Objective: Since the implementation of Medicare Part D, numerous anecdotal descriptions and a few small studies have reported low reimbursements to community pharmacies. The purpose of this study was to quantitatively assess the impact of Medicare Part D on percent gross margin earned by independent pharmacies in Texas using prescription claims data collected by a pharmacy claims switching company for dual eligible beneficiaries. Methods: The study evaluated a total of 457,611 claims for prescriptions dispensed in the fourth quarter of 2005 (n=152,521) and the second and third quarters of 2006 (n=305,090). The prescriptions were dispensed by 313 independent pharmacies in Texas to 24,576 dual eligible patients. Percent gross margin was compared between Medicaid and Medicare Part D claims as well as among several popular Prescription Drug Plan (PDP) sponsor claims. Results: The mean percent gross margin for prescriptions dispensed before Part D (Medicaid claims) was 26.7%. The mean percent gross margin for claims dispensed after Part D (Medicare claims) was 17.0% (using ingredient costs in 2006 dollars) or 20.4% (using ingredient costs adjusted to 2005 dollars), a reduction of 36.3% and 23.6%, respectively. Among the five PDP sponsors identified as having the greatest number of claims in the sample, the mean percent gross margin ranged from 12.0% to 19.8%. Regression analysis confirmed that the PDP sponsor, in addition to the proportion of generic drugs dispensed, is a significant predictor of a pharmacy's overall percent gross margin. Conclusion: These findings support pharmacy assertions of lower reimbursements from Medicare Part D payers compared with Medicaid payers. Based on these findings, pharmacies can respond to this new environment by accepting Part D plans with higher average percent gross margins and increasing the proportion of generic drugs dispensed to Medicare beneficiaries.