1. 23 Clearly, there are limits beyond which a payer cannot squeeze providers—a fact nicely demonstrated by a series of events that recently occurred in Maryland. During 1995, the state had a pharmacy benefits program with PCS Health Systems for almost 100,000 state employees and retirees. In 1996, the state put the contract out for bids, and the lowest bidder was Medco, a subsidiary of Merck. When Medco sought to implement its program, it discovered that the chain pharmacies in Maryland (Rite Aid, Giant Food, Neighbor-Care, CVS, and Revco) refused to participate because the reimbursement rates were too low. Maryland ultimately canceled the contact because it did not believe Medco could meet the contractual requirement that a participating pharmacy be within three miles of 90 percent of state employees and retirees. The state sought new (higher) bids, and re-awarded the contract to PCS. The Federal Trade Commission recently dropped an investigation into whether the pharmacies violated antitrust laws (that is, through a concerted refusal to deal or a group boycott). See generally, M.W. Salganik , “FTC Ends Investigation of Pharmacies in Md.,” Baltimore Sun, June 24, 1997, at C1. The historical lack of access for Medicaid patients reflects this difficulty as well: Providers were simply unwilling to see Medicaid patients because the rates were too low.
2. “Evaluation of Medicaid Managed Care: Satisfaction, Access, and Use,”;Sisk;JAMA,1996
3. “Can Managed Care Plans Control Health Care Costs?,”;Zwanziger;Health Affairs,1996
4. 4. U.S. General Accounting Office, Medicaid Section 1115 Waivers: Flexible Approach to Approving Demonstrations Could Increase Federal Costs (Washington, D.C.: U.S. Government Printing Office, Nov. 1995).