State, Wal-Mart nearing showdown?

First, it was nursing homes that sued overstate health care spending cuts. The next suit sparked by the cuts could come from Wal-Mart Stores Inc.

The giant Bentonville, Ark.-based retailer is hopping mad over the state's new cost-cutting formula for reimbursing pharmacies that fill prescriptions

In fact, many Medicaid pharmacists have been bemoaning the twotier system implemented last summer that pays large drugstore chains like Wal-Mart less than smaller, independent stores.

Earlier this month, Wal-Mart capped off months of negotiations with Arkansas' Medicaid program by filing suit against that state's similar two-tier system.

In Arkansas, chain drugstores - defined there as 11 or more with a single owner - are reimbursed 6.8 pe rcent less than smaller, independent stores.

In its suit, Wal-Mart claims the formula is discriminatory and will cost the retailer $1.1 million a year.

Officials for Wal-Mart, which operates 80 pharmacies across Louisiana, said they were hopeful the situation could be resolved in Louisiana before July 1, the start of the new fiscal year.

But Foster administration officials told Business Report they had no intentions of changing the new reimbursement formula and believe Louisiana's two-tier system could be defended successfully in court.

The Louisiana system has previously reimbursed independent pharmacists the drugs' average wholesale price (AWP) minus 10.5 percent, while chains - defined in Louisiana as 16 or more stores with a single ownerhave been reimbursed AWP minus 13.5 percent.

When the state Department of Health and Hospitals was ordered to cut $126 million from Medicaid to help the Foster administration balance the state budget, reimbursements were further reduced in February to AWP minus 15 percent for indepen dents and AWP minus 16.5 percent for chains.

A spokeswoman for Wal-Mart says the retailer takes issue not with the rate of reimbursement, but with the two-tier system itself.

"A two-tier reimbursement system won't solve the problem of growing Medicaid drug prices," Jessica Moser said. "We're suggesting that we look for long-term and not quick-fix solutions. "

DHH will spend $470 million on prescriptions in the current fiscal year alone.

DHH Secretary David Hood said the two-tier system's reduced spending was far from draconian, considering its $20 million in savings was a "drop in the bucket" compared to the department's proposed $542 million in Medicaid drug expenses next fiscal year.

Foster administration officials acknowledged the negotiations were continuing, but the Arkansas conflict turned a notch higher when, two weeks after Wal-Mart filed its suit, the Illinois-based Walgreens drugstore chain also took the Arkansas Medicaid program to court over the same issue.

Nevertheless, the administration was standing firm last week.

The governor's policy adviser, Andy Kopplin, said the two-tier system was developed based on larger chains' comparatively cheaper cost of doing business.

The administration believes the system is "justifiable and defensible," Kopplin said.