American Medical Ass'n v. Mathews
| Decision Date | 07 March 1977 |
| Docket Number | No. 75 C 2512.,75 C 2512. |
| Citation | 429 F. Supp. 1179 |
| Parties | AMERICAN MEDICAL ASSOCIATION et al., Plaintiffs, Pharmaceutical Manufacturers Association, Plaintiff-Intervenor, v. F. David MATHEWS, Secretary of Health, Education and Welfare, Defendant, Commonwealth of Massachusetts and State of Connecticut, Defendants-Intervenors. |
| Court | U.S. District Court — Northern District of Illinois |
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Newton N. Minow, Jack R. Bierig, Sidley & Austin, Bernard D. Hirsh, B. J. Anderson, Chicago, Ill., for plaintiffs.
Jenner & Block, Joan M. Hall, Chicago, Ill., for plaintiff-intervenor.
Earl J. Silbert, U. S. Atty., Washington, D. C., Samuel K. Skinner, U. S. Atty., Frederick H. Branding, Asst. U. S. Atty., Chicago, Ill., Jeffrey B. Springer, Deputy Chief Counsel for Regulations and Hearings, Michael P. Peskoe, Associate Chief Counsel for Enforcement Food and Drug Administration Department of Health, Education and Welfare, Rockville, Md., Eugene R. Sullivan, Atty., Civ. Div., Dept. of Justice, Washington, D. C., for defendant.
This action challenges the validity of the Maximum Allowable Cost (MAC) regulations of the Department of Health, Education and Welfare (HEW) which establish a mechanism for limiting reimbursement or payment for multiple-source prescription drugs under federally subsidized health care programs (mainly Medicare and Medicaid). The case raises important issues concerning the authority of the defendant, Secretary of HEW, to control spiraling expenditures in federal health programs in the face of claims by the medical profession, selected patients and the drug industry that the Secretary's efforts violate a host of legislative enactments, procedural requirements and the Constitution. We have concluded, for the reasons hereinafter stated, that all of the objections are without merit. Accordingly, judgment will enter dismissing the action.
Plaintiffs are the American Medical Association (AMA), five licensed physicians who are AMA members and who treat patients who receive Medicare and Medicaid benefits, four recipients of Medicare benefits and two Medicaid recipients. The Pharmaceutical Manufacturers Association (PMA) has intervened as a plaintiff.
Defendant is the Secretary of HEW. The Commonwealth of Massachusetts and the State of Connecticut intervened as defendants.
The complaint and intervening complaint allege violations of the Social Security Act, the Public Health Service Act, the Administrative Procedure Act and the Fifth Amendment to the Constitution.1 Jurisdiction is here under 28 U.S.C. § 1331.
The case is ready for decision on a series of motions and countermotions which will be described shortly. But first we summarize the history and content of the challenged MAC regulations.
On November 15, 1974 the Secretary published proposed regulations to establish a procedure for limiting reimbursement or payment for multiple-source drugs under the Medicare and Medicaid programs (42 U.S.C. § 1395 et seq. and 42 U.S.C. § 1396 et seq., respectively) and certain other federally sponsored health programs. 39 Fed.Reg. 40302. After reviewing more than 2,600 public comments on the proposal, the Secretary published the final MAC regulations on July 31, 1975. They became effective on August 26, 1976. 40 Fed.Reg. 32284 (45 C.F.R. § 19.1 et seq.). The regulations undertake to reduce the cost of prescription drugs paid for by the Medicare and Medicaid programs and they provide a comprehensive scheme for the determination, application and review of cost limitations.
MAC determinations are made by a Pharmaceutical Reimbursement Board, which consists of five full-time HEW employees representing the principal program areas involved in developing and implementing cost determinations. The Board begins the MAC determination process by identifying "multiple-source drugs" for which significant amounts of federal funds are being expended and for which formulators or labelers charge significantly different prices. A "multiple-source drug" is a "drug marketed or sold by two or more formulators or labelers or a drug marketed or sold by the same formulator or labeler under two or more different proprietary names or both under a proprietary name and without such a name." 45 C.F.R. § 19.2(d). For example, the antibiotic ampicillin trihydrate is sold under a variety of trademarked brand names, including Amcill and Totacillin. 1975 Physicians' Desk Reference at 302. After the Board identifies a multiple-source drug, it must seek advice from the Food and Drug Administration (FDA) concerning whether present FDA regulatory control will assure the marketability and bioequivalence2 of the proposed MAC drug. Unless the FDA advises the Board that the establishment of a MAC should be delayed or withheld, the Board proceeds to determine the "lowest unit price" at which the multiple-source drug is "widely and consistently available" on a national and, when appropriate, a local basis. The Board is required to submit this determination, together with supporting information, to the Pharmaceutical Reimbursement Advisory Committee. The Committee is composed of nine members who are not full-time employees of the federal government and who represent the areas of pharmacy, pharmacology, medicine, pharmaceutical marketing, public health, and consumer affairs. The function of the Committee is to advise the Board on the appropriateness of all proposed MAC determinations, and, upon request, to advise the Board and the Secretary on matters relating to general HEW policies and procedures involving drug reimbursement. After considering the Committee's advice and recommendations, the Board decides whether to propose the lowest unit price as the maximum allowable cost (MAC) for the drug. If it decides to do so, the proposed MAC is published in the Federal Register, thereby triggering provisions in the regulations which afford an opportunity for the public to respond by submitting written comments or by requesting an informal public hearing. The Board may, but need not, grant such a hearing. On the basis of the evidence and submissions, accumulated by these procedures, the Board then makes its final MAC determination and publishes notice of its decision.
Once a MAC is established, reimbursement benefits for that drug under Medicare and Medicaid may not exceed the lowest of three possible computations: (1) the MAC of the drug plus a reasonable dispensing fee; (2) the acquisition cost3 of the drug plus a reasonable dispensing fee; or (3) the provider's4 usual and customary charge to the public for the drug. Id. § 19.3(a). However, the MAC limit is not applicable to a brand of the drug "which the prescriber has certified in his own handwriting is medically necessary for that patient." Id. § 19.3(a)(3)(i). Because of this alternative cost limitation scheme, non-multiple-source drugs, which are not covered by MACs, will nonetheless be subject to cost controls (2) or (3) as will specially prescribed "medically necessary" drugs. However, the focus of the plaintiffs' complaint is on the MAC limitations.
The regulations provide for the Board to regularly review the MAC list to assure that continued application of each MAC is justified. Moreover, any individual may make a written request that a MAC determination be revised or withdrawn. If the Board determines that substantial grounds for review exist, it is required to initiate the same procedures as those by which the MAC was initially established.
The procedural history of this case is complex. The parties have filed a plethora of motions which have spawned numerous and lengthy briefs and exhibits. The Secretary answered the complaint of the six plaintiff recipients but moved to dismiss the five plaintiff physicians and the American Medical Association for lack of standing. Simultaneously, the AMA sought judgment on the pleadings on two of its claims: (1) that the MAC regulations contravene the reimbursement standards of the Social Security Act; and (2) that the regulations amount to federal supervision and control over the practice of medicine in violation of 42 U.S.C. § 1395.5 The AMA plaintiffs withheld from their motion several disputed procedural questions for resolution at trial. These questions concern whether the promulgation of the regulations was arbitrary, capricious and an abuse of discretion.6 The Secretary then moved for partial summary judgment on the same issues on which the AMA had previously sought judgment on the pleadings.
Subsequently, plaintiff-intervenor PMA, an association representing 131 member drug manufacturers and distributors, filed its complaint which reiterated many of the AMA's claims and which also raised new allegations of procedural infirmities in the MAC regulations. PMA then moved for summary judgment raising issues which, unlike the AMA's statutory issues, are primarily factual and procedural. PMA contends in its motion that the MAC regulations (1) violate the Social Security Act and are arbitrary and capricious because the record provides no basis for the Secretary's finding that the regulations will not impair the quality of care to Medicare and Medicaid beneficiaries, (2) are unlawful because the record provides no basis for the finding that the costs to be saved by the regulations are unnecessary in the efficient delivery of needed health services, (3) unlawfully allocate to the Food and Drug Administration authority to make determinations as to drug quality and therapeutic equivalence without adequate procedural safeguards, and (4) violate Executive Order No. 11821 which requires inflationary impact statements.
Then the intervenor state defendants moved for judgment on the pleadings with respect to the two legal issues previously...
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