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EDITORIAL
Op-Ed; Prescription tax is still bad medicine
THOMAS M. KEANE JR.

02/21/2003
Boston Herald
All Editions
033
(Copyright 2003)

Like many of you, I was shocked in January to pick up a prescription and find I had to pay a new tax of $1.30. How'd this slip through?

So imagine my relief when I heard that, thanks to the good efforts of Attorney General Thomas Reilly and the Massachusetts Legislature, the tax was no more. The major drugstore chains took out full-page ads trumpeting the excellent news. It was all a mistake! Heck, they'll even give me a refund for amounts they had mistakenly collected.

Wait, that's not right.

It turns out the tax is still around. The state even now figures it will collect $36 million a year. But somehow, it appears, we're no longer paying for it.

Wrong. In fact, bad as the tax seemed to consumers, the so- called fix is worse. It's dishonest. It will place even more costs on those who can least afford it. Moreover, it threatens to wipe out an entire segment of the pharmacy business: independent drugstores.

The dishonest part is this: Passed with little public notice last year, the Jan. 1 imposition of the $1.30 tax provoked a political firestorm. Instead of repealing it, however, the state, with the attorney general in the lead, decided to hide it. Reilly started playing tough with the chains, threatening to go through all of their books and records. B.J.'s Wholesale Club announced right off it wouldn't pass along the tax. Later Walgreens, a large national chain with a small presence in the state, caved. CVS, Brooks, Stop & Shop and Shaws, quickly followed.

That was one problem solved. The politicians were off the hook.

But someone still pays.

If retail stores made super-high profits, perhaps it would be the companies' shareholders. But retail, including pharmacy, is probably one of the most competitive businesses around. Margins are thin.

Luckily for the big chains, they sell goods other than drugs. (After all, who doesn't walk into a drugstore without also walking out with a candy bar?) So we'll all end up paying the tax eventually - in our shampoos, razors and over-the-counter medicines.

There's one other group that will pay as well: Those who pay cash for their prescriptions.

Drug costs for those with insurance are tightly controlled by contracts with health insurance companies as well as with the state. Pharmacies can't boost up the cost of a prescription to the insured, but they can to the uninsured.

Thus, the effect of the state's crusade to save us from having the $1.30 tax passed on? A tax that rankled because it seemed to hit the vulnerable - the sick - will now hit those who are doubly vulnerable: the sick and poor.

But those who may very bear the highest cost are independent pharmacies.

There are only 200 or so left in the state; the rest have been gobbled up by chains. Yet those remaining generally have been thriving, and for good reason: They offer services like free home delivery and know their customers by name. They see themselves as part of the health care system and not simply as dispensers of pills.

But they still operate in the real world. And in that world, prices matter. So what do they do? Absorb the tax?

Doubtful. The average profit on a prescription is $1.02 - the $1.30 tax dwarfs that. And, unlike the chains, drugs are the independents' primary business - not just a lure to get you in to purchase a greeting card.

Those I talked to generally estimated the annual effect of the tax at $50,000 to $75,000 a year. For many, that's the margin of their profit. For others, it means layoffs. "I am not able to absorb the cost of this tax," says Steven Grossman, who for 21 years has run JE Pierce Apothecary in Brookline.

As a result, most independents appear to be thinking they'll have to pass it on. But, obviously, that puts them at a disadvantage to the chains: Their prices will be higher.

As Michael Repucci of Inman Pharmacy in Cambridge says, "It's a gamble." He and others, like Harvey Tabachnick, owner of Heights Pharmacy in Needham, pray their customers will be loyal to them. They hope the extra services they offer will be worth the higher prices they have to charge.

Perhaps. But one theory making the rounds is that the real reason the chains yielded on the tax was that they saw it as a way to drive the independents out of business. And regardless of whether one believes in conspiracy theories, the fear - as a spokesman for the Massachusetts Pharmacy Association says - is that the new tax will be the "nail in the coffin" of the independents.

Over 200 years ago, Supreme Court Justice John Marshall wrote, "The power to tax is the power to destroy."

No kidding. Pharmacists are now seeing that first hand.

Tom Keane can be reached at tomkeane@tomkeane.com.

Caption: REILLY: Small drugstores now in critical condition.