Wendy future of retail top

No quick relief from reimbursement burden

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A new report on the cost of dispensing prescription medications brings into sharp focus the difficult economic challenges faced by retail pharmacy operators. It should come as no surprise that the study — conducted by Abt Associates and the MPI Group for the National Association of Chain Drug Stores, the National Community Pharmacists Association and the National Association of Specialty Pharmacy — shows that the price tag for filling a script is increasing.

Based on data from 2018, the report says the average cost of dispensing is $12.40 per script, an 18% jump from $10.55 in 2014. It takes $12.45 to process each prescription under Medicaid, up from $10.30 four years earlier. The fact that only one of the 47 states that reimburse pharmacies under the program through cost-based fees covers the average cost of dispensing — $12.40 — illustrates the difficult straits in which the sector finds itself.

Since federal rules require state Medicaid fee-for-service programs to meet pharmacies’ dispensing costs, legislators and policy makers across the country urgently need to revisit reimbursement formulas. If pharmacies are not able to cover their operating costs, it will inevitably have an adverse impact on access to essential care for Medicaid ­patients.

The need to reconsider dispensing fees, under both government and private sector plans, was highlighted by another of the study’s findings. For the first time the research, which is done every two years, pinpointed the cost of dispensing for specialty drugs, putting the figure at $73.58. With the pharmaceutical industry concentrating its research and development efforts in biotech, and an increasing number of new medications falling into that category, the question of reimbursements for dispensing such products will become more prominent over time.

Ensuring that the cost of dispensing is covered is only one of the business challenges confronting the industry. Retail pharmacy operators continue to be hurt badly by direct and indirect remuneration (DIR) under Medicare Part D. Linked to ill-defined and inconsistently applied quality benchmarks, the fees enable pharmacy benefits managers to recoup part of the payments they make to pharmacies. A recent analysis by the Drug Channels Institute found that DIR fees totaled $9.1 billion last year.

There is near unanimity among pharmacy operators that DIR is, in the formulation of NACDS, “dire.” Chains large and small have called them burdensome, and, in a member survey conducted by NCPA in 2019, 58.3% of respondents indicated that they were somewhat or very likely to go out of business within the next two years unless the reimbursement picture improves. More than 60% of them cited DIR fees as the primary culprit.

The industry thought that regulatory relief was on the way last spring, until a last-minute reversal by the Trump administration left the rules around DIR unchanged. NACDS, NCPA and other industry advocates are now pinning their hopes on legislation under consideration by the Senate Finance Committee. The leaders of the panel, chairman Chuck Grassley (R., Iowa) and ranking member Ron Wyden (D., Oregon), have indicated that they would like to address DIR as part of a pending drug pricing bill.

In an election year, the chances of getting the legislation passed in the House and Senate, and signed into law by President Trump, are, however, uncertain at best. While both political parties would like to show voters that they’ve taken action on the hot-button issue of high drug prices, they may not want to give the opposition something that it can turn to its advantage. That dynamic, together with the usual jockeying by interest groups with conflicting priorities, make it unlikely that the hardship caused by DIR fees will be lessened anytime soon.

Inadequate reimbursements for dispensing Medicaid scripts and DIR fees are just two of the financial burdens that pharmacy operators have to contend with as they work to meet the needs of patients. There is growing consensus among experts that with their easy accessibility and the high level of trust they enjoy, retail pharmacies can help solve some of the problems that plague the health care system by taking on a bigger role. (In coming weeks, the untapped potential of the sector is likely to be brought to the fore as the country deals with COVID-19.) The necessary first step toward unleashing pharmacy’s latent capacity is to ensure sufficient funding for the essential care it is already providing to millions of Americans every day.


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