As our Massachusetts members are all to well aware, many in-state pharmacies began charging an extra $1.30 per prescription beginning January 1, claiming they were required to collect the new tax on behalf of the state. Not so, said Reilly in a January 10th letter ordering the pharmacies to discontinue their "inaccurate and misleading" representations of the facts.

The controversy surrounding the so-called "Pharmacy Assessment" began with the passage of the FY03 state budget last summer. Contained within the budget was a provision that levied a $1.30 surcharge on every non-Medicare / Medicaid prescription filled within Massachusetts.

What the "Pharmacy Assessment" is designed to do is help cover the multi-billion dollar cost of providing health care for the poor and disabled in Massachusetts under the state's Medicaid program. This year alone, the budget for Medicaid will exceed $6 billion. It is expected that the assessment will raise $36 million, which will in turn be matched by the federal government.

When originally passed, the "Pharmacy Assessment" was to be paid directly by the pharmacies, not passed on as a "tax" on the consumer. Reilly has strongly reprimanded CVS, Walgreens, along with other pharmacies, for what he claims is a violation of the Consumer Protection Act.

"According to the AG, the drug stores have mislead the public into believing that this is a "tax" the consumer has to pay. The Legislature intended for the pharmacies to pay the tax directly, as a cost of doing business," explains Association Counsel Bill Rehrey. "Unfortunately, those people, who rely on prescription drugs, are stuck in the middle of this fight."

Despite the finger pointing taking place between the state and the pharmacy chains, the argument over who pays the "tax" may prove to be void once the issue reaches the federal court system. Many legislators, insurers and other health care officials are now concerned that the "Pharmacy Assessment", as drafted, may violate federal law.

While federal law does allow the states to "tax" prescription drugs, it requires that the tax must be levied uniformly. Since the law that is currently on the books has created exemptions as to whom the tax applies to (Medicare and Medicaid are exempt), it is likely that a federal court will void the plan as unlawful.

Some legislators, such as Senator Dick Moore (D-Uxbridge), feel that the law should be repealed and the way that the state sets the rates paid to the pharmacies be readdressed. As Senate chairman of the Health Care Committee, Moore and his staff have been actively working to resolve the issue.

However, legislative leaders are reluctant to repeal the law until another funding source for Medicaid is found. With the state budget deficit now estimated at $650 million for the current year and reaching over $2 billion for FY04, state budget writers do not want to risk losing $36 million in federal dollars by repealing the law.

One other issue, which may protect retirees, is whether the pharmacies must adhere to provisions contained within their agreements with the insurance plans, which prevent the latter from charging a retiree beyond the agreed copayment. "Tom Reilly is looking into the legality of the pharmacies breaking contracts with the insurance companies and charging the extra fee," said Association Legislative Liaison Shawn Duhamel.

"Trying to pass this tax on to our members is an outrage, we want this issue resolved and our members to be held harmless. They pay more than enough for their prescriptions already."