Review of Medicare Part D Contracting for Contract Year 2006

Executive Summary

We conducted this review at the request of 33 Senators, who raised concern about prescription drug plan (PDP) sponsors' strategies for contracting with local, community pharmacies to provide Part D prescription drugs to Medicare beneficiaries.

We found that 78 of the 100 local, community pharmacies in our sample relied on third-party contractors known as pharmacy services administrative organizations (PSAO) to contract with PDP sponsors. The pharmacies were generally satisfied with the services that their PSAOs provided. However, almost all of the 100 sampled pharmacies and all of their PSAOs reported that they had experienced problems when contracting with PDP sponsors. These problems related to PDP sponsors' network development methods, standard terms and conditions, extended-day supply terms, negotiations, and network requirements and contracting requirements.

We recommended that Congress and CMS consider the results of our review, including the data provided, in any deliberations regarding Medicare Part D contracting, and we provided specific recommendations related to the pharmacies' and PSAOs' concerns. CMS concurred with five of our recommendations but did not concur with the remaining five recommendations, stating that they were contrary to the competitive market principles that are fundamental to the Part D program. After reviewing CMS's comments, we revised three recommendations.