Massachusetts Officials Ask Drug Store Chains To Demonstrate Effect of Medicaid Pharmacy Rate Reduction

During an Aug. 27 hearing on Massachusetts' Medicaid pharmacy rate, lawmakers said they were "skeptic[al] about the industry's arguments" against a rate cut, which was approved in July by acting Gov. Jane Swift (R), the Boston Globe reports (Mohl, Boston Globe, 8/28). Swift on July 29 approved the state budget, which included a reduction in Medicaid payments to pharmacies from 10% above the wholesale price to 2% below wholesale. The pharmacy payment cuts were expected to save the state about $60 million a year. In response, the state's three largest drugstore chains, CVS Corp., Walgreen Co. and Brooks Pharmacy, announced that they would no longer participate in the state's Medicaid program unless the state raised the reimbursement rate. Under a temporary agreement the state and drugstore chains reached in August, the state will continue to reimburse pharmacies for Medicaid prescriptions at the current rate until Oct. 2, when it will establish a new rate. The agreement also requires pharmacies to give 30 days notice before exiting the state's Medicaid program (Kaiser Daily Health Policy Report, 8/27). During the Aug. 27 hearing -- which the Globe reports appeared to be a "trial run" for a second hearing scheduled for Sept. 5 -- the three drug stores said that they would lose on average $5.36 for every Medicaid prescription if the 12% cut takes effect. One pharmacy executive said that even a "tiny reduction" in the reimbursement rate could mean a loss for pharmacies on each Medicaid prescription they fill. Officials from the three companies said that the proposed rate reduction would be "disastrous financially," adding that the state would then have the "lowest [pharmacy] reimbursement rate in the country" (Boston Globe, 8/28). National Association of Chain Drug Stores Senior Vice President S. Lawrence Kocot said, "Squeezing pharmacies isn't going to save the government money in this case. It's only going to harm beneficiaries" (Heldt Powell, Boston Herald, 8/28).

Reduction 'Warranted,' State Says
But Wendy Warring, head of the state's Medicaid program, said that a payment cut is "clearly warranted," adding that the Swift administration is "not interested in playing a game of chicken with the pharmacies," the Globe reports. She called on the drug stores to provide purchase invoices and other internal cost data to demonstrate how the payment cut would affect them (Boston Globe, 8/28). Warring said, "No one wants pharmacies to drop out of this program. We have an obligation to provide access. On the other hand, we have an obligation to pay no more than (pharmacies') costs, and we have to determine if those costs are reasonable. That's hard to do if they won't give us information" (Boston Herald, 8/28). She added, "At some point, pharmacies are going to have to disclose information that they have heretofore considered proprietary." The drug store chains, which in the past have declined to release such information because of "competitive concerns," did not say whether they would make available the information Warring requested (Boston Globe, 8/28).