The Estimated Impact of Drug Importation, Mandatory Mail Service, and Medicaid Fee Reduction on Community Pharmacies in Michigan

Mandatory Mail Service, and Medicaid Fee Reduction on Community Pharmacies in Michigan One common characteristic of the trend toward increased use of mail-service pharmacy services and personal importation of pharmaceuticals is the shift of prescription sales from Michigan pharmacies to out-of-state pharmacies. The absolute and relative economic impact of 3 developments affecting Michigan community pharmacists are of interest: (1) the adoption of mandatory mail-service requirements in pharmacy benefit programs of Michigan employers, (2) the hypothetical legalization of consumer importation of pharmaceuticals including crossborder shopping, and (3) the recent Michigan Medicaid pharmacy dispensing fee reduction. A hypothetical community pharmacy unit was constructed using aggregate statistics to investigate the estimated outcomes of these 3 policy changes. Estimates of the magnitude of mandatory mail-service pharmacy and drug importation were developed from data from the Congressional Budget Office (CBO) and from a 2003 report from Milliman USA (consultants and actuaries) funded by the Pharmaceutical Care Management Association (PCMA). These estimates were applied to the hypothetical community pharmacy unit and to the total Michigan community pharmacy market, yielding macroeconomic measures of lost sales, profits, and salaries. Assuming importation of pharmaceuticals is legalized, the total pharmacy and manufacturer loss is 1,778 jobs in Michigan, and lost sales to out-of-state and out-of-country pharmacies is $450 million. Mandatory mail-service pharmacy shifts $750 million to out-of-state pharmacies, and the equivalent of $81 million is lost in annual employee salaries in Michigan. The Medicaid fee reduction reduced community pharmacy revenue by $16 million. The 3 policy developments combined result in total community pharmacy lost sales of $1.216 billion (20% of a $6 billion market) and $280 million in lost payroll and net profits to owners of Michigan pharmacies. Therefore, mandatory mail service in employer health plans had the most significant impact of the 3 policy changes, accounting for 62% of the total financial impact. Unlike the broad effects of drug importation on drug manufacturers and pharmacy wholesalers as well as community pharmacies, mandatory mail service primarily affects Michigan community pharmacies. The reduction in the Medicaid dispensing fee impacted the profit margin for pharmacy owners but had little if any impact on salaries. The background for this analysis includes a Michigan community pharmacy market that faced the prospect of significant private policy changes by major employers mandating mailservice pharmacy services and the state of Michigan reducing the Medicaid dispensing fee by 34%, from $3.77 to $2.50 beginning January 1, 2004. Along with these 2 proposed policy changes, there was significant interest in legalizing importation of pharmaceuticals because personal importation also shifts prescription sales to out-of-state pharmacies. These 3 public and private policy developments provided an opportunity to examine the economic impact on Michigan community pharmacies. The objective of the present analysis was to measure the collective and relative economic impact of the shift to employermandated mail-service pharmacy services, personal importation of pharmaceuticals, and the Medicaid pharmacy dispensing fee reduction. The economic impacts are estimated per pharmacy and extrapolated for the entire state of Michigan. The pharmacy unit used for illustrations represents an amalgamation of all Michigan community pharmacies. Using published values for total and median prescription drug sales from the 2004 NCPA-Pfizer Digest, a hypothetical prescription drug pharmacy unit was constructed. It was assumed that Michigan residents consumed $6 billion in prescription drugs in 2003, based upon published estimates of expenditures in the range of $5.9 billion to $8.4 billion. The number of community pharmacy licenses in Michigan exceeds 2,000, but there are multiple licenses for the same location in some cases. For the COMMENTARY