Preferred and Limited Pharmacy Networks Could Save Billions

In recent years, high-profile disagreements between pharmacies and pharmacy benefit managers (PBMs) have caused many companies to consider narrow pharmacy networks to generate savings.

Rather than the typical process in which plans create a network open to every pharmacy that agrees to offer a discount, narrow networks include preferred pharmacies or a limited number of outlets where members can receive deep discounts on their medications.

The shift toward these networks could benefit government and commercial payers, according to a report released in January by Visante Inc. for the Pharmaceutical Care Management Association (PCMA). Visante is a healthcare consulting firm with headquarters in Minnesota focused on hospital and health systems and managed care Medicare Part D services. PCMA is a trade group representing PBMs that administer prescription drug plans for >210 million people in the United States.

The report authors estimate that the use of preferred or limited pharmacy networks could save $115 billion over the next 10 years: $26 billion for Medicaid, $35 billion for Medicare, and $54 billion for the commercial sector. They said the savings would be achieved even while meeting pharmacy access standards for Medicare and Medicaid.

Arthur Shinn, PharmD, president, Managed Pharmacy Consultants, LLC, has been a proponent of narrowing the pharmacy network since a June 2010 dispute between CVS Caremark and Walgreen received national attention.

Walgreen announced it would pull out of CVS Caremark’s prescription network. Walgreen said it was not receiving enough money from CVS Caremark to fill prescriptions and that the company was pressuring people to fill prescriptions at CVS or through its mail services.

“A lot of my clients at that time were very concerned that Walgreen’s wasn’t going to be part of their network anymore and there would be a lot of member disruption,” Dr. Shinn told First Report Managed Care in an interview. “There was quite a bit of noise from my client base.”

CVS Caremark and Walgreen eventually reached an agreement later that month, but Dr. Shinn advised some clients to narrow their network and eliminate Walgreen. They re-contracted with their PBMs and were able to benefit financially.

“We found that we were able to have very little disruption,” Dr. Shinn said. “When we did a study, we found there was a tenth of one percent of a disruption with the member not being able to get their prescriptions. We felt that the offset from a financial position was about 2% to 3% of drug spend, so certainly there was a very positive return on investment.”

Last year, a dispute between Walgreen and Express Scripts forced millions of the PBM’s customers to fill their prescriptions elsewhere beginning on January 1, 2012. Walgreen said the terms from Express Scripts would not allow the company to cover its costs, while Express Scripts argued that Walgreen was asking for too much money. The dispute lasted until July before the sides finally agreed to a partnership that began on September 15.

“That only just absolutely hastened us moving to a narrow pharmacy network,” Dr. Shinn said. “We were able to move our Express Scripts book of business to a narrow pharmacy network with very little, if any, member disruption at all. It was really transparent.”

In its report, Visante said >20% of commercial plans use preferred networks, while 43.5% of people enrolled in Medicare prescription drug plans have a plan with a preferred network. However, payers face challenges when trying to implement narrow networks.

For example, “any willing pharmacy” policies require PBMs to open their networks to any pharmacy, even those that do not meet quality standards. The regulations are associated with higher costs, discourage competition, and restrict access to affordable care, according to Visante. Further, state officials set Medicaid pharmacy reimbursement rates, forcing plans to accept rates without negotiating and lowering the incentive for drugstores to offer discounts. Visante also claims independent drugstores have filed lawsuits against narrow networks in several states, including Florida, Texas, and New York.

Still, consumers and companies are responsive to narrow networks. A 2011 report from Ayres McHenry & Associates (now known as North Star Opinion Research) found >80% of the insured consumers surveyed were unwilling to pay higher premiums for increasd access to pharmacies.

In addition, 84% of large business were willing to implement preferred pharmacy networks, while most of the other 16% had already implemented them. Other findings included 78% of small business said employers “should be able to reduce prescription costs as much as possible, even if this means that drugstores make less profit” and 61% of small businesses said they thought it was good to “allow employers to choose lower-cost plans that exclude the most expensive drugstores from their coverage network.”

“Greater use of drugstore networks can save billions without undermining patient access," PCMA President and CEO Mark Merritt said in a statement. "For public programs, it is far better to reduce health costs by encouraging drugstores to compete than to randomly slash enrollee benefits or provider payments.”