Table 1 highlights the largest payers that sponsor Part D prescription drug plans. In plans administered by such large payers
as UnitedHealth and Humana, the vast majority of seniors are now enrolled in plans with preferred networks. For the 2013 benefit
year, plans with preferred pharmacy networks enrolled 9.5 million people, or 42 percent of the total 22.4 million seniors
in a Medicare PDP.
Table 1: Enrollment in Medicare Part D PDPs, by parent organization, January 2013.
The Humana Walmart-Preferred Rx Plan illustrates the popularity and rapid adoption of this network model. In October 2010,
Walmart and Humana launched this PDP with 4,200 preferred pharmacies (including Walmart, Sam's Club, Neighborhood Market,
and Humana's RightSource mail pharmacy) and 58,000 non-preferred retail pharmacies. In 2013, Humana Walmart-Preferred Rx Plan
is the fourth-largest PDP, with 7.8 percent of total PDP enrollment. Compared to 2012, total enrollment grew by 355,279 seniors
The second type of narrow network is a limited pharmacy network. This more restrictive model designates the particular pharmacies
or dispensing formats available to a patient when filling her prescription. A limited network gives a payer the greatest degree
of economic control over prescription fulfillment. Payers will include only those pharmacies with the lowest costs of dispensing
and/or the highest service levels. In exchange, the pharmacy becomes one of the selected members in the network and increases
its market share.
A typical limited retail pharmacy network is 50 percent to 80 percent smaller than an open network. Thus, the consumer can
choose any pharmacy within the network, but the network has only 10,000 to 30,000 pharmacies (versus more than 60,000 total
retail pharmacies). An example is Restat's Align network, which includes national chains (Walmart, Target, and many supermarkets)
and a number of regional chains. In 2013, Express Scripts, the largest PBM, launched the Express Advantage Network, a limited
network with about 20,000 pharmacies. Payers also establish limited networks for specialty drugs by restricting pharmacy choice
to just one or two payer-designated specialty pharmacies.
Figure 1: The number of participating pharmacies in narrow retail pharmacy networks broken down by category.
Mandatory mail benefit designs are the most common application of limited networks. They require consumers to fill 90-day
prescriptions through a mail pharmacy without the option of using a retail pharmacy. About 25 percent of employers require
that some or all maintenance medications be dispensed by a mail pharmacy.
CVS Caremark's Maintenance Choice program is the most prominent limited network model for commercial plan sponsors. Under
the Maintenance Choice program, a beneficiary can obtain maintenance medications from a CVS retail pharmacy or a CVS Caremark
mail pharmacy. This model lets consumers choose the pharmacy channel (mail or retail) but limits that choice to CVS Caremark
With the exception of the Maintenance Choice model, limited networks have been much less widely adopted than preferred networks.
We speculate that commercial plan sponsors may believe there are bigger savings opportunities in other areas that have less
potential beneficiary disruption, such as increasing cost-sharing requirements.