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Medicaid Cuts 'Devastating,' Pharmacies Warn

Thousands of pharmacies could close if cuts are made permanent

May 21, 2008

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More than 11,000 pharmacies across the country could close because of planned reductions in the Medicaid reimbursement rate, two industry groups say.

The National Association of Chain Drug Stores (NACDS) and the Food Marketing Institute (FMI) released a report claiming that the reductions, mandated under the Deficit Reduction Act (DRA) of 2005, would mean that pharmacies would be spending more to fill Medicaid prescriptions than they receive in reimbursement.

The cuts would be “devastating” to retail pharmacies, according to Dennis Wiesner of H.E. Butt Grocery Co., San Antonio, who testified recently before a Congressional committee studying the matter. As many as 12,000 pharmacies could go out of business, he said.

The groups say the effects would be felt by chain drug stores, independent pharmacies and mass merchants and supermarkets with pharmacies.

While urban residents could presumably find other pharmacies willing to fill their prescriptions, the effect on rural residents and rural pharmacies would be much greater, the report warned. If rural pharmacies go out of business, jobs would be lost and rural residents could be unable to fill their prescriptions conveniently.

The Medicaid program pays retail pharmacies a dispensing fee plus a reimbursement rate designed to cover the cost of acquiring the drug from the manufacturer for Medicaid prescriptions. The changes in the Medicaid reimbursement rates under the DRA could dramatically lower pharmacy reimbursement rates.

The study is based on estimates provided in expert testimony by Steven Schondelmeyer, a professor at the University of Minnesota that 20 percent of pharmacies could close due to the DRA.

The study finds that the impact of the decrease in reimbursement rates on the number of pharmacies will vary by state. However, the largest percentage reductions in pharmacies are projected in New York (40 percent), the District of Columbia (37 percent), Louisiana (32 percent), West Virginia (30 percent) and Alaska (28 percent).

“These cuts threaten to diminish access to medications and pharmacy services, and they also threaten the vitality of communities,” said NACDS President and CEO Steven C. Anderson, IOM, CAE. “Pharmacies are the face of neighborhood healthcare, but these cuts could wipe these faces away, particularly in rural and urban areas with higher Medicaid populations.”

“In many rural and urban communities, supermarkets provide the only pharmacies able to serve Medicaid patients,” said Tim Hammonds, president and CEO at FMI. “By reducing Medicaid reimbursements as this law requires, many pharmacies would be forced to close, and low-income Americans would have to travel many miles to obtain vital medicines.”

The study was conducted for the National Association of Chain Drug Stores and the Food Marketing Institute by PricewaterhouseCoopers LLP, the assurance, tax and advisory firm.

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