Medicaid Drug Rule Hits Pharmacies Where It Hurts; NCPA Says Thousands Could Close

WASHINGTON–Calling it ‘an absolute travesty,’ the National
Community Pharmacy Association said that CMS’ final rule on
Medicaid drug payments could cause thousands of pharmacies to close
their doors.

Issued July 6 under the Deficit Reduction Act, the rule would
reduce Medicaid reimbursements for generic prescription drugs,
which represent an average 23 percent of business for the typical
community pharmacy, according to Charles Sewell, NCPA’s senior vice
president, government affairs.

Sewell said Medicaid’s new payment formula, based on average
manufacturer price, will cause pharmacies to be paid well below
their acquisition cost for the drugs. He pointed to a study by the
Government Accountability Office last year that said the rule would
pay pharmacies an average 36 percent less than their acquisition
cost.

“We’re being asked to lose money on almost every generic we
dispense,” Sewell said in a phone conference on Wednesday.

He estimated that 2,300 NCPA members would have to close their
doors in early 2008 because of the rule, which will take effect
Jan. 30, and said it will be difficult for thousands more to remain
in business if they are heavily reliant on Medicaid revenues. For
10 percent of community pharmacies, he said, Medicaid represents 50
percent of their business.

“What this means for the patient is that we are just not going
to be there,” Sewell continued. “And if we’re not there, the costs
are going to go up considerably because these poor patients are
going to be left with one choice for their health care needs, which
is usually heading toward the emergency room.”

According to NCPA, the majority of community pharmacies are
located in rural or underserved areas where much of the Medicaid
population resides.

To make matters worse, Sewell said, because pharmacies will lose
money dispensing generics, CMS’ new rule has “created a perverse
incentive to dispense brand, and that’s certainly not in the
taxpayer’s best interest.” Sewell said that in Medicaid–which has
“one of the worst generic rates out there”–a brand average price
is $155 versus $21 for the average generic.

In a press release accompanying the rule, CMS said its new
policy is “aimed at reigning in inflated drug product payments.”
The new regulation is expected to save states and the federal
government $8.4 billion over the next five years.

According to CMS, both the GAO and HHS Office of Inspector
General found that Medicaid payments to pharmacies for generic
drugs were “much higher than what pharmacies were actually paying
for those drugs” because the states were using commercial drug
pricing guides as the basis for setting reimbursement levels.

Sewell said NCPA is working on legislation that should be
completed shortly to “fix” the rule. The group’s proposal would
base reimbursement on actual retail cost, not on the AMP, and would
create a transparent system where retail drug acquisition costs
would be readily available. NCPA also hopes its proposal will cause
a move to more generics in Medicaid.

According to Bruce Roberts, RPh, NCPA vice president and CEO,
“If the current policy is fully implemented, community pharmacies
will be forced to make the impossible choice of turning their backs
on vulnerable patients by dropping out of the Medicaid program or
continuing in a program that threatens to bankrupt their
businesses.”

While the rule was issued as final, CMS has asked for further
public comment.

For a CMS press release on the final rule, click here.

To view comments from the NCPA, visit www.ncpanet.org.