Pharmacies Fear Coming Change to Medicaid Reimbursement Rule

Published November 1, 2007

Neighborhood pharmacy owners are paying close attention to federal legislation making its way through Congress that many say could make or break their businesses.

Without a change to a scheduled reduction in the two-year-old Medicaid generic prescription drug reimbursement rate, federal funding will be cut by 36 percent next January.

In order to prevent what she claims would be a health care crisis in her state’s rural areas, Rep. Nancy Boyda (D-KS) introduced the Save Our Community Pharmacies Act (HR 3140) in early August.

“No business can survive if they’re reimbursed only 64 percent of the cost of acquiring their product,” Boyda said. “That’s like forcing a bank to sell dollar bills for 64 cents.”

Changed Method

In 2005, Congress ordered Medicaid to change its method for reimbursing pharmacies for generic prescription drugs to a formula based on average manufacturer price (AMP)–the price a distributor pays a manufacturer for a medication. The AMP reimbursement amount is scheduled for reduction in early 2008.

Such a reduction in federal reimbursement would force providers to bear the cost of purchasing and distributing generic drugs to Medicaid clients. A 2007 study conducted by the Grant-Thornton LLP accounting firm reported average distribution cost for Medicaid generic drugs at $10.50, of which state funds reimburse $4.50. The study concluded if federal funds are cut by 36 percent, community pharmacies will lose money on each Medicaid transaction.

Planned Shortfall

“The states are totally free to make up the shortfall out of their own pockets since AMP only sets the federal upper limit for each drug,” said Boyda’s spokesperson, Brendan Woodbury. “However, Medicaid was set up to be a federal-state partnership, and creating a problem with federal action–the Deficit Reduction Act of 2005–then telling the states to spend their own money to fix it is sort of contrary to the spirit of the program.

Woodbury continued, “Medicaid serves desperately poor people who have almost no ability to pay for their own health care. It is only in the last few years that Medicaid has begun to allow states to have co-pays at all, and there are still no premiums or deductibles. The people that Medicaid serves just don’t have the money to make up the shortfall.”

“As a result of low reimbursement rates, many pharmacies will have trouble keeping their doors open or will be forced to reduce the number of pharmacists or pharmacy hours,” said Charles Sewell, co-president of the Coalition for Community Pharmacy Action, a Virginia-based coalition of 55,000 community pharmacies. “Inadequate dispensing fees, compounded by a cut to Medicaid prescription drug reimbursement, threaten patient access and the pharmacist’s ability to continue to provide patients with quality health care.”

Delayed Change

This summer, Boyda and 108 congressional co-signers appealed to the federal Centers for Medicare & Medicaid Services (CMS) and successfully delayed the scheduled rule change until federal legislation adjusting the AMP reimbursement could be voted on in Congress.

CMS spokeswoman Mary Kahn denied the rule change would bring dire consequences.

“We don’t agree with some advocates who claim that the new rule will put pharmacies out of business,” Kahn told the Kansas City Star for an August 8 story. She also said states “were greatly overpaying for many drugs, especially generic drugs.”

‘Serious Ramifications’

Bruce Roberts, executive vice president and CEO of the National Community Pharmacists Association, an industry group based in Alexandria, Virginia, emphatically disagreed.

“There is a mountain of evidence indicating that the Medicaid generic reimbursement rule will have serious ramifications for community pharmacies and their patients,” Roberts said.

A CMS representative withheld comment on why the supposedly harmless rule enactment was delayed as requested by the congressional delegation, saying the agency would respond after HR 3140 was voted on.

Likely Passage

With 30 co-sponsors at press time, prospects for the bill’s passage looked good.

“Rep. Boyda is optimistic that the bill will become law,” said her spokesman, Thomas Seay. “It has drummed up enthusiasm from members of both parties, especially among legislators from rural communities, and Committee on Energy and Commerce Chairman John Dingell [D-Michigan] is very interested in the legislation.”

Fran Eaton ([email protected]) writes from Illinois.

For more information …

HR 3140:

A Summary of the Grant-Thornton LLP study, “National Study to Determine the Cost of Dispensing Prescriptions in Community Retail Pharmacies: Web Seminar,” is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to and search for document #22024.