Last year, approximately 1,150 independent pharmacies closed across the country as a direct consequence of Medicare Part D, the government”™s new prescription drug plan for Medicaid and Medicare recipients, according to the National Community Pharmacists Association, based in Alexandria, Va. A prime reason was lower reimbursements for prescription drugs by the Centers for Medicaid and Medicare Services (CMS), the federal agency that administers those programs, to pharmacists.
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Now, a new ruling from CMS is delivering the industry another blow. If unchecked by pending legislation in the U.S. House of Representatives that would change the reimbursement formula for generic drugs, the ruling would almost certainly cause thousands more community pharmacies to close, leaving many low-income residents who rely on them for their prescription drugs high and dry.
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As directed by the 2005 Deficit Reduction Act, CMS has changed the reimbursement formula for generic drugs based on a new benchmark, called the Average Manufacturer Price (AMP). The ruling goes into effect in October and would start impacting pharmacies in early 2008. The change would result in pharmacies being reimbursed on average 36 percent below the cost of acquisition of generic drugs, according to a report issued last December by the U.S. Government Accountability Office. The report noted that 27 high-cost drugs would be reimbursed at 65 percent below cost; 27 of the most commonly prescribed drugs would be reimbursed at 15 percent below cost.
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“It would be catastrophic,” said Tim Dittenhoefer, owner of Smith Street Pharmacy, located in downtown Poughkeepsie. “It”™ll probably put us out of business.” Dittenhoefer said half his customers were Medicaid recipients, and his pharmacy dispenses mostly generic drugs.
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Smith Street Pharmacy is one of two independent drug stores in the neighborhood. If both close because the ruling prevents them from making money, some customers would be at risk: Dittenhoefer said the stores are the only ones in the city that offer a delivery service to Medicaid recipients who are unable to leave their homes.
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John Westerman, owner of Ace Drugs in downtown Newburgh, which was bought by his father in the 1950s, is in the same boat. Over half his clientele are Medicaid recipients. “I”™m basically one of the very few independents in my area that service this population,” he said. “If guys like me are gone, it”™s a loss of family service forever. It certainly shouldn”™t be the government”™s prerogative to put me out of business. This is just plain-out wrong.”
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Westerman said the only way he could survive was to sell fewer generics to his customers and steer them toward more high-priced branded drugs, which are not affected by the change. Indeed, that option was noted by Charles Sewell, National Community Pharmacists”™ Association (NCPA) senior vice president of government affairs, in his testimony before the House”™s Small Business Committee last month. Sewall said that by depressing generic utilization rates, the ruling would lead to overall higher costs for tax payers as more brand-name drugs are dispensed.
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He cited CMS figures from the first half of 2006 showing the average cost of a generic drug is $21.95, compared with $155.98 for a branded drug.
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“President Bush has undue influence from the pharmaceutical manufacturers at the expense of me and my colleagues,” said Westerman, noting that he had voted for the president. “The branded-drug companies get away scot-free.”
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The pharmacists said the lower reimbursement rate doesn”™t take into account the costs of dispensing, which include the label, toner, vial, computer maintenance, along with the usual costs of doing business. “It”™s not like selling lettuce,” said William Halstead, owner of Vidala Pharmacy in Highland, who said that 10 percent of his business consisted of Medicaid recipients. “This will injure every pharmacy.”
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Pharmacists in New York state are under other constraints that affect their costs. They are required by law to dispense a prescription drug regardless if the customer can afford his or her share of the co-payment ”“ which is $2 for branded drugs and $1 for generics. Dittenhoefer and Westerman said most of their customers can”™t afford to co-pay. Add to this dispensing fees that nationwide average $10.50, according to the NCPA, and the pharmacies simply can”™t afford to stay in business if their federal reimbursements are below cost.
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The state has also steadily been reducing the reimbursement for its 25 percent share of the generic drug payment (50 percent is federal money, and the remaining share is borne by the county). “They take out little chunks with every budget,” said Westerman. “It”™s always a struggle to keep our heads above water.”
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Westerman said another negative aspect of the CMS ruling is that it expands the list of generics that would be subject to the AMP formula from about 150 drugs to 500. “They”™re attacking a larger pool of drugs,” he said. In New York state pharmacists also are subject to ceilings on many more drugs established by the company contracted by the state to purchase generic drugs. Westerman said New York is one of only a handful of states that use this firm and thus subject pharmacists to another host of “very aggressively priced” generics.
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National chain drug stores are less affected by the reimbursement cuts because a greater percentage of their profits come from front-of-the-store products, such as snacks and cleaning supplies. They also are able to negotiate bulk purchases of drugs, said John Norton, spokesperson at the NCPA. The chains also typically aren”™t located in poorer neighborhoods. It”™s left to the mom-and-pop pharmacies, many of which have been located in these communities for decades, to serve these areas.
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Norton said his group was lobbying hard for a bill introduced in the House, H.R. 3140, that would scrap the AMD. Instead, it would base the federal reimbursement benchmark on the Retail Acquisition Cost, which is the median price of each drug based on a quarterly survey of invoices from a representative sampling of pharmacies nationwide. The bill would also require states to increase their use of generic drugs by 1 percent to 3 percent per year.
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Norton said numerous House members had sent letters in favor of the bill. NCPA is also mobilizing support in the U.S. Senate. “It”™s a hard push,” he said “There”™s not a huge window of time.”
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