American Soc. of Consultant Pharmacists v. Patla

• Decision Date: 27 February 2001
• Docket Number: No. 00 C 7821.,00 C 7821.
• Court: U.S. District Court — Northern District of Illinois
• Parties: AMERICAN SOCIETY OF CONSULTANT PHARMACISTS, et al. Plaintiffs, v. Ann PATLA, in her official capacity as Director of the Illinois Department of Public Aid, and the Illinois Department of Public Aid, Defendants.

138 F.Supp.2d 1062

AMERICAN SOCIETY OF CONSULTANT PHARMACISTS, et al. Plaintiffs, v. Ann PATLA, in her official capacity as Director of the Illinois Department of Public Aid, and the Illinois Department of Public Aid, Defendants.

No. 00 C 7821.

United States District Court, N.D. Illinois, Eastern Division.

February 27, 2001.

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Howard M. Hoffmann, Nicholas James Lynn, Neville Maherji Bilimoria, Jason T. Lundy, Duane Morris & Heckscher LLP, Chicago, IL, for plaintiffs.

Karen Elaine Konieczny, John E. Huston, James C. O'Connell, Martin W. McManaman, Illinois Attorney General's Office, Chicago, IL, for defendants.

MEMORANDUM OPINION AND ORDER

SCHENKIER, United states Magistrate Judge.

This case is brought by the American Society of Consultant Pharmacists and other independent pharmacies ("plaintiffs") against the Illinois Department of Public Aid ("IDPA") and its Director, Ann Patla, in her official capacity. In an amended, three count complaint, the plaintiffs seek a preliminary and permanent injunction, declaratory relief, and attorneys' fees and costs against the defendants for alleged violations of the Medicaid Act, 42 U.S.C. §§ 1396-1396v (the "Medicaid Act"), and 42 U.S.C. § 1983 (Count I), as well as two specific state law provisions: the Illinois Public Aid Code, 305 ILCS 5/5-5b (2000) (Count II), and the Illinois Administrative Procedure Act, 5 ILCS 100/5-45 (2000) (Count III). The defendants have moved to dismiss the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6), on the sole ground that this action is barred by Eleventh Amendment immunity (Doc # 37-1).¹ For the reasons set forth below, the motion to dismiss is granted as to plaintiffs' supplemental state law claims and plaintiffs' federal law claim against the IDPA, but denied as to the federal law claim against Ms. Patla in her official capacity.

I.

Due to the "hybrid nature of Eleventh Amendment jurisprudence" (Defs.' Reply Mem. 1), defendants have moved to dismiss under both Federal Rule of Civil Procedure ("Rule") 12(b)(1) and 12(b)(6).² Under either rule, all well-pleaded facts are taken as true, all reasonable inferences are drawn in favor of the plaintiff, and all ambiguities are resolved in favor of the plaintiff. Mallett v. Wisconsin Div. Of Voc. Rehab., 130 F.3d 1245, 1248 (7th Cir. 1997) (Rule 12(b)(6)); Komorowski v. Townline Mini-Mart & Restaurant, 162 F.3d 962, 964 (7th Cir.1998) (per curiam); (Rule 12(b)(1)); United Transp. Union v. Gateway Western Ry. Co., 78 F.3d 1208, 1210 (7th Cir.1996) (citing Rueth v. EPA, 13 F.3d 227, 229 (7th Cir.1993)) (Rule 12(b)(1)). Moreover, the purpose of a motion to dismiss is to test the sufficiency of the pleading to state a claim, in the case of Rule 12(b)(6), In re HealthCare Compare Corp. Securities Litigation, 75 F.3d 276, 279 (7th Cir.1996), or to test subject matter jurisdiction, in the case of Rule 12(b)(1), Long v. Shorebank Development Corp., 182 F.3d 548, 554 (7th Cir.1999) — not to test the merits of the suit.

That is an admonition both sides would have done well to heed, as their briefs strayed from the Eleventh Amendment issue to arguments about the merit of plaintiffs' claims (see, e.g., Defs.' Mem. 7-8, 13; Pls.' Mem. 4-5; Defs.' Reply Mem. 4-6). In this opinion, the Court expresses no view as to the merits, but focuses solely on whether the claims pled by plaintiffs are not properly before the Court by application of the Eleventh Amendment or (in the case of the state law claims) the supplemental jurisdiction statute, 28 U.S.C. § 1367. That said, we turn to a summary of plaintiffs' factual allegations germane to the motion.

II.

The plaintiffs are providers of pharmacy services to Medicaid recipients in Illinois (Am.Compl.¶ 22). The State of Illinois, through the IDPA, reimburses plaintiffs for providing pharmacy services according to a reimbursement policy set by the IDPA (Id. ¶¶ 33-35, 37, 40-41). The defendants provide reimbursement by entering into provider agreements and contracts with pharmacies, including the plaintiff pharmacies, to provide prescription and non-prescription drugs and related products and services to medical assistance recipients (Am.Compl.¶¶ 25-45). The form provider agreement requires the defendant IDPA to reimburse the participating pharmacy for brand name and generic prescription drugs, over-the-counter non-prescription drugs, and related services pursuant to the IDPA's reimbursement rate, which constitutes payment in full (Am. Compl. ¶¶ 44-45; Pls.' Ex. B). Until recently, reimbursement for prescription drugs through the medical assistance program has had two components: a methodology to calculate the cost of the product to be reimbursed and a dispensing fee (Am. Compl.¶ 38).

On December 15, 2000, pursuant to an emergency rule, the IDPA implemented a new reimbursement formula that reduced the rate at which the State would pay pharmacies for providing services to Medicaid recipients (Am.Compl.¶¶ 73-80). The plaintiffs claim that under the new formula, such rates of reimbursement are unreasonably low and will result in pharmacies curtailing operations, laying off staff and going out of business (Id. ¶¶ 85, 86). The plaintiffs further claim that this will result in depriving Medicaid recipients access to certain drugs and services, and reducing the quality of care provided to certain Medicaid recipients (Id. ¶¶ 85, 99, 100).

The relief sought by plaintiffs includes a preliminary and permanent injunction prohibiting implementation of the emergency rule; a declaratory judgment that the emergency rule violates the Medicaid Act, the regulations promulgated under that Act, 42 U.S.C. § 1983, provisions of the Illinois Public Aid Code and Administrative Procedure Act, and an award of attorneys' fees and costs pursuant to 42 U.S.C. § 1988 (Am.Compl.¶ 42). The prayer for relief does not seek a mandatory injunction requiring the implementation of any particular substitute reimbursement formula, and does not seek to recoup as damages amounts that plaintiffs claim would have been paid since December 15, 2000 had the prior reimbursement formula remained in effect. Moreover, in the briefing on the motion, plaintiffs have specifically disavowed any intent to seek such relief (Pls.' Mem. 1-2) ("Plaintiffs seek no monetary damages except fees and costs ..."; and "Plaintiffs do not seek to impose on Defendants any particular methodology").

III.

There are two issues before the Court. First, the defendants claim that the motion to dismiss must be granted because the State is immune from suit in federal court under the Eleventh Amendment of the United States Constitution. Second, the defendants claim that the Court lacks subject matter jurisdiction over the supplemental state law claims brought by the plaintiffs under the Illinois Public Aid Code ("IPAC") and the Illinois Administrative Procedure Act ("IAPC"). For the reasons that follow, the Court finds that the Eleventh Amendment is a bar to suit for the state law claims asserted against the State in Counts II and III, but it is not a bar to Count I, because Count I seeks only prospective injunctive relief against the State for an alleged violation of the Medicaid Act, a federal law. We begin our analysis with Count I.

A. The Medicaid Act.

In Count I, the plaintiffs allege that the defendants' emergency rule violates the Medicaid Act, 42 U.S.C. § 1396a(a)(30)(A), its attendant regulations (42 C.F.R. § 447.200, 447.201, 447.203, 447.204, 447.205, and 42 C.F.R. § 431.12), and 42 U.S.C. § 1983. The plaintiffs allege, inter alia, that the emergency rule changed the methodology for Medicaid reimbursement and, in doing so, violated federal law, in particular the equal access provisions of the Medicaid Act. The plaintiffs claim violations of these statutes because the emergency rule allegedly will cause the plaintiffs to go out of business, especially in rural or semi-rural areas where there is often only one Medicaid pharmacy (Am.Compl.¶¶ 107, 121), and will therefore result in unequal access to plaintiffs' services based on the geographic locations of Medicaid pharmacies and recipients (Id. ¶ 124). The plaintiffs also allege that the emergency rule violates the Medicaid Act because it will force a reduction in or elimination of certain drugs and services and result in the termination of agreements with certain nursing homes and community integrated living arrangements ("CILA") (Am.Compl.¶¶ 1, 125). According to plaintiffs, the emergency rule sets Medicaid reimbursement rates at a level that will "be insufficient to enlist enough Medicaid pharmacies to assure Medicaid recipients equal access to care and services under the Illinois Medicaid State Plan" (Am.Compl.¶ 129). The plaintiffs allege that these violations of the Medicaid Act also violate 42 U.S.C. § 1983, because they "deprive the Medicaid Pharmacies of their rights to reasonable reimbursement under the Medicaid Act" — a right the plaintiffs claim is guaranteed to them by the Medicaid Act (Am. Compl.¶¶ 130-31).

In their motion, the defendants argue that Count I must be dismissed because the Eleventh Amendment generally bars suits in federal court against states (and state officials named as defendants in their official capacity) for monetary damages or equitable relief. Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984); Will v. Michigan Dept. of State Police, 491 U.S. 58, 71 n. 10, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989); Brandon v. Holt, 469 U.S. 464, 471-72, 105 S.Ct. 873, 83 L.Ed.2d 878 (1985). The defendants assert this general rule as an absolute bar to Count I.

However, as is often the case with general rules, there are exceptions. One exception occurs when the suit is filed against a state official, in her official capacity, claiming a violation of federal or constitutional law and seeking only prospective injunctive...