Preferred Pharmacy Networks

The Academy of Managed Care Pharmacy (AMCP) supports the use of preferred pharmacy networks as a way of providing additional options to incentivize higher quality care and improve cost-effectiveness. Preferred pharmacy networks are a vital managed care pharmacy tool to promote improved health outcomes while controlling patient cost sharing and total health care system costs. 

Preferred pharmacy networks help promote the shift towards value-based care. Health plans leverage their pharmacy networks to help improve overall outcomes and quality measurement. This can be achieved through risk‐sharing arrangements with preferred pharmacy networks that encourage increased generic utilization rates. This action will trigger pharmacist and pharmacy participation in patient health care management and may help to improve medication adherence and utilization by ensuring that patients receive the appropriate medications at a reasonable cost. Additionally, preferred pharmacy networks may incorporate pharmacists’ patient care services and interventions into accountable care arrangements and other integrated care delivery to garner better health outcomes at a lower cost. Pharmacies and pharmacy chains that help to achieve better health outcomes should receive incentives to continue these practices through preferred network arrangements. 

Preferred pharmacy networks include pharmacies participating in a plan’s network that contract at a lower reimbursement rate in exchange for increased volume. Preferred network plans enable the plan sponsor to negotiate preferential terms that can involve deeper drug discounts, lower dispensing fees, and post-point-of-sale price concessions. Additional savings are also shared with the plan which enables them to stabilize future premiums. Plan enrollees that choose preferred pharmacies pay lower costs at the point of sale due to reduced cost sharing. Other non-preferred pharmacies are allowed to continue participating in the network, allowing for robust patient access. While non‐preferred network pharmacies are still in the pharmacy network, they do not offer covered drugs at the same lower cost‐sharing level as those within the preferred pharmacy network.

Cost studies on preferred network pharmacies also support the financial advantages of adopting this innovation. In an actuarial analysis by Milliman, Inc. (2011), it was determined that overall pharmacy costs could be reduced by up to 13 percent by using a limited, preferred pharmacy benefit design.¹ In this case, pharmacies were willing to reduce their dispensing fees with the promise of additional business in those pharmacies. A more recent analysis by the National Bureau of Economic Research (2021) found that the adoption of preferred networks by Medicare Part D Plan Sponsors reduced spending by about 2 percent on prescription drugs for non-subsidized beneficiaries.² While over 90 percent of Part D plans use preferred pharmacy networks, only half of employers are using narrow or preferred networks. AMCP supports the continued expansion of preferred pharmacy networks beyond the Medicare Part D program to lower prescription drug costs.

Medicare Part D enrollees have consistently shown high levels of satisfaction in the benefit and have overwhelmingly chosen plans that had the option of preferred networks. According to the management consulting firm Oliver Wyman (2021), about 97 percent of Part D prescription drug plans and over 60 percent of Medicare Advantage prescription drug plans include preferred pharmacy networks.³ Unsubsidized beneficiaries in the Medicare Part D program prefer the monetary benefits afforded by narrower pharmacy networks over the expanded choices offered by open networks. They choose this option because they know that they can achieve greater savings through reduced or free copays without sacrificing quality.

Preferred pharmacy networks are an important tool in managed care pharmacy. The expanded use of preferred networks benefits the entire health care system by incentivizing more cost-effective medication utilization, and beneficiaries enjoy greater cost savings under these models without compromising quality. AMCP supports the continued use of these programs as a beneficial way to maintain quality of care, access, and cost-effectiveness to the pharmacy benefit.

See also:

AMCP Where We Stand series: https://www.amcp.org/policy-advocacy/policy-advocacy-focus-areas/where-we-stand-position-statements

Revised by the AMCP Board of Directors, July 2022

Approved by the AMCP Board of Directors, July 2014 

¹Snook T, & Filipeck T. Pharmacy benefit management: Pros and cons of various approaches. Milliman. 2011. https://www.milliman.com/-/media/milliman/importedfiles/uploadedfiles/insight/research/health-rr/pharmacybenefitmanagementprospdf.ashx

²Starc A, & Swanson A. Preferred Pharmacy Networks and Drug Costs. American Economic Journal: Economic Policy. 2021;13(3):406-446. DOI: 10.1257/pol.20180489

³Armstrong S, Conway B, & Ruzicka M. 2022 Part D Competitive Environment and Emerging Trends. Oliver Wyman. December, 2021. https://www.oliverwyman.com/our-expertise/insights/2021/dec/2022-medicare-advantage-part-d-trends.html