Will CMS Crack Down on Part D Preferred Pharmacy Networks?

On Monday, the Center for Medicare and Medicaid Services (CMS) released its 2014 Rate Announcement and Final Call for Medicare Advantage and Part D plans. For MA plans, the big news is a surprising 3.3% rate increase, rather than a 2.2% cut.

CMS also had some tough talk for preferred pharmacy networks in Medicare Part D Prescription Drug Plans (PDPs). Below, I explain CMS’s biggest concerns, which include network entry, pharmacy fees, and beneficiary communications. Plan sponsors: You have been warned!

P.S. Stay tuned for my forthcoming Pharmaceutical Executive article explaining why manufacturers should be worrying about narrow pharmacy networks.

As I note in Final 2013 Part D Data: Preferred Pharmacy Networks Still Win Big, But CMS is “Concerned”, seniors are increasingly choosing preferred networks. In 2013, more than four out of ten seniors enrolled in a Part D plan with a preferred pharmacy network. Here's a look at the biggest parent organizations and enrollment share in a preferred network plan.


CMS’s draft call letter expressed concerns about preferred network costs. But in Monday’s final letter, CMS went much further in its criticism. Here’s my summary of its three toughest messages.

1. Make it easier for pharmacies to join a preferred network.

CMS states: “We strongly believe that including any pharmacy that can meet the terms and conditions of the preferred arrangements in the sponsor’s preferred network is the best way to encourage price competition and lower costs in the Part D program.” (See “Preferred / Non-Preferred Pharmacy Networks,” on page 175.) While CMS does not mandate any policy changes, the statement is a clear warning to PDPs.

Done properly, consumers will win and pharmacies will lose. In today’s hypercompetitive environment, pharmacies are willing to boost store traffic in exchange for accepting lower prescription reimbursements. These reduced pharmacy margins will translate into consumer savings.

2. Account for per-prescription fees properly.

CMS raised concerns about the accounting for the per-prescription fees that pharmacies pay to participate in preferred networks. In CMS parlance, these fees are called Post Point-of-Sale Per-Claim Administrative Fees (PPOSPCAF; see page 164 and page 175.) After mulling it over, CMS said: “Upon consideration, we believe that any such post-point-of-sale claim adjustments violate our current guidance on negotiated prices.”

If these fees are not accounted for properly, then CMS believes such fees overstate retail prices. CMS plans “notice and comment rulemaking would be necessary in order to require sponsors to consider these fees as part of the negotiated price.”

3. Be careful with communications regarding copayments.

Beneficiaries eligible for the Low Income Subsidy (LIS) get reduced copayments at all pharmacies, not just preferred pharmacies. CMS issued the following warning: “Under no circumstances may sponsors inform LIS-entitled beneficiaries that they must fill prescriptions at preferred network pharmacies in order to get LIS copays.” While there is no policy statement, CMS will likely try to embarrass (or penalize?) plans that get it wrong.

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I still expect narrow networks to grow, but won't be surprised by much more Part D regulations and guidance for 2014.