IMAGE: Pharmacist Dave Redden
Don Ryan  /  AP
Pharmacist Dave Redden, seen standing outside his closed store in Sweet Home, Ore., blames the Medicare drug benefit for the loss of his business.
updated 9/17/2007 4:33:36 PM ET 2007-09-17T20:33:36

After nearly 25 years as the proud owner of Home Town Drugs and Gifts in Sweet Home, Ore., Dave Redding closed down this summer, joining a growing trend among small-town pharmacists.

Competition from mail-order pharmacies and larger retailers played a role in his decision. So did the long hours that came from running a business.

But Redden, 62, said one factor, the Medicare drug benefit, outweighed them all.

Before the benefit started on Jan. 1, 2006, many of his customers paid cash. Under the new system, private insurance plans pick up much of the tab. That was good news for the customers; not so for Redden.

The insurers used their considerable clout to demand bigger discounts. Plus, they did not have to pay Redden right away. The pharmacist said he often waited months for insurance plans to reimburse him.

Redden's bills did not wait, however. He took out loans to ease the cash flow crunch. First for $50,000, then a second for $60,000. The interest further reduced his profit margin. Eventually, he had enough. He closed shop and now works behind the pharmacy counter of the local Safeway.

"It just got hard to be continually borrowing money and getting more into debt and not seeing any light at the end of the tunnel," Redden said in a telephone interview.

Lobbying groups representing pharmacists say Redden's case highlights a serious decline in the ranks of independent pharmacists. About 5 percent of independent pharmacies, or 1,152, went out of business last year, according to the National Community Pharmacists Association.

The association says the Medicare drug benefit, known as Medicare Part D, led to lower and slower payments to pharmacists. The group wants Congress to pass legislation that would require Medicare's drug plans to reimburse pharmacists within 14 days of an electronic submission of a claim and within 30 days of all other submissions.

The legislation has bipartisan support. It has 200 co-sponsors in the House and about a dozen in the Senate. Most come from rural districts and states. About half of the independent pharmacies are in communities with fewer than 20,000 residents.

Opposition to the legislation comes from the insurance industry and the middlemen they hire to manage a plan's drug benefit, pharmaceutical benefit managers.

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Currently, Medicare and the private sector routinely use a 30-day standard when paying doctors and hospitals, so insurers should not be treated differently, the bill's opponents say.

"Thirty days is a reasonable standard by anyone's count, and we pay within 30 days," said Mark Merritt, president and chief executive of the Pharmaceutical Care Management Association, whose members include companies such as Medco and Express Scripts.

Merritt said companies would have to set up separate billing and reimbursement systems to meet the 14-day standard. He does not believe it is fair for his organization's members to have to take on that expense.

While the Medicare drug plans maintain they pay pharmacists promptly, a University of Texas study commissioned by the pharmacists found that wasn't the case.

The university's researchers studied about 3 million prescription drug claims submitted last year by independent and chain pharmacies. They found that less than 1 percent of claims were paid within two weeks, while 44.1 percent were paid after more than 30 days.

The researchers said the delays did not just occur in the program's early months.

"Twelve months into the Medicare Part D program, when we really expected most of the bumps in the system would be smoothed out, we found that pharmacies did not receive payment within 30 days for almost 41 percent of their December claims," said Kristin Richards, an associate researcher at the university's Center for Pharmoeconomics.

Merritt said he believes the Government Accountability Office, the investigative arm of Congress, should study how quickly pharmacists are being reimbursed. The issue demands more independence than reliance on a study funded by pharmacists, he said.

He also said the agency should examine whether organizations that pharmacists hire to collectively bargain with the drug plans contribute to any reimbursement delays.

Those bargaining organizations send claims in for the pharmacies. The plans are required to reimburse the bargaining organizations, which then pay the pharmacies. It is that middle step, which occurs at the pharmacy's request, that may be causing delays, Merritt contended.

Abby Block, director of the government's Center for Beneficiary Choices, said she senses that Merritt's assessment is correct and that payments are being held up by the organizations that pharmacists are hiring to handle claims.

She also said her office has questions about the University of Texas study and would like to talk to the researchers. The findings do not match a survey that Medicare officials conducted of the drug plans showing that 18 of the leading 20 prescription drug plans pay pharmacy claims on a 15-day billing cycle.

Pharmacists argue that insurers have an economic incentive to delay payment. They get millions of dollars from the federal government and from Medicare beneficiaries for administering the drug benefit. The longer they hold on to that money, the more interest that money can generate.

"They get paid up front and they have a vested interest in sitting on that money as long as possible," said Charlie Sewell, vice president of government affairs for the National Community Pharmacists Association.

Sewell said he is surprised that Medicare's survey did not show that all 20 leading drug plans were paying on a timely basis.

"When you ask somebody whether they're paying their bills on time, most will say yes," Sewell said.

Rep. Marion Berry, D-Ark., lead sponsor of the prompt-pay legislation, said he is confident the bill would pass the House if congressional leaders would schedule a vote.

"It's just been hard to get the leadership focused on it," Berry said.

The lead Senate sponsor is Senate Finance Committee Chairman Max Baucus, D-Mont.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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