Part D chaos causes cash flow crisis

March 6, 2006

Lou Spadafora, co-owner of Midland Pharmacy on Staten Island, N.Y., bounced a check for $51,000 last month. The pharmacy's bank account was $2,000 short of covering the check. It wasn't the first check he bounced, because he serves a lot of dual eligibles in group homes who were switched from Medicaid to Medicare Part D.

Lou Spadafora, co-owner of Midland Pharmacy on Staten Island, N.Y., bounced a check for $51,000 last month. The pharmacy's bank account was $2,000 short of covering the check. It wasn't the first check he bounced, because he serves a lot of dual eligibles in group homes who were switched from Medicaid to Medicare Part D.

"It'll dribble in $1,000 here, $4,000 there, but we never know what's coming in," said Spadafora. "Under Part D, we lost 3% of our Medicaid reimbursement. Last year, we did $2.5 million in Medicaid. If we fill everything like we did last year, we'll be down $60,000 to $70,000. Do I fire my partner? Turn off the lights while I work? I can no longer play Houdini with a checkbook. Call me back in three weeks, and if someone answers the phone, you'll know we got something coming in."

The pharmacy cash flow situation is not "Armageddon," said Douglas Hoey, chief operating officer, National Community Pharmacists Association. "But we have heard anecdotally that some pharmacies have closed their doors due to cash flow." He added that pharmacies are being hit with a double whammy of Part D drug plans paying "slower and lower" reimbursements.

Finding their backs against the wall financially, some independent pharmacy owners have contacted drugstore chains about selling out, according to John Coster, Ph.D., R.Ph., VP-policy and programs, National Association of Chain Drug Stores. He added that some small chains are also wrestling with cash flow difficulties.

The deeply flawed Part D debut contributed to the cash flow debacle but a longer-term woe is reimbursement, which is significantly lower. "We may yet see a major fallout of independents as they see how much they won't be getting from the Part D plans," said Craig Burridge, executive director, Pharmacists Society of the State of New York. "Keep an eye on the publicly traded pharmacy benefit managers and drug plans. I bet their first-quarter profits will soar higher than their record profits last year at pharmacy's expense."

The payment situation will get worse until pharmacies are on a regular payment-receipts cycle, said Christopher Decker, R.Ph., CEO, Pharmacy Society of Wisconsin. He added that many Part D drug plans offer substandard reimbursement, including a dispensing fee of $1, and "pharmacies are reporting surprise at the low level of reimbursement for generic products by many drug plans."

Pharmacies with a large percentage of their business tied to Medicaid are the most vulnerable, and stores that were "already marginally profitable" before Part D "will get pushed over the edge," said Joseph Roney, R.Ph., CEO, New Jersey Pharmacists Association. He added that wholesalers in his state have been very good about not pressuring owners, even those who owe $200,000.

Surviving the initial implementation stage won't necessarily mean pharmacies are off scot-free, according to Franz Neubrecht, Pharm.D., director of pharmacy resources, Michigan Pharmacists Association. "Pharmacies will continue to have cash flow problems as new patients come into the system each month and then at the conclusion of the sign-up period on May 15," he said. "That should be crazy also."