State Medicaid Changes Squeeze Independent Pharmacies

A new Texas law reducing Medicaid prescription reimbursement levels has been blamed for threatening the livelihood of hundreds of independent pharmacies.

A new Texas state law that reduces reimbursement to pharmacies when they fill prescriptions for Medicaid patients has been blamed for forcing at least 10 independent pharmacies out of business and threatening the livelihood of hundreds of others. The law, which went into effect March 1, has shifted administration of the Medicaid prescription drug program from the state to pharmacy benefit managers, who are empowered to negotiate lower reimbursement rates.

The Associated Press reports that the effect of the law is to reduce reimbursement for a prescription under Medicaid 80%, to approximately $1.35 per prescription, around the same level paid under private insurance and Medicare, both of which already make use of benefit managers. The actual cost of filling a prescription, not including the cost of the medication, is estimated at $8 to $11.

Medicaid reimbursement for prescription drugs in Texas is now handled by 6 national pharmacy benefit managers, most of which also run mail-order pharmacies. (One, CVS/Caremark, has its own chain of retail pharmacies.) Although the managers are barred by state law from requiring patients to use mail-order pharmacies, they will probably encourage their use in order to save money. Texas law also requires the managers to include enough pharmacies in their networks so that all patients are at most 15 miles from a participating drug store and 70 miles from a 24-hour pharmacy.

The new reimbursement structure aims to save $100 million in Medicaid costs over the next 2 years. According to the Pharmaceutical Care Management Association, which represents pharmacy benefit managers, state Medicaid programs frequently overpay for prescription drugs because payment rates are set by state officials who are lobbied to keep them high by interest groups.

A study commissioned by independent pharmacy groups last year predicted that it would put 1300 stores in the state out of business and 36,000 employees out of work. According to a KGBT-TV report, the Rio Grande Valley Independent Pharmacy Association claims that at least 10 independent pharmacies in the Rio Grande Valley closed in the first 2 weeks after the law went into effect. About 80% of patients in the impoverished region at the southern tip of the state are on Medicaid, a rate far higher than in much of Texas.

In light of the strain put on Rio Grande Valley pharmacies by the new law, Thomas Suehs, the Texas Health and Human Services Commissioner, has raised the possibility of targeting reimbursement levels to local needs. Local lawmakers also plan to propose changes to the law during the next legislative session.