Medicare drug payment findings spur call for fair reimbursement

ALEXANDRIA, Va. —Amid the inflamed rhetoric over what constitutes a fair payment for pharmacy services, the U.S. Department of Health and Human Services has thrown another log on the fire.

A new federal report on prescription payments for the Medicare Part D drug benefit program has stoked the debate over whether pharmacies are being fairly reimbursed for the drug dispensing and counseling services they provide. And both sides are using the report’s findings to argue either for or against an increase in Part D payments.

The findings were released in a report from the HHS Office of Inspector General, titled “Review of the Relationship Between Medicare Part D Payments to Local, Community Pharmacies and the Pharmacies’ Drug Acquisition Costs.” The OIG tracked and analyzed Medicare prescription payments in response to a request from 33 U.S. senators, acting on behalf of community pharmacy groups that have waged a long and vocal campaign to draw attention to dwindling profit margins.

Both the retail pharmacy industry and the pharmacy benefit management industry have seized on the OIG findings to bolster their support for or opposition to higher reimbursements for Medicare Part D drug dispensing services.

Generally, pharmacy groups are giving a qualified endorsement to the new findings, which, they say, validate the industry’s long-standing concerns over reimbursement levels.

In their report, HHS inspectors noted that “Medicare Part D reimbursements minus dispensing fees to local, community pharmacies exceeded the pharmacies’ drug acquisition costs by an estimated 18.1 percent when the analysis included rebates that drug wholesalers paid to pharmacies. But the estimated average Medicare Part D dispensing fee paid to those pharmacies “was $2.27 per prescription, about $2 less than the average Medicaid dispensing fee,” the report noted.

“Excluding rebates, Part D payments exceeded drug acquisition costs by an estimated 17.3 percent,” added the OIG. “The estimated difference between Part D payments and drug acquisition costs was $9.13 per prescription including rebates and $8.78 excluding rebates.”

Combining dispensing fees and drug reimbursements, the average compensation to pharmacies for dispensing Part D prescriptions is roughly $11.40 per script, according to the OIG report.

Responding to the report, neither the National Association of Chain Drug Stores nor the National Community Pharmacists Association disputed those numbers. But both groups contend the findings validate what they have been saying all along: that the fees and reimbursements paid to pharmacies for dispensing medicines to Medicare patients aren’t enough to make up for what pharmacies spend to acquire and dispense the drugs.

“This report underscores the need to ensure reimbursement is fair when both drug costs and costs of dispensing are considered, and to provide incentives for the utilization of generic drugs,” said NACDS president and chief executive officer Steve Anderson. “While the OIG report compares drug acquisition costs and payments to pharmacies, it is essential to remember there are two components to actual pharmacy cost: the cost of the drug and the cost to dispense the drug.”

Anderson cited a recent study by the accounting firm Grant Thornton that found a retail pharmacy’s average cost in payroll, overhead and other operating costs to dispense a prescription drug is $10.50—to say nothing of the acquisition costs of the drug itself.

“Considering drug costs in a vacuum is potentially misleading and counterproductive to health understanding and advancement,” NACDS’ top officer concluded. “Let it be stated clearly: Pharmacies are not over-compensated for the prescription drugs and services they provide to Medicare beneficiaries, and in fact, the cost of dispensing is not adequately reimbursed.”

NCPA executive vice president and chief executive officer Bruce Roberts agreed. The OIG’s findings, he said, confirm the “dangerously thin” profit margins that pharmacies operate under.

“While the report acknowledges that it does not account for all costs of dispensing prescriptions, we applaud the work of the OIG in confirming the financial difficulties Part D has placed on community pharmacy,” Roberts said. The report, he added, “reinforces our position that community pharmacies are not adequately reimbursed for the costs of dispensing drugs.

When you also consider the slow rate of reimbursement, as evidenced by a recent University of Texas study, pharmacies may be forced to close their doors or stop participating in these government programs,” Roberts continued.

Also reacting cautiously was the Association of Community Pharmacists. ACP argued that the level of reimbursement and dispensing fees for Part D prescriptions falls below what pharmacies have to pay to buy and dispense the drug.

Nevertheless, noted the organization in a statement, “The momentum on pharmacy issues in Washington has shifted. Congress found several ways to undermine independent pharmacies in previous years—such as with provisions in Medicare Part D and new AMP rules—but began to listen to hometown pharmacy concerns [in 2007].”

ACP’s legislative agenda for 2008 includes a determined lobbying campaign on behalf of legislation to level the playing field between independents and big chain pharmacies through passage of House bill 971. The bill, which failed to pass last year, would eliminate the antitrust barriers that prevent small and independent pharmacies from negotiating collectively with pharmacy benefit managers.

Not surprisingly, the pharmacy benefit management industry’s chief lobbying group has drawn a different conclusion altogether from the OIG report. Hewing to its theme that independent pharmacy operators are overpaid for their services, the Pharmaceutical Care Management Association is citing the report as proof that those claims are justified.

“This report will raise eyebrows among policy makers who have been led to believe that independent pharmacists were in dire straits because of the Medicare drug benefit,” said PCMA president and chief executive officer Mark Merritt. “It runs counter to rhetoric from the independent drug store lobby on the need for costly legislation granting pharmacies special antitrust exemptions and payment cycles that are twice as fast as those received by doctors and hospitals.”

That kind of attack is sure to inflame an already adversarial relationship between the PBM industry and the community pharmacies on which PBMs build their pharmacy service provider networks—networks they then market to health plan payers. Ignoring the costs retail pharmacies must incur to stay in business and dispense medications, PCMA also noted, “Independent pharmacies are paid an average of 18 percent more by Part D plans than their acquisition costs for medicine.” Further, the group argued, “Two-thirds of community pharmacies belong to group purchasing organizations that allow them to collectively bargain—and achieve—higher Part D reimbursement rates.”