Pharmacies Benefit From State Medicaid Money

Amid warnings of budget shortfalls and debate over how much chain stores should profit from selling drugs to the poor, officials behind Arkansas' $1.6 billion Medicaid program say the other side of the story is often obscured.

Besides being a perennial trigger for controversy, Medicaid also provides a booming source of trade for Arkansas druggists, doctors and hospitals, as well as for some data crunchers in Texas.

Fueled by a projected 18 percent jump in drug costs this year, Medicaid's impact on the Arkansas economy is growing. Eighty new psychotropic drugs — keys in society's pillbox for treating the old and the poor — await approval somewhere in the Federal Drug Administration pipeline.

"Medicaid is the largest provider of health care in Arkansas," said Joe Quinn, spokesman for the Arkansas Department of Human Services. "The other piece of this becomes clear when you see the volume of dollars going to pharmacies, mental health providers, hospitals and others."

An analysis of payments to the 40 top providers of medical assistance for DHS during 1998 and 1999, as well as a list of overall payments for everything from van rides to Food Stamps, puts private enterprise high on the list of DHS vendors.

Tallied by taxpayer identification numbers, the analysis shows that Department of Human Services treatment programs consistently rank at the top of the list.

With the tab for Arkansas State Hospital included, DHS accounted for $128 million in the state medical assistance money last year — up 18 percent from the $108.3 million paid out in calendar 1998.

Arkansas Children's Hospital ranked second with overall payments of $67.11 million for its hospital, clinics and pharmacy.

The University of Arkansas for Medical Sciences, along with its clinics and pharmacy, ranked third, followed by the nursing homes of Beverly Enterprises Inc., the Arkansas Department of Health and Rose Care Inc.

In fact, Quinn said, 78 cents of every dollar spent each day at an Arkansas nursing home comes from Medicaid.

On the private side, Wal-Mart Stores Inc. placed seventh among the top medical vendors. In all, DHS paid $16.9 million last year to 93 pharmacy accounts operated by the world's largest retailer in Arkansas.

That's a 27 percent increase over the $13.3 million that Bentonville-based Wal-Mart collected for Arkansas Medicaid prescriptions in 1998.

Stephen LaFrance Pharmacy Inc. of Pine Bluff was paid another $6.9 million in payments through 50 USA Drug Stores and Super D Express pharmacies in Arkansas, ranking 23rd in overall DHS medical assistance payments.

Pharmacy Corp. of America collected another $6.08 million and ranked 33rd out of the 40. Walgreen Co., which joined Wal-Mart in a well-publicized federal court fight over DHS payments last spring, didn't make the top 40.

Medicaid recipients apparently also did a little shopping while they filled their prescriptions. Wal-Mart topped the list of grocers for DHS trade — collecting $27.9 million in food stamp redemptions at the 36 of its Arkansas stores last year.

Forty-one Kroger stores placed second with $24.8 million in redemptions, followed by 19 Save-A-Lot stores collecting $15 million.

In a 1999 tally of other expenses, the agency ranked Electronic Data Systems, the Plano, Texas, computer giant founded by political gadfly Ross Perot, No. 1 with payments totaling $18.8 million. By comparison, administration and management of transportation ranked 10th at $723,016.

The numbers behind Medicaid emerged during a pair of lawsuits filed by Wal-Mart and Walgreens in May over DHS' imposition of a two-tiered schedule for prescription payments.

The schedule, which took effect in April, paid the chains — companies with 11 or more stores — 6.8 percent less than independent pharmacies for the same drugs.

LaFrance did not join the suit.

DHS attorney Richard Dahlgren argued that the large chains, in effect, receive volume discounts from the nation's drug manufacturers and gain extra savings by warehousing the products.

On June 7, U.S. District Judge G. Thomas Eisele declared the system "arbitrary, capricious and contrary to the Medicaid Act" and restored DHS payments to the level that existed prior to April 28.

He permanently barred DHS from imposing the new system and took similar action in the Walgreens case a month later.

The decision left DHS officials, who predicted the volume discount plan would save the state about $4 million a year, grumbling they had been out-lobbied. They stopped short of blaming Wal-Mart, however, and blamed the state's lobby of pharmacists in general.

"Anytime you engage in the process of changing the flow of Medicaid money at a significant level, political questions come into play," Quinn said.

In his order, Judge Eisele ascribed the politics to DHS and its decision not to attempt across-the-board reductions for prescription payments.

"This court has searched in vain for any support for the department's decision to impose the 6.8 percent differential . . . " he concluded. "The two-tier plan was driven by budget and political considerations."