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[DewDiligence]

Medicaid Proposal Is Bitter Pill for Pharmacies

http://online.wsj.com/article/SB117504296706551164.html

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By AMY MERRICK and JANE ZHANG
March 28, 2007

John Mitchener, owner of Mitchener's Pharmacy in Edenton, N.C., is worried a new Medicaid reimbursement rule will force him to drop some of the customers who need him most -- a couple of truck drivers with diabetes, several people who can't read and a woman who always comes in near closing to avoid crowds because her multiple sclerosis has made her unsteady on her feet.

"These are real, live human beings," he says, referring to the 30% of his patients who get Medicaid. "I do not want to be put in the position where I have to say that I cannot fill your prescription anymore because the government pays so little."

Drugstores are fighting a proposal in the latest White House budget to slash reimbursements for generic drugs under the federal-state health program for the poor and disabled -- which they say would affect their ability to go on filling those prescriptions and ultimately force many small pharmacies to close their doors, hurting the neediest customers.

The government's proposal, mandated by the 2005 Deficit Reduction Act, is aimed at saving the joint federal-state Medicaid program $8.4 billion over five years. The savings would come mainly through changing how the government calculates reimbursement to pharmacies, including around 18,000 small pharmacies with $6.5 million or less in annual revenue. The federal Centers for Medicare and Medicaid Services, which administers Medicaid and put forth the proposal in December, is required by law to finalize the new rule on Medicaid reimbursements by July 1.

The plan already has sparked a firestorm in Washington. The agency has received more than 1,000 responses to the proposal. Many of them are objections from unusual allies: pharmacies, makers of generic drugs and pharmacy-benefit managers, whose interests often are at odds. Congress has jumped into the fray. Pharmacists question why they're being asked to bear those cuts -- which make up more than 90% of the proposed Medicaid cuts over the five-year period -- when pharmacy expenses are only 3% of the total Medicaid budget.

…The controversy over the new rule centers on the definition of an "average manufacturer price" used to calculate the reimbursements pharmacies receive for generic drugs. Under the new proposal, for the first time the reimbursement formula would include an average manufacturer price that takes into account mail-order prices and rebates to the big pharmacy-benefit managers, or PBMs, that administer drug benefits for large employers and health plans.

But retail and independent pharmacies, where most Medicaid beneficiaries buy their drugs, don't get those rebates and discounts.

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