CHAINS JOIN LAWSUIT OVER MASS. RX TAX

Stephanie Loughran

BOSTON -- Major New England supermarket chains were among retailers filing suit against Massachusetts over a controversial $1.30 per prescription assessment state tax.

Hannaford Bros., Scarborough, Maine, Big Y Foods, Springfield, Mass., and Shaw's Supermarkets, East Bridgewater, Mass., joined CVS, Woonsocket, R.I., Brooks Pharmacy, Warwick, R.I., and a group of independent pharmacies in a lawsuit recently filed against the state in Suffolk Superior Court. The lawsuit seeks a court order to block the collection of the tax, and it charges that the prescription fee on each non-Medicaid prescription violates state and federal laws, according to published reports.

Michael S. Gardner, of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo here, a lawyer representing the 39 pharmacies participating in the litigation at press time, said there are "significant questions raised" by the tax.

"It's a case of robbing Peter to pay Peter," he told SN. "They're using the tax money collected from the pharmacies to pay for the pharmacies' dispensing fees." He said the tax is "arbitrary and unreasonable" because it imposes the same exorbitant tax burden on pharmacy businesses large and small, consequently slapping a larger tax burden on the small retailers. Additionally, the tax does not meet federal requirements for Medicaid reimbursement to the state, he said.

"Therefore, it's ineffective and unenforceable," said Gardner. The trial was scheduled for last week.

CVS "joined with many other Massachusetts pharmacies to challenge the tax on constitutional grounds and is hopeful the court will agree that the tax was improperly imposed and should be repealed," the retailer said in a statement.

Other chains participating in the litigation did not return SN's calls. Supermarket company Hannaford Bros. declined further comment, while Big Y Foods declined to comment on "pending legal matters," said a company spokeswoman.

The Massachusetts Pharmacists Association, Waltham, fully supports the lawsuit, said Carmelo Cinqueonce, executive director. "We certainly feel there are some issues associated with this statute and the state's collection of the tax," he said.

Ann Donlan, spokeswoman for Attorney General Thomas F. Reilly told SN that the office has received the lawsuit and "our position at these early stages is the allegation that the prescription tax is unconstitutional is without merit."

The assessment tax was intended to raise $36 million this fiscal year to aid the state budget shortfall. Pharmacies said they could not afford the tax, and many initially passed it along to their customers.

In a recent development related to the prescription tax controversy, CVS, Walgreens and Wal-Mart Stores agreed to settle allegations that they misled consumers on who is responsible for paying the tax assessment. CVS agreed to pay $300,000 and Walgreens and Wal-Mart agreed to pay $60,000 each.

Several pharmacies posted signs that told customers they were "required" to pass the tax along to consumers, which prompted an investigation by Attorney General Reilly. He sent letters to five chains, including Brooks, CVS, Stop & Shop Supermarket Co., Quincy, Mass., Wal-Mart Stores, Bentonville, Ark., and Walgreens, Deerfield, Ill., asking them to stop misrepresenting that they were obligated to collect the fee from consumers, according to a statement by Reilly. The chains violated state law and existing health plan contracts, he said.

CVS, Walgreens and Wal-Mart stopped passing the tax on to customers in February and agreed to refund any money collected since the tax's enactment Jan. 1. Reilly said his office is continuing its investigation into Stop & Shop and Brooks Pharmacy.

Danette Thompson, spokeswoman for Wal-Mart, said in a company statement, "Wal-Mart voluntarily took actions that were parallel to the attorney general's goal. Settlement was a positive resolution to this matter."

Carol Hively, Walgreens spokeswoman, told SN, "We agreed to the settlement because we're paying a very small amount compared with what could have been a multimillion-dollar outcome due to wording in the Consumer Protection Act that can be interpreted differently.

"This is not an admission of guilt and this settlement does not negate our right to challenge the prescription tax. In fact, we support the challenge made last week by our peers," she added.

CVS said in an official company statement, "We have agreed to settle this matter in order to remove our customers from the middle of this disagreement."