A new rule by the Centers for Medicare and Medicaid Services could slash by more than one-third the average amount the government reimburses pharmacists who fill Medicaid prescriptions for generic drugs.

And while pharmacists of all stripes are understandably upset, small, family-owned pharmacies and their clients in the many rural communities they serve stand to get hit particularly hard.

Unless, of course, an intensive lobbying campaign now on display by pharmacists can convince Congress to pass legislation overriding the CMS decision.

Hillsboro, Kan., for example, has less than 3,000 people and only one place to go for prescription drugs.

Lou Greenhaw had been the sole proprietor of the town’s Greenhaw Pharmacy for many years and only recently retired as a full-time pharmacist. At Greenhaw’s, about one in 20 patients rely on Medicaid, the joint state-federal government program designed to insure that low-income Americans get the health care and drugs they need.

Those patients, Greenhaw said, are mostly “Moms, especially pregnant Moms, and kids.”

The new policy is CMS’ response to the Deficit Reduction Act of 2005, which mandates slower spending growth in federal entitlement programs.

To cut Medicaid spending, CMS proposed changing the formula by which it reimburses pharmacists for Medicaid prescriptions. But pharmacists say the new formula, which the Government Accountability Office estimated in January would cut reimbursements an average of 36 percent, will result in their losing money nearly every time they dispense generic drugs for Medicaid clients.

Greenhaw said she and other rural pharmacists — often the only place to buy medicines in their small towns — are reluctant to turn away customers with Medicaid, whom she describes as “our neighbors who are just going through some tough times.” But she added, in the end it comes down to a business decision and pharmacies must measure their desire to help down-on-their-luck neighbors with other obligations. “We have a duty to our staff as well,” Greenhaw said.

Enter the pharmacists’ trade organizations, in particular the National Association of Chain Drug Stores, the American Pharmacists Association and the National Community Pharmacists Association.

And enter a handful of Members of Congress, including Sen. Max Baucus (D-Mont.) and Rep. Frank Pallone (D-N.J.), who are teaming up on one bill, and Rep. Nancy Boyda, a Kansas Democrat who is the lead sponsor of another bill that would replace the CMS policy with one offering more generous reimbursements to pharmacies.

Boyda, a former senior pharmaceutical manager for Marion Laboratories (now sanofi-aventis) who said she represents “some of the poorest areas in the state,” is blunt about the stakes of her bill’s passage for pharmacies in her district.

“It means survival,” Boyda said in a telephone interview. “Right now, we have seven counties out of 105 [in Kansas] with no pharmacies. A couple of years ago, there were three. … I’m not doing this on behalf of pharmacists. I’m doing this for patients.”

The Kansas Pharmacists Association indicates that pharmacy closings are a real issue, noting that Kansas has seen a net loss of 22 independent pharmacies in the past six years, with five closures in 2006 alone.

In a state like Kansas — where 36 counties are served by a single pharmacy each — even one closure can have serious ramifications for rural residents, says KPhA.

Reimbursement rates had been based on the average wholesale price, a figure that was supposed to rely on what wholesalers charged doctors and pharmacies for drugs. But it was widely criticized for being an inflated and inaccurate reflection of actual market prices. Furthermore, no one was quite sure how the AWP was derived.

“Who knows where AWP came from,” said Boyda, who was elected to Congress in 2006. “It seemed like someone pulled it out of thin air.”

Greenhaw echoes those comments but said that at least under the AWP, pharmacists were being reimbursed enough to get by.

Under the requirements of the Deficit Reduction Act, in an effort aimed at both saving money and information transparency, the AWP was jettisoned in favor of the average manufacturer price — the price that drug wholesalers pay to manufacturers.

But the AMP is seen by many — especially pharmacists — as too low. That’s because it is calculated using rates afforded to, for example, nursing homes, hospitals and mail-order retailers who buy in larger numbers and therefore usually pay far less than pharmacists. “They have numbers in there that keep that AMP low,” said one pharmaceutical analyst who did not wish to be quoted by name. “No retail pharmacy can buy at that price compared to institutional facilities.”

There are currently two bills in committee that would impose new reimbursement rules for pharmacies: Boyda’s bill, called the Saving our Community Pharmacies Act, and the jointly sponsored Baucus-Pallone bill titled the Fair Medicaid Drug Payment Act.

Boyda’s bill would get rid of the AMP in favor of a new pricing mechanism, a median price based on data provided by pharmacies about what they actually paid for the drugs they dispense. The Baucus-Pallone bill would keep the AMP, but instead of using the average low-end price wholesalers pay for drugs, it would use a “weighted average” that takes more pricing points into effect. It also would exclude pricing from mail-order transactions — a must from pharmacists’ perspective.

The new CMS policy was to have taken effect in July 2007, but CMS agreed to delay its implementation until Feb. 1, 2008, giving pharmacists and their lobbying organizations a precious few extra months to work the issue.

At a fly-in last month, members of the National Association of Chain Drug Stores and the the Food Marketing Institute, which represents supermarket pharmacies, held more than 150 meetings with Members of Congress, said NACDS spokeswoman Chrissy Kopple. “We’ve written letters to CMS, written letters to Members of Congress, we’re coming at this from every option that we can,” she said. “We’re going to continue to build momentum. The bottom line is, we need a remedy.”

Neither bill has attracted widespread support in both chambers of Congress. The Baucus-Pallone bill has 32 co-sponsors in the Senate and seven in the House. Boyda has garnered 114 House co-sponsors for her bill but has yet to see it introduced in the Senate.

A legislative staffer for one Member supportive of the Boyda bill said it made sense to move reimbursement calculations to the end of a supply chain that is often “murky and convoluted.” AMP, he added, has historically “been close to whatever manufacturers want it to be.”

Boyda says she doesn’t see Pallone’s bill as competition; rather, as another solution for the same problem. “All Frank [Pallone] wants to do is get this taken care of,” she said. “One of these bills, or some variation of them, will eventually come out.”