INDIANA FSSA v. Walgreen Co.

Decision Date28 May 2002
Docket NumberNo. 49S00-0112-CV-647.,49S00-0112-CV-647.
Citation769 N.E.2d 158
PartiesINDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, et al., Appellants (Defendants), v. WALGREEN CO., et al., Appellees (Plaintiffs).
CourtIndiana Supreme Court

Steve Carter, Attorney General of Indiana, David L. Steiner, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellants.

Michael B. McMains, Matthew W. Foster, McMains Foster & Morse, P.C., Indianapolis, IN, Attorneys for Appellees.

J. Michael Grubbs, Thomas F. Shea, Jody L. Deford, Barnes & Thornburg, Indianapolis, IN, Attorneys for Amici Curiae AmHealth (Evansville), Inc., et al.

SHEPARD, Chief Justice.

Common wisdom holds that the most complicated matter in state government is the school funding formula. This case about Medicaid administration places that in doubt.

Faced with a sizeable projected financial shortfall, Indiana's Medicaid administrators adopted both emergency and permanent rules to pay pharmacies a dollar less per prescription dispensed and reduce their drug reimbursement rate by three percent. These measures would save the State $825,000 per month.

A group of retail drug companies, pharmacy trade associations, and individual Medicaid recipients (collectively "Walgreens") obtained a preliminary injunction preventing these rules from taking effect. For reasons explained below, we reverse the order granting the preliminary injunction.

Facts and Procedural History

The Indiana Family and Social Services Administration and its subdivision, the Office of Medicaid Policy and Planning (collectively "FSSA"), administer Indiana's Medicaid program. In December 2000, the director of that office, Kathleen Gifford, reviewed the forecasts of Medicaid spending for fiscal year 20021 and concluded that appropriations would not cover program expenditures. Gifford ultimately projected the fiscal 2002 Medicaid deficit at over a hundred million dollars.

To address this shortfall, Gifford explored various cost containment measures. Among other things, she recommended reducing the drug dispensing fee from four dollars to two dollars and decreasing the pharmacy reimbursement rate from ninety to eighty-seven percent of the average wholesale price (AWP).2

On April 1, 2001, FSSA published a proposed permanent rule reflecting these reductions, and on April 23rd it conducted a public hearing. Based upon the hearing and input provided by "members of the pharmacy community," FSSA revised the proposed rule to reflect a three dollar dispensing fee.

The Attorney General's office received the final rule on July 10, 2001, and approved it on August 24th. Governor Frank O'Bannon signed the rule on August 28th, and the Secretary of State's office accepted it for filing on August 29th, with a designated effective date of September 28, 2001.

While the permanent rule was still in the pipeline, FSSA adopted an emergency rule "to put the cost containment measures in as soon as possible because of the fiscal crisis." (T.R. at 56.) On August 20, 2001, State Budget Director Betty Cockrum exercised recently-enacted statutory authority and directed FSSA to adopt emergency rules to limit Medicaid expenditures to the amount of the legislative appropriation. See P.L. 291-2001 § 48. FSSA officials signed an emergency rule that was substantively identical to the permanent rule, and notified Medicaid providers that the new rates would become effective on August 27, 2001.

Walgreens obtained a temporary restraining order to delay implementation of the emergency rule and sought an injunction against implementation of both rules. Following a hearing, the trial court granted the preliminary injunction on October 9th.

We accepted jurisdiction over the ensuing appeal without prior consideration by the Court of Appeals, to expedite a resolution. See Ind. Appellate Rule 56(A).

I. The "Per Se" Injunction Standard

The grant or denial of a preliminary injunction rests within the sound discretion of the trial court, and our review is limited to whether there was a clear abuse of that discretion. Harvest Ins. Agency, Inc. v. Inter-Ocean Ins. Co., 492 N.E.2d 686, 688 (Ind.1986).

To obtain a preliminary injunction, the moving party has the burden of showing by a preponderance of the evidence the following:

1) [movant's] remedies at law were inadequate, thus causing irreparable harm pending resolution of the substantive action; 2) it had at least a reasonable likelihood of success at trial by establishing a prima facie case; 3) its threatened injury outweighed the potential harm to appellant resulting from the granting of an injunction; and 4) the public interest would not be disserved.

Id. (citations omitted); T.H. Landfill Co., Inc. v. Miami County Solid Waste Dist., 628 N.E.2d 1237, 1238 (Ind.Ct.App.1994). If the movant fails to prove any of these requirements, the trial court's grant of an injunction is an abuse of discretion. Boatwright v. Celebration Fireworks, Inc., 677 N.E.2d 1094, 1096 (Ind.Ct.App.1997).

The trial court held that FSSA violated several procedural requirements in adopting the permanent and emergency rules. Having found statutory violations that demonstrated a likelihood of success, the court relied on a "per se" rule under which the other elements of the standard injunction analysis were presumed.

This Court has indicated that a relaxed standard may sometimes be applied for clear, uncontested unlawful conduct. Schrenker v. Clifford, 270 Ind. 525, 529, 387 N.E.2d 59, 61 (1979). But because parties are relieved of several showings usually necessary to obtain injunctive relief, this relaxed standard "is only proper when it is clear that [a] statute has been violated." Union Township Sch. Corp. v. State ex rel. Joyce, 706 N.E.2d 183, 192 (Ind.Ct.App.1998).

In prior Indiana decisions employing the relaxed standard, the "per se" rule has been used to enjoin activity that is clearly unlawful and against the public interest, such as the practice of medicine without a license.3 The "per se" rule has never been used to permit a private party to enjoin State action based on an alleged procedural deficiency in promulgating rules. A private assertion of public interest will rarely justify enjoining State conduct when it is based only on a procedural challenge and a prima facie case.

Here, there is no question that FSSA has legal authority to revise Medicaid dispensing fees and reimbursement rates. The question is whether it went about the task appropriately. The rules at issue may or may not have been properly promulgated (as we discuss further below), but the action itself is one the statute allows.

Absolving Walgreens from proving irreparable injury and a balance of harm in its favor was error. We therefore proceed to review the standard proofs necessary for obtaining injunctive relief.

II. Irreparable Harm and Balance of Harms

As noted above, a plaintiff must prove four things to justify a preliminary injunction, which we caption as (1) irreparable harm, (2) likelihood of success on the merits, (3) balance of harms, and (4) public interest. We will proceed to consider each factor.

Walgreens' initial burden was to demonstrate that "remedies at law were inadequate, thus causing irreparable harm pending resolution of the substantive action." Tilley, 725 N.E.2d at 153-54 (citations omitted). If an adequate remedy at law exists, injunctive relief should not be granted. A party suffering mere economic injury is not entitled to injunctive relief because damages are sufficient to make the party whole. Xantech Corp. v. Ramco Indus., Inc., 643 N.E.2d 918, 921-22 (Ind. Ct.App.1994).4 The crux of Walgreens' argument is that a reduction in dispensing fees and reimbursement rates will cause a handful of pharmacies to close. Plaintiff Ralph Anderson testified that he owns two Bedford pharmacies: a retail pharmacy that offers prescription home delivery, among other services, and an institutional pharmacy that does not conduct business directly with the public. Anderson said the institutional pharmacy would likely close and speculated that the other might as well.5 (T.R. at 212, 227-28.)

Also, a CVS spokesman testified that "some" of the 268 CVS pharmacies located in Indiana "will ultimately have to be closed" as a result of the Medicaid cuts. (T.R. at 254, 256, 259.) He cited only three definite instances, and further testified that closing stores was part of the ordinary course of business and that customers of the closed stores always find alternative providers. (T.R. at 259, 267-68, 270-72, 277.)

Walgreens failed to identify any injury beyond purely economic injury, which is not enough to justify injunctive relief. We conclude that post-trial damages would adequately compensate for any injuries should Walgreens prevail at trial. Moreover, the potential harm from the estimated one hundred million dollar State Medicaid deficit outweighs Walgreens' potential injury.

III. Likelihood of Success on the Merits

Walgreens claims that the emergency and permanent rules violated a number of statutory procedural requirements. Rather than focusing on whether Walgreens was likely to prevail on each claim, the trial court flatly held that FSSA violated each cited statute. We therefore review each of these conclusions for clear error.

A. Statutory Authority for the Emergency Rule

During its 2001 session, the General Assembly gave the state budget director broad authority, effective July 1, 2001, to cut Medicaid expenditures to match appropriated funds:

Notwithstanding ... any other law, or any rule, if the budget director makes a determination at any time during either fiscal year of the biennium that Medicaid expenditures to date are at a level that may cause total expenditures for the year to exceed total Medicaid appropriations for the year, the budget director may, after review by the budget committee, direct the secretary to adopt emergency rules to the Medicaid program to decrease expenditures that have risen

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