Medicare Part D Savings from Preferred Pharmacy Networks

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The Pharmaceutical Care Management Association recently engaged Milliman, an actuarial and consulting firm, to analyze the impact of preferred pharmacy networks on Medicare Part D spending.  The results of Milliman’s study are set forth in a client report titled, “The Impact of Preferred Pharmacy Networks on Federal Medicare Part D Costs, 2014-2023.”  Milliman found that the addition of preferred pharmacy network plans decreases total federal prescription drug plan spending.

A preferred pharmacy network plan offers reduced member cost sharing at preferred pharmacies, typically through lower copays or coinsurance.  The plan is able to offer these lower costs because it receives more competitive pharmacy contract terms on prescription drug prices, often in the form of deeper drug discounts, lower dispensing fees, or a post-point-of-sale price concession paid to the plan sponsor.

Milliman found that plan members are not the only ones who can benefit from preferred pharmacy networks; the federal government also could see substantial savings.   Milliman estimated that preferred pharmacy networks could reduce federal Medicare spending by $870 million in 2014.  Milliman projected that, based solely on current prescription drug plan enrollees, the federal government would save approximately $7.9 billion over the next ten years.  When including individuals who are expected to enroll between 2014 and 2023, Milliman estimated savings of $9.3 billion.

A CMS study dated April 30, 2013 found that, contrary to CMS’s expectations, negotiated prices for drugs were sometimes higher in certain preferred networks.  Milliman, however, estimated that prescription drug plans with higher negotiated prices represented only 4% of total scripts included in the study.  Milliman also presented several considerations not taken into account by CMS.  For example, the CMS study did not take into account the full range of contractual terms used to reduce costs in preferred network plans.  Overall, Milliman found that preferred pharmacy networks could play an important role in reducing Medicare Part D costs in the future.

To view the full report, click here.  

Reporter, Isabella Edmundson, Atlanta, +1 404 572 3527, iedmundson@kslaw.com.