Medicare Part D in 2024: Smaller Pharmacies Abandon Preferred Pharmacy Networks

In a previous article, I highlighted the largest pharmacy chains that will participate in the 2024 Medicare Part D prescription drug plans (PDP).

Today, I update DCI's exclusive analysis of 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 below, the largest PSAOs have effectively abandoned PDP’s preferred networks in 2024. Plans from Aetna, Humana, WellCare, and UnitedHealthcare will not have any independent pharmacies participating via PSAOs as preferred pharmacies.

Smaller pharmacies' ability to navigate away provides more bad news for stand-alone Part D market—and another unexpected consequence of the Inflation Reduction Act of 2022. Look out below!

PART D IN 2024

This is our third article about the 2024 Medicare Part D market. Here are the first two in the series:

• Medicare Part D in 2024: The Seven Largest Companies' Preferred Pharmacy Networks and the Coming Collapse of the PDP Market

• Medicare Part D in 2024: Mapping Large Chains' Position in 2024’s Preferred Pharmacy Networks

For a deep dive into the economics and strategies of narrow network models in both government and commercial plans, see Chapter 7 of our Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

MAKE ME AN OFFER

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 Cencora (formerly known as 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 legacy Arete network); Align Rx RxSelect; and Align Rx TriNet.

For our latest data on PSAOs and their services (along with a list of the top PSAOs ranked by membership), see Section 2.2.4. of our Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

NEVER MIND

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 2024 network (vs. 2023). The red shaded boxes indicate the PSAO members' removal as preferred pharmacies from a 2024 network (vs. 2023). Click here to download the table as a PDF.

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Here are highlights of PSAO participation in 2024 Part D preferred networks:

• For 2024, McKesson’s Health Mart Atlas (HMA) is directly participating in only two of Cigna’s three plans. Its members can contract directly with four other plans. Each PSAO member can choose to participate as a preferred vs. a standard cost sharing pharmacy for 2024. (In the table above, this is indicated by the superscript “1.”)
  
  Otherwise, HMA members will not be preferred. An HMA spokesperson told me that it is “focused on securing the right contracts to primarily non-preferred networks to balance patient access and the economic viability of the pharmacies it serves.” 
  
  Recall that as recently as 2021, HMA members had preferred status comparable to the participation of the largest chains. 

• Cencora’s Elevate continues to believe that patients pick their pharmacy and then pick their Part D plan. For the seventh consecutive year, its members will not be preferred in any major plan.
  
  An Elevate spokesperson told me that “our data continues to validate our approach.” They shared that year-over-year prescription growth (through September 2023) among Elevate PSAO members was +6.3%, compared with growth of only +1.7% for the total retail market. (I was unable to verify these figures, but they are consistent with Elevate’s previous disclosures.) It probably helps that Cencora’s Good Neighbor Pharmacy scored higher than its peers and large retail chains in the most recent J.D. Power U.S. Pharmacy Study.
  

• Cardinal’s LeaderNET PSAO had the biggest change in strategy for 2024. It is now following its peer PSAOSs and has disengaged from preferred networks in 2024. Its members will have preferred status only in the one plan offered by Clear Spring Health.
  
  A Cardinal Health spokesperson told me that its PSAOs are taking a “a calculated approach to all Medicare network participation decisions…to ensure that our PSAO members’ access is equitable and supports a sustainable business model.”

• AlignRx. For 2024, none of AlignRx’s three PSAOs—AlignRx APN, RxSelect and Trinet—will have preferred status in any major stand-alone Part D plan. For plans from Cigna, Humana, and Mutual of Omaha, its members can contract directly with the plans for preferred status.

Despite the low engagement with preferred plans, smaller pharmacies benefit from three important Part D dynamics:

• Beneficiaries who qualify for the Low-Income Subsidy (LIS) face low out-of-pocket drug costs regardless of a pharmacy’s preferred status. Thanks to the Inflation Reduction Act of 2022, the number of LIS-eligible beneficiaries will increase.

• A much smaller share of Medicare Advantage prescription drug (MA-PD) plans have preferred pharmacy networks. The presence of more open pharmacy networks may be contributing to MA-PD’s gains at the expense of stand-alone plans.

• As I described in Trend #10 of my Drug Channels Outlook 2024 video webinar, premiums for the largest stand-alone PDPs jumped for 2024—which will trigger further enrollment losses for this Part D option.

I doubt the owners of smaller pharmacies will regret saying nope to preferred status in a collapsing PDP market.