Pharmaceutical Research & Manufacturers of America v. DEPT. OF COMMUNITY …

Decision Date20 February 2003
Docket NumberDocket No. 238862.
Citation657 N.W.2d 162,254 Mich. App. 397
PartiesPHARMACEUTICAL RESEARCH & MANUFACTURERS OF AMERICA, Plaintiff-Appellee, and T.G., P.C. by her guardian and next friend, H.C., D.H., Alliance for Mentally Ill of Michigan, Mental Health Association of Michigan, Michigan Association for Children With Emotional Disorders, and Michigan Protection and Advocacy Services, Inc., Intervening Plaintiffs-Appellees, v. DEPARTMENT OF COMMUNITY HEALTH, Defendant-Appellant, and AARP, The Seniors Coalition, Washington Legal Foundation, and Allied Educational Foundation, Amici Curiae.
CourtCourt of Appeal of Michigan — District of US

Williams Mullen (by Robert A. Marsac and Lisa A. Robinson), Detroit, for Pharmaceutical Research and Manufacturers of America.

Mark A. Cody and Susan K. McParland, Lansing, Southfield, for T.G. and other intervening plaintiffs.

Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, and Erica Weiss Marsden, Assistant Attorney General, for Department of Community Health.

Jack A. Vande Bunte, Bruce Vignery, Sarah Lenz Lock, and Michael Schuster, Jenison; Washington, DC, for AARP.

Daniel J. Popeo and Richard A. Samp, Washington, DC, for Washington Legal

Foundation and Allied Educational Foundation.

Ronald D. Maines and Alison E. Hirschel, Ann Arbor, for The Seniors Coalition.

Before: MARKEY, P.J., and CAVANAGH and R.P. GRIFFIN1, JJ.


Defendant, the Michigan Department of Community Health (DCH), appeals by leave granted the trial court's issuance of a preliminary injunction against implementation of a prescription drug rebate and preauthorization policy. We reverse.

The DCH administers Medicaid and non-Medicaid programs that provide prescription drug coverage for eligible Michigan residents. Under the Medicaid program, the federal government and the state share responsibility for reimbursing pharmacists the costs of covered drugs. See 42 USC 1396r-8. The manufacturer of the drug then rebates a portion of that cost to the state. The state's payments for medications dispensed under a non-Medicaid program were not rebated by drug manufacturers.

On October 9, 2001, the DCH announced its intention to implement a policy expanding the rebate requirement to "[p]rograms funded in all or in part by State dollars," which included, at least, the Medicaid Fee for Service Program (non-HMO recipients), the Children's Special Health Care Services Basic Health Plan (CSHCS), the Refugee Assistance Program,2 and the State Medical Program (SMP). The new policy requires that prior authorization be obtained by the prescribing physician before the cost of certain identified medications would be reimbursed by the state under the affected programs. However, the prior authorization requirement would be waived if the drug manufacturer agreed to pay the State a "supplemental" rebate in addition to the "basic," or Medicaid-level, rebate already required under federal law as a condition of participation in the Medicaid program. The combined supplemental and basic rebate payments would reduce the state's cost for the identified drug to the level of that of an equivalent or "preferred" drug, thereby drastically reducing the state's prescription drug expenses.

On November 30, 2001, plaintiff, Pharmaceutical Research and Manufacturers of America (PhRMA),3 brought this action seeking declaratory and injunctive relief alleging, in pertinent part, that (1) the basic and supplemental drug rebates and prior authorization requirements with regard to drugs dispensed under non-Medicaid programs were not statutorily authorized, (2) the supplemental rebate policy with regard to drugs dispensed under the Medicaid (non-HMO) program was not statutorily authorized, and (3) the alleged authority under which defendant sought to implement the proposed policy, 2001 PA 60, § 2204, is unconstitutional because it violates the separation of powers doctrine by retaining "veto" authority.

On December 28, 2001, motions to intervene and for preliminary injunction were filed by the intervening plaintiffs, mental health care consumers. With the filing of its complaint, PhRMA had also filed a motion for preliminary injunction. On the date set for hearing, the trial court granted the motion to intervene, but declined to hear the intervening plaintiffs' motion for preliminary injunction because the DCH had not been afforded sufficient time to file a response to the same. However, the trial court granted PhRMA's motion for preliminary injunction, barring the implementation of "the prescription drug rebate and prior authorization program requirements developed under 2001 PA 60." Relying on Blank v. Dep't of Corrections, 462 Mich. 103, 611 N.W.2d 530 (2000), the trial court held that plaintiff was likely to prevail on the merits of its case because 2001 PA 60, § 2204 violated the separation of powers doctrine in that it included a "veto provision," and, in addition, the DCH did not have the requisite statutory authority to implement the new policy. Further, after taking "judicial notice of at least some of the Intervening Plaintiffs' needs and characteristics," the trial court concluded that irreparable harm would result to the intervening plaintiffs if the injunction was not issued. The court held, "[i]t is indisputable that disadvantaged persons who are in need of continuing medical services which involve prescription drugs will be affected by these programs" as a consequence of the alleged delay in the dispensing of medically necessary medications. The DCH's application for leave to appeal was granted.

On appeal, the DCH argued that the preliminary injunction was improperly issued because PhRMA did not establish the requirements for such extraordinary relief. We agree. This Court reviews for an abuse of discretion the trial court's decision to grant or deny a preliminary injunction. Alliance for Mentally Ill of Michigan v. Dep't of Community Health, 231 Mich.App. 647, 661, 588 N.W.2d 133 (1998). A trial court's findings of fact will be sustained unless they are clearly erroneous or we are convinced that we would have reached a different result. Cipri v. Bellingham Frozen Foods, Inc., 235 Mich.App. 1, 9, 596 N.W.2d 620 (1999).

Injunctive relief is an extraordinary remedy. Fancy v. Egrin, 177 Mich.App. 714, 719, 442 N.W.2d 765 (1989). A preliminary injunction serves to preserve the status quo pending a final hearing, enabling the rights of the parties to be determined without injury to either party. Id. To determine whether this equitable relief should be granted, the issuing court must consider "(1) the likelihood that the party seeking the injunction will prevail on the merits, (2) the danger that the party seeking the injunction will suffer irreparable harm if the injunction is not issued, (3) the risk that the party seeking the injunction would be harmed more by the absence of an injunction than the opposing party would be by the granting of the relief, and (4) the harm to the public interest if the injunction is issued." Alliance for Mentally Ill of Michigan, supra at 660-661, 588 N.W.2d 133. All these prerequisites must be met before a preliminary injunction may be granted. See Michigan Coalition of State Employee Unions v. Civil Service Comm., 465 Mich. 212, 226, 228, 634 N.W.2d 692 (2001).

First, we consider the trial court's conclusion that PhRMA was likely to prevail on the merits of its case because the DCH did not have the authority to implement the drug rebate and preauthorization policies with regard to Medicaid and non-Medicaid, state-funded, health care programs. On appeal, PhRMA, the intervening plaintiffs, and amici curiae4 argue that the DCH was not so empowered because no specific statute directed the DCH to implement the policies, and, the only purported authority to impose the requirements with regard to the Medicaid program was 2001 PA 60, § 2204, which was unconstitutional.

In considering this issue, we must examine general principles of administrative law. The DCH is a principal department in the executive branch. MCL 330.3101. The functions, powers, and duties of the DCH, as an executive agency, are allocated by law, i.e., by executive order or legislation. See Const 1963, art 5, § 2; Straus v. Governor, 459 Mich. 526, 534, 592 N.W.2d 53 (1999). Statutes are the primary source of administrative power; thus, whether an administrative agency has a particular power is typically a matter of statutory construction. Alcona Co. v. Wolverine Environmental Production, Inc., 233 Mich.App. 238, 247-248, 590 N.W.2d 586 (1998). Consistent with the goal of effectuating legislative intent, the power conferred includes that which is expressly granted and that which is granted by necessary or fair implication, i.e., "powers necessary to a full effectuation of authority expressly granted." In re Quality of Service Standards for Regulated Telecommunication Services, 204 Mich.App. 607, 613, 516 N.W.2d 142 (1994). However, to comport with the delegation doctrine, Const 1963, art 4, § 1, and the separation of powers doctrine, Const 1963, art 3, § 2, the legislative grant of authority must include standards that sufficiently check the exercise of delegated power—that are as precise as the subject matter permits considering its complexity—yet allow the Legislature to "avail itself of the resources and expertise of agencies and individuals to assist the formulation and execution of legislative policy." Taylor v. Gate Pharmaceuticals, 248 Mich.App. 472, 478, 639 N.W.2d 45 (2001), quoting Blue Cross & Blue Shield of Michigan v. Governor, 422 Mich. 1, 51, 367 N.W.2d 1 (1985).

Pursuant to the Social Welfare Act (SWA), M.C.L. § 400.1 et seq. the DCH is responsible for establishing and administering medical assistance programs in the state, including the Medicaid program. See M.C.L. § 330.3101. Consistently...

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