OR WAIT 15 SECS
While the big chains compete aggressively for preferred provider status, indies and small chains have a tougher time cutting copays and network prices.
Narrow pharmacy networks are booming. On the Medicare side, 75% of Medicare Part D beneficiaries have signed up for a prescription drug plan that uses a preferred pharmacy network this year. That’s up from 43% of seniors who opted for narrow network coverage in 2013.
On the commercial side, 70% of those who signed up for prescription drug coverage under the Affordable Care Act selected a plan that uses narrow provider networks.
“Plan-sponsor savings drive narrow networks,” said Adam Fein, PhD, president of Pembroke Consulting in Philadelphia. “Pharmacy savings drive plan savings, which is why pharmacies don’t like narrow networks.”
That’s not strictly true. Some pharmacies love narrow networks - if they happen to be among the pharmacies that made the cut.
CVS, Walmart, Walgreens, RiteAid, and other chains compete aggressively to gain preferred provider status. So do pharmacy services administrative organizations such as McKesson’s Health Mart and AmerisourceBergen’s Good Neighbor Pharmacy franchise brands.
Independent pharmacy is less enamored of preferred provider networks. One reason: Independent pharmacies and small chains are at an economic disadvantage when it comes to cutting copays and network prices.
These pharmacies are also at an administrative disadvantage. Plan sponsors and managed-care organizations obviously would rather negotiate a single contract that covers thousands of pharmacies than keep track of thousands of contracts that each covers a single provider.
Provider networks under both public and commercial plans come in three basic models, said Charles Cote, vice president, strategic communications, Pharmaceutical Care Management Association (PCMA). As a general rule, the more restricted the network, the lower the costs, Cote noted.
Open networks, the most common arrangement under fee-for-service programs, accept virtually any willing provider prepared to sign a contract for a specified payment level.
Preferred networks - or narrow networks - direct their business to a select subset of providers willing to reduce prices in return for higher volume. Plans typically allow beneficiaries to use any provider, but use incentives to encourage beneficiaries to choose preferred providers.
The Aetna CVS/pharmacy Prescription Drug Plan, for example, uses $2 copays for about 800 generics and $1 copays on generics for hypertension, hypercholesterolemia, and diabetes to entice beneficiaries into preferred CVS, Walmart, and Sam’s Club pharmacies. Plan members can use other, non-preferred pharmacies, but copays are higher.
“The narrower preferred network offers an opportunity for a deeper discount to provide more value for members,” said Terri Swanson, vice president and head of Medicare Part D for Aetna. “We use benefit design to reinforce the use of preferred providers.”
The third model is a limited or closed network that requires beneficiaries to use specified providers. The best-known of these narrowest networks is Kaiser Permanente, which requires its 9 million members to use Kaiser providers, including pharmacies. There are exceptions for emergency care and other occasions when the patient may not be able to access a network provider, but out-of-network services generally are not covered.
How wide is narrow?
Creating a narrow network is as much art as science. Payers must balance the financial savings that stem from restricted provider networks with beneficiaries’ need for pharmacy access.
There are more than 60,000 pharmacies in the United States. That is more than the total number of franchises in the top eight fast-food chains combined, according to PCMA. There are also geographic areas, generally in rural regions, with just one pharmacy or none within a reasonable distance of where patients live and work.
Patient-access rules also play a role. Medicare Part D pharmacy access is governed by rules set by the Centers for Medicare and Medicaid Services (CMS).
According to the National Community Pharmacists Association (NCPA), in an urban area, at least 90% of Medicare beneficiaries in the Part D service area, on average, must live within two miles of an in-network retail pharmacy.
In suburban areas, at least 90% of beneficiaries must live within five miles of an in-network retail pharmacy.
And, in rural areas, at least 70% of Medicare beneficiaries in the Part D service area, on average, must live within 15 miles of an in-network retail pharmacy.
However, these standards apply only to the plan’s primary pharmacy network. Plans are not required to meet the same standards when establishing preferred pharmacy networks, according to NCPA. And CMS does not currently apply the “Any Willing Provider” provision to pharmacy networks.
Medicaid pharmacy programs are governed by other rules, including state requirements. Commercial plan access is largely dictated by the plan sponsor.
“No magic rule”
“There is no magic rule,” Swanson said. “We need to drive enough volume to entice pharmacies to participate without impeding members’ access. Pharmacy benefit plans in the commercial space have been around for a long time, so there is quite a bit of experience to rely on.”
The typical preferred pharmacy network for Aetna includes 10,000 to 20,000 pharmacies nationally, Swanson said.
Fein offers a slightly broader definition: any network that includes less than 50% of providers, which would top out at about 30,000 pharmacies nationally.
Consumer resistance is generally not an impediment to narrow networks, Fein said. Kaiser Permanente, for example, gets high marks for quality and patient satisfaction despite having a closed network. Most consumers are willing to use a specific pharmacy as long as they see concrete benefits such as lower copays.
Last year, CMS found that negotiated pricing for the top 25 brands and 25 generics in the Part D program at preferred retail pharmacies is lower than at non-preferred pharmacies. However, according to CMS, when mail-order costs were included, some preferred-network pharmacies were offering “somewhat higher negotiated prices.”
“Preferred provider networks are a very common part of healthcare that pharmacy has successfully avoided for decades,” Fein said. “Narrow networks already dominate Part D and are starting to penetrate commercial networks.”
This article also appears in the March issue of Managed Healthcare Executive, another Advanstar publication.
Fred Gebhartis a healthcare writer based in Gold Hill, Ore.