DOVER, Del.- The state of Delaware is taking new steps in a fight with Walgreens over Medicaid prescriptions. The company, which also owns Happy Harry's drug stores, said the state is not reimbursing it as much for Medicaid prescriptions. And the state may now increase taxes on the company.

The company said it will no longer fill Medicaid prescriptions come July because of the cut in the state reimbursement rate. State officials said the cut was included in plans to help trim an $800 million deficit.

Sen. Michael Katz, a Democrat from New Castle County, has introduced a bill in the General Assembly that would increase the gross receipts tax by 2 percent for any pharmacy that refuses to fill Medicaid prescriptions. Right now that would only apply to Walgreens.

Supporters said that tax money would go to help people on Medicaid pay for prescriptions.

People who shop at Walgreens worry about what will happen once the company stops filling Medicaid prescriptions.

"It's going to hurt a lot of people. They'll have to figure out where to go or what to do next. I'm not sure how its going to turn out," said Vanessa Foxe.

Last week state officials said they are considering ending a program, which allows state employees to get their prescriptions from Walgreens.

A national group representing drug stores including Walgreens is suing the state over the reimbursement issue. State officials say they will provide help to anyone who needs to get a prescription filled at a different pharmacy.