Medicaid, the U.S. health-care plan for the poor, will reduce payments for generic medicines, raising complaints from drugstores that they will lose money on prescriptions.
Reimbursement will be tied to the average price that wholesalers pay manufacturers, the Centers for Medicare and Medicaid Services said today in an e-mailed statement. Previously, payments were calculated using suggested list prices that didn't necessarily correspond to what pharmacies paid.
The new pricing and related changes will save $4.9 billion for the U.S. government during five years and $3.5 billion for the states, which jointly fund the program, according to Medicaid. While the new formula would affect the largest U.S. drugstore chains, including Walgreen Co. and CVS Caremark Corp., industry groups said the impact would be greatest at small pharmacies that depend more on Medicaid payments.
``They are doing a hatchet job on independent pharmacies,'' said Crystal Wright, spokeswoman for the Association of Community Pharmacists Congressional Network, a trade group for small drugstores. ``Patients will suffer because many pharmacies will likely be forced to drop Medicaid because they will lose money on every prescription.''
Medicaid spent about $40 billion in fiscal 2004 for outpatient prescription drugs, or 14 percent of its expenditures on medical care. The program covers about 55 million people.
The U.S. agency said Medicaid generic drugs will be reimbursed at 250 percent of the average manufacturer's price. Previously, the rate for generic drugs was 150 percent of the average wholesale price.
The average wholesale price, or AWP, is often described as ``ain't what's paid,'' the equivalent of an automobile's sticker price before bargaining.
Reimbursement for generic drugs was changed because government studies found Medicaid payments for generic drugs were ``much higher'' than the prices pharmacies paid wholesalers, the agency said in its statement. The listed prices were ``artificially inflated,'' according to Medicaid.
``This new payment formula allows Medicaid to pay more appropriately for prescription drugs dispensed to Medicaid beneficiaries,'' said Leslie V. Norwalk, acting administrator of the Medicare and Medicaid agency, in the statement.
The change may cut average Medicaid payments for generic drugs to 36 percent less than pharmacies pay for the medications, according to an analysis in December by the Government Accountability Office, the investigative arm of Congress.
Dispensing Fee
Pharmacists also receive a dispensing fee from states to help cover the costs of filling Medicaid prescriptions. This payment, shared by states and the U.S. government, averages about $4 to $5 per drug and wasn't affected by the new formula.
States could increase dispensing fees to help offset drugstore costs, the Medicare and Medicaid agency said. Because the fees are matched by U.S. funds, adjusting them will require special approval, the agency said.
The revamped payment schedule is effective Oct. 1, although Medicaid said it would accept public comments during the next 180 days.
Medicaid changed reimbursement for generic drugs, rather than brand-name medicines, because that's where the biggest gap was found between listed and actual prices paid by pharmacies, said Alex Sugerman-Brozan, director of Prescription Access Litigation, an advocacy group based in Boston.
`Financial Hardships'
The new rates ``could create severe financial hardships for many Medicaid pharmacy providers operating at a 2 to 3 percent net profit margin,'' the National Association of Chain Drug Stores said in a position paper posted on its Web site.
``Pharmacies in low-income communities could be forced to reduce staff or operating hours, eliminate delivery services to remote rural areas, or even close their doors,'' said the association, an industry trade group.
The 39,000 chain drugstores in the U.S., including mass merchants and supermarkets, outnumbered 18,000 independent pharmacies as of 2005, according to the Association of Community Pharmacists Congressional Network.
Carolyn Castel, director of corporate communications for Woonsocket, Rhode Island-based CVS, said no one at the company was available to comment. Michael Polzin, a spokesman for Deerfield, Illinois-based Walgreen, didn't immediately return a voice-mail message.
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