BOSTON -- The conflict between Massachusetts regulators and HMOs over prescription drug benefits for Medicare-eligible retirees now is in court.

The Massachusetts Division of Insurance last week sued Harvard Pilgrim Health Care, alleging that its proposal to cap prescription drug benefits next year at $800 for members of its Medicare risk HMO violates state law and regulations that require risk HMOs to offer either unlimited or no prescription drug benefits to members.

The suit, filed in state court for Suffolk County, seeks to compel Harvard Pilgrim and all other Medicare risk HMOs in the state to comply with the prescription drug mandate.

"We want to be very aggressive in securing drug benefits for our seniors and that HMOs are following state law," said a spokeswoman for the Massachusetts Department of Consumer Affairs in Boston.

For its part, the Massachusetts Assn. of Health Maintenance Organizations, an industry trade group, filed suit in U.S. District Court in Boston asking the court to declare that a 1997 federal law pre-empts the Massachusetts prescription drug mandate.

"We hope the court will act quickly and resolve this issue," said Robert Hughes, president of the Boston-based MAHMO.

The dueling lawsuits are the latest developments in the controversy that began last month when several HMOs, including Harvard Pilgrim, said they intend to cut back previously unlimited prescription drug benefits to keep the cost of coverage for retirees affordable.

Brookline, Mass.-based Harvard Pilgrim, which says it has "consistently acted with the best interests of its members in mind," now offers a risk HMO plan with an unlimited prescription drug benefit, with retirees paying a $71 monthly premium. It also offers a zero-premium plan with no drug benefit.

Next year, Harvard Pilgrim intends to offer, in most parts of the state, a zero-premium plan with an $800 annual limit on prescription drugs. That change, Harvard Pilgrim says, will save money for many members.

The Insurance Division, which launched an investigation of Harvard Pilgrim after learning of its planned prescription drug benefit change, said the cutback violated state laws and regulations mandating that risk HMOs offer either unlimited or no prescription drug benefits for retirees eligible for Medicare.

A 1997 federal law, known as the Balanced Budget Act, opened up the traditional Medicare program to more private competition for members. MAHMO argues that the federal law pre-empts state laws and rules, like the one in Massachusetts, that dictate the kind of benefits Medicare risk HMOs and other so-called Medicare + Choice plans can offer.

The federal law and its enabling regulation "call for broader enrollee choice and also explicitly retain for the federal government the exclusive right to determine what benefits must be offered or included in a Medicare + Choice plan," MAHMO said in a statement.

While the legal skirmishing directly affects only Medicare risk HMOs operating in Massachusetts and their roughly 200,000 enrollees, the outcome of the controversy could have national implications (BI, Sept. 21).

If Massachusetts regulators are successful in enforcing the state's prescription drug benefit mandate, that could be a signal to other states to mandate benefits -- at substantially higher cost -- for HMOs and other health care plans that cover retired workers opting out of Medicare and into their own plans.