Monday, March 29, 2010

Walgreens Pulls Out of Mediciad Program

Walgreens announced that it was pulling out of Washington state's Medicaid program because the state was paying prices that did not cover the actual cost of many of the program's medications.

For many years the government programs (Medicare and Medicaid) have paid lower prices than other payers. They are able to do this because of the hidden subsidies that other payers pay to make up for short falls in government program payments.

With health reform upon us, we will need to closely watch these trends. Part of the reform package brings Medicaid payments up to Medicare levels. But will this create even more pressure to further lower Medicare rates?

On top of the hidden subsidies, the private payers will now pay a premium tax too.

Does this ultimately push the private insurers out of business and leave us with a single payer option? Or does the government v. private pay differential grow enough that we end up at a two tiered system?

Time will tell, but as providers refuse to deal with certain payers, politicians and the markets will react.

We welcome the provider feedback (Walgreens as an example) that incentives can change provider behavior. If politicians and the markets would incorporate more consumer incentives, then maybe we will end up with a value based system that patients will embrace.

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