Without question, the Medicare Part D prescription drug program passed by Congress in 2003 has been an unqualified success. Not only are seniors very satisfied with the program – the program consistently achieves beneficiary satisfaction rates of 90% or higher – Medicare Part D has also cost billions less than forecast.
So far the program has achieved cost savings that are 45% below original projections. And while the Medicare Trustees in 2004 projected that the average Part D premium would be $61 in 2013, premiums have instead remained relatively flat at $30 on average.
Unfortunately, one of the key elements of Part D’s success – the use of “preferred pharmacy networks” – is under threat.
A recent proposal from the Center for Medicare & Medicaid Services (CMS) would have effectively eliminated these popular low-cost Part D plans, which are now the choice of almost 75% of Part D plan beneficiaries.
Medicare Part D beneficiaries have demonstrated that they value having a choice of Part D plans, and that they want plans that offer affordable and convenient access to prescription drugs. One way that Part D plans control costs is through the use of preferred pharmacy networks, which offer lower drug prices to beneficiaries. The Part D sponsor is able to do this when it negotiates more competitive pharmacy contract terms on prescription drug prices with pharmacies willing to accept lower reimbursement in exchange for increased volume. Preferred network pharmacies offer low, or even no, beneficiary cost sharing on certain drugs and Part D plans that partner with preferred pharmacies have premiums as low as $12.60/month in some parts of the country compared with $30 on average for all Part D plans.
Approximately 75% of all beneficiaries in stand-alone Part D plans have voluntarily enrolled in a plan with preferred pharmacy networks. The “preferred” pharmacies vary by plan but typically include a combination of grocery store pharmacies, big box pharmacies (Walmart, Target, Costco, etc.), chain drug stores as well as independent pharmacies. Enrollees in the preferred network plans can go to any pharmacy of their choice and yet take advantage of the lower “preferred” pharmacy network plan premium. If the enrollee wants to save even more money, she can chose to fill her prescriptions at a preferred network pharmacy. If enrollees in a preferred pharmacy network plan opt to go to a pharmacy that is not preferred, the difference in their cost sharing is limited by regulation to a few dollars more per prescription, but it is their choice and is offset by their lower premium.
Research shows that Medicare drug plans using such preferred pharmacy networks today have lower average premiums and the same or better average quality ratings as plans without preferred networks, according to Avalere Health. A recent study by Milliman estimated that preferred pharmacy network plans will reduce federal Medicare spending by $7.9 billion to $9.3 billion over the next 10 years. Milliman found that the largest two-year decrease in federal direct subsidies in the history of the Part D program has coincided with the rapid adoption of preferred pharmacy network plans and the increased use of generic drugs. What’s more, Part D seniors in plans with preferred pharmacy networks are overwhelmingly satisfied, citing lower costs, convenient access to pharmacies and other benefits, according to a survey from Hart Research Associates.
The rules proposed by CMS, however, would risk this success. As proposed, the CMS rules would have ended the ability of Part D plans to negotiate favorable contracting terms with retail pharmacies by imposing an “any willing pharmacy” policy and price supports on plan reimbursements to pharmacies.
As a starting point, this proposal is in direct violation of the Medicare Modernization Act of 2003, which expressly forbids any “interference” by the government in such negotiations. More significantly, however, these proposals would increase costs for beneficiaries and taxpayers alike.
CMS argues that requiring plans to post publicly their proprietary terms and conditions and then allowing any willing pharmacy to meet them would “promote increased price competition among network pharmacies.” The Federal Trade Commission (FTC), however, has repeatedly concluded that regulatory interference with contractual terms likely will result in increased prices. In fact, the FTC specifically concluded that any-willing-pharmacy requirements “can … undermine the ability of plans to reduce costs. This is likely to result in higher negotiated prices, ultimately harming consumers.”
Further, actuaries from Oliver Wyman estimate that eliminating preferred pharmacy networks in Part D would, over 10 years, result in an added $990 in premiums per affected enrollee, and an added cost to the government of approximately $24 billion. In 2015 alone, the estimated average increase in premiums for the affected population would be $63 per year, with an average of $80 to $100 per year in additional cost-sharing in 2015.
Eliminating preferred pharmacy networks undercuts not only the ability of plans to control costs, but also to deliver quality. Such proposals will make it much harder for plans to either exclude pharmacies at high risk for fraud, waste, and abuse or reward higher quality pharmacies.
Part D has been a very successful program, with the use of preferred pharmacy networks contributing significantly to that success. To bar their use is to risk that success and would only hurt beneficiaries.