Pharmacies come out on top : HCR Bill update
Pharmacies and the Health care reform Bill:
For the retail pharmacy sector, the health reform legislation passed Sunday by the House carries three key provisions that were part of the bill. Those provisions include:
1) A series of grant and pilot programs that include medication therapy management (MTM).
MTM is a term used to describe a broad range of health care services provided by pharmacists. Pharmacists provide medication therapy management to help patients get the best benefits from their medications by actively managing drug therapy and by identifying, preventing and resolving medication-related problems. Therefore, by improving its MTM, Walgreens can attract more customers (i.e. generate more foot traffic) by providing the best service-product package to its customers. By excelling at MTM, WAG plans on attracting customers from mail-order pharmacies and other pharmacy benefits managers (PBMs).
Research has shown that patients adhere to their medication regimens better when they interact regularly with a pharmacist and that letters or call centers cannot match face-to-face interactions with pharmacists when it comes to delivering that value. WAG is doing this via its newly adopted Transforming Community Pharmacy program. Other specialty pharmacies like—CVS Caremark (CVS), Express Scripts (ESRX), Medco Health Solutions (MHS) etc, primarily dispense self-injectable specialty drugs via a single channel (central-fill mail order) but none have been able to offer the seamless trade-off between medical versus pharmacy benefits, like WAG. 
In December ‘09 Walgreens pharmacists offered to help seniors evaluate Medicare Part D coverage options where pharmacists would enter a list of the patient’s medications and generate a free report detailing each plan’s estimated annual costs, including monthly premiums, brand and generic co-pays, and costs that would fall through the coverage gap, or “doughnut hole.” This increases value for its existing and potential customers, which results in them re-filling their prescriptions at a local Walgreens as opposed to its competitor.
A study of MTM programs with186 patients through Blue Cross/Blue Shield of Minnesota found reductions in healthcare costs per person of 31.5%, from $11,965 to $8,197. Interestingly, prescription claims increased 19.7%. The return on investment was $12.15 per $1.00 of MTM services provided.
2) Reductions in cuts to Medicaid pharmacy reimbursement under the average manufacturer price (AMP) model.
According to the current rule (prior to the Bill), pharmacies are paid for generic products at lesser of:
- AWP (Average wholesale price) product cost + dispensing fee, or
- Federal upper limit (FUL) or State maximum allowable cost (MAC).
The use of lowest AWP as the basis for generic drug reimbursement significantly underpays pharmacies and threatens Medicaid beneficiary access to pharmacies. To make matters worse, the Deficit Reduction Act of 2005 sets FUL’s for generics at 250% of lowest average manufacturer price (AMP), which is the average unit price paid to the manufacturer for the drug in the U.S. by wholesalers for drugs distributed to the retail pharmacy class of trade.. This AMP rule artificially lowers AMPs by offering lower prices to doctors, physicians etc.
Regarding the Medicaid AMP issue, the legislation includes important changes in the definition, and method of calculating AMP, as compared with the Deficit Reduction Act of 2005. These changes are essential to achieve a better approximation of pharmacies’ costs for purchasing generic drugs. The bill would ensure federal upper limits are set using a multiplier of no less than 175% and would use the weighted average AMP (WAMP) instead of the lowest AMP. While 175% is less than 250%, WAMP will be greater than AMP, especially since the proposal excludes mail order pharmacies.
3) A conditional exemption for pharmacies from the durable medical equipment (DME) Medicare accreditation requirements. The conditional exemption for pharmacy from the accreditation requirement for providing DME to Medicare beneficiaries would help maintain seniors’ access to needed products from their neighborhood pharmacies. Providing durable medical equipment can develop into a lucrative and rewarding aspect of a pharmacy’s total patient care role. Especially now, with universal health insurance and the conditional removal of requirements, Pharmacies can be more aggressive in promoting the use of DME to patients with severe disability, thereby expanding their reach and profitability. Once the bill becomes law, many community pharmacies can continue serving Medicaid patients as well as offering Medicare beneficiaries’ essential medical supplies, like diabetes testing strips.
In short, retail pharmacies would benefit from increased prescription volume but greater insurance coverage would also depress pharmacy margins, since pharmacies earn much higher margins from uninsured and underinsured individuals, a.k.a. “cash customers.”