Medicare pushing for open pharmacy networks, spelling big changes for pharmacy providers

The federal agency in charge of Medicare is pushing for a major overhaul of its Medicare Part D drug benefit program for seniors. Those changes, if adopted, could help level the competitive playing field for pharmacy retailers in Part D plan networks, reduce competitive advantages for preferred pharmacy networks and mail-order pharmacies, and put a tighter squeeze on pharmacy benefit managers.

Thus, the proposals by the Centers for Medicare and Medicaid Services for the 2015 federal fiscal year could spell big changes for retail pharmacies. Among the most far-reaching are:

  • A proposed move by CMS to scrap the current system of tiered pharmacy networks, under which many Part D prescription drug plans, or PDPs, set up preferred pharmacy networks that offer patients lower out-of-pocket costs. Under the current system, PDPs lower Medicare patients’ share of the cost of their prescriptions by reducing drug reimbursements and fees to pharmacies that agree to participate in the preferred networks and sacrifice higher per-prescription gross margins in exchange for higher patient volumes. The pharmacy benefit management industry is squarely behind the move to preferred pharmacy networks and touts the savings that are passed on to Medicare, but CMS has raised concerns over the impact those limited networks are having on patient access and overall cost of care;
  • A related proposal to open any Part D plan’s “preferred” provider network to any pharmacy willing to offer the same prescription prices and fees as a preferred pharmacy; and
  • A move to eliminate the cost-sharing incentives by which some plans steer Medicare patients into mail-order pharmacy, based on CMS’ concerns about the extra time it takes for patients to receive their prescriptions and doubts about the ultimate cost-saving benefits of mail to Medicare and taxpayers. “We have no reason to discourage [beneficiaries’] continued use of these [mail] services,” CMS noted. “However, due to the difficulties reported to CMS with consistently and effectively filling short-time-frame supplies through mail order, we do not believe that Medicare beneficiaries in general should be incentivized through lower-cost sharing to utilize mail-order pharmacies for initial prescriptions or 30-day supplies.”

Medicare administrators put forth the new recommendations after a lengthy review of Part D reimbursement patterns and costs, and gave interested stakeholders until March 7, 2014, to comment on the proposals before issuing final regulations. The recommendations are part of a massive, 678-page document published Jan. 10, titled “Medicare Program; Contract Year 2015 Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs.”Among other goals, CMS said, the newly proposed rules were intended to “strengthen beneficiary protections; exclude plans that perform poorly; improve program efficiencies; ... clarify program requirements;” and “improve payment accuracy.” But the changes mark a sea of change in the agency’s approach to reimbursing the managed care plans that administrate the drug benefit program for seniors.

“CMS wants to shake up the current model for preferred pharmacy networks, which would be required to explicitly save money for both the government and the Part D beneficiaries,” noted pharmacy industry expert Adam Fein, president of Pembroke Consulting and CEO of Drug Channels Institute. “CMS also wants to open up these networks to any pharmacy willing to cut prices.”

What’s more, Fein said, “under the proposed rules, plan sponsors and pharmacy benefit managers would face intense scrutiny over cost savings, pharmacy network design and generic prescription reimbursement using maximum allowable cost. CMS also wants to remove certain cost-sharing advantages for mail pharmacies, which would be another big negative for PBMs.”

There’s no disputing that preferred pharmacy networks have steadily captured a growing share of the prescription dollar for Medicare beneficiaries since Walmart and Humana joined forces to launch a Part D prescription drug plan and preferred network in 2011. Last year, some 42% of all seniors were enrolled in a PDP that offered a preferred network, according to CMS.

“Preferred pharmacy networks dominate the 2014 PDP landscape,” Fein said. “There are 56 plans with preferred networks, up from only 16 plans in 2013. These plans operate 841 regional PDPs, which account for 72% of the total regional PDPs for 2014.”

Despite their rapid growth — and CMS’ own data from 2012 indicating that preferred networks yield average prescription cost savings of roughly 6% — the agency concluded that limited networks don’t always lower costs to Medicare.
Indeed, in some cases, the agency noted, “a few sponsors have actually offered little or no savings in aggregate in their preferred pharmacy pricing, particularly in mail-order claims for generic drugs. Instead of passing through lower costs available through economies of scale or steeper discounts, a few sponsors are actually charging the program higher negotiated prices.”

CMS called such findings “troubling.”

The agency also was concerned about the inconsistency it found in the cost sharing and cost savings of limited networks. “In some cases, pharmacies extending high discounts are ones that have been excluded from limited networks offering preferred cost sharing, while some pharmacies within the limited networks offer effectively no discounts compared to the rest of the network,” CMS noted. “Therefore, we believe that opening up these limited networks to any pharmacy willing to charge no more than the contract’s ceiling price to qualify for offering the lower preferred cost sharing is necessary to restore price competition in these networks.”

Also troubling, noted the agency, “even assuming that preferred pharmacies were to offer lower negotiated prices than those available in the rest of the network, failure to allow access to any pharmacy willing to meet the pricing terms necessary to be included in the preferred network could mean that fewer beneficiaries would have convenient access to both lower cost sharing and lower negotiated prices than they would otherwise obtain. We seek to not only ensure that preferred cost sharing is aligned with lower drug costs, but also to maximize the number of beneficiaries who can take advantage of such savings.”

Behind that declaration, CMS added drily, is the fact that “most PBMs own their mail-order pharmacies, and we believe their business strategy is to move as much volume as possible to these related-party pharmacies to maximize profits from their ability to buy low and sell as high as the market will bear.”

In its sweeping bid to revamp the Part D provider system, CMS handed a major victory to the community pharmacy industry, and particularly to the independent pharmacy segment, in its long-simmering dispute with the pharmacy benefit management industry. “On almost all issues, CMS granted the wishes of independent pharmacy owners,” Fein said.

Both the National Community Pharmacists Association and its chain pharmacy counterpart, the National Association of Chain Drug Stores have long argued for open pharmacy provider networks and patient access in the implementation of both the Part D program and the more recent Accountable Care Act. In a joint letter to deputy CMS administrator and director Jonathan Blum in November, both groups argued that “maintaining beneficiary access” was critical to the success of the program, and they called assumptions about preferred networks cost savings “questionable.”

“Patients should be free to choose whether to participate in a preferred or open pharmacy network,” said Carol Kelly, NACDS SVP government affairs and public policy, and Steve Pfister, SVP government affairs for NCPA, in their letter. “Maintaining this patient choice allows individuals to select a health plan that best fits their personal health needs and provides accessible pharmacy locations. Additionally, community pharmacies meet patients’ needs for convenient access through a highly competitive environment.”

Separately, NCPA CEO Doug Hoey noted that the independent pharmacy group “has opposed these preferred pharmacy plans because they are not in the best interest of many patients, they have been deceptively marketed and they amount to government-sanctioned bias against small business community pharmacies since they do not require plans to offer participation to all pharmacies.”

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