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Who's Taking the Hit: Pharmacists who serve Medicaid clients face financial woes of their own

Mike Cramer

Pharmacist Mike Schaltenbrand finds himself in need of a prescription. He needs something - and soon - to soothe his ailing bottom line. 

The owner of two inner-city pharmacies in East St. Louis, Schaltenbrand has been severely affected by the state's ongoing efforts to reel in its burgeoning Medicaid budget. In the span of two months, his income has declined by 25 percent because of changes made in Springfield aimed at cutting the state's costs of providing health care services to the poor.

Funding cuts imposed shortly before Christmas by the state Department of Public Aid have meant Schaltenbrand has had to delay payments to his suppliers. And, more important, he has had to lay off a pharmacist and cut back the hours of some of his technicians. Neither step makes it easier to deliver state-subsidized prescriptions to a customer base that is mostly elderly, doesn't drive and often lacks telephones. Almost nine of every 10 customers at Schaltenbrand's Medicate pharmacies rely on Medicaid to pay for their prescriptions.

"This comes at a time that is drastic for us because this time of year is the heaviest volume for pharmacies. It's the cold and flu season," he says.

Schaltenbrand's woes are shared throughout the state by pharmacies just like his that serve a high percentage of Medicaid clients. To cope with an unexpected $235 million shortfall in this year's Medicaid budget, Gov. George Ryan's administration engineered a series of cutbacks worth $256 million over the next two years, including delays in payments to hospitals and reductions in reimbursement rates for pharmacists. Those steps, coupled with a $200 million supplemental appropriation request to come this spring, should bring the state's Medicaid budget into balance again. But that prospect offers Schaltenbrand little comfort.

"If these cuts stay in place, we're in trouble. I have looked at as many ways as I can to cut corners," he says. "The next thing I do is cut an additional pharmacist and technician to pay my bills in a timely fashion."

A combination of factors has led to the rapid jump in the state's Medicaid budget, which stands at $5.6 billion but was projected to grow by a staggering $1 billion by next year without cuts. One cause is that more pregnant women than anticipated are having their health care paid for through Medicaid. Another is that the cost of prescription drugs grew by 25 percent, well above the 19 percent state budget officials had forecast. And there's the continued expansion of the KidCare children's health insurance program.

"We came to the conclusion that, absent any action, by the time we got to fiscal year 2002, we'd need over $1 billion more in the budget. We had to take action as soon as possible to bring it back into balance," says George Hovanec, deputy director of Ryan's budget office. The state instituted new policies for paying pharmacists, resulting in savings to the state of $65 million. Now, instead of getting a fee equal to 10 percent of a prescription's cost, pharmacies get a flat rate for each drug order dispensed. The average fee pharmacies get per prescription is $4.17, compared to $5.10 under the former, percentage-based formula. Also, the state lowered the premium it pays pharmacists to acquire medications and announced plans to widen use of cheaper, generic drugs.

Hospitals also face belt-tightening. Those that serve Medicaid patients were due for an increase in reimbursement rates in January, but that has been delayed until April, resulting in an $18 million savings to the state. In addition, the state, when reimbursing hospitals for their care of Medicaid patients, will pay either the hospital's rate for services or the amount Medicaid prescribes, whichever is less. That step is expected to save the state $39 million over two years.

These moves have encountered criticism in the General Assembly, particularly from those sympathetic to the plight of family owned pharmacies.

"What's happening is that pharmacies - the small stores and retail outlets - are being asked to bear the total burden at this point for the problem in the Medicaid line item, which is out of control. It's not the pharmacists' responsibility for that line item being as it is," says Sen. Frank Watson, a Greenville Republican and a fourth-generation pharmacist.

Gov. Ryan, also a pharmacist, has asked Watson to chair an advisory group to contemplate a series of changes that could keep future Medicaid costs in check without putting the financial burden on pharmacies. Watson says his working group, which includes representatives from the Illinois Retail Merchants Association, the Illinois Pharmacy Association and pharmaceutical companies, may consider plans to limit the types of drugs Medicaid covers and to impose a co-payment on Medicaid prescriptions of between 50 cents to $2 per prescription.

Both steps may be unpopular with Medicaid recipients. Schaltenbrand knows that if his customers have to pay anything for their drugs they likely will have to scrimp on other life essentials.

"Fifty cents doesn't sound like a great deal. But they'd have to forgo something else because they're living on limited means no. Some patients [are] taking multiple medications for multiple conditions. You could be talking 12 or 15 medications for someone, all that are necessary, and end up paying $7.50 or $8," he says.

Schaltenbrand recognizes the state's ability to pay is finite. But he bristles at the severity of the cutbacks, considering the state expects to have $1.2 billion left in the treasury when the current fiscal year ends on June 30. "I understand emergency situations, and I understand the need to keep a reserve. But when you have that kind of money sitting in the bank and you're talking about drastic measures for people in the inner cities, there are other ways of getting the job done," he says. "I fully agree with the governor's right and his need to cut expenditures, but there are other ways to do it."

Dave McKinney is Statehouse bureau chief for the Chicago Sun-Times.

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