Photo by: Marc Fader

Napolitano Pharmacy in Williamsburg sees 60 percent of its prescription business coming from Medicaid. Cuts to reimbursements have made an already difficult economic environment worse.

Ray Macioci, owner of Pilgrim Pharmacy in the Bronx neighborhood of Pelham Bay, pulls a bottle of pills from the shelf. “Let’s say this bottle of drugs costs $100,” he says.

The 61-year-old pharmacy owner, who has run his store continuously since acquiring it in 1976, flips over a piece of paper on the counter. He begins writing out the formula for Medicaid drug reimbursements in New York. Before September of last year, if a bottle of medication cost $100, pharmacies could count on about $9.25 of profit on each prescription filled. Since then, the profit dropped to $5.90.

Recent changes in Medicaid reimbursement rates have left independent pharmacies across the state struggling as profits on prescription have been cut in half. Independent pharmacy owners and trade groups say unless legislators in Albany increase reimbursement rates, independent drug stores will begin disappearing.

For years business was good for independent pharmacists in New York. According to the National Community Pharmacists Association, New York reached a peak of nearly 2,100 independent pharmacists at the end of 2009. It is estimated there are less than 1,950 today. They represent about half of the total pharmacies across the state, with the ratio likely higher in New York City.

The process for pricing prescription drugs is complex. In essence, a small group of companies are responsible for maintaining and publishing lists of drug prices. When a pharmacy purchases and sells a drug to a customer, their profit comes from being reimbursed some of the cost of providing this service.

Insurance programs, Medicaid included, use the listed price for a drug to determine how much pharmacies get reimbursed for dispensing medications. Pharmacies don’t determine the price they charge for prescriptions but instead sign what amounts to take-it-or-leave-it contracts with reimbursement providers.

Last September two of these publishing companies, First DataBank and Medi-Span, settled a lawsuit that accused them of artificially inflating the prices on a number of drugs. After the settlement, the companies—dominant players in the field—lowered the published prices on all drugs, not just the ones involved in the case.

Since reimbursement rates for pharmacists are set as a percentage of the published prices, lower prices mean lower dollar-figure reimbursements and lower revenue for pharmacies—unless the reimbursement formula is changed.

In response, private insurers in New York adjusted their reimbursement rates to reflect the lower published prices. Medicaid, which covers over 5 million people in New York, did not, cutting into the profit of any medication paid for through Medicaid. For smaller pharmacy owners, the cost of filling Medicaid prescriptions is starting to show.

One of those pharmacy owners, Robert Mattera, has owned the Napolitano Pharmacy in Brooklyn’s Williamsburg neighborhood since 2002. With 60 percent of his prescription business coming from Medicaid, the cuts to reimbursements have made an already difficult economic environment worse.

“If I was not the age that I am, I probably wouldn’t venture into the pharmacy business,” says Mattera, 48. “If I knew what it was going to be like, I’d just go out and look for a job.”

To offset the loss in pharmacy profits—which aren’t pure profit and go to offset labor costs, overhead and other business expenses—Mattera says he has tried enticing shoppers by bringing in environmentally friendly product lines, hoping to appeal to the younger earth-conscious customer base that makes up the neighborhood. He adds that he has also had to cut staff hours, and is finding it hard to meet his financial obligations.

“We have fallen behind on bills,” he says. “It was never like that when we came into the business.”

Mattera’s customers have so far stuck with him. Kim Kuzmenko, 54, says she had been coming to Napolitano’s since the early 1980s. She now lives in the Bronx but continues to receive medical care and get her prescriptions filled in Brooklyn. Napolitano’s prices, she says, could not be beat: “I personally would not replace these guys with a chain.”

Independent druggists offer a number of services, such as a borough-wide free delivery service or creating lollipops infused with vital HIV medicine for children, which independent pharmacists say they provide at no additional charge, setting them apart from their chain counterparts. Additionally, they are often long-standing members of the community who hire locally, reflecting the makeup better than a chain pharmacy.

While independent pharmacies are able to compete on prescription prices, their small size relative to chain stores like Walgreens or CVS put them at an overall disadvantage. Larger chain stores have the room to sell a wide variety of goods in addition to filling prescriptions. Independent pharmacies generate, on average, 93 percent of their revenue from filling prescriptions. For chains like Walgreens and CVS, according to a spokesman with the National Association of Chain Drug Stores, prescriptions make up less than 70 percent of their revenue. For smaller independent pharmacies, the difference means any cut into their profit on prescriptions hurts.

“Those doing the most Medicaid will be affected first,” says Macioci. “Independent pharmacies are disproportionately affected.”

In the current fiscal year, New York State expects to spend about $2.9 billion on Medicaid pharmacy costs. A spokesperson for the New York State Department of Health says that changes to the reimbursement rate would require state legislature approval. Jim Detura, chairman of the New York City Pharmacists Society, says this is exactly what his organization wants Albany to do. He called for a different reimbursement rate for independent and chain pharmacies.

“It’s not a novel idea, it’s not a precedent setting idea,” Detura says. He pointed to Louisiana, where state Medicaid offers independents a higher reimbursement rate. This, he says, would allow smaller pharmacies to thrive.

A bill sponsored by State Senator Jeff Klein, a Bronx Democrat, and passed by the Senate in September would bring the Medicaid reimbursement rate closer to what it had been before the settlement. However, the Assembly version, introduced by RoAnn Destito, a Democrat from Utica, continues to linger in legislative limbo.