Editorial Court’s Rejection Of Prescription Tax Is Correct Decision

Chalk one up for the pharmacies.

After a year in which pharmacy chains threatened to leave the Medicaid program because of reimbursement issues, then were hit with a $1.30-per-prescription tax, the stores won a victory last month when a Suffolk Superior Court judge ruled the tax invalid. Judge Allen van Gestel also ordered the state to pay back $18 million already collected from the pharmacies.

Van Gestel said the state had not obtained the federal approval needed to implement the tax, and that the measure was improperly drafted by the Legislature.

He also criticized former Acting Gov. Jane Swift and legislators who originally dubbed the measure an “assessment,” not a tax. “Despite political pronouncements to the contrary at the time of the enactment of the law, what we are dealing with is an excise tax,” van Gestel wrote.

The decision is another blow for the state budget, as the tax was expected to bring in $36 million annually — in addition to another $36 million in matching federal money — but the chances of the measure being reinstated seem slim, considering the opposition to the concept, not only from pharmacies, but from many lawmakers. Gov. Mitt Romney does not plan to appeal the ruling.

“As far as we are concerned, it was a poor public policy to begin with, and this is good riddance to a bad idea,” Romney spokesman Eric Fehrnstrom said. “This will create some additional pressures on the budget, but we will look for compensating reductions in other areas.”

That language has pharmacies — 100 of which sued the state, bringing about the eventual Superior Court ruling — breathing a sigh of relief after seeing their profits on prescriptions turn into red ink. CVS claimed it made only $1.02 on each prescription before the tax, and other chains produced similar figures. A number of chains, including CVS, Walgreens, Wal-Mart, and Stop & Shop, were fined heavily by the state for initially passing the tax along to customers.

At the heart of the debate was a question that went beyond pharmacy profits: should patients who pay for their own prescriptions be forced to further subsidize the Medicaid program, in effect buying medicine for other state residents?

It’s a serious question, Mike Semanie, director of Pharmacy for Big Y, told The Healthcare News last month, particularly considering that patient compliance is a major issue in health care today, particularly among the elderly.

In other words, if many seniors are already skipping days and cutting doses because of the high cost of drugs, the tax makes it even more difficult. Even in chains that did not pass the $1.30 tax directly to their customers, such as Big Y, unless the store simply ate the loss, customers would eventually be faced with higher costs elsewhere in the store.

That fact worried smaller pharmacies, which already have to compete with deep-discounting larger chains and fretted that they could not possibly raise prices to compensate for the tax loss. Pharmacy advocates called the tax a lose-lose for patients and businesses alike.

If the court did not make that argument, instead leaning on procedural matters, the effect of the ruling still strongly affirms the arguments against the tax. And that’s clearly a positive thing, as it will make it even more difficult for supporters of such an ill-conceived tax to raise the issue again.

State officials should be content with keeping the hundreds of thousands of dollars in fines collected from pharmacies that charged the $1.30 to customers — Attorney General Thomas Reilly says he has no intention of giving that money back — and moving on to better ideas to help balance the budget. This one hurt small businesses, caused anxiety for patients, and was an inherently unfair means to bolster Medicaid.

Yes, the budget shortfall continues to threaten the state’s financial health. But the prescription tax was simply bad medicine.