Ohio State Pharmaceutical Ass'n v. Creasy, C-2-81-1055.

• Decision Date: 20 April 1984
• Docket Number: No. C-2-81-1055.,C-2-81-1055.
• Citation: 587 F. Supp. 698
• Parties: OHIO STATE PHARMACEUTICAL ASSOCIATION, et al., Plaintiffs, v. Kenneth B. CREASY, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

587 F. Supp. 698

OHIO STATE PHARMACEUTICAL ASSOCIATION, et al., Plaintiffs, v. Kenneth B. CREASY, et al., Defendants.

No. C-2-81-1055.

United States District Court, S.D. Ohio, E.D.

April 20, 1984.

COPYRIGHT MATERIAL OMITTED

C. William O'Neill, James H. Hedden, Columbus, Ohio, for plaintiffs.

Jeffrey J. Jurca, Kathleen McManus, Asst. Attys. Gen., Columbus, Ohio, for defendants.

OPINION AND ORDER

DUNCAN, District Judge.

This matter is before the Court on cross-motions for summary judgment. It is an action commenced by plaintiffs, Ohio State Pharmaceutical Association, Kuntz Drug Stores, Inc. and Toledo Nursing Home Services, Inc., for declaratory and injunctive relief from an alleged failure by the defendants to fully and to promptly pay pharmaceutical provider claims incurred as a result of the providers' participation in the State's Medicaid program. Kenneth B. Creasy, acting director of the Ohio Department of Public Welfare (ODPW) and William D. Keip, acting director of the Office of Budget and Management (OBM) were named as defendants. Mr. Keip left his position on January 1, 1982, and was replaced by Howard L. Collier.

Plaintiffs' class action complaint alleges, in substance, that the defendants' pattern of handling the State's financial obligations in times of cash flow crises, the classification of these obligations as priority and non-priority, the inclusion of Medicaid pharmaceutical provider claims in the non-priority category, and the resultant delay in reimbursement payments to providers of pharmaceutical care amounts to a continuing policy of delayed payments of Medicaid claims in a manner which violates the timely payment provisions of 42 U.S.C. § 1396a(a)(37) and 42 C.F.R. § 447.45 of Title XIX of the Social Security Act. Plaintiffs further allege that the current dispensing fee of $2.60 is arbitrary, unreasonable, invalid and void because the survey conducted by ODPW does not accurately reflect current pharmacy operational costs.

Plaintiffs request that the Court grant declaratory relief by holding that the provisions of 42 U.S.C. § 1396a(a)(37) and 42 C.F.R. § 447.45 are applicable to and binding upon defendants in their administration of the state Medicaid program; that the Court grant preliminary and permanent injunctive relief requiring defendants to comply with the provisions of 42 U.S.C. § 1396a(a)(37) and 42 U.S.C. § 447.45 and to approve for payment all clean claims within the statutory time limit; that the Court restrain defendants from enforcing the current limitation upon the dispensing fee paid to pharmaceutical Medicaid providers; and, finally, that the Court direct defendants to conduct a fair and accurate survey of pharmaceutical provider operational costs in order to establish a proper dispensing fee. The plaintiffs request reimbursement for any deficiencies in payment resulting from the use of the current dispensing fee limitations and the award of reasonable attorney's fees.

On March 25, 1981, the Court denied defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). On May 12, 1982, the Court ruled that the matter was properly certifiable as a class action pursuant to Fed.R.Civ.P. 23(b)(1)(B). The class was certified on behalf of all providers of pharmaceutical services and supplies who are participating in the Medicaid program administered by the ODPW pursuant to Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq.

Cross-motions for summary judgment and a stipulation of facts were submitted to the Court for its consideration. The Court directed the parties to file additional memoranda addressing the question of this Court's jurisdiction over federal statutory and regulatory challenges to state welfare programs. The parties' attention was directed to the plaintiffs' failure to allege any constitutional violations; to their failure to allege a violation of 42 U.S.C. § 1983 which encompasses claims based upon purely statutory violations; and to their failure to allege whether a private right of action may be implied under the Social Security Act.

For the reasons set forth below, this Court finds that the practice of delaying payments to pharmacy Medicaid providers during periods of cash flow crises violates the statutory requirements of the Medicaid program, Title XIX of the Social Security Act. However, the Court finds that the current dispensing fee is reasonable within the meaning of 42 C.F.R. § 447.45.

I.

From 1980 through October 1982, the State of Ohio experienced an ongoing fiscal crisis. During this crisis, the State's treasury periodically developed cash flow problems; then due and owing payment obligations exceeded available receipts and cash balances. The OBM was unable, on a daily basis, to certify for payment vouchers that had been submitted by various government offices, including ODPW.

Defendant Keip, then director of OBM, addressed the cash flow deficiency problem by separating payment obligations into two categories, priority and non-priority. Priority payments were made first and included: payments to holders of Ohio's bonded indebtedness, state payroll obligations, Aid to Dependent Children (A.D.C.) payments made pursuant to Ohio Revised Code Chapter 5107, Medicaid nursing home payments, other welfare payments, and Public School Foundation Program payments. Non-priority category payments included payments to providers of office supplies and equipment, subsidies to state institutions of higher education, payments to providers of miscellaneous goods and services to state institutions, and Medicaid payments to all other providers except nursing homes. This last group includes payments to pharmacy Medicaid providers.

All vouchers for priority category obligations were promptly approved for payment during periods in which the state treasury experienced cash flow problems. Non-priority obligations were paid only after it was determined that available cash was not needed for priority obligations. Non-priority obligations, then, were paid in the chronological order in which they were received by OBM.

The parties have stipulated that during the period in which the priority/non-priority payment system was in effect less than 90% of pharmacy Medicaid provider "clean claims"¹ were paid within 30 days of receipt by ODPW. Keip's use of non-priority certification of provider claims resulted in a delay in payments of between 45 and 65 days; in some cases payment was delayed for more than 65 days. When cash flow problems subsided, OBM began immediately certifying that adequate cash was available for payment of all state obligations. Since January of 1982, payments have been made to pharmacy Medicaid providers in accord with the approved plan. However, it is stipulated that in the event of a future cash flow problem, the State will adopt the same practice with respect to priority/non-priority classification of its obligations.²

A. Subject Matter Jurisdiction

In response to the Court's inquiry as to the basis of subject matter jurisdiction, plaintiffs argue that jurisdiction is conferred by 28 U.S.C. § 1331. They state that "when a party challenges the action of state officials because their action violates obligations imposed by the Social Security Act jurisdiction exists pursuant to 28 U.S.C. § 1331 to hear such claims." Supplemental Brief of Plaintiffs Concerning Jurisdictional Matters, p. 6. Apparently, defendants do not challenge jurisdiction but urge that plaintiffs fail to state a federal cause of action upon which this Court may grant relief.

Title 42 U.S.C. § 1396a(a)(37) (1983) sets forth a state's timely payment obligation and provides that:

A state plan for medical assistance must ... provide for claims payment procedures which (A) ensure that 90 per centum of claims for payment ... made for services covered under the plan and furnished by health care practitioners through individual or group practices ... are paid within 30 days of the date of receipt of such claims and that 99 per centum of such claims are paid within ninety days of receipt of such claims, ... (Emphasis added.)

The plaintiffs claim that the OBM Director's prioritization policy results in significant delays in reimbursement to pharmacy Medicaid providers thereby violating the obligations imposed by 42 U.S.C. § 1396a(a)(37). Plaintiffs claim that in the absence of timely reimbursements it is impossible for individual pharmacists to stock or replenish their supply of medications. This inability to replenish inventory may be particularly problematic for those pharmacists who do a large volume of Medicaid business.

The Court agrees that plaintiffs state a claim "arising under the ... laws ... of the United States." 28 U.S.C. § 1331. In Lindy v. Lynn, 501 F.2d 1367, 1369 (3d Cir.1974) the scope of § 1331 federal question jurisdiction was described as follows:

An action arises under the laws of the United States if and only if the complaint seeks a remedy expressly granted by a federal law or if it requires the construction of a federal statute or a distinctive policy of a federal statute requires the application of federal legal principles for its disposition.

The three analytical categories set forth in Lindy were utilized by Judge Rice in Jemo Associates v. Greene Metro Housing Authority, 523 F.Supp. 186 (S.D.Ohio 1981) (court found no § 1331 jurisdiction because allegations of non-performance of a contract do not become questions of federal law merely because a federal agency was party to the contract). This Court also believes that the inquiries set forth in Lindy are helpful in determining the existence of a federal question.

Defendants argue that the State's significant interest in the management of its fiscal crises temporarily excuses defendants from timely payment obligations imposed by the Social Security Act. Whether the director of OBM has this discretion in the context of this cooperative welfare program is a question of federal,...