Rationale for going narrow
Many interrelated factors are supporting the adoption of narrow networks:
» Plan sponsors save money with narrower networks. An independent analysis conducted for the PBM Restat concluded that an
employer would achieve savings of four percent to 13 percent. Walmart claims that employers achieve average savings in the
13 percent to 18 percent range from its limited network models, but savings can go as high as 45 percent. CVS Caremark recently
stated that its limited Maintenance Choice model will save payers four percent of drug spending. Almost one out of five Managed
Medicaid plans now uses a limited network, driven by intense cost pressure due to state government shortfalls.
» Consumers have access to many alternative community retail pharmacy outlets. More than nine out of 10 Americans live within
five miles of a retail pharmacy. Consumers in a core based statistical area (CBSA)—an urban center of at least 10,000 people
and its adjacent areas—live within 1.2 miles of a community retail pharmacy. In many major metropolitan markets, up to 50
percent of market share is held by pharmacies beyond the largest four retail chains—CVS/Pharmacy, Walgreens, Walmart, and
Rite Aid. Given the ready availability of pharmacy outlets, plans can establish narrower networks with minimal consumer disruption.
» Consumers are willing to switch pharmacies to reduce out-of-pocket expenses. A preferred or limited network causes the consumer
some degree of inconvenience. However, surveys demonstrate that consumers are willing to shift pharmacies for even very small
monetary rewards. In a recent national survey, 85 percent of consumers said they would switch pharmacies to avoid higher copayments
at their usual pharmacy.
» Pharmacies are willing to boost store traffic in exchange for accepting lower prescription reimbursements. Since overall
prescription growth remains very low, pharmacies are trying to remain competitive and attract consumers in a relatively saturated
market. Consequently, they have been willing to accept reduced reimbursement rates in exchange for participation in a preferred
or limited network. A majority of these savings comes from reduced pharmacy margins, because pharmacies compete to be in a
payer's narrower network.
» Narrow networks are consistent with broader healthcare insurance models. Insurance plans have long used preferred provider
models for medical services. Many use tiered network models that categorize medical providers in the network based on quality,
cost, and/or the efficiency of the care they deliver. These networks encourage patients to visit more-efficient doctors—either
by restricting networks to certain providers or by having different copayments or coinsurance for providers in different tiers
in the network. In 2011, 20 percent of employers that offered health benefits included a high performance or tiered provider
network in the health plan with the largest enrollment.
» A dispute between Express Scripts and Walgreens demonstrates the viability of a limited network model. In January 2012,
Walgreens exited PBM Express Scripts' retail pharmacy network. Walgreens' prescription sales declined sharply, but the effect
on Express Scripts' PBM business was minimal. A small number of plan sponsors switched away from Express Scripts to keep Walgreens
in their network, but most accepted the narrower network. After the September 2012 resolution of the Walgreens-Express Scripts
dispute, such plan sponsors as the Department of Defense's TRICARE program and Blue Cross of Idaho declined to add Walgreens
back to their networks.