Case Study:
Inhalation Drug Cuts Are Taking A Toll On Providers
Published on Mon May 23, 2005
One provider does the math - and comes up worried for the future. If the government's reduction in reimbursement rates for inhalation therapies is putting a hurting on your company, you're not alone.
A small pharmacy provider has crunched the numbers to determine how the recently implemented cuts have affected his bottom line - and his findings portend trouble for the industry's future.
When the Centers for Medicare & Medicaid Services last year announced it was reducing payments for albuterol sulfate and ipratropium bromide, Home Care Alliance of Virginia Executive Director Wayne Stanfield decided to calculate how the move would affect his two small pharmacy businesses. The cuts would reduce his revenue by 76 percent, he estimated.
His prediction was pretty close, as it turns out. Stanfield recently finished analyzing his financials for the first four months of 2005, and his net revenue is down by 71 percent. The loss comes even though Stanfield managed to cut his total expenses by 52 percent, largely by eliminating staff.
For the first four months of 2004, Stanfield's pre-tax profit was 13.7 percent. For the first four months of this year, he experienced a loss of 7 percent.
"The cuts were too deep and too broad," Stanfield tells Eli. "Small providers like myself can't sustain that." Muse Study Findings Were Right On The American Association for Homecare last year commissioned a study by Washington-based Muse & Associates that looked at how the 2005 Medicare reimbursement formula would affect 109 pharmacies. Muse found the formula would underpay the actual cost of providing and dispensing albuterol sulfate and ipratropium bromide by $68.10 per monthly supply.
The assessment revealed a "serious gap" between reimbursement rates and the costs of providing the therapies, AAHomecare President and CEO Kay Cox said at the time.
That number that the Muse study came up with was "right smack on," Stanfield reports. If he applied that amount to his own business, he would have broken close to even, with a pre-tax profit of 0.1 percent.
"I wouldn't have made much of a profit, but there would have been no loss, either," he observes.
While the reimbursement cuts have also hurt large providers such as Apria and Lincare, they are particularly onerous for small providers like Stanfield. "Large companies and mail-order companies have economies of scale that I don't," he notes.
Stanfield plans to check his numbers again after six months. If the losses continue, he will be forced to make a decision about whether to stay in the inhalation drug business, he reports.
