Study Reveals Higher Closure Risk for Pharmacies Excluded from Preferred Networks

A recent study published in Health Affairs by researchers from the University of Southern California reveals that retail pharmacies excluded from Medicare Part D networks are significantly more likely to close compared to their preferred counterparts. The research highlights a troubling trend that underscores the challenges faced by independent pharmacies and those located in underserved communities.

The investigation focused on the impact of Pharmacy Benefit Managers (PBMs), which manage drug benefits on behalf of insurers and employers, on pharmacy closures over the past decade. The study found that pharmacies excluded from preferred networks were 4.5 times more likely to shut down than those included in these networks. This trend disproportionately affects independent pharmacies and those situated in low-income, Black, or Latino communities.

Over the past ten years, the proportion of Medicare Advantage drug plans utilizing preferred pharmacy networks has surged to 44%, while stand-alone Medicare drug plans saw an increase from 70% to a staggering 98%. This rapid growth coincides with a series of mergers involving major PBMs and retail pharmacy chains, which may lead PBMs to favor pharmacies within their own networks, thus sidelining competitors.

The Federal Trade Commission has raised concerns about PBMs creating narrow networks that favor their own pharmacies, leading to legislative responses such as Arkansas's recent law prohibiting PBMs from owning or operating pharmacies.

Dima Mazen Qato, a senior scholar at the USC Schaeffer Center for Health Policy & Economics, emphasized that the design of pharmacy networks by PBMs is contributing to the increasing rate of pharmacy closures, particularly in areas already lacking adequate pharmacy access.

The study analyzed pharmacy closures between 2014 and 2023 and uncovered several key findings:

• Pharmacies preferred by fewer than half of the plans examined were 1.7 times more likely to close than those favored by most plans.
• Pharmacies not included as preferred options by any Part D plan had a closure risk 3.1 times higher than those included.
• Pharmacies entirely out of network faced a closure likelihood 4.5 times greater.

In 2023, while 40% of pharmacies maintained independent ownership, only 0.8% were favored by the majority of plans, contrasting sharply with the 70% of chain pharmacies that held preferred status. Furthermore, only 30% of pharmacies in Black, Latino, or low-income neighborhoods were preferred by most plans, compared to almost 50% in wealthier or predominantly white areas.

The disparities in network participation across different regions were notable, with fewer than one-third of pharmacies preferred by most plans in a diverse selection of states, including New York and North Dakota.

The authors of the study argue for the necessity of federal reform concerning PBMs to broaden preferred pharmacy networks. Although new legislation may be challenging to achieve, regulatory actions could offer potential solutions. Recommendations include mandates from the Centers for Medicare and Medicaid Services to ensure that Part D plans adhere to standards for preferred pharmacy access and to enhance reimbursement rates for pharmacies, particularly those vital to underserved areas.

The findings from this research shed light on the systemic challenges facing retail pharmacies within Medicare networks, stressing the urgent need for policy adjustments to protect these essential healthcare providers.