Summary
Political momentum is building to delay or even reverse reimbursement cuts to pharmacy for generic drugs under Medicaid.
Analysis
As I noted in Trouble Ahead for Independent Pharmacists (Council Site), the Deficit Reduction Act will hammer independent pharmacies by lowering gross margins on generic prescriptions.
The message is clearly getting through to our elected officials judging by the story in Drug Store News stating:
"In a bipartisan gesture, 46 senators co-signed a strongly worded letter March 13 asking CMS acting administrator Leslie Norwalk to hold off on the new Medicaid reimbursement plan until the agency had established a clearer definition of the AMP of a drug."
Ironically, Tuesday's Wall Street Journal article (Why Generic Doesn't Always Mean Cheap) highlights the perception challenge facing the pharmacy lobby. As readers of this blog know by now, profits on generic drugs subsidize the retail and wholesale distribution of much more expensive branded products. Recall that dollar-profit disparities between brand and generic dispensing created the need for AMP in the first place. See The Risk to Chain and PBM Margins on Generics (Council Site) for background details.
Manufacturers and drug wholesalers are also on a collision course over generics, especially if the next round of fee-for-service agreements leads to tighter payment structures for wholesalers. The big 3 -- AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson(NYSE:MCK) -- have been relatively quiet on this issue lately, but I expect that importation legislation will make the conflict clear. I wrote about this issue a couple of weeks ago in Pfizer wins again (Council Site).
While you ponder these strategic matters, I'm sure that anyone tracking retail pharmacy will surely enjoy reading the comments submitted to CMS regarding the proposed AMP legislation. They can be found on an obscure web page buried deep within the CMS site: Electronic Comments on CMS-2238-P (If the link doesn't work, go to CMS' main electronic comments page and search for Docket ID CMS-2238-P.)
