State Medicaid cuts force pharmacists to take drastic measures

September 15, 2008

Cuts in state Medicaid payments for product reimbursements and dispensing fees are forcing pharmacists to cut services and turn away Medicaid patients.

Key Points

Pharmacies from coast to coast are reeling from state Medicaid cuts. Pharmacists are fighting back in court even as they begin cutting services and turning away Medicaid patients. At least one national chain is talking about closing the doors on Medicaid.

"In many cases, these cuts are a death warrant for my critically ill patients who rely on expensive medications," Los Angeles pharmacy owner Jerry Shapiro said. "Any drug that costs more than $140 is a net loss. Can I afford to fill that script even though I'm losing dollars? Not for very long."

California slashed reimbursements in its Medicaid program (called Medi-Cal) by 10 percent on July 1. Governor Arnold Schwarzenegger and the state legislature ordered an across-the-board state spending cut in February to avoid a projected $14 billion budget shortfall.

Judge Christina Snyder ruled that the cuts posed the clear possibility of irreparable harm to Medi-Cal providers and patients. She also found a strong likelihood that providers will prevail on the merits of the case. Shapiro and other providers argued that the budget cut violated federal requirements for adequate care and access to Medicaid services.

"The budget cut hit every Medi-Cal provider in the solar plexus," California Pharmacists Association CEO Lynn Rolston said. "CPhA applauds Judge Snyder for recognizing the damage that the cuts were having on pharmacy and the patients they service."

Pharmacy took a double hit because the cut was applied to product reimbursements and dispensing fees.

"Any drug with an actual acquisition cost of $140 or more, the pharmacy is being reimbursed less than its acquisition cost," CPhA general counsel John Cronin said. "The average brand-name drug dispensed in the state costs more than $200. You can't expect any business to sell at less than cost."

The dispensing fee dropped from $7.25 to $6.53. A 2007 study found the actual cost of dispensing in California was more than $10 per script.

Rolston noted that only half of California physicians accept Medi-Cal patients. In her opinion, Judge Snyder noted that growing numbers of physicians, dentists, and pharmacists are refusing new Medi-Cal patients. Some are dropping current patients. At deadline, the state had not yet decided whether to appeal the District Court ruling. The legal route worked in Mississippi. A court challenge by 40 hospitals stopped an attempt by Gov. Haley Barbour to cut $375 million in Medicaid funding from the 2009 budget.

New York pharmacists are still fighting a 2.25 percent Medicaid cut that took effect July 1. Reimbursement went from average wholesale price (AWP) minus 14 percent to AWP minus 16.25 percent. Actual acquisition costs are about 16.66 percent below AWP, said Selig Corman, consultant pharmacist for professional affairs at the Pharmacists Society of the State of New York. Analysts said the typical pharmacy margin is $0.75 per script.

The dispensing fee news is almost as bad. While New York dispensing costs are nearly $12 per script, the dispensing fee is just $3.50 on branded products and $4.50 on generics.

Most of the dispensing fee evaporates because many Medicaid patients lack the $3 copay, Corman said. "The pharmacist has to dispense even if the patient doesn't have the copay," he said. "So you take another $3 hit."

Independents are the biggest losers, Steve Giroux, owner of eight-store Middleport Family Health Center in upstate New York and president of the National Community Pharmacists Association, said. Independents typically rely more heavily on prescription income than chains, which have larger front revenues. But chains are facing the same financial pressures from 12 successive cuts in Medicaid reimbursement.

"Chains can't suffer this kind of margin loss either," Giroux said.