Delaware’s Secretary of Health and Social Services said she is “very disappointed” that one of the nation’s largest drugstore chains, Walgreens, will withdraw from the state’s Medicaid program, citing reimbursement cuts.

In an announcement June 4, Deerfield, Ill.-based Walgreens said it will stop filling Medicaid prescriptions in all of its 66 Happy Harry’s, a company-owned pharmacy, as of July 6, citing “new and extreme reimbursements.” Walgreens said it is the largest pharmacy provider in the state.

As a step in meeting Delaware’s $800 million budget shortfall, the DHSS reduced the rate it pays pharmacies for medication sold to Medicaid recipients, a move that saved the state $1 million or about 2% of the total amount spent last year by the state on pharmacy reimbursement. According to the DHSS, reducing the medication payments is one of the ways it can avoid proposing cuts to Medicaid benefits or ending the program.

Walgreens said in a statement that under the new reimbursement rule, which took effect April 1, Delaware is “arbitrarily and unilaterally” reducing the price it pays for brand name medications and the result “will severely impact the ability of pharmacies to fill Medicaid prescriptions in the state.”

The new rate, Walgreens said, now gives Delaware the distinction of having one of the lowest payment rates in the country for brand name and generic medications.
Kermit Crawford, senior vice president of pharmacy for Walgreens, said the company made its decision “after much thought and care.”

“Quite simply, we can’t continue to participate in a program that, in some cases, pays us less than our cost to fill these prescriptions,” Crawford said in a statement. “By making it uneconomical for pharmacies to continue filling Medicaid prescriptions, the state’s new payments to pharmacies hurt the very patients that Medicaid is meant to serve.”

Walgreens instead recommended that the state eliminate it Medicaid pharmacy budget gap by focusing on its generic dispensing rate at all Delaware pharmacies, indicating that each percentage point improvement in that rate would save around $1.2 million annually.

Rita Landgraf

Delaware’s DHSS said it was negotiating with Walgreens in an effort to keep them in the program, including an offer to modify the reimbursement reduction by 50%, an offer that was rejected.

“I am very disappointed that Walgreens has taken this action,” DHSS Secretary Rita Landgraf said in a statement. “At a time when more and more Delawareans are losing their jobs, are being asked to pay higher taxes and state employees are being asked to take a significant pay-cut, we need our business partners to help share in the sacrifice that these difficult times require. Walgreens decision today, while unfortunate, will provide an excellent opportunity for other pharmacies to gain market share in Delaware.”

Landgraf’s office pointed out that according to the most recent SEC filings, Walgreens reported $59 billion in total revenue and $2.2 billion in net income for its last fiscal year.
While the reduced rate refused by Walgreens amounted to about $500,000 in savings to the state, the DHSS said, Walgreens still stood to collect $18 million in state revenue, even with the reduced rate.

Medicaid patients will be able to continue to have their prescriptions filled at more than 100 other pharmacies, including Rite-Aid, Shop Rite, Acme, Pathmark, Super G, Walmart, and Target, plus independently owned pharmacies throughout Delaware.