Drug Stores Plan to Sue Government

WASHINGTON - CVS, Rite-Aid and other large drug stores will work with smaller, independent rivals to try and stop a government generic-drug reimbursement policy that threatens profits across the industry.

The two leading trade groups for chain drug stores and community pharmacies plan to file a lawsuit Wednesday against the agency that runs Medicaid, the government health care program for the poor.

The lawsuit is a last ditch effort to block a new formula that they say will slash payments to pharmacies that provide generic drugs to 50 million low-income Americans enrolled in Medicaid.

The groups charge that the new payment system, scheduled to take effect in 2008, is illegal because it does not reflect the actual cost of generic drugs. As a result, they said in a joint statement, "small and independent pharmacies will be forced to close their doors or drop out of Medicaid."

But Medicaid officials dispute the industry's calculations, saying the government actually overpaid for generic drugs under the previous system.

Recognizing the difficulty of overturning a federal rule in court, the National Association of Chain Drug Stores, whose members include CVS Caremark Corp. and Rite-Aid Corp., and the National Community Pharmacists Association plan to continue pushing bills in Congress to stop the new formula from taking effect.

While there are three such bills in Congress, none have received a vote on the floor and no hearings on the subject are currently scheduled.

Senate Finance Committee Chairman Max Baucus has suggested attaching his bill, favored by industry, to a must-pass Medicare spending bill later this year. However, that Medicare legislation has not yet been introduced in Congress.

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