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Scanning the Horizon: Areas of Concern for Rural Pharmacies PowerPoint Slides
Presentation by Rebecca Slifkin
North Carolina Rural Health Research & Policy Analysis Center
March 21, 2005

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Slide 1: Scanning the Horizon: Areas of Concern for Rural Pharmacies Rebecca Slifkin North Carolina Rural Health Research & Policy Analysis Center

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Slide 2: Retail pharmacy market over the last decade Market shares have changed Supermarkets: 79% + Mass merchants: 57% + Chain drugstores: 14% + Independents: 28% - Total number of dispensed prescriptions has increased from 7.6 per person to 10.6 But total number dispensed in independents has declined 8% Data Source: National Association of Chain Drug Stores; IMSHealth

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Slide 3: Independent Pharmacies Greater dependence on prescription drug revenue: 93% of independents' sales, but only 65% in chains, 12% in supermarkets, and 6% in mass merchants More common in rural areas 29% of pharmacies in MSAs, 48% in non-MSAs Although only 15% of all pharmacies are in rural areas, 42% of independents are located there

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Slide 4: Use of Mail Order Image: Bar graph showing the units dispensed using mail order versus retail outlets, urban and rural areas, 2002

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Slide 5: Who is Paying: Urban-Rural Variation Image: Bar graph showing retail prescriptions, percent by payer type for rural vs. urban, 2002

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Slide 6: Important characteristics of rural pharmacies More likely to be independent Declining market share More dependent on drug sales Lower prescription volume More likely to receive payment from Medicaid or cash Less competition from mail order

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Slide 7: But, environment is changing Medicaid budget constraints Implementation of MMA provisions Mandatory mail order for chronic disease in private sector

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Slide 8: Medicaid Pharmacy is big part of budgets and costs are rising rapidly Outpatient prescription drugs: 12% of all benefit costs (Kaiser) $10.2 billion in 1997, $23.4 billion in 2002 ~ 23% is for distributing and dispensing Many states are looking to cut expenditures by reducing payments to pharmacies

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Slide 9: Medicaid: How it works Optional benefit (but all states offer) Mandatory rules that affect pharmacies No copay for children and pregnant women Adult copay cannot be >$3.00 Pharmacy cannot deny services due to lack of copay funds

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Slide 10: Medicaid payments: Ingredient cost + dispensing fee Ingredient cost: AWP: Average Wholesale Price. Likened to car sticker price. States pay AWP - X% WAC: Wholesale acquisition cost. More closely approximates pharmacies acquisition costs. States pay WAC + X% MAC: Maximum allowable cost. Limit set by states FUL: Federal Upper Limit. Limit set by CMS

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Slide 11: Medicaid cuts -Why a rural concern? Higher proportion of business is Medicaid Medicaid payments based on averages Pharmacies with higher than average acquisition costs will suffer If independents in particular cannot negotiate low prices, or lose % to wholesaler (estimated at 3% of total retail price), may have smaller margin than larger chains. Prior authorization rules might create regulatory barrier

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Slide 12: Administration's proposal Cut 15 billion over 10 years through reduced payments to pharmacies States would pay Average Sales Price + 6% (to cover distributing, dispensing and counseling) Impact depends on pharmacy's current margin and acquisition costs Also changes rebate from pharmaceutical companies to states If states lose some of their rebates, may look for more cuts from pharmacies

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Slide 13: Outlook for rural pharmacies post-MMA Increased third party coverage is good for beneficiaries Effect on pharmacy revenue is not yet known Expect changes in volume of prescriptions filled, and payment received per script

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Slide 14: Post-MMA volume changes More insurance coverage should lead to more prescriptions filled, but Use of mail order will increase Pharmacy Benefit Managers can serve dual roles as benefit managers and drug dispenser PBM will likely aggressively push mail order Third party coverage linked to use of mail order If cost difference between community pharmacy and mail order, beneficiary must pay Unknown how many rural pharmacies will be included in PBM networks Access standards are relatively meaningless because of how rural is defined

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Slide 15: Post-MMA payment changes Any Willing Provider protects right to participate in PBM networks, but small rurals may have little/no negotiating power regarding contract terms, since access standards are such that plans won't need them Third party reimbursement is typically lower than cash payment Payments based on average favors mail order, and those with lower than average acquisition costs Impact of dually eligibles moving to Medicare will vary from state to state

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Slide 16: Other Issues Preferred networks under Medicare Some employers are moving to mandatory mail order for chronic disease, in hopes of saving money But, people will still come to local pharmacists with questions Large inter-state variation in Utilization Payers Proportion independents Medicaid payments

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Slide 17: Other Issues, continued Role of pharmacist in rural communities Work related to disease management CAH 24/7 coverage Quality implications if this is lost Workforce issues Supply of pharmacists Age structure Pharmacy techs and scope of practice