SMART RETAILING RX BLOG

The next step in preferred networks

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Loading... To stay in networks, pharmacies must prove value

In brief:

  • Already 85% of regional Medicare Part D prescription drug plans have a preferred pharmacy network, and about 50% of employers have a preferred or limited network.
  • Payers are beginning to look beyond direct savings from lower pharmacy payments to long-term savings through the quality of service pharmacies can provide. Proving your pharmacy serves customers well may not only keep you in narrow networks but may also raise your potential to be compensated for services beyond dispensing.

Plans continue to limit where patients can go to fill their prescriptions. The resulting increase in narrow (pharmacies must be included in order to fill prescriptions) and preferred (participating pharmacies offer lower co-pays) networks means, in order to maintain access to lives, pharmacies must continue to prove their value.

According to analysis by Adam J. Fein, Ph.D., president of Pembroke Consulting Inc. and CEO of Drug Channels Institute, the percentage of Medicare Part D prescription drug plans with a preferred pharmacy network has skyrocketed from 7% in 2011 to 85% in 2016.1 (See Figure 1 below.)

While the movement to preferred pharmacy networks has been slower among commercial plans, analysis by Fein found that last year 36% of employers had a preferred network and another 14% use a limited network (see Figure 2 below) — meaning 50% of commercial patients now have a preferred or limited drug network.2 While patients pay a higher co-pay if they choose a pharmacy that isn’t in a preferred network, with a limited network they can have prescriptions filled only at those network pharmacies. (See “How Narrow Networks Are Changing Pharmacy.”)

Figure 1: The growth in preferred pharmacy plans for Medicare Part D prescription drug plans

Source: Adam Fein, Drug Channels.

Figure 2: Growth in preferred and limited pharmacy networks for employer-sponsored plans

Source: Adam Fein, Drug Channels

“This is a consolidating drug channel,” Fein said. “You need to get big, get focused or get out. The world of pharmacy is changing rapidly. Change is inevitable, growth is not. Think critically about how you’re going to succeed in the future.”

  • Getting big: To “get big” an independent pharmacy needs to partner with others through organizations such as pharmacy services administrative organizations (PSAOs), group purchasing organizations (GPOs) or wholesaler networks. Partnerships like these offer independent pharmacies the benefit of scale and contracting and operational expertise while maintaining their independence.
  • Getting focused: To “get focused” a pharmacy must do more than simply dispense medications, as about 65,000 pharmacies already do that. Look for a way to differentiate, Fein said.

Pay for performance

Even a pharmacy that focuses on expanding its value, such as by entering the specialty market or offering services such as immunizations, will have to prove its value to payers in serving customers.

Within the past two years, most Medicare Part D plans have moved to some type of performance-based payment model, either increasing reimbursements or decreasing fees for pharmacies that meet certain benchmarks.

Those performance measures include:

  • Medication adherence tracked through Star Ratings measures
  • Plan formulary compliance
  • The percentage of generic medications dispensed (GER)
  • The filling of 90-day prescriptions

Performance payments also may focus on the treatment of specific chronic disease states such as diabetes, coronary artery disease, asthma and osteoporosis.3

No pharmacy, no matter how large or small, is immune from the impact of being excluded from narrower networks. CVS, for example, lost an estimated 40 million prescriptions this year by being cut out of preferred networks.4

Future access to patients requires proving value

To thrive in the future, a pharmacy must understand the ways payers will measure performance and must be ready to demonstrate value in improving patient outcomes, whether by improving adherence through a medication synchronization service or providing the clinical services necessary to help patients manage their disease states.

 

 

1 “Exclusive: Preferred Pharmacy Networks Are Back in 85% of the 2017 Medicare Part D Plans,” Adam J. Fein, Drug Channels, Oct. 5, 2016. LINK
2 “Yes, Commercial Payers Are Adopting Narrow Retail Pharmacy Networks,” Adam J. Fein, Drug Channels, Jan. 11, 2017. LINK
3 “The Dirt on DIR Fees,” Blair Thielemier, Pharmacy Times, July 25, 2015. LINK
4 “CVS to Lose 40M Prescriptions as Insurers Narrow Networks,” Bruce Japsen, Forbes, Nov. 8, 2016. LINK

 

Note: The information provided here is for reference use only and does not constitute the rendering of legal or other professional advice by McKesson. Readers should consult appropriate professionals for advice and assistance prior to making important decisions regarding their business. McKesson is not advocating any particular program or approach herein. McKesson is not responsible for, nor will it bear any liability for, the content provided herein.