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KAISER HMO DECISION COULD BECOME AMONG "MOST INJURIOUS" RULINGS TO RETAIL PHARMACY "IN DECADES," NACDS 1985 CHAIRMAN JAMES HARRISON ASSERTS AT ASSN.'s ANNUAL MEETING

Executive Summary

The recent Kaiser Permanente decision by the Ninth Circuit could become one of the "most injurious" court rulings to retail pharmacy "in decades," Natl. Assn. of Chain Drug Stores (NACDS) chairman for 1985 James Harrison Jr. asserted April 28, at the group's annual meeting in Palm Beach, Fla. The decision, which allows the health maintenance organization (HMO) to purchase drugs at bid prices for resale to health plan members, "could put retail pharmacy in a very precarious position from a competitive point of view," Harrison said. "The decision flies in the face of the very principles of free enterprise and has the potential to be one of the most injurious decisions to our industry in decades." The Supreme Court recently declined to review the Ninth Circuit opinion. Harrison declared: "As [diagnostic related groups] and other pressures move hospitals into the retail arena -- we welcome them into the fray -- but, we welcome them under the same rules of the game by which we play." The NACDS chairman's remarks echoed comments by assn. President Robert Bolger at the Pharmaceutical Mfrs. Assn. annual meeting in April. Bolger contended that, given the same competitive rules, chains can successfully compete with hospital and HMO dispensors. "In most cases retail pharmacies, both chain and independent, can deliver pharmacy services more efficiently than inhouse pharmacies of the HMOs, given the same starting line," Bolger maintained ("The Pink Sheet" April 22, p. 14). Industry Response To HHS Inspector General's Report Will Occupy Much Of NACDS' Time In 1985 -- Bolger Maintaining that the chain industry's "chameleon ability" is "one of its greatest assets, Harrison asserted in his address that companies will adapt to meet challenges from new types of competitors. NACDS must also recognize the new players in drug retailing while continuing to represent its core membership of smaller chains, Harrison said. "The changing face of NACDS is reflected by the welcome addition to membership over the past year or so of major retailers like American Stores, Safeway, Kmart and Wal Mart," the assn. chairman observed. "Their presence will add strength to our assn. as it develops for us a broader base and as it enhances, especially, the strength of our position in the state legislative arena -- an arena that we believe will become more and more of a focal point of future opportunities." While NACDS also has much to offer these new entrants, Harrison declared: "This assn. recognizes the fact that the small chain is and will continue to be its life blood. While mergers and acquisitions will continue to be a way of life in our industry, the viability of the small chain is reflected in our own membership -- presently 171 members -- the largest number over the past five years. This viability is also reflected in the 400 plus small chains estimated to be operating in this country today." As chairman of an approximately 50-store firm, Harrison's election to NACDS' top post underscores the assn's. commitment to smaller chains, he indicated. In an update on legislative activities, Bolger told the meeting that the assn. will continue to seek Congressional assistance to block implementation of the HHS Inspector General's recommendations for revising pharmacy reimbursement costs under Medicaid. The Inspector General's recommendations, which urge reimbursement prices be based "along the lines of actual acquisition cost," are "economically unacceptable to corporate drug stores," the NACDS president said. Work on this issue, he explained, "will occupy much of our time in the months ahead." NACDS' efforts thus far have resulted in letters from several Congressmen to the Health Care Financing Administration (HCFA) objecting to the recalibration of drug acquisition costs. In addition, Bolger, along with the heads of several other pharmacy groups recently met with HCFA Administrator Carolyne Davis, PhD, to discuss the reimbursement issue. The assns. have been asking HCFA to stop the agency's regional offices from adopting the Inspector General's recommendations until HHS decides on revisions to overall Rx drug reimbursement policy. In line with the assn's longstanding opposition to the 'lower-of' provisions of HHS' reimbursement regulations, NACDS is "mounting a major campaign to replace" the regs with a formula that will "allow the marketplace to control program costs. The assn. believes and is "vigorously promoting a change in Medicaid policy that will eliminate the lower-of inequity and instead reimburse retail pharmacies on the basis of their usual and customary price, with appropriately set upper limits, while advocating other innovative reforms to this federal health care program," Bolger said in prepared remarks. The NACDS president noted that the assn. will renew efforts aimed at eliminating copayment requirements for Rx drugs under Medicaid. An amendment to Medicaid legislation eliminating drug copayments, introduced by Rep. Waxman (D-Calif.), passed the House last year but was not accepted by the Senate. Bolger also said the assn. will propose "drug vouchers, or direct payments for pharmacy providers" under Medicaid. Bolger pointed to the pharmacy crime legislation enacted in 1984, which he described as "one of the most significant achievements" of the year for NACDS and for the industry." In his prepared remarks, the assn. exec explained that "NACDS will monitor enforcement of this statute by our federal law enforcement agencies. If we find it needs refinement, we will seek to have these problems addressed by Congress." In his address, Harrison stressed that pharmacy will increasingly have to communicate its point of view to Congress and state legislatures. Referring to past disputes with other pharmacy organizations, the NACDS chairman told the meeting: "It is unimportant who gets credit -- what is important is that the view of pharmacy and the issues that affect it are addressed and considered by these legislative bodies.

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