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Executive Summary

PURDUE DRUG PRICING STUDY "IN NO WAY" SUPPORTS arguments against increasing Medicaid reimbursement levels to pharmacies," the primary author of the study Joseph Thomas, PhD, maintained in an Oct. 4 letter to "The Pink Skeet." The Thomas letter notes that "the report is based on an analysis of prices and charges for all prescriptions dispensed in retail pharmacies for the study drugs. The data is not limited to Medicaid prescriptions." Thomas added that "other Medicaid specific data show declines in pharmacy margins under Medicaid." In his letter, Thomas also said that "The Pink Sheet" headline for an article about the study -- "Pharmacy profits kept pace with inflation..." -- is "incorrect." Thomas noted that "one conclusion" of the report is that retail pharmacy net profits decreased during the period covered in the report. The Thomas letter maintains that the report "does not include any findings of any increase or even stability in pharmacy profits." It also emphasizes that "margins do not represent profits. The margin referred to in the report simply represents the difference between what pharmacists paid for pharmaceuticals and the retail prices paid by consumers. It represents the fraction of the price left to pay operating costs such as rent, utilities, employees' wages, and perhaps increased inventory carrying costs associated with more expensive product acquisition prices." "The Pink Sheet" story noted that pharmacy net profits decreased from 1981 to 1988 and that pharmacy profit margins on prescription drugs fell from 35% to 26% in that period. However, the story focused on the report's finding that pharmacy margin levels held steady between 1981 and 1988 when measured in dollar terms, and that in 1981 constant dollars, pharmacy dollar margins increased 33 cents in real dollar terms.

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