Today, I examine how smaller pharmacies will participate as preferred cost sharing pharmacies via the pharmacy services administrative organizations (PSAOs) that represent them in negotiations with plans.
As you will see here, the largest PSAOs are increasingly rejecting preferred networks. Below we provide details about the PSAOs owned by the three major wholesalers—AmerisourceBergen, Cardinal Health, and McKesson—along with information about AlignRx, the largest independent PSAO. There are some notable differences in strategy, as you will see from our handy scorecard below.
Smaller pharmacies’ rejection of Part D preferred networks shows that they are figuring out how to survive a highly challenging retail environment. Perhaps Part D is just a flesh wound?
Speaking of 2022, please join me for my upcoming live video webinar, Drug Channels Outlook 2022, on December 17, 2021, from 12:00 p.m. to 1:30 p.m. ET. Click here to learn more and sign up.
PREFERRED NETWORKS: JUST A HARMLESS LITTLE BUNNY
This is our third article about the 2022 Medicare Part D market. Here are the first two in the series:
For a deep dive into the economics and strategies of narrow network models, see Chapter 7 of our 2021 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
NASTY, BIG, POINTY TEETH
Large pharmacies interact and negotiate directly with PBMs and other third-party payers. However, nearly all smaller pharmacy owners participate in pharmacy services administrative organizations (PSAOs) to leverage their influence in contract negotiations with PBMs and other third-party payers. The PSAO relationship is crucial for independent pharmacies, because independents generate more than 90% of their total sales from prescription dispensing.
Here are the largest PSAOs:
- Health Mart Atlas (HMA), the largest PSAO, is owned by McKesson.
- Cardinal Health operates three PSAOs that serve different segments of its business. LeaderNET services Cardinal’s drug distribution customers and is the largest of its PSAOs.
- Elevate Provider Network is owned by AmerisourceBergen.
- AlignRx was formed from the 2021 merger of Arete Pharmacy Network (owned by American Associated Pharmacies) with PPOk (owned by Unify Rx). AlignRx is the largest PSAO that is not owned by a wholesaler. Due to the merger, AlignRx now has three separate networks: Align Rx APN (the new name for the Arete network); Align Rx RxSelect; and Align Rx TriNet.
ONE…TWO…FIVE
To complement our analyses of retail chains, the table below summarizes the preferred network status of pharmacy members that belong to the four largest PSAOs. The green shaded boxes indicate the PSAO members' addition as preferred pharmacies to a 2022 network (vs. 2021). The red shaded boxes indicate the PSAO members' removal as preferred pharmacies from a 2022 network (vs. 2021). Click here to download the table as a PDF.
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Here are highlights of PSAO participation in 2021 Part D preferred networks:
- McKesson’s Health Mart Atlas (HMA) has dramatically altered its strategy toward preferred networks. In previous years, HMA members have had preferred status comparable to the participation of the largest chains. But for 2022, HMA will be preferred only in Rite Aid’s small Elixir plans. Here’s how HMA described its 2022 strategy to me:
“Health Mart Atlas has historically been afforded many opportunities for preferred participation in various PDP plans where the additional access to lives was critical to the continued success of our pharmacies. For the 2022 plan year, our strategy continues to focus on opportunities for our pharmacies that allow participation in the right networks that balance access to lives and economic stability. We believe our 2022 portfolio access continues to reinforce that strategy by providing the right balance for our pharmacies–with a critical shift for some payers to maintain a sustainable economic margin.”
- AmerisourceBergen’s Elevate continues to believe that patients pick their pharmacy and then pick their Part D plan. Consequently, its members will once again not be preferred in any major plan for 2022.
Here’s how Elevate described its 2022 strategy to me:“ As we have shared year after year, Elevate Provider Network does contract differently and our strategy is based on the belief that patients pick their pharmacy and then pick their Part D plan. This is because we trust in the bond between pharmacists and their patients…When it comes to Part D contracting, our goal is to offer our members access to all Part D patients but to do so in a thoughtful way that protects pharmacy profitability. Independent pharmacies do not have the profitable front-end departments to subsidize building foot traffic through lower rates.”
Elevate also stated that year-over-year prescription growth (through September 2021) among Elevate PSAO members was +8.9%, compared with growth of only +3.5% for all independent pharmacies. (I was unable to verify these figures, but they are consistent with Elevate’s previous disclosures.)
- Cardinal’s LeaderNET PSAO has bucked the trend of its wholesaler peers and increased its engagement in preferred networks. Its members will have preferred status in the four plans offered by Clear Spring Health and Mutual of Omaha. However, the PSAO will not have preferred status in the larger plans offered by Aetna, Humana, UnitedHealthcare, and WellCare.
- AlignRx Its legacy Arete plan added participation in two Cigna plans and will shift to non-preferred in the Mutual of Omaha plans. Arete had been preferred in one of the Express Scripts plans that has been discontinued for 2022. For 11 plans, Align Rx APN network members will be in the plan’s network, but they must contract directly with the plans for preferred status. (In the table above, this is indicated by the superscript “1.”)
Align Rx’s other networks—RxSelect and Trinet—will not have preferred status in any major stand-alone Part D plan. For 10 plans, member pharmacies must contract directly with the plans for preferred status. Note that member pharmacies are out-of-network for the Elixir plans.
- For the second year, plans from Aetna, Humana, WellCare, and UnitedHealthcare do not have any independent pharmacies participating via PSAOs as preferred pharmacies.
Despite the low engagement with preferred plans, smaller pharmacies still benefit from a quirk in Part D. Beneficiaries who qualify for the Low-Income Subsidy (LIS) face low out-of-pocket drug costs regardless of a pharmacy’s preferred status.
In previous years, I have speculated that the dearth of independent pharmacies in preferred networks could spur the Centers for Medicare & Medicaid Services (CMS) to alter Part D policies on pharmacy contracting. However, CMS continues to take a hands-off approach to pharmacy networks, despite enormous lobbying by the pharmacy trade associations.
For 2021, a group of pharmacy owners funded Indy Health, a Part D plan sponsor that had automatically designated all independent pharmacies as preferred and did not have a mail order benefit. However, the plan failed less than three months into the 2021 plan year.
As I outline in our new 2021-22 wholesaler report, drug distributors continue to invest significant sums to sustain the businesses of smaller pharmacies—as evidenced by the PSAOs highlighted above. The distributors prefer that independents continue to enjoy ham and jam and spam a lot.
BONUS
Drug Channels has obtained top secret footage showing the president of an unnamed PSAO discussing the organization’s strategy for 2022 Medicare Part D plans. Click here if you can’t see the video.
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