In a revolt against a cost-cutting managed care firm, three large chains and a network of independent pharmacies said yesterday that they are refusing to participate in the state employees' drug plan.
That means that after Jan. 1, 92,000 state employees and retirees won't be able to get their prescription benefit cards honored at Rite Aid, Giant or NeighborCare.
The EPIC pharmacy network, which represents more than 200 independent pharmacies in Maryland, has also declined to participate as a group, although individual EPIC members may choose to participate.
The state selected Medco Containment Services, Inc. in September to manage its prescription benefits plan, after competitive bids in which 11 bidders submitted 16 different proposals, according to James B. Rowland, assistant to the state Secretary of Budget and Fiscal Planning. Mr. Rowland said Medco offered the lowest price bid -- the contract is expected to cost $119 million over two years -- and received the highest ratings for capability of handling the work.
"Medco is not offering terms giving a fair value to the pharmacy," said Michael G. Bronfein, president and CEO of the 21-store NeighborCare chain. "It's an exploitative relationship -- and we're not going to allow ourselves to be exploited any longer."
The battle of the Maryland drug stores is being played out as part of a larger war, as insurance companies and benefits managers try to hold down costs by cutting rates to providers such as doctors and hospitals.
Companies running plans, known as pharmacy benefits managers (PBMs), "have been aggressively marketing a low rate" to employers, said Janice Zoeller, editor-in-chief of American Druggist, "and then turning around and trying to force the low rates on pharmacists."
The response of the Maryland pharmacies -- with so many refusing to accept new rates from such a large plan -- is "somewhat unprecedented," said Ken Whittemore Jr., vice-president of the National Association of Retail Druggists.
Gary Wirth, assistant director of managed care programs for the pharmacies in the Giant supermarket chain, said Giant has been making about $2 on each state prescription. With the rates offered by Medco, he said, Giant would lose about $2 on each state prescription.
Kevin Colgan, a spokesman for Medco, said, "State employees and retirees will be able to have the same convenient service from community pharmacies they have had in the past." He declined to say which pharmacies in Maryland are participating -- "as a matter of policy, we don't discuss that" -- but said state employees and retirees would be mailed a list after Christmas.
The rates pharmacies get from managed care plans are set by contract, and are based on a percentage of a published average wholesale price (AWP) plus a dispensing fee. The AWP is essentially a "sticker price;" most pharmacists, both chain and independent, pay about 16 percent below it.
The Maryland plan, currently managed by PCS Health System of Scottsdale, Ariz., has been paying 8 percent below AWP plus a $3.75 fee, Mr. Wirth said, while Medco is now offering 15 percent below AWP plus a $2 fee for "name" drugs and $2.50 for generic drugs.
Apart from tension over rates with pharmacists, the pharmacy benefits managers have been controversial. Some are owned by
large drug firms -- Merck & Co. paid $6 billion for Medco in 1993 -- leading some critics to say the PBMs promote drugs manufactured by their parent firms to the exclusion of competing products. Medco agreed in October with Maryland and 16 other states to make its relationship with Merck clear in marketing. While admitting no wrongdoing, it paid $1.9 million to cover the cost of the investigation.
Critics have also accused PBMs of attempting to push patients into filling prescriptions by mail order. "Given the fact that Medco owns the largest mail-order company, it doesn't come as any surprise they're trying to entice people into that," Mr. Whittemore said.
Managed care now accounts for slightly more than half of all prescriptions, compared to 30 percent in 1988, he said.
In a survey of pharmacists published by American Druggist in March, 52.1 percent said their profit margins are "being greatly decreased" by managed care.
While this affects large chains -- such as Rite Aid, with 179 stores in Maryland -- "the ones really being hurt are the independent community pharmacies -- they're being forced out of business," said George Dukes, chairman of the department of pharmacy practice and science at the University of Maryland School of Pharmacy.