Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

R P
ETAIL  HARMACY 

P M
ARTICIPATION IN  EDICARE 

P D P D
ART  RESCRIPTION  RUG 

P 2006 

LANS IN 
Daniel R. Levinson

Inspector General 

June 2007 

OEI-05-06-00320
 Office of Inspector General 

http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 
as amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud, waste, or 
abuse and promoting economy, efficiency, and effectiveness in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers.  The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. OCIG imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within HHS. 
OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.    E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
1.	 To determine the extent to which retail pharmacies participate in 
Medicare Part D stand-alone prescription drug plans (PDPs). 
2.	 To determine how many Medicare Part D stand-alone PDPs are 
offered by participating retail pharmacies. 
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) makes comprehensive prescription drug coverage under 
Medicare Part D available to all Medicare beneficiaries through   
stand-alone PDPs or Medicare Advantage plans.   
Under Part D, private sponsors contract with pharmacies to create 
pharmacy networks that provide Part D-covered drugs to beneficiaries 
enrolled in their plans. To ensure that pharmacy networks offer 
beneficiaries access to retail pharmacies, MMA required the Centers for 
Medicare & Medicaid Services (CMS) to establish retail pharmacy 
access standards. 
To provide beneficiaries with a choice of plans and sponsors, MMA 
requires at least two plans offered by different sponsors to be available 
in every region.  In 2006, 1,429 PDPs were available, with beneficiaries 
in 29 of the 34 PDP regions having a choice of at least 40 PDPs.  
Additionally, beneficiaries had a choice of at least 15 different plan 
sponsors in every region except Alaska (11) and Hawaii (12).   
To examine beneficiaries access to retail pharmacies dispensing   
Part D-covered drugs, we determined the extent to which retail 
pharmacies participate in PDPs.  To assess beneficiaries choice of 
plans, we determined the number of plans offered by retail pharmacies. 
To determine if characteristics of pharmacies, such as location or 
ownership, affect participation rates, we compared rates of participation 
between retail pharmacies in metropolitan and nonmetropolitan 
counties and between independent and chain retail pharmacies. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  i  E X E C U T I V E   S U M M A R Y

FINDINGS 
Nearly all retail pharmacies participate in Medicare Part D. 
Ninety-seven percent of retail pharmacies participate in at least one 
PDP.  Moreover, most nonparticipating retail pharmacies are located 
within 5 miles of a participating retail pharmacy.   
Retail pharmacies in metropolitan and nonmetropolitan counties 
participate at similarly high rates. However, there are approximately 
four times as many retail pharmacies in metropolitan counties as in 
nonmetropolitan counties.  In areas where fewer retail pharmacies are 
located, beneficiary access to retail pharmacies that dispense   
Part D-covered drugs will also be more limited.  
Seventy percent of participating retail pharmacies offer beneficiaries 
the choice of all available PDPs in their region.  The majority of 
participating retail pharmacies offer beneficiaries the choice of every 
PDP available in their region.  Retail pharmacies in metropolitan and 
nonmetropolitan counties offer beneficiaries the choice of all available 
PDPs at similarly high rates. 
Fewer independent retail pharmacies offer beneficiaries the choice of all 
PDPs available in their region compared to chain pharmacies. 
Forty-four percent of independent retail pharmacies offer beneficiaries 
the choice of every PDP available in their region compared to 84 percent 
of chain retail pharmacies.  However, most independent and chain retail 
pharmacies offer beneficiaries the choice of at least half of the available 
PDPs. 
CONCLUSION 
Our findings indicate that beneficiaries access to retail pharmacies that 
dispense Part D-covered drugs does not appear to be limited by retail 
pharmacies participation in PDPs.  Nearly all retail pharmacies 
participate in at least one PDP and 70 percent of participating retail 
pharmacies offer beneficiaries the choice of all available PDPs in their 
region.  Further, 97 percent of participating retail pharmacies offer 
beneficiaries the choice of at least half of available PDPs.  Although 
having fewer retail pharmacies located in an area may limit beneficiary 
access to retail pharmacies, our findings suggest that Part D does not 
further limit beneficiary access. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
ii  E X E C U T I V E   S U M M A R Y

AGENCY COMMENTS 
CMS stated that it was pleased with our findings that beneficiary access 
to retail pharmacies dispensing Part D-covered drugs does not appear to 
be limited by retail pharmacies participation in PDP networks.  
Additionally, CMS reiterated its commitment to ensuring that Part D 
beneficiaries have access to retail pharmacies.  
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
iii    T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Nearly all retail pharmacies participate  . . . . . . . . . . . . . . . . . . . . .  8

Seventy percentoffer beneficiaries a choiceof all PDPs. . . . . . . . .  9

CONC LUSION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

A:  TRICARE Classifications and Urban Influence Codes  . . . . . .  12

B:  Map ofMetropolitan and NonmetropolitanCounties  . . . . . . .  14

C:  Analyses by Urban Influence Codes. . . . . . . . . . . . . . . . . . . . .  15

D:  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
   I N T R O D U C T I O N  

OBJECTIVE 
1.	 To determine the extent to which retail pharmacies participate in 
Medicare Part D stand-alone prescription drug plans (PDPs). 
2.	 To determine how many Medicare Part D stand-alone PDPs are 
offered by participating retail pharmacies. 
BACKGROUND 
The Medicare Prescription Drug Benefit 
Effective January 1, 2006, the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) made 
comprehensive prescription drug coverage under Medicare Part D 
available to all 43 million Medicare beneficiaries.1  Beneficiaries 
generally have the option to enroll either in a stand-alone PDP and 
receive all other benefits through traditional Medicare fee-for-service, or 
in a Medicare Advantage plan (MA plan) and receive all Medicare 
benefits (including drug coverage) through managed care.2 In June 
2006, the Centers for Medicare & Medicaid Services (CMS) reported 
that 16 million beneficiaries were enrolled in a PDP and an additional   
6 million were enrolled in an MA plan.3 
To provide Part D drug coverage, private sponsors contract with CMS to 
offer plans in one or more of the PDP or MA plan regions.  CMS has 
designated 34 PDP regions and 26 MA plan regions.4  Each region 
covers one State at a minimum, and some regions cover multiple States. 
Within each region, sponsors may compete for beneficiary enrollment by 
offering several plans with a variety of features.  Features may include 
different premiums, cost sharing, formularies, and pharmacy networks. 
In 2006, 1,429 PDPs were available nationwide, ranging from 27 to 
1  Pub. L. No. 108-173. 
2  42 U.S.C.  1395w101. 
3  News Release, Department of Health and Human Services, Over 38 Million 
People With Medicare Now Receiving Prescription Drug Coverage 
(June 14, 2006).  Available online at 
http://www.hhs.gov/news/press/2006pres/20060614.html. Accessed   
December 21, 2006. 
4  News Release, Department of Health and Human Services, HHS Announces 
Regions To Administer New Medicare Prescription Drug Benefit and 
Medicare Advantage Program (December 6, 2004).  Available online at 
http://www.hhs.gov/news/press/2004pres/20041206.html. Accessed  
December 21, 2006. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  1  I N T R O D U C T I O N  
52 PDPs per region.  In 29 of the 34 regions, beneficiaries had a choice 
of at least 40 PDPs.  In addition, beneficiaries had a choice of at least  
15 different sponsors in every region except Alaska (11) and     
Hawaii (12).5 
Although sponsors are allowed broad discretion to deliver drug coverage 
under Medicare Part D, the MMA established standards regarding 
certain program features, such as retail pharmacy access and choice of 
plans and sponsors.  
Retail Pharmacy Access Standards 
To provide Part D drug coverage, sponsors contract with pharmacies to 
create pharmacy networks that provide Part D-covered drugs to 
beneficiaries enrolled in their plans.  A sponsor must offer its standard 
contract to any pharmacy that is willing to participate in its pharmacy 
network.6  Sponsors may contract with many different types of 
pharmacies, such as retail, institutional, or mail-order pharmacies.   
To ensure that pharmacy networks offer beneficiaries access to retail 
pharmacies7 (as opposed to institutional or mail-order pharmacies) that 
dispense Medicare Part D-covered drugs, Federal law required CMS to 
establish retail pharmacy access standards based on the standards used 
by the Department of Defenses TRICARE Retail Pharmacy program, 
the health care plan for military personnel and their families.8 
5  Kaiser Family Foundation, The Growth of Private Plans in Medicare, 2006. 
Available online at http://www.allhealth.org/briefingmaterials/Kaiser-
GrowthofPrivatePlansinMedicare-255.pdf. Accessed December 7, 2006.  
6  42 U.S.C.  1395w104(b)(1)(a). 
7  As defined in the final regulation [42 CFR  423.100], a retail pharmacy is 
any licensed pharmacy that is not a mail order pharmacy from which Part D 
enrollees could purchase a covered Part D drug without being required to 
receive medical services from a provider or institution affiliated with that 
pharmacy. 
8  42 U.S.C.  1395w104(b)(1)(C)(ii). 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  2  I N T R O D U C T I O N

As such, CMS established retail pharmacy access standards9 requiring 
each plan to have pharmacy networks with a sufficient number of retail 
pharmacies to meet the following criteria at the State level: 
	 At least 90 percent of Medicare beneficiaries, on average, in urban 
areas live within 2 miles of a network retail pharmacy; 
	 At least 90 percent of Medicare beneficiaries, on average, in 
suburban areas live within 5 miles of a network retail pharmacy; 
and 
	 At least 70 percent of Medicare beneficiaries, on average, in rural 
areas live within 15 miles of a network retail pharmacy.10 
Every year, CMS reviews PDPs compliance with the retail pharmacy 
access standards to ensure that beneficiaries maintain access to retail 
pharmacies that dispense Part D-covered drugs. 
Guaranteed Choice of Plans and Sponsors 
To ensure that Medicare beneficiaries have a choice of plans and 
sponsors, Federal law requires that at least two plans offered by 
different sponsors be available in every region, and at least one of those 
plans must be a PDP.11 
Federal law requires the creation of a fallback plan whenever two 
plans from different sponsors are not available in a region.12  Given that 
beneficiaries had a choice of between 27 and 52 PDPs in 2006, fallback 
plans were unnecessary. 
Related Office of Inspector General Work 
In addition to conducting this study, the Office of Inspector General 
(OIG) is conducting work that will compare reimbursements to 
independent and franchise retail pharmacies with the prices they pay 
for drugs, including dispensing fees.  Additionally, OIG will explore 
9  To meet the access standards, plans may contract with certain nonretail 
pharmacies, including pharmacies operated by the Indian Health Service, 
Indian tribes, and urban Indian Organizations (I/T/U);, Federally Qualified 
Health Centers (FQHC); and Rural Health Centers (RHC).   
42 CFR  423.120(a)(2).  However, CMS stated its intent to review Part D 
plans proposed pharmacy networks to ensure that their inclusion of I/T/U, 
FQHC, and RHC pharmacies does not substitute for the inclusion in Part D 
plan networks of retail pharmacies.  Medicare Prescription Drug Benefit,     
70 Fed. Reg., 4194, 4249 (January 28, 2005). 
10  42 CFR  423.120(a), 42 CFR  423.100. 

11  42 U.S.C. 1395w103. 

12  42 U.S.C.  1395w103. 

OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  3  I N T R O D U C T I O N  
contracting provisions of PDPs that include independent and franchise 
retail pharmacies in their networks.   
METHODOLOGY 
Scope 
This study assessed pharmacy participation in PDPs available in 2006.  
We limited our analysis to pharmacies identified as retail.  We did not 
include types of pharmacies that serve specific populations and are not 
generally open to the public.13  We did not assess retail pharmacy 
participation in MA plans.  Additionally, we did not verify whether the 
PDPs met CMSs retail pharmacy access standards.   
Data Collection 
We obtained a comprehensive list of all State-licensed pharmacies 
located within the 50 States or the District of Columbia as of    
October 2, 2006, from the National Council for Prescription Drug 
Programs (NCPDP).  The list included pharmacies unique NCPDP 
pharmacy numbers and other descriptive information used to identify 
retail pharmacies and classify pharmacies as independent or chain.   
For a list of all retail pharmacies that participate in each PDPs 
pharmacy network, we obtained the October 2006 Pharmacy Cost file 
from CMS.  Sponsors may supply an updated list of network pharmacies 
as frequently as every 2 weeks.  In the Pharmacy Cost file, network 
pharmacies are identified by their unique NCPDP pharmacy numbers. 
Because of pharmacies opening and closing and the time lag associated 
with reporting these events, there is some potential for pharmacies to be 
on one list and not the other.  To limit this potential difference, we used 
files from the same time period, October 2006. 
Data Analysis 
Using each pharmacys unique NCPDP pharmacy number, we matched 
retail pharmacies listed on the Pharmacy Cost file to the appropriate 
address and descriptive information supplied in the NCPDP file.   
NCPDP categorizes pharmacies by type, such as retail, institutional, or 
mail-order. We limited our analysis to pharmacies identified as retail.  
Of the 73,398 pharmacies included in the NCPDP file, 58,768 were 
classified as retail. 
13 Excluded pharmacies include I/T/U, FQHC, and RHC pharmacies. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  4  I N T R O D U C T I O N  
NCPDP data also indicate whether the pharmacy is independent, chain, 
or franchise.14  For our analysis of pharmacy participation rates of 
independent and chain pharmacies, we grouped franchise pharmacies 
with independent pharmacies because franchise pharmacies are 
independently owned. Of the 58,768 retail pharmacies, 21,727 were 
classified as independent or franchise (hereafter referred to as 
independent) and 37,041 were classified as chain. 
Retail Pharmacy Participation in PDPs.  To examine beneficiaries access to 
retail pharmacies dispensing Part D-covered drugs, we determined the 
extent to which retail pharmacies participate in PDPs. To accomplish 
this, we calculated the percentage of retail pharmacies participating in 
at least one PDP. 
To determine the impact of nonparticipation of retail pharmacies on 
beneficiary access, we compared the location of retail pharmacies not 
participating to the location of participating retail pharmacies. Each 
retail pharmacys address, as listed in the NCPDP file, was geocoded 
using the Geographic Information System ArcGIS 9.1 software.15 
We improved our geocoding by replacing post office box addresses with 
actual street addresses, when possible.  For those addresses that could 
not be geocoded based on the actual street address, we geocoded based 
on ZIP Code.16  Of the 58,768 retail pharmacies, 77 percent were 
geocoded at the address level and 23 percent were geocoded at the ZIP 
Code level. Six retail pharmacies could not be geocoded. 
For our analysis of the distance between participating and     
nonparticipating retail pharmacies, we determined the number of 
nonparticipating retail pharmacies farther than 5 miles from a 
participating retail pharmacy.  First, we determined the number of  
nonparticipating retail pharmacies geocoded at the street level that 
14 As defined by NCPDP, an independent pharmacy is part of a group of fewer 
than three pharmacies under common ownership.  A chain pharmacy is part 
of a group of four or more pharmacies under common ownership.  A franchise 
pharmacy is independently owned but has a franchise agreement with 
another company to receive marketing, training, and/or other support.  
15 Geocoding is the process of assigning geographic coordinates (i.e., latitude 
and longitude) to an address.  The more specific the address information used 
to geocode (i.e., the entire street address versus only the ZIP Code), the more 
accurate the geographic coordinates. 
16  We used population-weighted ZIP Code centroids from Great Data to 
geocode at the ZIP Code level.  A population-weighted ZIP Code centroid is 
the center of the ZIP Code, taking into account population densities within 
the ZIP Code. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  5  I N T R O D
 U C T I O N  
were farther than 5 miles from a participating retail pharmacy geocoded 
at the street level.  Second, to be conservative, we counted 
nonparticipating retail pharmacies geocoded at the ZIP Code level as 
farther than 5 miles from a participating retail pharmacy because we 
were unable to precisely geocode their location. As a result, we may 
have overestimated the number of nonparticipating retail pharmacies 
farther than 5 miles from a participating retail pharmacy, given that  
70 percent of nonparticipating retail pharmacies geocoded at the ZIP 
Code level are located in metropolitan counties. 
To determine whether there are differences between rural and urban 
beneficiaries access to participating retail pharmacies, we compared 
retail pharmacy participation rates using the Economic Research 
Services urban influence codes.  An urban influence code is a 12-level 
county classification scheme, divided into metropolitan and 
nonmetropolitan counties, that captures differences in population size, 
urbanization, and access to larger communities. 
Although CMS uses TRICARE classifications of rural, suburban, and 
urban for Part D, as required by law, some commenters on the relevant 
proposed rule contended that the TRICARE classifications are broad 
and define as rural a number of beneficiaries who actually are not.17 In 
comparison, urban influence codes provide a narrower definition of 
rural, capture greater variation in rural areas, and are commonly used 
by rural health researchers.  For a comparison between retail 
pharmacies TRICARE classifications and urban influence codes, see 
Appendix A. 
We determined each retail pharmacys urban influence code by 
matching its ZIP Code with the appropriate county using two filesone 
supplied by CMS and the other purchased from Great Data, a    
third-party vendor of ZIP Code data.  We were unable to determine the 
county for four retail pharmacies. 
For ease of reading, we present our analyses by metropolitan and 
nonmetropolitan counties in the body of the report.  For a map of 
metropolitan and nonmetropolitan counties, see Appendix B. For 
greater detail, we also provide each analysis by all 12 urban influence 
codes in Appendix C.  
17  Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194, 4247-4248    
(January 28, 2005). 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  6  I N T R O D U C T I O N  
To determine whether beneficiary access to retail pharmacies 
participating in a PDP is potentially limited because of a lack of 
participation by independent pharmacies, we compared rates of 
participation between independent and chain pharmacies.  
Number of PDPs offered by retail pharmacies. To assess beneficiaries choice 
of plans, we determined the number of PDPs offered by retail pharmacies.  
As with participation rates, we also analyzed the data by urban influence 
codes and independent/chain classifications. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  7    F I N D I N G S

Nearly all retail pharmacies participate in  Ninety-seven percent of retail 
Medicare Part D  pharmacies throughout the country 
participate in at least one PDP.  Of 
the 58,768 retail pharmacies in the United States, only 1,478 do not 
participate in any PDP. The high rate of retail pharmacy participation 
suggests that beneficiaries access to retail pharmacies that dispense 
Part D-covered drugs is not limited by Part D. 
Moreover, most nonparticipating retail pharmacies are located near a 
participating retail pharmacy.  Of the 1,478 retail pharmacies that do 
not participate in a PDP, fewer than one-third are farther than 5 miles 
from a participating retail pharmacy.  Furthermore, 80 percent of  
nonparticipating pharmacies are located in metropolitan counties. 
Table 1, below, provides a summary of retail pharmacy participation 
rates by pharmacy type and county classification.  
Table 1. Retail Pharmacy Participation Rates by Pharmacy Type and County Classification 
Overall Percentage of  Percentage of Independent  Percentage of Chain 
Retail Pharmacies  Retail Pharmacies  Retail Pharmacies 
County Classification  Participating in a PDP  Participating in a PDP  Participating in a PDP 
Metropolitan  98%  94%  99% 
Nonmetropolitan   97%  96%  100% 
   Overall Total  97%  94%  99% 
Source:  OIG analysis of retail pharmacy participation in PDPs, 2006. 
Retail pharmacies in metropolitan and nonmetropolitan counties participate 
at similarly high rates   
Almost all retail pharmacies participate in a PDP, regardless of whether 
they are located in metropolitan or nonmetropolitan counties.  
Ninety-seven percent of retail pharmacies in nonmetropolitan counties 
and 98 percent of retail pharmacies in metropolitan counties participate 
in a PDP.  Additionally, even pharmacies in the most rural areas, when 
broken out by urban influence codes, have high rates of participation.  
Table 5 in Appendix C presents a detailed analysis of retail pharmacy 
participation rates by urban influence codes. 
Even though retail pharmacy participation rates are similar, there are 
approximately four times as many retail pharmacies in metropolitan 
counties as in nonmetropolitan counties. Additionally, 150 of 
2,052 nonmetropolitan counties do not have any retail pharmacies.  In 
areas where fewer retail pharmacies are located, beneficiary access to 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  8  F I N D I N G S  
retail pharmacies dispensing Part D-covered drugs will also be more 
limited. 
Almost all independent and chain retail pharmacies in metropolitan and   
nonmetropolitan counties participate 
Overall, independent and chain retail pharmacies participate at 
similarly high rates:  94 percent of independent retail pharmacies and  
99 percent of chain retail pharmacies participate in a PDP. 
Regardless of whether they are located in metropolitan or 
nonmetropolitan counties, independent and chain retail pharmacies 
participate at high rates.  Ninety-six percent of independent retail 
pharmacies and 100 percent of chain retail pharmacies in 
nonmetropolitan counties participate in a PDP.  Similarly, independent 
and chain retail pharmacies in metropolitan counties have high rates of 
participation.  Table 6 in Appendix C presents a detailed analysis of 
independent and chain retail pharmacy participation rates by urban 
influence codes. 
Seventy percent of participating retail  Overall, the majority of 
pharmacies offer beneficiaries the choice of all  participating retail pharmacies 
offer beneficiaries the choice of 
available prescription drug plans in their region 
every PDP available in their 
region.  In addition, 97 percent of 
participating retail pharmacies overall offer beneficiaries the choice of 
at least half of the PDPs available in their region.  With 40 or more 
PDPs available in most regions, the majority of participating retail 
pharmacies offer beneficiaries the choice of a significant number of 
PDPs. 
Table 2, below, provides a summary of beneficiary choice in PDPs 
overall and by participating pharmacy type and county classification. 
Table 2. Beneficiary Choice in PDPs by Participating Pharmacy Type and County 
Classification 
Percentage of Retail Pharmacies That  Percentage of Retail Pharmacies That 
Participate in 100% of PDPs in Region  Participate in 50% of PDPs in Region 
County Classification  Overall  Independent  Chain  Overall  Independent  Chain 
Metropolitan  70%  41%  83%  97%  93%  99% 
Nonmetropolitan  67%  49%  88%  97%  94%  100% 
   Overall Total  70%  44%  84%  97%  93%  99% 
Source:  OIG analysis of retail pharmacy participation in PDPs, 2006. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS  9  F I N D I N G
 S  
Retail pharmacies in metropolitan and nonmetropolitan counties offer 
beneficiaries the choice of all available PDPs at similarly high rates 
The majority of participating retail pharmacies, regardless of whether 
they are located in metropolitan or nonmetropolitan counties, offer 
beneficiaries the choice of all available PDPs.  Seventy percent of 
participating retail pharmacies in metropolitan counties and 67 percent 
of participating retail pharmacies in nonmetropolitan counties offer 
beneficiaries the choice of every PDP available in their region.   
Moreover, almost all participating retail pharmacies, regardless of 
whether they are located in metropolitan or nonmetropolitan counties, 
offer beneficiaries the choice of at least half of available PDPs.  
Ninety-seven percent of participating retail pharmacies in both 
metropolitan and nonmetropolitan counties offer beneficiaries the choice 
of at least half of the PDPs available in their region. Additionally, 
90 percent of participating retail pharmacies in the most rural areas, 
when broken out by urban influence codes, offer beneficiaries the choice 
of at least half of available PDPs.  Table 7 in Appendix C presents a 
detailed analysis of beneficiary choice in PDPs by urban influence codes. 
Fewer independent retail pharmacies participate in every PDP available 
compared to chain retail pharmacies 
Forty-four percent of participating independent retail pharmacies offer 
beneficiaries the choice of every PDP available in their region, compared 
to 84 percent of participating chain retail pharmacies.  This is similar to 
the ratio of independent to chain retail pharmacy participation rates 
broken out by metropolitan and nonmetropolitan counties. 
However, 93 percent of participating independent retail pharmacies and 
99 percent of participating chain retail pharmacies offer beneficiaries 
the choice of at least half of the PDPs available.  Given that between 
27 and 52 PDPs are available in each region, the vast majority of 
participating independent and chain retail pharmacies offer 
beneficiaries, at a minimum, a choice of between 14 to 26 PDPs, 
depending on the region.  Table 8 in Appendix C presents a detailed 
analysis of beneficiary choice in PDPs by participating pharmacy type 
and urban influence codes. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
10    C O N C L U S I O N  

Our findings indicate that beneficiaries access to retail pharmacies that 
dispense Part D-covered drugs does not appear to be limited by retail 
pharmacies participation in PDPs.  Nearly all retail pharmacies 
participate in at least one PDP, and 70 percent of participating retail 
pharmacies offer beneficiaries the choice of all available PDPs in their 
region.  Further, 97 percent of participating retail pharmacies offer 
beneficiaries the choice of at least half of available PDPs.  Although 
having fewer retail pharmacies located in an area may limit beneficiary 
access to retail pharmacies, our findings suggest that Part D does not 
further limit beneficiary access. 
Additionally, although independent and chain retail pharmacies have 
high rates of participation and offer beneficiaries a choice of plans, our 
analysis shows that a lower proportion of independent retail pharmacies 
offer beneficiaries the choice of all available plans.  OIG is conducting 
additional work to further explore the interaction between independent 
retail pharmacies and the Part D prescription drug program. 
AGENCY COMMENTS 
CMS stated that it was pleased with our findings that beneficiary access 
to retail pharmacies dispensing Part D-covered drugs does not appear to 
be limited by retail pharmacies participation in PDP networks.  CMS 
also stated that it was pleased that the findings do not demonstrate 
significant differences in participation rates in metropolitan versus 
nonmetropolitan counties or between chain and independent 
pharmacies.  Additionally, CMS reiterated its commitment to ensuring 
that Part D beneficiaries have access to retail pharmacies.  The full text 
of CMS comments is in Appendix D. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
11    A P P E N D I X ~ A  

COMPARISON OF RETAIL PHARMACIES TRICARE 
CLASSIFICATIONS AND URBAN INFLUENCE CODES 
TRICARE classifications and urban influence codes are both used to 
classify areas as urban or rural. According to TRICARE, an urban area 
is defined as any ZIP Code with more than 3,000 persons per square 
mile.  A suburban area is defined as any ZIP Code with between 
1,000 and 3,000 persons per square mile. A rural area is defined as any 
ZIP Code with fewer than 1,000 persons per square mile. 
In contrast, urban influence codes are a 12-level county classification 
system that broadly classifies counties as metropolitan or   
nonmetropolitan.  Metropolitan counties are further divided into two 
groups by the size of the metropolitan area.  Nonmetropolitan counties 
are divided into 10 groups by the size of the largest town and proximity 
to metropolitan counties.  This allows for a more sophisticated 
classification of different types of rural experiences. 
Table 3 provides the county description, number of counties, and 
population per square mile for each urban influence code.  Urban 
influence codes are presented in order from most urban (1) to most  
rural (12). 
Table 3. Urban Influence Codes  
Urban 
    Influence   Number of  Population per 
Code  County Description  Counties  Square Mile 
Metropolitan Counties: 
1  Large metropolitan (Large metro)  414  558 
2  Small metropolitan (Small metro)  676  132.4 
   Total  1,089 
Nonmetropolitan Counties: 
3  Micropolitan (micro) adjacent to large metro  92  54.7 
4  Noncore adjacent to large metro  123  26.8 
5  Micro adjacent to small metro  301  51.4 
6  Noncore adjacent to small metro with town  358  23.5 
7  Noncore adjacent to small metro with no town  185  5.6 
8  Micro not adjacent to metro area  282  27 
9  Noncore adjacent to micro with own town  201  16.7 
10  Noncore adjacent to micro with no own town  198  6.7 
11  Noncore not adjacent to metro or micro with town  138  4.6 
12  Noncore not adjacent to metro or micro with no town  174  3.5 
   Total  2,052 
Source:  U.S. Department of Agriculture, Economic Research Service, 2003. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D P RESCRIPTION DRUG PLANS 
12  A P P E N D I X   ~   A  
We compared retail pharmacies TRICARE classifications and urban 
influence codes. To classify pharmacies according to TRICARE 
standards, we used a file obtained from the Centers for 
Medicare & Medicaid Services (CMS) to classify each pharmacy based 
on its ZIP Code.  We could not obtain the TRICARE classifications for 
77 pharmacies. 
TRICAREs classifications of urban and suburban match the urban 
influence code of metropolitan. Overall, almost all retail pharmacies 
classified as urban or suburban by TRICARE are also classified as 
metropolitan using urban influence codes.
 However, classifying retail pharmacies as nonmetropolitan using urban 
influence codes applies stricter criteria than classifying pharmacies as 
rural using TRICARE standards.  Because of TRICAREs broad 
definition of rural, more retail pharmacies are classified as rural under 
TRICARE than are classified as nonmetropolitan by urban influence 
code. In fact, of the 27,216 retail pharmacies classified as rural by 
TRICARE, 15,686 are classified as metropolitan by urban influence 
code.  Therefore, by using urban influence codes, we were able to more 
accurately target rural areas for our analyses. Table 4 gives the 
number of retail pharmacies defined as urban, suburban, or rural by 
TRICARE in each urban influence code. 
Table 4. Retail Pharmacies Defined as Urban, Rural, or Suburban by TRICARE  
in Each Urban Influence Code 
Defined as Urban  Defined as Suburban  Designated Rural by 
Urban Influence Code 
by TRICARE  by TRICARE  TRICARE 
Metropolitan Counties: 
1  16,772  7,157  5,902 
2  2,535  4,865  9,784 
   Total  19,307  12,022  15,686 
Nonmetropolitan Counties: 
3  0  20  1,077 
4  0  1  547 
5  5  56  3,200 
6  0  3  1,955 
7  0  0  431 
8  20  38  2,111 
9  1  2  865 
10  0  0  382 
11  0  0  665 
12  0  0  297 
   Total  26  120  11,530 
   Overall Total  19,333  12,142  27,216 
Source:  OIG analysis of retail pharmacies, 2006. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
13    A P P E N D I X ~ B  

MAP OF METROPOLITAN AND NONMETROPOLITAN 
COUNTIES 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
14  A P P E N D I X   ~   A  
  A P P E N D I X ~ C  

ANALYSES BY URBAN INFLUENCE CODE 
The following tables provide the analyses presented in the report broken 
down by urban influence codes. 
Urban influence codes are presented in order from most urban (1) to 
most rural (12).  
Table 5. Retail Pharmacy Participation Rates by Urban Influence Codes 
Percentage of Retail  Pharmacies 
Participating in at Least One  Total Number of 
Urban Influence Code  Prescription Drug Plan (PDP)  Retail Pharmacies 
Metropolitan Counties: 
1  97%  29,868 
2  98%  17,211 
   Total  98%  47,079 
Nonmetropolitan Counties: 
3  98%  1,099 
4  98%  548 
5  98%  3,265 
6  98%  1,959 
7  96%  431 
8  96%  2,169 
9  98%  869 
10  97%  382 
11  99%  666 
12  97%  297 
   Total  97%  11,685 
   Overall Total  97%  58,768 
Source:  Office of Inspector General analysis of retail pharmacy participation in PDPs, 2006. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
15  A P P E N D I X   ~   C  

Table 6. Independent and Chain Retail Pharmacy Participation by Urban Influence Codes 
Percentage of  Percentage of 
Independent Retail  Chain Retail 
Pharmacies  Number of  Pharmacies  Number of 
Participating in at  Independent Retail   Participating in at  Chain Retail 
Urban Influence Code  Least One PDP  Pharmacies  Least One PDP  Pharmacies 
Metropolitan Counties: 
1  94%  9,612  99%  20,256 
2  94%  5,733  99%  11,478 
   Total  93%  15,345  99%  31,734 
Nonmetropolitan Counties: 
3  95%  439  100%  660 
4  97%  328  100%  220 
5  96%  1,521  99%  1,744 
6  96%  1,173  100%  786 
7  95%  324  100%  107 
8  93%  1,104  99%  1,065 
9  96%  556  100%  313 
10  97%  322  100%  60 
11  97%  385  100%  281 
12  97%  229  100%  68 
   Total  96%  6,381  100%  5,304 
   Overall Total  94%  21,727  99%  37,041 
Source:  Office of Inspector General analysis of retail pharmacy participation in PDPs, 2006. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
16  A P P E N D I X   ~   C  

Table 7. Beneficiary Choice in PDPs by Urban Influence Codes 
Percentage of Retail  Percentage of Retail  Percentage of Retail 
Pharmacies That  Pharmacies That  Pharmacies That 
Participate in 100% of  Participate in at Least 75%  Participate in at Least 
Urban Influence Code  PDPs in Region  of PDPs in Region  50% of PDPs in Region 
Metropolitan Counties: 
1  69%  95%  97% 
2  71%  95%  97% 
      Total  70%  95%  97% 
Nonmetropolitan Counties: 
3  75%  97%  99% 
4  68%  93%  98% 
5  71%  94%  97% 
6  65%  92%  97% 
7  58%  89%  97% 
8  69%  92%  96% 
9  65%  93%  97% 
10  49%  86%  92% 
11  64%  91%  95% 
12  45%  79%  92% 
   Total  67%  93%  97%
   Overall Total  70%  94%  97% 
Source:  Office of Inspector General analysis of retail pharmacy participation in PDPs, 2006. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
17  A P P E N D I X   ~   C  

Table 8. Beneficiary Choice in PDPs by Participating Pharmacy Type and Urban Influence Code 
Percentage of Retail  Percentage of Retail  Percentage of Retail 
Pharmacies That  Pharmacies That  Pharmacies That Participate 
Participate in 100% of  Participate in at Least 75%   in at Least 50% of PDPs  
PDPs in Region  of PDPs in Region  in Region 
Urban Influence Code  Independent  Chain  Independent  Chain  Independent  Chain 
Metropolitan Counties: 
1  40%  83%  85%  99%  93%  99% 
2  44%  84%  86%  99%  93%  99% 
   Total  41%  83%  86%  99%  93%  99% 
Nonmetropolitan Counties: 
3  54%  88%  92%  100%  97%  100% 
4  52%  91%  87%  100%  97%  100% 
5  49%  89%  89%  99%  95%  100% 
6  48%  90%  87%  99%  95%  100% 
7  47%  87%  87%  97%  96%  100% 
8  52%  86%  85%  99%  92%  100% 
9  50%  90%  90%  98%  96%  98% 
10  41%  87%  83%  100%  91%  100% 
11  46%  89%  87%  97%  91%  100% 
12  32%  88%  73%  99%  90%  99% 
   Total  49%  88%  87%  99%  94%  100%
   Overall Total  44%  84%  86%  99%  93%  99% 
Source:  Office of Inspector General analysis of retail pharmacy participation in PDPs, 2006. 
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
18   
   
 A P P E N D I X ~ D  
AGENCY COMMENTS 
 
                       
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS
19    A C K N O W L E D G M E N T S  

This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago 
regional office, and Thomas Komaniecki, Deputy Regional Inspector 
General. 
This report was led by Suzanne Bailey.  Other principal Office of 
Evaluation and Inspections staff from the Chicago regional office who 
contributed include Melissa Hafner and Mollie Hertel.  Other principal 
central office staff who contributed include Linda Boone Abbott, Kevin 
Farber, and David Graf.   
OEI-05-06-00320  RETAIL PHARMACY PARTICIPATION IN MEDICARE PART D PRESCRIPTION DRUG PLANS 
20