Associated Press
By Jennifer Peter
Wednesday, October 3, 2002

BOSTON — State health officials Thursday scaled back a proposed cut in how much pharmacies receive for Medicaid prescriptions by two-thirds.

The state Division of Health Care Finance and Policy imposed a 4 percent cut in Medicaid reimbursements, overriding an 11 percent cut approved by the Legislature this summer. That reduces state savings in the program from $60 million to about $10 million.

"We believe this decision strikes an appropriate balance between the needs of our Medicaid patients ... and at the same time makes sure we provide the services in the most cost-effective way possible," said Robert Gittens, secretary of Health and Human Services.

Pharmacies are currently reimbursed at a rate of the wholesale cost of the drug plus 10 percent. The Legislature approved a minus-2 percent reimbursement, and the state's three largest drug store chains threatened to withdraw from the program, saying they'd lose money.

Under Thursday's decision, the Division of Health Care Finance and Policy will reimburse pharmacies for drugs at a rate of the wholesale cost plus 6 percent. This will be applied retroactively to all prescriptions filled Aug. 3 or later.

In addition to scaling back the cut, the state will also raise their "dispensing fee," money paid by the state to the pharmacy to cover the cost of giving out the drugs, from $3 to $3.50 for brand name drugs and from $3 to $5 for generic drugs.

Gittens said he informed the three pharmacy chains, which fill 60 percent of the state's Medicaid prescriptions, about the decision and is hopeful the pharmacies will continue in Medicaid. He said he has no direct assurances.

This summer, acting Gov. Jane Swift delayed the reduction for two months to allow time for regulatory hearings on how to fairly reimburse pharmacies for the prescriptions they provide.

Swift had established Oct. 2 as a deadline for establishing a new rate, which would be applied retroactively to all prescriptions filled Aug. 3 or later.

Driving the Legislature's decision to cut the reimbursement rate was a federal report that found that pharmacies were purchasing drugs from wholesalers at a deep discount, which was not being passed along to the state's Medicaid programs.

The pharmacies argued that they only get discounts on generic drugs, which make up less than 20 percent of the prescriptions filled in Massachusetts,and that the cost of the drug cannot be used as the sole basis for determining a reimbursement rate.

They also argued that the federal report surveyed only 256 of 52,000 pharmacies nationwide, and none in Massachusetts.

The Health Care Finance and Policy Commission conducted two days of hearings in early September at which state officials sought receipts and invoices from the pharmacies that would prove how much profit they were making.

The three major pharmacy chains, CVS, Walgreens and Brooks, initially refused, saying it was proprietary information. CVS, the state's largest chain, ultimately released some limited information last week.