(FORTUNE Small Business) – IT WAS A ROUGH YEAR FOR INDEPENDENT PHARMACISTS, and experts predict that 2007 will be even worse. The cause? New insurance regulations, which will probably force many local pharmacies to either shut down or be acquired.

The troubles began in January 2006, when Medicare Part D went into effect. One of the plan's provisions allowed pharmacy benefit managers, or PBMs, to lower the reimbursement levels they pay to pharmacies for patient medications. They also were allowed to drag out payments, sometimes for months. Since prescriptions account for 97% of the average independent pharmacy's sales, Part D's effect on cash flow and margins was immediate—and devastating. A survey of Wisconsin independent pharmacists found that 60% of them expected the new regulations would force them to close.

Last month pharmacies were dealt an additional blow when the Medicaid program threatened to cut the amount it reimburses pharmacies for generics, a move that would cause "a shakedown," says Bruce Roberts, vice president of the National Community Pharmacists Association. "Some independents will throw up their arms and say, 'I've had it. I'm out of here.' "

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