July 22, 2014

Since the enactment of the Medicare Modernization Act (MMA) in 2003, the Part D statute has required prescription drug plans to offer standard contracts to any pharmacy willing to enter into such a contract. Drug plan sponsors may, however, contract with pharmacies willing to offer additional pricing concessions to participate in a “preferred network,” whose member pharmacies Part D beneficiaries are encouraged to use because of materially lower cost sharing at the point of sale. According to the Drug Channels Institute, approximately 75% of all Part D beneficiaries are enrolled in plans that offer beneficiaries access to preferred networks with discounted cost sharing.

Advocates for pharmacies are presently promoting legislation that would permit any willing pharmacy to opt into the prevailing terms of preferred network contracts in areas designated as having a shortage of health professionals. The Moran Company was engaged by the Pharmaceutical Care Management Association, the trade association of pharmacy benefit management companies, to analyze the budgetary impact of legislation, introduced in the House of Representatives by Congressmen Griffith and Welch, to implement such a policy.

Read the study.

Our findings are as follows:

  • While the legislation might appear on its face to be limited in geographic scope, our analysis of data from the Health Resources & Services Administration (HRSA) indicates that 94.77% of all Medicare Part D enrollees reside in counties meeting at least one of the “undeserved area” criteria established in this legislation.
  • After offsets, we estimate that enactment of this legislation would increase Federal mandatory spending by $21.32 billion over the 2015-2024 scoring window.

Although the legislation indicates that willing pharmacies will need to match the “…terms and conditions…” applicable to preferred in-network pharmacies, our analysis suggests that present in-network pharmacies would, with a lag for recontracting, discontinue discounting, since such discounts would no longer be a requirement for preferred network participation. Within a few years, we would expect in-network discounts to decline toward the level implicit in the drug plans’ standard “any willing provider” contracts. We would expect Part D drug plans to attempt to offset this discount erosion by lowering reimbursement rates in their “any willing provider” contracts, and by adjusting their program terms. We assume that such efforts might mitigate approximately half of the spending increase that would otherwise result from discount reductions.