With state and federal lawmakers talking about curtailing Medicaid spending as a way to scale back budget deficits, drug chains across the country could face yet another economic challenge, executives and industry advocates say.

Medicaid cuts, retail pharmacy, Medicaid, Medicaid spending, budget deficits, Greg Wasson, Walgreen, Medicaid beneficiaries, Richard Monks, prescription, pharmacies, reimbursement cutbacks, state programs, pharmacy advocates, cost of prescriptions, Medicaid programs, Kip Piper, Medicaid costs, dispensing fees, Medicaid reimbursement rates, generic drugs, drug chains, pharmacy operators, Community pharmacies, Medicaid system, National Association of Chain Drug Stores, Steve Anderson, National Community Pharmacists Association, Kathleen Jaeger, Centers for Medicare and Medicaid Services, CMS, Douglas Hoey, American Enterprise Institute

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Pharmacy faces threat of Medicaid cutbacks

April 11th, 2011

NEW YORK – With state and federal lawmakers talking about curtailing Medicaid spending as a way to scale back budget deficits, drug chains across the country could face yet another economic challenge, executives and industry advocates say.

“As states wrestle with budget difficulties and the need to reduce overall spending, we expect pressure to continue on Medicaid reimbursement,” Walgreen Co. president and chief executive officer Greg Wasson said during the company’s second quarter earnings conference call last month.

Currently Medicaid beneficiaries pay between $1 and $3 per prescription. In some cases, however, they are exempt and do not have to pay at all. Even in cases where Medicaid recipients cannot afford their co-payment, pharmacies are required to dispense the drug.
Many of the reimbursement cutbacks in state programs that have been discussed could change this, according to pharmacy advocates.

If reimbursements are lowered, they point out, pharmacies may no longer be able to cover the cost of prescriptions for which patients cannot contribute, and then drug retailers could be compelled to cease their participation in some Medicaid ­programs.

“States that are in a severe budget crisis don’t have the money to cover Medicaid costs,” Kip Piper, a senior consultant at the health care consulting firm Sellers Dorsey, recently told Fox Business News. “And looking down the road, in 2014 Medicaid nationally will have at least 25% more people ­enrolled.”

With state agencies setting the Medicaid rates, the program has reimbursed better historically in terms of dispensing fees than private insurance companies. However, with states tightening their budgets across the country, this may not continue to be the case, those in the industry note.

To combat the falling Medicaid reimbursement rates, pharmacies across the country are turning to lower-cost, higher-margin generic drugs.

Still, some analysts say they would not be surprised if drug chains threaten to drop out of Medicaid programs. When that has happened in the past, the states and the pharmacy operators have always been able to find a middle ground, and the pharmacies have ultimately remained in the programs.

But Sellers Dorsey’s Piper points out that with budgets being a primary concern in nearly every state, it is less likely that state governments will play ball this time.

“This is not unlike what has happened with physicians not taking Medicare or Medicaid patients because rates are low,” he told Fox Business News. “We have a general problem nationwide with respect to providers being increasingly reluctant to take government patients.”

For now, no chain drug store operators have any plans to pull out of Medicaid programs.

“We participate in all Medicaid plans, and right now our plan is to continue to work with states on ways to address their budget deficits,” a spokeswoman for Walgreens says.
Community pharmacies are a critical component of the nation’s Medicaid system, helping to ensure that America’s neediest citizens are able to receive adequate health care, those in the industry say.

“Local pharmacists can provide expert medication counseling and other cost-saving services that help mitigate the $290 billion that is estimated to be spent on an annual basis as a result of patients who do not adhere properly to their medication regimen,” Steve Anderson, president and chief executive officer of the National Association of Chain Drug Stores, and Kathleen Jaeger, then executive vice president and CEO of the National Community Pharmacists Association, stated in a recent letter to the Centers for Medicare and Medicaid Services.

CMS oversees the federal portion of the Medicaid program. “Every day, community pharmacies witness firsthand the struggles that patients face in order to pay for their medications as well as the financial burden states face in attempting to provide for the needs of their Medicaid beneficiaries,” Anderson and Jaeger explained in the letter. “Community pharmacies are ready and willing to work collaboratively with CMS, individual states and other payers to help reduce health costs.”

NCPA recently hailed a new report by the American Enterprise Institute (AEI) for Public Policy Research showing the savings that increased generic drug use can yield for Medicaid.

Released in late March, the AEI study found that in 2009 the Medicaid program overspent by more than 20% for 20 popular multisource drugs by reimbursing for more expensive brand-name prescription drugs instead of cheaper generic alternatives.

According to the report, among 20 popular multisource drugs, Medicaid overspent by an estimated $329 million in 2009 by reimbursing for more costly brand drugs rather than lower‐cost, therapeutically equivalent generics. Since total spending on the medications was about $1.5 billion, Medicaid overspent by 22% ($1.5 billion versus $1.17 billion) on those products. And among the 20 drugs studied, Medicaid wasted an average of $95 per prescription.

And last week, NCPA urged Texas policymakers seeking to control Medicaid costs to resist proposals to turn the state's Medicaid program over to pharmacy benefit managers and instead utilize community pharmacists to achieve savings and optimal health outcomes.

"Local, community pharmacists see firsthand both patients struggle to afford their medications and states grappling with significant budget deficits. And we're working to help," NCPA executive vice president and CEO Douglas Hoey stated. "Community pharmacists are leading the way to dispense lower-cost generic drugs, where appropriate for the patient, and we can work with state officials to further increase their use. In addition, pharmacists are trusted by their patients and can play a leading role to ensure proper medication use — an area estimated to have savings potential as high as $290 billion annually."