Community Pharmacists Call On Mass. Legislature to Repeal New Prescription Drug Tax; Tax Causing Confusion Among Pharmacists, Consumers, State Officials.

Business Editors & Health/Medical Writers

BOSTON--(BUSINESS WIRE)--Jan. 16, 2003

The Massachusetts Pharmacists Association (MPhA), which represents more than 1,000 community pharmacists throughout the state, today called on the state legislature to repeal a new prescription drug tax, saying that the tax is ill advised and has caused nothing but confusion and frustration among consumers and pharmacies.

Intended to help bridge the state's budget gap, the tax was approved in July as part of the state budget, which also cut the amount of money the state reimburses pharmacies for filling Medicaid prescriptions. The state Division of Health Care Finance and Policy set the tax at $1.30 per non-Medicaid and non-Medicare prescription and allowed it to take effect on January 1, 2003 despite regulations that have not been promulgated as of today. This mandate effects 55 million prescriptions filled in Massachusetts.

"Everybody understands the gravity of the budget situation, but it's bad public policy to tax the sick," MPhA executive vice president Carmelo Cinqueonce said at a news conference at Johnson's Drug in Waltham. "Instead, Massachusetts should repeal the prescription drug tax and look to other cost-saving remedies within the Medicaid program."

Joined by several pharmacists from around the state, Cinqueonce said it should come as no surprise that consumers are paying the tax. He circulated a letter from the federal government that referred to it as a tax seven times.

"Massachusetts's pharmacies are being unfairly burdened by the new prescription tax. The tax itself is grossly unfair; the legislation behind it is poorly conceived. The tax should be repealed immediately," said Steve Grossman, owner of J.F. Apothecary in Brookline.

The response from the state has been peculiar, the pharmacists said.

"Legislators and some state officials have advised consumers to avoid the tax by having their prescriptions filled out of state or via mail order," Steve Bernardi, owner of Johnson's Drug in Waltham, said. "These solutions not only take away business from Massachusetts pharmacies but also reduce tax revenue - the reason for imposing the prescription drug tax in the first place." We are encouraged with the new administration and its efforts to make the Medicaid program more efficient without driving economic activity out of State.

In fact, Massachusetts pharmacies near the state's borders already are reporting drops in businesses as their customers leave the state in search of lower prices.

Legislation prohibiting pharmacies from passing on the cost of the tax is not the answer either, the pharmacists said.

"I am not able to absorb the cost of this tax," Grossman said. "I would be forced to reduce staff or services and some of my colleagues may be forced to close their businesses."

Massachusetts community pharmacies average only $1.02 profit per prescription; forcing pharmacies to absorb the tax effectively wipes out the industry's entire profit from prescription drugs.

Cinqueonce said that the state could more profitably balance the budget by seeking other remedies, such as innovative cost savings within the Medicaid program. In addition, any discussions should include other parties, such as pharmaceutical manufacturers. Drug companies enjoy an 18.5 percent net profit margin, substantially greater than the 2 percent net profit margin for community pharmacies.

"We are willing to bring some ideas to the table to make up for the lost revenue caused by repeal," Cinqueonce said. "There are better ways to offset the rising cost of prescription drugs than to levy fees."

"The Legislature is looking in the wrong pockets for the cause of the increase in prescription drugs," Cinqueonce said, "and curiously pharmaceutical companies, which set the price for prescription drugs, are not at the table."

Founded in 1883, the Massachusetts Pharmacists Association today represents more than 1,000 of the Commonwealth's pharmacists, promoting the profession of pharmacy and addressing issues related to public health. More information may be found on the MphA's Web site at www.masspharmacists.org.

WHAT YOU SHOULD KNOW ABOUT THE PRESCRIPTION TAX

The state budget mandated that a new tax be levied on every non-Medicaid and non-Medicare prescription. This mandate effects 55 million prescriptions filled in Massachusetts.

The state Division of Health Care Finance and Policy set the tax at $1.30 per prescription and allowed it to take effect on January 1, 2003.

The state expects to raise $36 million a year from the tax, which it will use to leverage an additional $36 million from the federal government to help pay for the Medicaid program. The tax was set at $1.30 for the first six months of this calendar year, because the fiscal year is half over. The tax will drop to 65-cents on July 1, the beginning of the new fiscal year.

Pharmacies are complying with the law and are assessing the $1.30 tax on each non-Medicaid and non-Medicare prescription filled - as are nursing homes, which are implementing a new tax on nursing home beds. The budget language governing each tax is identical.

In a letter approving federal reimbursement for this program, the federal government refers to this as a "tax" seven times.

Absorbing this tax would have a $36 million impact on pharmacies across the Commonwealth. That would be in addition to the cut in the amount the state reimburses pharmacies for Medicaid prescriptions. This would have a detrimental impact on the services provided by community pharmacies.

Pharmacists are not the cause of escalating drug prices. In fact, they play a vital role in keeping down the overall cost of health care and improving patient safety, and their role in the delivery of health care services has never been more important than now.

Industry-wide, pharmacy net profits are less than 2%, which compares poorly to other industries such as drug manufacturers (18.6%). In Massachusetts, this equates to $1.02 per prescription; the tax amounts to $1.30 per prescription effectively wiping out the industry's entire profit margin on prescription drugs.

The tax has already had a negative impact on community pharmacies, particularly on the borders. It encourages consumers to fill prescriptions at out of state pharmacies and through mail order. This loss of business may result in loss of jobs, wages and state income tax collections. For the state to encourage consumers to fill their prescriptions out of state or by mail order defeats the purpose of the tax, because it will not be collected.

There are approximately 1,003 pharmacies in Massachusetts, including approximately 767 chain pharmacies and approximately 236 independent pharmacies. There are approximately 2,937 community pharmacists active in the state of Massachusetts, including 2,600 chain pharmacists with in-state addresses. Community pharmacies employ approximately 53,583 full and part-time employees, including: 51,205 chain pharmacy employees & 2,378 independent pharmacy employees. Community pharmacies pay an estimated $332,046,000 in total taxes to the state of Massachusetts every year, including: $329,202,000 by chain pharmacies and $2,844,000 by independent pharmacies.