Massachusetts Effort to Tax Prescriptions Leads to Chaos

Published February 1, 2003

A new tax on prescription drugs has come under heavy criticism from pharmacists, insurers, and consumer advocates. An estimated 55 million prescriptions will be subject to a tax of $1.30 for the remainder of the current fiscal year; the tax will fall to 65 cents per prescription July 1. Prescriptions filled for Medicaid and Medicare beneficiaries have been declared exempt.

The tax, which went into effect January 1, will be used to fund Medicaid and is expected to raise about $36 million annually.

In a December 30, 2002 hearing, pharmacists asked state officials to delay the tax, calling it “unfair, unclear, and certain to drive up the price of drugs for most Massachusetts residents.” Pharmacists noted consumers could avoid the tax by using out-of-state or mail-order pharmacies. Also, pharmacists said they were unclear as to whether they should assess the tax when dispensing advice about over-the-counter drugs. Pharmacists said they often have difficulty determining whether a Medicare beneficiary’s bill is being paid through traditional Medicare or through a Medicare+Choice plan; the former is exempt from the tax, while the latter is not.

Blue Cross and Blue Shield of Massachusetts has asserted federal government employees in its plan are exempt from the tax, and some hospitals contend their outpatient pharmacies should not be subject to the tax because they are licensed differently than retail pharmacies.

To add to the confusion surrounding the new tax, it is unclear whether the tax is incurred when the prescription is filled, or when it is picked up by the patient. It is not uncommon, pharmacists say, for a filled prescription never to be picked up, perhaps because the patient got better on his/her own, decided he/she couldn’t afford the medication, or simply forgot to get it. There is also a question about whether prescription refills are subject to the tax.

Todd Brown, executive director of the Massachusetts Independent Pharmacists Association, said the tax regulations are ambiguous and “pharmacies will be unable to implement them as written.”

Lee Tooman, vice president of government affairs for Golden Rule Insurance Company, was even more critical of the program. “I cannot imagine why a state would propose to tax prescription drugs to fund Medicaid,” said Tooman. “Why would anyone want to drive up health insurance costs more than they already are? It looks to me like the state wants to put the burden of financing Medicaid on seniors and working people trying to pay for their medicines.”

If it Looks Like a Tax …

“It’s not being called a tax,” noted an editorial in the January 6 edition of the Daily News Tribune. “Instead, the state labels the $1.30 fee … an assessment. But call a spade a spade. The assessment is a tax that will hurt the most vulnerable people in this state–the poor, the elderly and the middle-class.”

On January 9, Massachusetts Attorney General Tom Reilly issued a news release warning pharmacies against “misrepresenting” the assessment. The assessment, he noted, is supposed to be paid quarterly by the pharmacies themselves, and they are not required by the law to pass along the assessment to customers. “These pharmacies are passing the buck,” Reilly said. “These pharmacies have made that decision on their own. They are misleading consumers by making them think that they are required to collect this money.”

Linda Ruthardt, the state commissioner of health care finance and policy, told the Boston Globe pharmacies should begin collecting the tax even though some details have not been finalized. A report in the January 2 issue of DrugStore News suggests the pharmacies will do just that, noting only B.J.’s Wholesale Club plans to “absorb” the new tax in its three pharmacies.

Michael Polzin, a spokesman for Walgreen Co., said his firm would “pass [the tax] on to customers. We’ll be putting up signs in our pharmacies throughout the state, explaining what the tax is to consumers.”

In light of the controversy and likelihood of prolonged court challenges, Ruthardt suggested pharmacies keep “detailed records” of who paid the tax, should it be repealed by the state legislature or deemed unconstitutional by the court.

Conrad F. Meier is managing editor of Health Care News.