Pharmacies threaten to cut out Medicaid

By Rebecca Cook

Associated Press

SEATTLE — Drugstore chains are threatening to stop serving Medicaid patients, close stores or reduce hours if cash-strapped states follow through on plans to slash Medicaid pharmacy payments.

Battered by the recession and budget woes, more than a dozen states are considering cutting payments to pharmacists under Medicaid, the joint federal and state program that provides health care to 36 million poor people nationwide.

Representatives of CVS and Walgreens, the nation’s largest drugstore chains, say they may reduce hours, close stores and stop expansion in states that deeply cut Medicaid pharmacy payments. Rite Aid and Albertsons may drop Medicaid completely in those states.

The local phone directory shows Rite Aid, Albertsons and Walgreens collectively have 23 pharmacies in Snohomish County.

"We’re going to have to re-evaluate our participation in Medicaid," said Rite Aid spokeswoman Karen Rugen. "We believe everyone should have access to medical care. It’s just hard to do it below your costs."

Independent drugstore owners are even more alarmed.

"For us to say no to Medicaid, morally it hurts, but financially we cannot do it," said Patty Slagle, pharmacist at the only drugstore in the small rural town of Republic, Wash.

Gov. Gary Locke has proposed the most drastic cut so far, a $71 million reduction in Medicaid pharmacy payments in Washington. States from Maryland to Nebraska are considering smaller cuts that pharmacists find just as worrisome.

"This will send a number of pharmacies over the edge," said Ernest Boyd, executive director of the Pharmacists Association in Ohio, where officials have proposed an $8 million cut. "We’re not a religion; we’re not here for charity purposes. We’ve got to make a profit or we can’t stay open."

It’s no mystery why states are trying to cut pharmacy costs. Health care spending is soaring while the recession prompts budget cuts. Medicaid consumes 20 percent of the average state budget, and prescription drug spending grows by about 15 percent annually.

When pharmacists fill Medicaid prescriptions, states pay them a reimbursement for the cost of the drug plus a flat fee. States that have made or are considering cuts include Arkansas, Colorado, Connecticut, Idaho, Illinois, Indiana, Maryland, Mississippi, Montana, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, Virginia and Washington.

The federal Office of the Inspector General recommended states cut pharmacy payments by about 10 percent after finding in a report that states are overestimating what pharmacists pay wholesalers, and thus overpaying pharmacists by more than $1 billion a year. Pharmacy groups attacked the study as flawed.

The Office of the Inspector General stands by its report, said spokesman Donald White, although a follow-up study is planned.

In the meantime, states embrace the inspector general’s report as solid justification for pharmacy cuts.

"It’s not going to have a detrimental effect on the industry," said Nico Gomez, a spokesman for the Oklahoma Health Care Authority, which is cutting pharmacy reimbursements by about $1 million.

Washington State Medicaid director Doug Porter says he does not believe the cuts will devastate pharmacists.

"We’re definitely going to be cutting their margins to the bone, but at least in theory we should not be putting them below cost," Porter said. "I would be shocked to see any serious number of pharmacies not participating."

Still, pharmacists and patients worry.

Seattle Medicaid recipient Dave Gallaher has relied on pharmacist Tom Engel ever since the former Boeing worker was diagnosed with degenerative arthritis of the spine. But if the state cuts pharmacy reimbursements, Engel says he might stop taking Medicaid patients such as Gallaher.

Engel said it will hurt to refuse the state’s business, "But why do it if you don’t get paid for it?"

For example, Engel pays his wholesaler $109.76 for a month’s supply of Prilosec, a commonly prescribed drug for stomach problems. The state pays him $127.35; Washington Medicaid clients don’t pay anything for prescriptions. Locke’s proposed reimbursement cuts would drop Engel’s reimbursement to about $111. Pharmacists say if reimbursements drop that close to their actual cost, they won’t be able to pay their employees, their bills, or make any profit. The average U.S. pharmacy in the makes a 2 percent profit.

A private health insurer would reimburse Engel $123.61 for the same dose of Prilosec. That’s less than the state, but pharmacists say Medicaid should pay more because Medicaid patients demand more time and effort. They tend to be sicker, and many don’t have a primary care doctor and so rely heavily on pharmacists’ advice.

Medicaid requires pharmacists to jump through more bureaucratic hoops than private insurers do. For instance, before Engel fills that Prilosec prescription, he would have to follow a lengthy approval process of calling the doctor to find out why it had been prescribed. Finally, they say, Medicaid often refuses to pay and takes longer to pay than any private insurer.

State officials say pharmacies should drive harder bargains with health plans, wholesalers and manufacturers.

Consumers and pharmacists have beaten back some proposals to cut Medicaid pharmacy payments. In Illinois, the Rev. Jesse Jackson led a successful campaign to scale back cuts after Walgreens threatened to reduce store hours in poor Chicago neighborhoods. Proposals in New York and Oregon were also defeated. Indiana pharmacists are challenging a fee reduction in court.

Pharmacists want states to find other cost-cutting options. Many states — including Washington — are encouraging doctors to prescribe less expensive generic drugs. States are also trying to negotiate better deals and pursue rebates with drug manufacturers.

"We’re saying, ‘Can’t you just look at this?’ " Rite Aid’s Rugen said. "Don’t always target us."

Copyright ©2002 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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