PriceWaterhouseCoopers claims that 11,105 pharmacies will close due to the Average Manufacturer Price (AMP) provisions in the Deficit Reduction Act of 2005 (DRA).
The Medicaid program pays retail pharmacies a dispensing fee plus a reimbursement rate meant to cover the cost of acquiring the drug from the manufacturer for Medicaid prescriptions. The federal government imposes a federal upper limit ("FUL") on reimbursement rates for certain generic drugs that states generally adopt under their Medicaid programs. The Deficit Reduction Act of 2005 ("DRA") generally decreased FULs by changing their calculation method, but litigation has prevented the new reimbursement levels from being implemented. The changes in the Medicaid reimbursement rates under the DRA would dramatically lower pharmacy reimbursement rates. The decline in the profitability of pharmacies participating in Medicaid could result in thousands of pharmacies closing, making pharmacies less accessible to Medicaid participants. If reduced accessibility of pharmacies made beneficiaries less likely to utilize prescription drugs, their health could be adversely affected.
The National Association of Chain Drug Stores and the Food Marketing Institute engaged PricewaterhouseCoopers to analyze the potential impact of the DRA on pharmacies by state.
Montana: DRA cuts could cause 51 pharmacies to close (24.6% of our rural pharmacies), affecting 324 direct jobs and 688 jobs across the entire state economy.
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2 comments:
Eric,
As you may know, I have critiqued the methodology behind the PWC figures on my blog: 11,105 Pharmacies Gone?!? Just More AMP Hype.
So I'm curious to know what Montana pharmacists think about the PWC study. Does it sound realistic that 1 out of 4 Montana pharmacies will go out of business? Is AMP perceived to be the single biggest threat to the survival of Montana pharmacies?
Thanks,
Adam
Adam,
As you may know, I am an avid fan of Drug Channels. Eventhough the study may have some flaws, I feel that the study is mainly true, especially for rural America.
As you stated: "If a pharmacy’s costs are entirely fixed regardless of changes in reimbursement, then a reduction in reimbursement translates directly into a loss of net profit."
Basically, as indepedents in an ALL rural setting, we have already become very efficient at what we do, and eventhough our costs are not entirely fixed, we will not be able to off set what we will lose with AMP given our high rate of Medicaid/ Medicare patients.
Over 80% of the patients at the store I currently work at is Medicaid/ Medicare. And to keep that clientele we must spend a substantial amount of money on special packaging systems without reimbursement for them.
More over, I believe ALL of Montana is rural and we are not able to "get Big" as you had said in a previous blog, so some of us will have to "get out" due to our small "fixed" rural populations.
All of our niches cost us extra money to keep things going... pretty soon, due to such low profits, we won't be able to afford our niche expendatures and eventually everything unravels.
Unfortunately, with towns as far as 60 to 100 miles or more from one another containing a pharmacy, access and healthcare is compromised if even 1 pharmacy goes down is some towns.
In addition, we don't have an out front OTC sales or supermarket as does the big chains, so 95% or more of total sales is dependent on our Rx sales in which profit is expected to decline dramatically.
So, to answer your question...if AMP goes through as written, a good handful of independents will have to close shop. A good handful of us will survive, at first, but since CMS sets the stage for all other 3rd partys... we'll see how long we can really hang on for.
Thanks again for all that you do with Drug Channels. I must say I do value your opinion very much, but I think you may need to visit rural America a little more to see the other side.
Take care and thanks for all you do!
Eric
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