Previously, we have written that access to lives is important to any pharmacy, and the narrow, preferred networks that have become vogue in Medicare Part D are an example of an outside influence that can impact this access. The theory, of course, is that being in a narrow network will drive patients to a participating pharmacy, thereby increasing its business. The decrease in reimbursement that accompanies preferred status is theoretically offset by the pharmacy’s ability to generate the revenue from these new patients. But does this theory withstand scrutiny?
Over the last several years, our active patient population has been fairly steady, with about 3000 patients having one or more prescriptions filled during the year. During 2015, a year where the use of preferred networks came of age, our patient population declined significantly. Discerning if the decrease was due to preferred networks and other erosion factors including patients moving or passing away is difficult. Undoubtedly our decrease was due, at least in part, from both.
But our pharmacy does participate in several narrow networks: our contracting arm has signed several preferred contracts with their aggressive reimbursement terms. Here, the term aggressive is defined as providing reimbursement very near the cost of the product being dispensed. Theoretically, we should have seen an influx of patients to either boost our patient population, or at a minimum, offset losses of patients to narrow networks in which we do not participate.
Our Open Enrollment Experience.
Like most pharmacies, our pharmacy received a large number of questions about our 2016 participation in various narrow network plans during the 2015 Medicare Part D Open Enrollment session. Our current customers wanted to stay with us, and chose their 2016 plans accordingly. Because cost will always be an important factor enthuse decisions, many chose to enroll in the narrow networks in which we do participate. Those that were more concerned with other plan characteristics picked another plan in which we participated. The phenomenon described above likely occurred in every pharmacy in the country: patients chose a plan with the intention of staying with their current pharmacy and saving money.
This would appear to affirm the common belief that many patients place a high value on choosing their pharmacy or pharmacist: pharmacy has long been one of the most trusted professions. All else being relatively equal, patients are loyal to their pharmacy. When this dynamic changes, though, a patient will feel significant financial pressure to change pharmacy homes. The economic consequences of this phenomena are significant. If a pharmacy does not participate in any low cost plans (typically the narrow networks), they stand to lose customers based on price. While customer service may prevent a few from leaving, ultimately the core business of the pharmacy will significantly erode. This is the access to lives argument.
If a pharmacy participates in one or more narrow networks, their patient base will gravitate to these plans to reduce their costs while maintaining their pharmacy of choice. There are many different narrow networks with similar cost savings for the patient. Given this landscape, participating in one or more narrow network provides no significant advantage to a pharmacy with respect to current patients. One narrow network looks like any other to the patient. If a patient wants to go to a specific pharmacy, they will simply choose the narrow network that enables this choice. A pharmacy enrolled in multiple narrow networks may have a modest advantage in attracting new patients that do not already have a pharmacy home, but by the time a person is enrolling with a Part D prescription drug program, they are likely to have already chosen a pharmacy home.
When is Narrow Network Participation an Advantage?
The only case where participation in a narrow network might become a significant business advantage to a pharmacy would be the rare case where no other pharmacies in a given area participate in any narrow networks. It then becomes a simple marketing advantage: one pharmacy offers something that the other pharmacies cannot. This will be the exception, not the rule.
Historically, differentiation between pharmacies was done at a local level. A chain might push lower costs, an independent might counter with better service. One store might offer a variety of immunizations, another might have classes on smoking cession. One store might have a soda fountain, another might also be a grocery store. Market advantages were generated by the actual stores. In the current economic landscape, the narrow networks offer patients huge incentives to join. Because most pharmacies participate, no one pharmacy has any advantage.
So the bottom line is that pharmacies cannot win in this era of narrow networks: narrow networks only attract patients to a given PBM, not a given pharmacy. Participating in no networks will rapidly erode their patient base: game over. Participating on one or more networks will only help maintain their current patient base. Significant influxes of patients to a pharmacy are only possible when no other pharmacies in a region participate in any narrow networks.
The Long Game
The access to lives argument still applies: without access to lives, our pharmacies are essentially doomed. The differentiation that needs to take place has to occur elsewhere. Clinical services and shared savings are going to be what differentiate pharmacies in the future. There is little money in these ventures at this point, however. This means that in order for a pharmacy to thrive in the future, it is going to suffer in the short term. But while it is suffering, the pharmacy must be preparing to differentiate itself from others by improving its clinical abilities. Eventually, narrow networks will switch from a price differentiation to a care differentiation. A network will include only high performing pharmacies, and reimbursement will include shared savings.
