February 25, 2009
Four out of Ten Medicare Recipients Purchased a PDP
By Debra A. Donahue

More than four out of ten Medicare recipients (41%) in the United States purchased a stand-alone prescription drug plan (PDP) from one of the 77 organizations competing in this segment as of February 1, 2009. These 17.5 million seniors have benefited from Congress’ passage of the Medicare Part D prescription drug benefit since it became effective in January 2006. By stipulating that prescription drug plans be managed by the private-sector, Congress encouraged a dynamic competitive environment. The primary contest continues to be between PDP plans formed by health insurers and those formed by pharmacy benefit managers (PBMs).

PDP Market Panorama

Between February 1, 2008 and February 1, 2009 PDPs enrolled an additional 92,560 net new members. The seventy-seven organizations enrolled 17,502,534 members as of February 2009, a mere 0.5% increase over last year. However, this small increase shrouds the turmoil that occurred in the top plans during the year.

Eight of the companies competing in this space cover 79% of the market, with UnitedHealth leading the group. UnitedHealth’s AARP MedicareRx Preferred plan is the leading plan in the country covering 2.596 million people. Humana, the second largest PDP insurer, has lost more than 1.367 million members in the last two years. WellCare, Universal American and WellPoint also experienced membership declines and loss of market share as of February 2009. Two of WellPoint’s PDP plans are under suspension by the Centers for Medicare and Medicaid Services (CMS). CVS Caremark and Coventry Health Care are quickly gaining on the leading plans.

Coventry Health Care’s AdvantraRx and First Health Part D product lines combined grew by 631,053 members, with gains of more than 20,000 members in 11 states. Coventry’s existing markets in Missouri, California and Pennsylvania saw increases of 44,827; 40,018 and 32,241 respectively, between February 2008 and February 2009. Through modest increase in premiums, the company appears to have gained membership from plans with greater variability in prices, such as Humana.

While leading companies such as Coventry, CVS Caremark and United saw large increases, mid-sized players, such as Medco and Bravo (formerly Elder Health, Inc.), and small-market plans, such as Fox Rx, also reported sizeable gains. Fox Rx saw the largest percentage change among top growth plans in 2009. The New York-based company expanded during 2009 and offers Part D services in 18 states across the U.S. and is certified to offer employer group welfare plans (EGWP) in all 50 states. Fox Rx’s strategy, to focus on the smaller end of the EGWP niche, appears to be working. For example, the 3,000 retirees currently being served by Premier Consulting Associates, Inc. and all current and future Premier clients, were offered Fox Rx Care as of January 1, 2009.

The time-honored strategy of growth through acquisition is working for CVS Caremark. On August 12, 2008, CVS Caremark acquired Longs Drug Stores Corporation for a total purchase price of approximately $2.9 billion. Through the Longs acquisition, CVS Caremark acquired Longs’ 521 retail drugstores in California, Hawaii, Nevada and Arizona as well as its Rx America subsidiary, which offers prescription benefit management services to over 8 million members and prescription drug plan benefits to 437,400 Medicare beneficiaries as of February 2008. The acquisition, plus organic growth of 565,480 members between February 2008 and February 2009 by the combined companies, propelled CVS Caremark from the 7th largest PDP plan to 4th place.

PBM-based PDP Gains

Pharmacy and PBM-based companies, such as CVS Caremark, have many competencies that aid them in managing PDP products. These skills coupled with brand recognition have resulted in some impressive gains and an overall increase in market share from 8.4% in Feb 2008 to 12.6% in February 2009.

PDP Prospect

Insurance-based PDPs’ overall strategy is to move PDP members to Medicare Advantage plans while pharmacy-based PDPs’ underlying strategy is to drive business to their retail outlets. These diverse goals will result in PBM-based companies growing and non-PBMs continuing to shrink. Mark Farrah Associates believes the PDP market has reached capacity and will remain relatively stable, hovering at the 17.5 million member level. The outlook for the next year will be one of plan consolidations as the remaining organizations try to gain market advantage.

About this Data

This brief is based on an analysis of enrollment and premium data for prescription drug plans released by The Centers for Medicare and Medicaid Services (CMS). Enrollment, premium, product and even corrective and enforcement action data can be accessed through the CMS website or Mark Farrah Associates’ Medicare Business Online™ product. Mark Farrah Associates offers Medicare Business Online™ to make analysis of local markets, trends and competition easier. The database is updated monthly as soon as CMS releases new data to save organizations from having to aggregate and organize data themselves.

Medicare Business Online™

Medicare Business Online™ simplifies the tracking of Medicare Advantage and PDP growth and competition. Moderately priced at $750 for a company site license, Medicare Business Online™ provides our clients with timely, real value and up-to-date coverage within one convenient online portal.

About Mark Farrah Associates (MFA)

Since 1997, Mark Farrah Associates (MFA) has been recognized as a leader in analyzing health insurance business. Committed to simplifying analysis of health insurance business by providing market data and analysis tools, our products include Medicare Business Online™, the Health Coverage Portal™, Health Insurer Insights™, and Health Plans USA™.
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Debra A. Donahue is Vice President Market Analysis and Online Products for Mark Farrah Associates