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New rules could hurt small drug stores

Dan Grech Dec 18, 2006

KAI RYSSDAL: The Bush administration’s wading into the pharmacy wars. The White House is set to announce steep cuts to Medicaid payments for prescription drugs. The Feds estimate that would save taxpayers $8.5 billion over the next five years. But most of that would come at the expense of pharmacies that sell to low-income customers. From New York, Marketplace’s Dan Grech has more.

DAN GRECH: Medicaid, the government health program for America’s poor, is supposed to pay the lowest price for prescription drugs. But a Congressional investigation found Medicaid pays 35 percent more than the lowest price.

That led the Bush administration today to recalculate what price Medicaid pays pharmacies for prescription drugs. The measure is expected to save taxpayers billions. But it will put a squeeze on drugstores, particularly the nation’s 18,000 small retail pharmacies.

Princeton professor Uwe Reinhard is an expert in health-care economics.

UWE REINHARD: The small, independent pharmacy will get the biggest squeeze simply because they don’t get such good prices from the drug manufacturer.

Pharmacies located in low-income areas with the highest concentration of Medicaid recipients will get hit hardest. Charlie Sewell is with the National Community Pharmacists Association.

CHARLIE SEWELL: We operate on razor thin profit margins, 2-3 percent. And that’s been consistent over the last few years. So there’s no way that we’re making the kind of money that they think we’re making.”

He says under the new rules, many pharmacies would take a loss on each Medicaid prescription they fill.

SEWELL: If you’re losing money, you don’t stay in the business very long, and that’s what we’re being asked to do.

That would leave more business to drug store giants like CVS and Walgreens. Those chains negotiate volume discounts with drug makers.

In New York, I’m Dan Grech for Marketplace.

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