Medicare Part D contracts drawing concern from R.Ph.s

June 20, 2005

Pharmacists are not pleased with the first Part D contracts they have been receiving from pharmacy benefit managers and prescription drug plans (PDPs). They offer some of the lowest reimbursement rates in memory. Contracts reviewed by Drug Topics call for reimbursement at average wholesale price minus as much as 45% plus dispensing fees as low as $1.

Pharmacists are not pleased with the first Part D contracts they have been receiving from pharmacy benefit managers and prescription drug plans (PDPs). They offer some of the lowest reimbursement rates in memory. Contracts reviewed by Drug Topics call for reimbursement at average wholesale price minus as much as 45% plus dispensing fees as low as $1.

California Pharmacists Association general counsel and pharmacy owner John Cronin, Pharm.D., said Express Scripts made one of the lowest offers he has seen: AWP minus 16% plus $2 for brand-name products; a new Medicare Part D maximum allowable ingredient cost (MAIC) plus $2 for generics; AWP minus 22% and no dispensing fee for extended supplies. California's Medicaid agency, MediCal, is currently paying AWP minus 17% plus $7.25.

"I don't even know what is on that Part D MAIC list because it hasn't been created yet," Cronin said. "And AWP minus 22% is below my cost. I don't know why I would even consider those terms."

Many pharmacists do not realize that they need not sign Part D contracts right away, Rector explained. Part D contains "any-willing-provider" language that allows any pharmacy willing to accept current contract terms to join a provider network at a later time.

PBMs and PDPs began offering Part D contracts to chain and independent pharmacies in February and March of this year. But signing a Part D contract now is no guarantee of filling Part D scripts in 2006. That's because PBMs and PDPs that want to create Part D plans must build their pharmacy networks before negotiating contracts with the Centers for Medicare & Medicaid Services. CMS began contract talks with would-be plan sponsors earlier this month. Contracts will be awarded in September.

Without a network in place, Rector explained, plan sponsors cannot win CMS contracts. That requirement gives pharmacy leverage, but only if independents and chains are willing to walk away from money-losing contracts.

Chains contacted by Drug Topics declined to discuss Part D contract offers. But Walgreens, CVS, Brooks, and other chains have successfully resisted unfavorable contracts in the past. In 2003, Walgreens balked at AWP minus 15% plus $3.37 for Medicaid in California. Terms the company refused were better than what many plan sponsors are offering for Part D scripts.

In 2002, chains turned thumbs down on Massachusetts' attempt to trim Medicaid payments by 11%. The state settled for a 4% reduction and boosted dispensing fees.

Just like participation in Medicaid, participation in Medicare is an option for providers, not a mandate. "This is not your usual third-party contract," Rector said. "Patients are not locked into Part D, and pharmacies have choices, including the choice not to participate. Pharmacies have to consider their business plan and practice objectives before making a choice."