supermarket chains. Kroger and Albertsons increased their participation in the preferred networks for the third consecutive year. For 2021, Kroger— the seventh-largest U.S. pharmacy—will be preferred in 24 of the 27 plans, exceeding all other major chains except Walmart. Albertsons pharmacies will be preferred in 16 plans. Publix, which was omitted from our previous analyses, will also be preferred in 16 plans.

Over the past few years, pharmacy profits have been significantly reduced by the use of direct and indirect remuneration (DIR) price concessions paid by pharmacies to the Part D plan sponsors. Pharmacy-related price concessions are referred to as pharmacy DIR fees.

Part D plans base pharmacy DIR on quantitative performance criteria applied to pharmacies. The pharmacy earns less reimbursement—and pays a higher price concession—when it achieves lower levels of performance on quantitative metrics of quality. Conversely, the pharmacy earns an incentive payment—or avoids a deduction—for better performance.

Pharmacy DIR fees are now large enough to have a significant effect on pharmacy economics. We estimate that the net value of pharmacy price concessions reached an estimated $9.1 billion in 2019, which equates to about 2% of pharmacy revenues. For more on DIR in Part D, see Section 11.4. of our 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

For 2020, the pharmacy services administrative organizations (PSAOs) representing smaller pharmacies decided that the profit sacrifices of Medicare Part D preferred networks were apparently no longer worth the incremental volume. Next week, I’ll delve into how smaller pharmacies will participate in the 2021 Part D plans to see whether their resolve held again.

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