Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

RETAIL PHARMACY 


PARTICIPATION IN MEDICARE 


PART D PRESCRIPTION DRUG 


PLANS IN 2006 


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. 
Δ EXECUTIVE SUMMAR 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. 

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EXE CUTIVE S U MMAR 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. 

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ii 
EXE CUTIVE S U MMAR 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. 

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iii 
Δ T ABLE OF CONTENTS 

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

INTR O D U C T I ON ........................................... 1

FINDI NGS ................................................. 8

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

Seventy percent offer beneficiaries a choice of all PDPs ......... 9

CON C L U SION ............................................ 11

 Agency Comments...................................... 11

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

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

B: Map of Metropolitan and Nonmetropolitan Counties ....... 14

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

D: Agency Comments................................... 19

ACKN O W LEDGMENTS .................................... 20
Δ INTRODU C TION 

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. § 1395w–101. 

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. 

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INTROD UCT ION 

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 Defense’s 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/KaiserGrowthofPrivatePlansinMedicare-255.pdf. Accessed December 7, 2006. 

6 42 U.S.C. § 1395w–104(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. § 1395w–104(b)(1)(C)(ii). 

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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. §1395w–103. 

12 42 U.S.C. § 1395w–103. 

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INTROD UCT ION 

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 CMS’s 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 PDP’s 

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 pharmacy’s 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. 

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INTROD UCT ION 

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 pharmacy’s 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. 

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INTROD UCT ION 

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 

Service’s 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 pharmacy’s urban influence code by 

matching its ZIP Code with the appropriate county using two files—one 

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). 

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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 President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

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Δ FINDINGS

Ninety-seven percent of retail 

pharmacies throughout the country 

Nearly all retail pharmacies participate in 

Medicare Part D 

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 

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F I NDING 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 

pharmacies offer beneficiaries the choice of all 

available prescription drug plans in their region 

Overall, the majority of 

participating retail pharmacies 

offer beneficiaries the choice of 

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. 

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F I NDING 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. 

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10 
Δ 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. 

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. 

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11 
Δ APPENDIX~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. 

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APP 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. 

TRICARE’s 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 TRICARE’s 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. 

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Table 4. Retail Pharmacies Defined as Urban, Rural, or Suburban by TRICARE 

in Each Urban Influence Code 

Urban Influence Code Defined as Urban 

by TRICARE 

Defined as Suburban 

by TRICARE 

Designated Rural by 

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. 
Δ APPENDIX~B 

MAP OF METROPOLITAN AND NONMETROPOLITAN 

COUNTIES 

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ΔAPP E N D I X ~ A 

 APPENDIX~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. 

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APP E N D I X ~ C 

Table 6. Independent and Chain Retail Pharmacy Participation by Urban Influence Codes 

Urban Influence Code 

Percentage of 

Independent Retail 

Pharmacies 

Participating in at 

Least One PDP 

Number of 

Independent Retail 

Pharmacies 

Percentage of 

Chain Retail 

Pharmacies 

Participating in at 

Least One PDP 

Number of 

Chain Retail 

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. 

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APP 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. 

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APP E N D I X ~ C 

Table 8. Beneficiary Choice in PDPs by Participating Pharmacy Type and Urban Influence Code 

Percentage of Retail 

Pharmacies That 

Participate in 100% of 

PDPs in Region 

Percentage of Retail 

Pharmacies That 

Participate in at Least 75% 

of PDPs in Region 

Percentage of Retail 

Pharmacies That Participate 

 in at Least 50% of PDPs 

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. 

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AGENCY COMMENTS 

Δ APPENDIX~D 
Δ ACKNOWLEDGMENTS 

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. 

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