Joining a PDP network

August 22, 2005

The Center for Medicare & Medicaid Services is now reviewing proposals from prescription drug plans (PDPs) interested in becoming Medicare Part D sponsors. At the same time, pharmacies are receiving contracts as competing PDPs build the pharmacy networks needed to implement their proposals.

The Center for Medicare & Medicaid Services is now reviewing proposals from prescription drug plans (PDPs) interested in becoming Medicare Part D sponsors. At the same time, pharmacies are receiving contracts as competing PDPs build the pharmacy networks needed to implement their proposals. Pharmacies wanting to join additional networks are invited to place a notice of solicitation at http://www.cms.hhs.gov/pdps/Intrstd3rdPrtyInfo.asp.

CMS will not be setting terms and rates between PDPs and their networks. What's more, there is no regulation requiring Medicare to base reimbursement on existing Medicaid or commercial contracts. Pharmacists are well advised to consider whether the reimbursement schedule proposed by a PDP is adequate for their practice.

Payment mechanisms under Medicare are similar to current third-party plans. PDPs will collect a premium from enrollees, and CMS will subsidize the plans. Network pharmacies will submit claims to individual PDPs. PDP networks must provide an adequate number of participating pharmacies; mail order is not a substitute for a local pharmacy. Network standards require that 90% of urban enrollees have a participating pharmacy within two miles, 90% of suburban enrollees have a pharmacy within five miles, and 70% of rural enrollees be within 15 miles of a network pharmacy.

Reimbursement terms

According to a summary of contract terms, reimbursement can vary greatly. Most contracts offer two-tiered co-pays and cluster around similar price points. For less than 90-day supplies, typical terms are average wholesale price minus 15% to 16% plus a $2 fee for brand Rxs, AWP minus 15% to 25%, or maximum allowable cost (MAC), plus $2.00 to 2.25 for generics. The terms for extended supply of 90 days or more vary across plans but no dispensing fees and AWP minus 21% to 22% for brand products and AWP minus 50% to 55%, or MAC, for generics are typical. Benefit design may include the use of a formulary. CMS' standard grievance and appeals procedure can be found at http://www.cms.hhs.gov/.

Pharmacies offering special services should be aware that Part D is a new benefit that may require new contract terms. For example, those currently serving as Part B providers will not be automatically enrolled as Part D providers. Pharmacies serving long-term care (LTC) facilities may find that residents with Medicare have multiple pharmacy options. Part D will not cover many of the services typically included in LTC contracts. Regulations say that dispensing fees may be higher for LTC.

Medication therapy management services

Medication therapy management services (MTMS) must be available to people with multiple chronic conditions, multiple Rxs, and high drug expenses. CMS regulations include guidelines for compensation of MTMS, but PDPs will set the reimbursement. CMS guidelines do require that reimbursement consider the time, effort, and level of intensity of the MTMS being provided. Regulations prohibit the bundling of dispensing fees and compensation for professional services.

Pharmacists and pharmacy associations have been working hard to define the services that will be covered under MTMS provisions. The basis for reimbursement and their fair value are critical questions for the profession. Individual R.Ph.s and their employers will need to determine the basis for apportioning compensation.

Read contracts carefully

Evaluate any Medicare contract as you would that of any third-party payer. Federal antitrust laws apply; practitioners must work independently of their competitors and establish fees based on their individual circumstances. Some PDPs created addenda to existing commercial contracts requiring a pharmacy to "opt out" if it does not want to participate. A pharmacy could become part of a network if it does not decline in writing.

The decision to accept a contract with a Medicare sponsor is up to each pharmacy. There is no mandate for pharmacies to participate in Part D. Unlike most employer contracts, the selection of a plan rests with the Part D enrollee. Pharmacies should notify Medicare beneficiaries about the networks they have joined to help them decide which plan to select.

Earlene Lipowski, Ph.D. is associate professor, Department of Pharmacy Health Care Administration, University of Florida College of Pharmacy.