Pharmacy Switching in Response to Preferred Pharmacy Networks in Medicare Part D

Objective

To evaluate the effects of preferred pharmacy networks—a tool that Medicare Part D plans have recently adopted to steer patients to lower cost pharmacies—on the use of preferred pharmacies and factors underlying beneficiaries’ decisions on whether to switch to preferred pharmacies.

Data Sources

Medicare claims data were collected for a nationally representative 20% sample of beneficiaries during 2010–2016 and merged with annual Part D pharmacy network files.

Study Design

We examined preferred networks’ impact on pharmacy choice by estimating a difference-in-differences model comparing preferred pharmacies’ claim share before and after implementation among unsubsidized and subsidized beneficiaries. Additionally, we evaluated the factors affecting whether a beneficiary switched from mainly using nonpreferred to preferred pharmacies.

Data Collection/Extraction Methods

We examined stand-alone drug plans that adopted a preferred network during 2011–2016. Our main sample included beneficiaries 65 years and older who stayed in their plan in both the first year of implementation and the year before and whose cost-sharing subsidy status and ZIP code remained unchanged during the 2-year period.

Principal Findings

Unsubsidized Part D beneficiaries faced an average difference of $129 per year in out-of-pocket spending between using nonpreferred and preferred pharmacies, while subsidized beneficiaries were insulated from these cost differences. The implementation of preferred networks resulted in a 3.7-percentage point (95% CI: 3.3, 4.2) increase in preferred pharmacies’ claim share in the first year among the unsubsidized. Existing relationships with preferred pharmacies, the size of financial incentives, proximity to preferred pharmacies, and urban residence were positively associated with beneficiaries’ decisions to switch to these pharmacies.

Conclusions

Preferred pharmacy networks caused a moderate shift on average towards preferred pharmacies among unsubsidized beneficiaries, although stronger financial incentives correlated with more switching. Researchers and policymakers should better understand plans’ cost-sharing strategies and assess whether communities have equitable access to preferred pharmacies.

The full study is available in Health Services Research.

Xu, J., Trish, E., & Joyce, G. (2024). Pharmacy switching in response to preferred pharmacy networks in Medicare Part D. Health Services Research, 57(5), 1112–1120. https://doi.org/10.1111/1475-6773.13973