The bedrock of the American economy is competition. Consider the annual “Black Friday” sales where merchants will try to outdo each other on bargains offered to draw customers into their stores. While most merchants decide on their own what to charge consumers, prices are dictated to small business independent community pharmacies and beneficiaries in the Medicare Part D drug benefit by take-it-or-leave-it contracts that pharmacies must sign with pharmacy benefit managers (PBMs), multi-billion dollar middlemen between the pharmacist and the health plan.

While competition has clear benefits for consumers, a recent article in the Hill (Regulators shouldn't undermine preferred pharmacies) fails to note how PBM actions reduce competition by contractually obligating some pharmacies to charge higher patient co-pays than others. In a “preferred network,” the PBM cherry-picks pharmacies that are allowed to offer the lowest advertised patient co-pays to consumers.

This issue is particularly timely now due to the ongoing Medicare “open enrollment” season through Dec. 7, and a related federal regulation expected to be released soon.

Supporters of exclusive preferred pharmacy networks that deny a community pharmacy the ability to participate as a preferred provider say these restrictions on competition and patient choice are justified by PBMs’ grandiose claims of projected cost savings.

However, this claim has been torpedoed by objective comparisons of real-world Medicare data.

In March 2013 we logged on to Medicare’s Plan Finder website for a comparison. NCPA staff looked at two large preferred pharmacy plans – AARP MedicareRx Preferred and Humana Walmart Preferred Rx – and compared four popular drugs. The full cost of the drugs at the preferred network pharmacy was more expensive than the non-preferred network pharmacy 75 percent of the time. Furthermore, the full cost of using a mail order pharmacy was more expensive than using a non-preferred network pharmacy 94 percent of the time. (To read the specific drugs and cities examined, click here.)

In July 2013 the Centers of Medicare and Medicaid Services (CMS) announced that their own analysis of Medicare Part D preferred plans confirmed that “prices are sometimes higher in certain preferred networks,” compared to traditional plans offering patients greater choice, and that, because enrolment in such plans has increased, “the impact of higher preferred network prices on the program as a whole is likely to become increasingly significant.”

Even prior to this analysis, Medicare asserted in in its April “call letter” for 2014 plans that the best way to encourage price competition and lower costs was to “allow any legitimate pharmacy provider that is willing to accept a health plan’s terms and conditions, including reimbursement, to participate in that plan’s network, whether it is a preferred network or a traditional one.”

Unfortunately, and contrary to that recommendation, many community pharmacies that are willing to accept all the terms and conditions, including reimbursements, of participating as a preferred pharmacy are refused an opportunity to do so by the PBMs administering the plans. Furthermore, by refusing to allow any willing provider to participate as preferred pharmacies, access issues are created, particularly in rural areas. People in these areas may need to drive half an hour or more out of their way to find a preferred chain pharmacy when independent community pharmacies may be more accessible.

In order to improve patient care in Medicare Part D, we must eliminate artificial incentives for patients to choose one pharmacy over the other. Medicare officials should provide for these changes in their anticipated imminent regulatory guidance to plans. Prescription plans should heed the advice of CMS and allow any willing pharmacy to participate as a preferred provider. In either case, patients deserve the benefits of a competitive marketplace and the ability to choose a pharmacy based on their needs and preferences.

Hoey is CEO of the National Community Pharmacists Association.