Report: Medicare Part D Trimmed Profits for Pharmacists

Created to help make prescription drugs more affordable for millions of senior citizens, Medicare Part D has a potential downside for the nation’s community pharmacists, a new report by the Center for Pharmaceutical Marketing and Management indicates.

In short, profits could be down as much as 21 percent for community pharmacists, due to lower reimbursement rates associated with the Medicare Part D plans. Researchers at the center, part of the University of Mississippi School of Pharmacy, calculated and compared profit margins associated with individual patients’ prescriptions at 10 community pharmacies before and after implementation of Medicare Part D.

Data for the study, which was funded by the Community Pharmacy Foundation, was compiled and analyzed during the course of 2006. Each of the 10 pharmacies surveyed was located in a different state.

“Many of the seniors currently enrolled in Medicare Part D plans as of January 2006 were previously cash or Medicaid patients,” said Brian Reisetter, an adjunct UM faculty member and the study’s primary researcher. “The new Medicare plans have significantly lower reimbursement rates and dispensing fees for pharmacies, which had the expected result of lowering profits for those pharmacy owners who accepted those plans.”

Although the survey included a limited number of pharmacies, researchers believe that the findings are indicative of what is happening overall in community pharmacy.

“The reimbursement under Part D and the adverse effect on pharmacy has been mentioned by every independent pharmacist I have talked with since the legislation was implemented,” said Noel E. Wilkin, CPMM director and associate professor of pharmacy administration. “It is nice to finally have some numbers useful in quantifying the influence that the reimbursement is having on their businesses.”

The researchers expected profits to drop but were unsure how big the decline would be, Reisetter said.

“Small changes in reimbursement can have a drastic effect on profits, once you account for all the other expenses associated with operating a store,” he explained.

A number of community pharmacies closed across the country in 2006, and owners often cited Medicare Part D as the cause. Many pharmacy associations are concerned that these store closures may have a negative effect on access to a pharmacy, particularly in rural communities.

In fact, Mark McClellan, former administrator of Centers for Medicare and Medicaid Services, stated in a 2005 speech at the national American Pharmacists Association meeting that “access requirements [for Part D] will only be satisfied with broad participation of community pharmacies.”

“These decreases in profits are real for community pharmacy owners,” Reisetter said. “I think that, overall, pharmacy will survive this round of financial cuts.

However, legislators need to understand the effect of these cuts on the viability of the community pharmacy business model if we are going to depend on them to provide care for our seniors.”