Only weeks before its initial implementation, there remains significant uncertainty about the new Medicare drug benefit among retailers and their customers.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003, as it is officially known, was passed by Congress last fall and signed into law by President Bush. It will be rolled out in two phases: a temporary discount drug card program, with sign-ups starting on May 3; and then the full program, which will be implemented in January 2006.
The sweeping legislation sought to address the lack of a prescription benefit in the Medicare program, originally enacted in the '60s. Because of that, Medicare recipients have either had to purchase supplemental coverage, do without, or in recent years, seek their prescriptions from uncontrolled Internet or foreign sources as drug prices escalated. With the aging population, political pressure to change the program had become intense, and it is this same demographic trend that will force more changes, whether to add to the benefits, or to derail the entire Medicare program because of unwieldy costs. This will be the subject of continued debate even as the discount prescription card program gets under way next month, and as the presidential election campaign continues. (Note: Next week, Part 2 of this SN series on Medicare reform will focus on the discount cards.)
While no one knows for sure what shape the eventual program will take -- all sources agree financial and political pressures are likely to result in some kind of change -- there will be several unavoidable impacts on retail pharmacy:
A decrease in profits.
An increase in prescriptions and store traffic.
A demand on pharmacists for information and education about the program as it unfolds.
Despite the uncertainty, this is likely to yield positive results for supermarkets, the retailers and other experts agreed.
"In the long run, we are looking at filling more prescriptions for less money," said Curtis Hartin, director of pharmacy, Schnuck Markets, St. Louis. For a freestanding drug store, that may be undesirable, but it is a different story in supermarkets where pharmacies attract customers who shop other areas of the store.
"We don't stand alone. We operate as a department of the total store. So anything we can do to keep folks in our stores and keep them as happy customers, then we win all the way around," Hartin said.
The Medicare drug reforms will have a positive impact on supermarket pharmacy, said John Fegan, vice president, pharmacy, Ahold USA, Quincy, Mass. "Certainly, there could be some erosion of profitability and margins, but overall, we are going to have people in the marketplace who currently aren't using the pharmacies for prescriptions, or who haven't had prescriptions filled because they've been on limited fixed incomes," he said.
Each company will have its own method of marketing, he added. Supermarkets have a particular advantage in this situation because they can appeal to the traffic they already have in their stores. "It's an opportunity for us to showcase our services and attract more people," he said.
Initially, the Medicare drug benefit will increase prescription volume for retail community pharmacy "simply because the program Congress has put into place opens the door for a lot of seniors who have no prescription drug coverage and will now have a drug benefit," said Ty Kelley, director of government relations, Food Marketing Institute, Washington. "That provides an opportunity for our members who are in the pharmacy business to reach out and attract a new population of customers to have their prescriptions filled," Kelley said.
Any modification of Medicare is likely to be an improvement, noted Roy White, vice president, education, General Merchandise Distributors Council Educational Foundation, New York. "This is a step in the right direction, although it needs to be recognized that there appear to be a number of flaws in it. But it opens up assistance in spending for prescriptions to some income groups. So in that sense, it will very likely help pharmacies across the country," he said.
Medicare customers can be expected to seek pharmacists' advice in resolving their many questions about the program. A recent study by the Kaiser Family Foundation, Washington, found that nearly 70% of Medicare recipients weren't even aware that the new drug benefit had been signed into law. While two-thirds of seniors said they followed the debate on the reforms closely, only 15% said they understood the new law very well, the survey reported.
Schnucks will be "very actively involved" in educating staff and customers about the program, Hartin said. Meetings are scheduled with all pharmacists in the coming weeks and "we want to let all of our patrons know that we do have the answers, that we will be able to help them make a decision about which card to choose. We will even be able to help them register for one of the cards in our stores," Hartin said.
The increase in the availability of prescriptions means a greater need for consumer counseling, "and supermarkets are exceptionally well-positioned to do that," said Jon Hauptman, vice president, Willard Bishop Consulting, Barrington, Ill. "Supermarkets, in general, get very strong marks for their counseling services. So I think supermarkets should win their fair share, if not more, of this increased script business."
In terms of consumer understanding of the Medicare drug benefit, "I think we have some work to do there," said Cathy Polley, vice president, state and government affairs, National Association of Chain Drug Stores, Alexandria, Va. "It is a comprehensive law to understand."
'A Work in Progress'
The consensus of retail and other executives polled by SN is that the Medicare prescription benefit plan that becomes effective in January 2006 is likely to be different than the one mandated by the recent legislation.
With the program costing more than initially projected, the election year possibility of a new president, and flaws like the so-called "doughnut hole" -- a gap in coverage for some participants -- further changes are likely, they told SN.
"2006 is a long way away and I think the legislators and various administrators are going to have to look at it very closely to see whether it is feasible in its current form, and I don't think anybody can really answer that yet," said John Fegan, vice president, pharmacy, Ahold USA, Quincy, Mass.
"I'm really not sure that the government is going to be able to fund this program long-term," said Michele Snider, director of pharmacy, Save Mart Supermarkets, Modesto, Calif. "It is so confusing for the seniors now that there may be some demands to change the program to make it more understandable."
Members of Congress from both parties want to see changes to the program, noted Ty Kelley, director of government relations, Food Marketing Institute, Washington. Some are concerned about the "doughnut hole, where there is no benefit to seniors after they reach a certain limit and before catastrophic coverage kicks in."
Others feel the federal government should be able to negotiate directly with manufacturers to make drugs more affordable, and some feel seniors should have access to the same prices as in countries like Canada. Meanwhile, others think "the entire benefit is too costly and needs to be pared back," Kelley said.
Then there is the possibility of a new president. "So it is a work in progress," he said.
Many details still need to be worked out, said Cathy Polley, vice president, state and government affairs, National Association of Chain Drug Stores, Alexandria, Va. "They are going to start writing the regulations this year, and next year we'll have a better idea" of how the final program will work. "I think a lot will depend on how the discount card rollout goes," she said.