Humana-Walmart Preferred Network Plan Wins Big in Part D (rerun)

Here's a look at 2012's preferred network boom. In the upcoming 2013 Medicare Part D open enrollment period, I expect more than 40% of beneficiaries will choose a plan with a preferred pharmacy network. Click here to see the original post and comments from February 2012.

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The Centers for Medicare and Medicaid Services (CMS) just released the 2012 enrollment data for Medicare Part D Prescription Drug Plans (PDPs). These new data dispel any doubts about preferred pharmacy networks’ consumer appeal.

There are seven Part D PDPs with preferred pharmacy networks in 2012. (See table below.) Highlights from my data crunching:

• Enrollment in preferred network plans grew twice as quickly as overall PDP enrollment.
• Almost one-third of all PDP enrollees are now in a plan with a preferred pharmacy network design.
• The Humana Walmart-Preferred Rx Plan, the preferred pharmacy network PDP launched in October 2010, is now the third-largest PDP.
• Two of the three new preferred network plans in 2012 attracted more than 680,000 enrollees.
• The PDP with Rite Aid as the preferred pharmacy was a bust.

Once again, we see how the power of competition is lowering drug costs for seniors. Needless to say, pharmacy owners who neglected to join a preferred network are complaining.

THE PART D PREFERRED NETWORK BOOM

A Preferred Network gives the consumer a choice of pharmacy but provides financial incentives to use the particular pharmacies that offer a cost or performance advantage to the payer. Historically, the most common example of a preferred network is a benefit design that encourages the use of mail-order pharmacies by reducing a consumer’s out-of-pocket expenses, a.k.a. incentivized (not mandatory) mail.

Preferred networks are now expanding into retail pharmacy by providing such incentives as lower copayments or reduced coinsurance amounts to encourage the use of specific community pharmacies.

I identify seven Medicare Part D prescription drug plans (PDP) with preferred network structures. Three of these plans were launched in the October 2011 open enrollment period. (See Aetna and Coventry Join the Part D Preferred Network Party.) In all of these plans, a Medicare Part D beneficiary has the option of using other pharmacies, although any copayment or coinsurance will be higher at a non-preferred pharmacy.

• AARP MedicareRx Preferred
• AARP MedicareRx Enhanced
• Aetna CVS/pharmacy Prescription Drug Plan
• CVS Caremark Plus
• First Health Part D Value Plus
• Humana Walmart-Preferred Rx Plan
• Rite Aid EnvisionRxPlus

For more on preferred networks, see the section starting on page 90 of the 2011-12 Economic Report on Retail and Specialty Pharmacies. The report also explains why commercial payers are adopting new network models more slowly.

WINNERS AND LOSERS

Data on PDP enrollment are freely available from this CMS page: Medicare Advantage/Part D Contract and Enrollment Data.

There are 193 PDPs with non-zero enrollment as of January 12, 2012. Here’s a summary of the 7 preferred network PDPs.

Observations:

• Enrollment in preferred plans grew by 12.3%, compared with 6.3% in overall PDP enrollment.
• The Humana Walmart Preferred Rx Plan was the big winner. The plan started up in October 2010 and will be 2012’s third-largest national PDP, with 7.1% of all PDP enrollees. For background on this plan, see Walmart-Humana: An Inevitable Surprise for Pharmacies and PBMs. 
• The new Coventry and Aetna plans will be ranked 13th and 14th, respectively, and have a combined 3.5% of enrollees.
• The largest PDP, AARP MedicareRx Preferred, lost more than 540,000 enrollees. The AARP plans use the Pharmacy Saver preferred network, which contains primarily supermarket pharmacies plus Target.
• The Rite Aid EnvisionRxPlus plan was a bust, garnering fewer than 2,000 enrollees. DOH!

THE NONPREFFERRED

You will not be surprised to learn that some vocal pharmacy owners strongly oppose preferred network models, presumably fearing greater competition and reduced profit margins.

The National Community Pharmacists Association (NCPA), which lobbies on behalf of independent pharmacy owners, claims that preferred network PDPs are being “deceptively marketed to patients and lack adequate pharmacy access for rural Americans.” (source). NCPA has gone farther in a January 9 letter asking CMS to create a Special Enrollment Period so consumers can switch Part D plans.

NCPA refers to these plans as “restrictive networks,” which is inaccurate. Preferred networks use consumer incentives to shift prescription volume into the pharmacies that provide lower costs for the payer. Consumers retain the ability to choose their pharmacy, while being partially exposed to the costs of this choice. Four of seven plans even have the name of the preferred pharmacy in the title of the plan itself.

To date, there is no data to support NCPA’s assertions about widespread patient complaints among the 6.3 million people enrolled in a preferred network plan. Let’s hope that NCPA has studied up on statistics since their mail order “survey,” which I describe in A Phony Mail Order Controversy.

Instead of complaining, I suggest that pharmacy owners learn from Community Pharmacy Prescription Network (CPRxN), a group of independent pharmacies that now participate in Caterpillar’s well-known preferred network alongside Walmart, Walgreens, and Kroger. (UPDATE: See the comment from Tony Sartoris of CPRxN below the original post.)

If you can’t beat ‘em, how about competing?