We’ve all heard of the pending changes to reimbursement, specifically related to Medicaid and retail pharmacy. We understand that there are negative consequences for retail under this new model. Few of us stop to think about the ripple effect this will have on us all, as manufacturers, distributors, GPOs, and providers.

While Medicaid business represents arguably 10% of all the current prescriptions, the script volume of Medicaid in some independents and regional pharmacies can be as high as 60% of total prescriptions filled. While there is much debate as to degree of negative impact to pharmacy, the most common opinion, and the one supported by the Government Accountability Office (GAO), is that even at reimbursement of AMP plus 250% for generics, several products are up to 30% lower than pharmacies’ average net acquisition cost. Reimbursement for brands, if implemented at parity to Medicare Part B reimbursement (ASP plus 6%), will be 14% lower than pharmacies’ current average net acquisition cost.

Net impact to retail pharmacy is a Catch-22. If pharmacies fill Medicaid prescriptions under current proposed guidelines, they will lose money and go out of business. If pharmacies lose the Medicaid volume, they will go out of business. That being said, some retailers remain insulated for various reasons. States have the choice whether to adopt the AMP-based reimbursement model. Pharmacies in those states may be sheltered. Certain large national retail chains and all of the large mail-order pharmacies strategically avoided dependency on Medicaid over the years and will be insulated from this change. These providers, not by coincidence, are also the retailers that own and operate warehouses and buy their generics directly from the manufacturer at extraordinarily reduced net acquisition prices in comparison to independents and regionals.

Bottom line to the rest of us: change is on the horizon. Whether the proposed change is implemented exactly as indicated is not the point. The point is that reimbursement will definitely decline on Medicaid business. This will cause the least savvy buyers and those most dependent on Medicaid to be hit the hardest, and those manufacturers, distributors, and patients that depend upon this retail segment will bear the negative impact of the ripple effect. Stop to think: now that you can see the tsunami on the horizon, how will you proactively prepare your business?

> William Roth is managing partner of Blue Fin Group (Atlanta, GA; consultbfg.com), a boutique consulting organization. Founded in 2001, Blue Fin Group is a team of experienced industry specialists in channel management, commercial account sales, sales operations, data & data analytics, customer service, product security and related areas. Mr. Roth is also a member of the Editorial Board of Pharmaceutical Commerce.