EXCLUSIVE: Walmart and Walgreens Dominate 2015 Part D Preferred Networks, With Independents Close Behind

NOTE: This post has been updated. See notes at the bottom.

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In my previous post (For 2015, almost 9 out of 10 Medicare Part D plans will have a preferred pharmacy network), I highlighted the plans whose preferred pharmacy networks will dominate next year’s Medicare Part D prescription drug plans (PDP).

Today, I examine the pharmacy chains in the biggest plans’ networks. Walmart again leads the pack in preferred network participation. Walgreens has a big bet on preferred networks, while CVS and Rite Aid have been more cautious. Independent pharmacies feature prominently in many plans, which should—but probably won't—mute critics of preferred networks.

Read on for our exclusive look at 2015’s preferred network participants, along with some comments on DIR fees and pharmacy profits.

BACK OFF, MAN. I’M A SCIENTIST.

Last week, I examined the 26 major multi-regional Part D plans with preferred cost sharing pharmacies. These plans operate 801 regional PDPs, which account for 80% of the total regional PDPs for 2015 (and 92% of regional PDPs with a preferred cost sharing network).

Based on online plan summary information, I developed the table below, which summarizes the top seven retail pharmacy chains’ participation in major preferred networks. Click here to download the table as a PDF file.

[Click to Enlarge]

If a chain participates as a preferred pharmacy, all of its brands usually participate, too. Thus, Walmart includes Walmart, Sam's Club, Neighborhood Market pharmacies, and Walmart Express. However, not all of a chain’s pharmacy locations may be included as preferred pharmacies in every region.

Observations:

• Network size varies. The Humana Preferred Rx and Walmart Rx plans have the smallest networks, with about 5,000 Walmart and Sam’s Club pharmacies. Express Scripts’ preferred networks include nearly 27,000 pharmacies—8,200 Walgreens pharmacies and about 18,500 independent community pharmacies. The AARP Medicare plans have preferred networks with about 20,000 pharmacies, while the SilverScript plan has more than 40,000 preferred pharmacies.

• Walmart feels so funky. No other pharmacy has done more to compete on price than Walmart, which is a preferred pharmacy in 20 of the 27 major preferred cost sharing networks. It is excluded only from the three Express Scripts plans—Express Scripts Medicare-Choice, Express Scripts Medicare-Value, and SmartD Rx. This aggressive approach is one reason that Walmart has overtaken Rite Aid in prescription sales.

• Walgreens becomes the keymaster. In 2014, Walgreens was a preferred pharmacy in 10 major Part D plans. For 2015, it will be preferred in 14 plans. Alas, Walgreens recently disclosed that its aggressive participation will lead to a “significant step down in Medicare Part D rates,” i.e., lower profits. See Can Walgreens Fix Its Generic Drug Contracting Strategy?

• CVS sticks with its friends. CVS pharmacies are preferred in only eight major plans. These plans are either its own United American and SilverScript options, or are operated by its business partner Aetna.

• Rite Aid thinks of the most harmless thing. Over the years, Rite Aid has struggled with its Part D preferred network participation. For 2015, it will be preferred only in the two major preferred cost sharing plans—Symphonix Rite Aid Premier Rx and Symphonix Rite Aid Value Rx. Both plans are offered in 18 regions. Oddly, Rite Aid issued a press release touting itself as “exclusive preferred pharmacy provider,” although online documentation reveals other preferred pharmacies. (A Rite Aid spokesperson didn’t respond to my request for clarification.)

• Independents choose the form of The Destroyer. This year, pharmacy owners are well-represented in many preferred networks. In the Express Scripts Part D networks, 7 out of 10 preferred pharmacies are smaller independents. It’s not possible to get an exact count for other plans, but my review revealed widespread participation by smaller pharmacies. Perhaps it’s time to stop complaining that independents “are almost always left out of” preferred networks? The major non-pharmacy chains—Kroger, Safeway, and Target—are also present in many networks.

WE’RE READY TO BELIEVE YOU!

The pharmacy industry may not cheer these results, because the preferred networks’ cost savings come primarily from lower pharmacy margins.

Pharmacies are willing to accept reduced reimbursement rates in exchange for participation in a preferred cost sharing network. In Medicare Part D, the reduction comes from per-prescription fees that a pharmacy pays to a PDP. The fees, which are called Direct and Indirect Remuneration (DIR), are often computed as a percentage of the pharmacy’s reimbursement. Thus, the DIR fee directly reduces the pharmacy’s margins and the plan’s costs.

The Centers for Medicare & Medicaid Services (CMS) has repeatedly expressed concern about the way different Part D sponsors report these fees. CMS recently proposed draft guidance for Part D sponsors’ reporting of DIR data for pharmacy price concessions. (See Direct and Indirect Remuneration (DIR) and Pharmacy Price Concessions.) CMS believes that “most pharmacy price concessions can reasonably be determined at point of sale and, therefore, should be reported through the negotiated prices.” Hope you didn’t want to share your views, because comments were due last week.

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In January, we’ll get our first look at enrollment data. So, I have three months to work on my collection of spores, molds and fungus. Cool.

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NOTE: On November 10, 2014, the participation chart above was updated with the following changes:

• Aetna Medicare notified us that we inadvertently omitted Safeway from its four plans (Aetna Medicare Rx Saver, Aetna Medicare Rx Premier, First Health Part D Value Plus, and First Health Part D Premier Plus).

• We have learned that Symphonix Health published inaccurate information about preferred pharmacies in its online state pharmacy directories. In contrast to the online directories, Symphonix Health does not include Walgreens, Walmart or Target in its preferred networks. The company informed me that its "PBM made an error (multiple, in fact) in producing the directories."