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September 19, 2005

A cure or curse? | While the state and Penobscot Nation celebrate the impending launch of a mail-order pharmacy, small pharmacists worry about the competition

By Mike Woelflein
The shell of the former Olamon Industries factory sits behind the Penobscot Indian Nation government building on Indian Island. In one corner of the facility that used to produce audio cassette cases and other plastic products, the employees of PIN Rx buzz around their new headquarters, trying to get Maine's first mail-order prescription drug distribution center up and running.

In early September, less than two weeks from PIN Rx's latest projected opening ˆ— Sept. 19 ˆ— there was a lot of work to be done. There were no drugs on-site, and the workers were just setting up the shelves that will hold them. The security system was in place, along with the software to run the distribution system and the call center, which will receive orders from MaineCare recipients and other state-run, state-funded insurance and drug programs.

Susan Tringale, the pharmacist who will oversee the pharmacy operations under a still-to-be-hired CEO, pointed to a large empty spot on the floor. "That's where the AccuMed machine will go, next week," she said, referring to a pharmacy automator that will handle as many as 180 of the most popular medications. "The [AccuMed] will do a lot of things for us: track inventory, re-order when we're low, even tell the pharm techs the exact location of all the drugs. It'll count pills, label and fill the bottles. We have a lot of work to do, but it's coming along faster and faster all the time."

PIN Rx, an LLC to be overseen by a board of tribal members, may not make that Sept. 19 opening date, but the facility will open sometime this fall. When it does, a lot of people will rejoice. If it succeeds, the program will save state government and low-income Mainers money, while giving the Penobscot Indian Nation an economic boost. But others will greet the opening with concern. The owners of rural pharmacies and their employees don't think the mail-order pharmacy will really work. Even worse, they believe that if it does work it would be another blow to their industry, forcing more of Maine's independent pharmacies out of business.

The plan is to encourage the 364,000 or so clients of the state-funded drug programs ˆ—which cost $330 million in 2004 ˆ— to buy 90-day supplies of maintenance drugs for chronic conditions such as diabetes from PIN Rx. It's against federal law to mandate mail order, but the state plans to entice people by eliminating or reducing co-pays. Jude Walsh, a special assistant with the Office of Health Policy and Finance who has worked with the tribe to start the business since last fall, says the state will save nine percent on each prescription while helping the Penobscots.

"We'll realize significant savings, and we'll help the people who are enrolled in state-funded health care programs to save money, too," Walsh says. "And the state is very interested in helping with economic development for the tribe. We see it as win-win."

MaineCare recipients won't have co-pays on mail-order drugs, while members of two other low-income plans ˆ— Maine Rx and Drugs for the Elderly ˆ— will have reduced co-pays. Currently, MaineCare charges customers $2.50 for every drug from a retail pharmacy, up to a maximum of $25 a month. Because the dosage at retail pharmacies is limited to 30 days, versus the 90-day supply that will be available through mail order, customers could save as much as $75 over three months.

The state currently reimburses pharmacies at average wholesale price minus 15%, plus a dispensing fee of $2.35 for every 30-day bottle. With PIN Rx, the state will pay AWP minus 20%, plus a $1 fee for a 90-day supply.

But recent cuts to those reimbursement rates, combined with increased membership in state health programs, have already hurt rural pharmacies' profit margins, say industry leaders. That's why they don't see the arrival of a new competitor as a "win-win" scenario (See "Starvation diet," p. 34).

The road to economic recovery
For the tribe, PIN Rx is the latest effort to spur economic development, which has been a struggle since a bid by the Penobscots and the Passamaquoddies to build a casino in Sanford died by statewide referendum in 2003. Jobs remain scarce on and around the reservation, and tribal leaders continue to work toward creating entrepreneurial businesses to help the tribe and its people.

"We need to have successful businesses and we don't have a great track record of doing that," says Mark Chavaree, the Penobscot Nation's legal counsel and a member of the PIN Rx board who has been running the operation until a CEO is hired. "We're hoping to have a business that succeeds, [that] provides jobs in the tribe and the local community. If we can do that, we can build more [successful companies]."

Olamon, the previous venture occupying the 33,000-square-foot Indian Island facility, once employed as many as 190 people ˆ— 30% percent of them tribe members ˆ— before it shut down in 2001, a victim of a slump in cassette sales and rising raw material costs.

The effort to launch PIN Rx started in the spring of 2004, when the Penobscots, according to Chavaree, approached the Baldacci administration with an idea to import drugs from Canada and sell them to recipients in the state's drug programs. With the city of Old Town acting as a sponsor, the tribe obtained a $400,000 Community Development Block Grant from the Department of Economic and Community Development to update the Olamon building. Gov. John Baldacci asked the federal government to waive laws banning drug re-importation.

That change didn't happen, so the Penobscots and the Governor's Office of Health Policy and Finance shifted the plan to mail order, and announced that it could save the state $5 million in each of the next two fiscal years. In June, the project received a $500,000 grant from the U.S. Department of Agriculture, largely for the cost of software to handle orders from customers.

As of early September, eight employees were on board at PIN Rx, with a goal of 14 in six months and hopes for the company to grow to 40. Tringale is the lone pharmacist, but Chavaree says he's hoping to add a part-timer, along with more pharmaceutical technicians who will be cross-trained to receive orders and provide customer service. "We see this as the future," Chavaree says. "Fourteen good-paying jobs means something in this area, and 40 could mean a lot, to the tribe and to the community.

A chronic problem
Members of the pharmacy lobby aren't as enthusiastic about PIN Rx. They argue that if the plan succeeds, it will only add to a trend that has seen more than 14 independent pharmacies bought out or shut down in the past three years. Reimbursement cuts and increased participation in MaineCare, due in part to extended eligibility, have cut pharmacy profits to the bone and beyond, they say.

"Now, the state is using taxpayer money to help run a business that will compete directly with existing businesses," says Chris Gauthier, president of the Maine Pharmacy Association and a pharmacist at Miller Drug, an independent pharmacy in Bangor. "We've tried to stay quiet, but the governor keeps attacking community pharmacies, and it's driving us out of business."

The state already operates a two-year-old mail-order service for maintenance drugs, which uses a Wal-Mart distributor in Texas. But Texas law doesn't allow prescriptions from nurse practitioners or physician assistants to be filled, so a lot of Mainers can't use the service. As a result, Walsh says, the plan isn't marketed heavily. Only $5 million or so worth of prescriptions have been filled that way, compared to the $100 million the state hopes to fill through PIN Rx.

"I find it hard to believe that the state will be able to do this more cost-effectively than Wal-Mart," says Bob Morrissette, president and COO of the Scarborough-based Pharmacy Group of New England, which represents 50-plus independent pharmacies in Maine. "The worst case is, [PIN Rx] will have some success ˆ— but not enough to be good for the tribe ˆ— the state won't see a penny in savings and pharmacies will continue to close."

Community Pharmacies, an Augusta-based chain, sold seven Aroostook County stores to Rite Aid in November 2004, reducing the chain to eight stores across Maine. Independent pharmacies in Eastport, Stonington, Caribou, Rumford, Oakland, Machias and Lubec have closed their doors in the past three years, according to Gauthier and Morrissette, often leaving towns ˆ— and even regions ˆ— without a pharmacy.

Community Pharmacies CEO Joe Bruno, who served in the Maine House from 1992-2004, including a stint as the Republican leader, says his net margin is down to one percent, pushed by Medicaid reimbursement cuts. In Aroostook, Bruno says, with almost 75% of prescription revenues coming from MaineCare, business became unsustainable after the reimbursement fell from AWP minus 10% to AWP minus 15% between 2002 and February of 2004.

Walsh acknowledges the struggle for small pharmacies, but says that the entire industry is heading in another direction, toward mail order and telepharmacy operations like the one that will soon be set up in Lubec. (See "Bridging the gap," p. 26.) In October, the regional medical center in the Washington County town will start-up a vending machine-like system that will be hooked up to a remote pharmacy that can dispense 200 different medications.

"We're going to see more of that," Walsh says. "And if we're going to need mail-order services to reach patients in rural areas that can't get to a pharmacy, at least we'll do it in Maine."

PIN Rx LLC

31 Wabanaki Way, Indian Island

Acting CEO: Mark Chavaree

Founded: 2004

Employees: Eight, with a goal of 40 once the company is fully operational

Pharmacist: Susan Tringale

Service: Mail-order pharmacy serving patients enrolled in MaineCare, Maine Rx and Drugs for the Elderly

Anticipated volume: $100 million worth of prescriptions annually

Projected revenues, year one: $17 million

Contact: 817-7324

www.pinrx.com

Starvation diet

Chris Gauthier and Bob Morrissette remember fondly the days when they didn't have to spend so much time in Augusta. The duo has become a large part of the pharmacy lobby at the Capitol, representing independent stores, and lately they feel like they're under siege. "We weren't a political force, but now I'm down there all the time," says Gauthier, a pharmacist in Bangor and president of the Maine Pharmacy Association.

Morrissette, president of the Pharmacy Group of New England, a Scarborough-based buying group that represents more than 50 Maine pharmacies, adds: "PIN Rx is just the latest attack from the administration and the Legislature."

Gov. John Baldacci took office in 2003 facing two health care-related problems: skyrocketing costs and thousands of Mainers without health insurance, with the latter contributing heavily to the former. With the Dirigo Health Act, other initiatives and his support of the Penobscot Nation's mail-order pharmacy, PIN Rx, Baldacci has tried to cut costs while increasing eligibility for state programs.

For pharmacies, that's meant growing numbers of MaineCare customers, in the range of 75% or more of the population in the state's poorer, rural communities. Now comes PIN Rx, which the pharmacy lobby, including Douglas Carr, the legal counsel for Rite Aid in Maine, says could cost retail pharmacies $120 million to $130 million per year in lost fees and reimbursements.

"There are no profits left, especially with the cuts they've made, and now we think they're subsidizing and helping to run a business that will compete with us," says Morrissette.

Morrissette and Gauthier say PIN Rx is practically run as a state agency, and claim that Walsh, with the Governor's Office of Health Policy and Finance, has handled everything from negotiating with distributors to hiring employees, along with helping the company obtain two grants worth $900,000. (Walsh says she's an advisor, working to save the state money and help the Penobscots.)

The pharmacy lobby also has a few problems with the plan itself. They say three-month supplies will lead to waste when patients change drugs or dose levels, and that getting maintenance drugs from one source and acute drugs ˆ— including antibiotics and pain medicines, which will not be handled by PIN Rx ˆ— from another could lead to drug interaction problems. Such problems could, if they lead to serious health issues, end up costing the state more money.

Walsh says all MaineCare prescriptions will be routed through the same computer system, regardless of where they are purchased, allowing the pharmacist to see the patient's complete drug profile. Also, the mail-order program is designed for people who are on a steady dosage of a drug they're comfortable with. "It's not appropriate to do 90 days for new meds, or [when] moving dosages to find a therapeutic level," Walsh says. "We're targeting people who've been on a medication for two years and are happy with it."

That won't be enough to help Maine's independent pharmacies, according to the pharmacy lobby. "They're talking about 40 jobs at PIN Rx," Gauthier says. "Well, True's Pharmacy [in Oakland, which closed in 2004 after a legal dust-up with the Department of Health and Human Services] had 30 employees, and the other pharmacies that have closed had employees, too. What does the state say to them?"

Walsh says she understands that small pharmacies are operating on tight margins, but notes that the state is looking into plans that could help smaller stores compete, such as incentive payments to pharmacies in rural areas that see heavy use from MaineCare members.

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