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Limited Pharmacy Networks are Changing Employer Sponsored Prescription Drug Benefits

Narrow pharmacy networks are growing as payers use these networks as a way to help control drug spending. It is important for payers to understand why narrow networks are increasing.

Creation of Narrow Pharmacy Networks to Control Costs

Increasingly, PBMs are using more tightly controlled pharmacy network models to achieve additional drug spending savings. Narrow networks are not a new concept in healthcare; this is the logic behind preferred provider organizations (PPOs) and health maintenance organizations (HMOs) where preferred or exclusive providers agree to special pricing terms, hoping to realize increased volume.

Types of Pharmacy Networks

Narrow pharmacy network. With narrow networks, consumers receive financial incentives to use particular pharmacies that offer lower costs and/or give payers greater control. Pharmacies that participate in narrow networks are willing to accept reduced reimbursement rates in order to boost store traffic. There are different types of narrow networks. Two of the most common terms you hear are:

  • Preferred pharmacy network. Consumers can choose any pharmacy in their plan’s network, but pay a lower out-of-pocket cost when they choose to get their prescription filled from preferred pharmacies — which usually represent 20% to 50% of all retail pharmacies — and pay more out of pocket if they buy from a non-preferred pharmacy. For example, a consumer may have no co-payment on certain drugs if a prescription is filled at a preferred pharmacy and a $5 copay if filled at a non-preferred pharmacy in the network.
  • Limited pharmacy network. In this more restrictive model, consumers can only use the specific pharmacies or dispensing formats designated as part of the payer’s limited network. The model gives payers the greatest degree of economic control, as they will only include pharmacies with the lowest costs and highest service levels. Limited networks are typically 50% to 80% smaller than an open network, usually having fewer than 20,000 pharmacies.
Open pharmacy network. In open networks, consumers’ co-payments and out-of-pocket costs are identical regardless of which pharmacy in the retail network dispenses the prescription. Open pharmacies are the most broad and often include the more than 60,000 retail pharmacies in the U.S.

by Smart Retailing Rx

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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