Estimating the impact of Medicare part D on the profitability of independent community pharmacies.
BACKGROUND
Medicare Part D provides insurance coverage for prescription drugs to elderly and disabled consumers. Part D accounted for 24% of prescriptions dispensed by independent pharmacies in the first year of the program (2006). To date, the impact of Part D on independent pharmacies has been explored only in small, qualitative, or non-peer-reviewed studies.


OBJECTIVE
To develop preliminary estimates of the impact of Part D on independent pharmacies' profitability.


METHODS
A financial model was built to examine the impact of Part D on pharmacy profitability. A key input value was the gross margin percentage for Part D; the midpoint of estimates reported in the literature was used as the base-case input value. The remaining model inputs were derived from 2 non-peer-reviewed published sources: (a) the National Community Pharmacist Association (NCPA)'s survey of independent pharmacies, which provided financial data for the year prior to Part D implementation (2005); and (b) IMS Health national market research data, which provided information about changes in prescription drug utilization from 2005 to 2006. Model estimates represented a "typical" independent pharmacy, defined using mean values for financial measures in 2005 as reported by NCPA. The model examined the impact of Part D on the proportion of prescriptions reimbursed by other sources (private third-party insurance, Medicaid, and cash payments by patients); pharmacies' overall prescription gross margin; the number of Part D-induced prescriptions; the number of prescriptions lost to mail-order pharmacies; and net income before taxes. Key values and assumptions were subjected to one-way and probabilistic sensitivity analyses.


RESULTS
The model indicated that implementation of Part D resulted in a mean (SD) 22% (4%) decrease in net income before taxes. This change was primarily the result of an absolute 0.7% decline in the gross margin for all prescriptions. The lower overall gross margin resulted from lower reimbursement on Part D prescriptions. In the typical independent community pharmacy, Part D induced an increase in utilization of an estimated 427 prescriptions but 229 prescriptions were lost to mail-order pharmacies. The results were most sensitive to Part D reimbursement rates. Even under the most optimistic assumptions, Part D decreased net income. However, even under the least favorable assumptions, the typical independent pharmacy remained profitable.


CONCLUSIONS
Part D reduced the profitability of the typical independent pharmacy by an estimated mean (SD) 22% (4%) in 2006. This reduction resulted primarily from the lower Part D reimbursement rates.
Carroll
Norman V
NV
Virginia Commonwealth University School of Pharmacy, 410 North 12th Street, Box 980533, Richmond, VA 23298-0533, USA. nvcarroll@vcu.edu
D004363:Drug Utilization / Q000706:statistics & numerical data; D006801:Humans; D007356:Insurance, Pharmaceutical Services; D008329:Managed Care Programs; D054524:Medicare Part D / Q000191:economics*; D018803:Models, Economic; D015233:Models, Statistical; D010594:Pharmacies / Q000191:economics*; D012424:Rural Population; D014481:United States; D014505:Urban Population