EXCLUSIVE: In 2016, 85% of Medicare Part D plans have a preferred pharmacy network

The Centers for Medicaid & Medicare Services (CMS) just released data on 2016's Medicare Part D plans. Our exclusive, warp speed analysis reveals that 85% of Medicare Part D regional prescription drug plans (PDP) will have a preferred cost sharing network in 2016. That’s comparable to the 2015 figures, and signals that these plans are here to stay.

Preferred network plans are controversial (and generally disliked) by pharmacy owners. That’s because reduced pharmacy profits are the biggest source of cost savings from these networks. Despite ongoing complaints, it's still full speed ahead for preferred networks.

Read on for a look at the top plans. I'll review pharmacy network participation in a future article.

MAKE IT SO

A preferred network gives consumers a choice of pharmacy. It also provides them with financial incentives to use the pharmacies that offer lower costs or greater control to the payer. A consumer with a preferred network benefit design retains the option of using any pharmacy in the network. However, a consumer’s out-of-pocket expenses will be higher at a non-preferred pharmacy.

Preferred network models have grown most rapidly within the Medicare Part D, where they are now called preferred cost-sharing networks. CMS refers to the pharmacies in such a network as preferred cost-sharing pharmacies.

To identify 2016’s Part D preferred cost-sharing pharmacy networks, I used the 2016 Drug and Health Plan Data and the 2016 PDP Landscape Source Files (v 09 15 15). My analysis includes only stand-alone PDPs. I eliminated these plans from the sample:

• Employer-sponsored plans
• Medicare Advantage PDPs (MA-PDP)
• Plans from U.S. territories and possessions (American Samoa; Guam; Northern Mariana Islands; Puerto Rico; Virgin Islands)
• Employer/union-only group plans (contracts with "800 series" plan IDs)

I included 139 plans that are under sanction as of September 9, 2015. CMS provides information for these plans, but they can’t accept new enrollees. All of the sanctioned plans are offered by United American Insurance Company or First United American Life Insurance Company.

My final sample included 82 plans, operating 886 regional PDPs. Sixteen plans are being offered in all 34 regions, for a total of 544 PDPs (=16*34). The other 66 plans are operating in anywhere from 1 to 33 regions and account for 342 regional PDPs.

For last year’s analysis, see For 2015, almost 9 out of 10 Medicare Part D plans will have a preferred pharmacy network. For the economics of narrow network models (including DIR fees), see section 8.3 of our 2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies.

RESISTANCE IS FUTILE

The total number of PDPs will decline by 11%, from 1,001 in 2015 to 886 in 2016. PDPs with preferred networks will decline by 13%, from 870 in 2015 to 754 in 2016.

In 2016, there will be 62 plans with preferred networks, down from 66 plans in 2015. These plans operate 754 regional PDPs and account for 85% of the total regional PDPs for 2016. (Note that a few plans don’t have preferred cost sharing in every region.)

Here is a summary of the major companies offering PDPs, along with the split of preferred cost sharing vs. open pharmacy networks.

[Click to Enlarge]

2016 highlights from the top companies:

• Humana is offering the same three plans as it has in the past two years: Humana Enhanced, Humana Preferred Rx Plan (its original plan with Walmart), and the co-branded Humana Walmart Rx Plan. All three plans have a preferred network and are being offered in all 34 regions.

• As I note above, the three United American Insurance Company are under sanction and can’t accept new enrollees. All three plans have preferred cost-sharing networks.

• Wellcare switched its three plans from preferred cost sharing to open networks. Its plans accounted for 60% of all open network plans.

• UnitedHealthcare is offering the same two AARP plans, both of which have preferred cost sharing pharmacy networks.

• Cigna-HealthSpring reduced its plans from three to two, both of which plans now have preferred cost sharing networks. In 2013, no Cigna plan had a preferred pharmacy network.

• Express Scripts has two plans, both of which are branded as “Express Scripts Medicare.” The SmartD Rx Saver plan will not be available in 2016. Patients who choose to stay with that plan will be automatically enrolled into the Express Scripts Medicare Value plan. (UPDATED on November 10, 2015.) In 2013, Express Scripts acquired the SmartD plans, which had been backed by Walgreens. 

Per CMS to Part D Preferred Pharmacy Networks: We’ll Be Watching You, CMS will be scrutinizing how plans market these narrow networks. But as pharmacy competition rises, don’t forget the words of a certainly follicly challenged starship captain: “It is possible to commit no mistakes and still lose. That is not a weakness; that is life.”