PA PHARMACISTS ASS'N v. COM., DPW

• Citation: 733 A.2d 666
• Parties: PENNSYLVANIA PHARMACISTS ASSOCIATION, Bell Edge Pharmacy, Burns Pharmacy, Cambria Pharmacy # 3, Elwyn Pharmacy, Esterson Pharmacy, Hausmann's Pharmacy, Weldon Pharmacy, and other similarly situated Pharmacies, Petitioners, v. COMMONWEALTH of Pennsylvania, DEPARTMENT OF PUBLIC WELFARE, Respondent.
• Decision Date: 11 June 1999
• Court: Commonwealth Court of Pennsylvania

733 A.2d 666

PENNSYLVANIA PHARMACISTS ASSOCIATION, Bell Edge Pharmacy, Burns Pharmacy, Cambria Pharmacy # 3, Elwyn Pharmacy, Esterson Pharmacy, Hausmann's Pharmacy, Weldon Pharmacy, and other similarly situated Pharmacies, Petitioners, v. COMMONWEALTH of Pennsylvania, DEPARTMENT OF PUBLIC WELFARE, Respondent.

Commonwealth Court of Pennsylvania.

Argued March 12, 1999.

Decided June 11, 1999.

R. Christopher Raphaely, Philadelphia, for petitioners.

John A. Kane, Harrisburg, for respondent.

Before DOYLE, J., SMITH, J., and MIRARCHI, Jr., Senior Judge. SMITH, Judge.

The Department of Public Welfare (DPW) has filed seven preliminary objections to a petition for review filed in this Court's original jurisdiction by Petitioners Pennsylvania Pharmacists Association (PPA) and seven individual pharmacies (Pharmacy Petitioners) seeking declaratory, equitable and mandamus relief (Petition for Review). The Petition for Review alleges that PPA is a Pennsylvania non-profit corporation, representing over 440 pharmacists who own and operate independent pharmacies and over 1,000 pharmacists employed there. The Pharmacy Petitioners assert that they represent independent pharmacies participating in the Medical Assistance Program under Title XIX, Sections 1901-1935, of the Social Security Act (Title XIX), 42 U.S.C. §§ 1396-1396v, in the Counties of Bucks, Chester, Delaware, Montgomery and Philadelphia. Pharmacies enter into standard agreements with DPW to participate in the Medical Assistance Program (Agreements).

The Petition for Review requests a declaration that all outpatient pharmacy rates implemented under a managed-care program known as "HealthChoices" after February 1, 1997 were implemented in violation of the law and Agreements and are therefore a nullity. It requests an order enjoining DPW from permitting continued reimbursement of providers under the HealthChoices program using the current outpatient pharmacy rates and directing DPW to require reimbursement at pre-October 1995 rates. In a count in mandamus the petition seeks an order directing DPW to implement HealthChoices rates in conformance with federal and state law and an award ordering damages equal to the amount that would have been paid under the earlier rates since February 1, 1997.

DPW secured a waiver from certain provisions of Title XIX effective February 1, 1997 to implement HealthChoices in the five counties.¹ Under this program, recipients are required to receive medical services, including pharmaceutical services, from one of four health maintenance organizations (HMOs) with which DPW has contracted. The HMOs have contracted with pharmacy benefits managers to administer the outpatient pharmacy services benefits, and they in turn have contracted with individual pharmacies. The gravamen of Petitioners' complaint is that the pharmacy benefits managers, without oversight from DPW, systematically decreased the outpatient pharmacy benefit rates to unreasonably low levels and that DPW's method of implementing the HealthChoices program to permit this result violated state and federal statutes and regulations, the Agreements and the HealthChoices waiver.

Specifically, Petitioners allege inter alia that on May 1, 1998 the pharmacy benefits manager Eagle Managed Care reduced the generic drug reimbursement to the lower of average wholesale price minus 45 percent or the Eagle Managed Care maximum allowable cost plus a $2 dispensing fee and reduced the brand name drug reimbursement to average wholesale price minus 16.5 percent plus a $2 fee. These rates were later made applicable to two of the other three HMOs involved in HealthChoices, which had changed to Eagle Managed Care as their pharmacy benefits manager. DPW allegedly was not involved in any of the rate changes.

Petitioners note that the Federal District Court in an unreported decision in Rite Aid of Pennsylvania, Inc. v. Houstoun, 1998 WL 631966 (E.D. Pa., No. CIV. A. 97-2120, filed August 28, 1998), determined that the Medical Assistance Program pharmacy reimbursement rates that DPW implemented pursuant to an October 1, 1995 amendment to the State Plan for Medical Assistance (State Plan) were invalid, enjoined DPW from reimbursing pharmacies at the disputed rates and reinstated rates in effect before the amendment. Those rates were the lower of the usual and customary charge for cash-paying customers or the state maximum allowable cost or average wholesale price and a $3.50 dispensing fee for generic drugs and the lower of average wholesale price or the usual and customary charge and a $3.50 fee for brand name drugs.²

Petitioners aver that 229 of 448 independent pharmacies participating in HealthChoices have closed since its inception and that 35 percent of the 960 retail pharmacies originally participating in the plan had dropped out as of the end of April 1998. They allege that the rates are now set below the cost of acquisition and of dispensing the drugs that Pharmacy Petitioners supply to medical assistance beneficiaries and that this has resulted in a situation that is inconsistent with efficiency, economy and quality of care and that has decreased medical assistance beneficiaries' access to retail pharmacies under HealthChoices in violation of Section 1902(a)(30)(A) of Title XIX, 42 U.S.C. § 1396a(a)(30)(A).

Section 1396a(a)(30)(A) provides that a state plan for medical assistance must:

provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan ... as may be necessary... to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that the care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area....

In addition, the regulation at 42 C.F.R. § 431.12, which was adopted pursuant to Section 1902(a)(4) of Title XIX, 42 U.S.C. § 1396a(a)(4), requires a state plan to provide for a medical care advisory committee that must have the opportunity to participate in policy development and program administration. Petitioners assert that DPW has failed to comply with this regulation as well.³

I

DPW's first objection, a demurrer, asserts that the Petitioners have failed to state a cause of action because Section 449 of the Public Welfare Code (Welfare Code), Act of June 13, 1967, P.L. 31, as amended, added by Section 16 of the Act of May 16, 1996, 62 P.S. § 449, provides that any managed-care entity under contract to DPW must contract on an equal basis with any pharmacy qualified to participate in the Medical Assistance Program that is willing to comply with the HMO's payment and quality assurance standards. DPW asserts that Petitioners can point to no state or federal statute that confers a right to a certain minimum payment. Under Section 449 of the Welfare Code, the HMOs must and do offer the same terms to all, and any individual pharmacy is free to accept those terms or to decline them.

DPW notes that the requirements for an HMO to contract with a state medical assistance program are set forth in Section 1903(m) of Title XIX, 42 U.S.C. § 1396b(m). It observes that in 42 U.S.C. § 1396b(m)(2)(A)(ix) Congress adopted a requirement for payment by HMOs at some minimum level only in regard to federally qualified health centers and rural health clinics. A later amendment requires states to pay the difference between the HMO payment and the reasonable cost that these providers would have been paid under the fee-for-service program. See 42 U.S.C. § 1396a(a)(13)(C)(ii). DPW argues that the inclusion of provisions for a form of minimum payments by HMOs to some providers and the omission of such language in regard to others must be interpreted to reflect a different intent as to the others, including pharmacies. See Collinsgru v. Palmyra Board of Educ., 161 F.3d 225 (3d Cir.1998).

Petitioners respond that the waiver DPW secured to implement HealthChoices waived certain standard requirements, but it did not waive the Section 1396a(a)(30)(A) requirement for the State to assure rates that are sufficient to enlist enough providers so that care and services are available at least to the same extent that they are available to the general population. Nor did it waive the Section 1396a(a)(4) requirement for the participation of the Medical Care Advisory Committee in making policy decisions. Further, Petitioners assert that they do not claim an entitlement to any specific rate of reimbursement — they selected the rate in effect before the HMOs' reductions because it was the last legally adopted rate, and it therefore could serve as a basis for computation of damages. On this point the Court agrees with Petitioners. This Court rejects the notion that Congress intended to abandon the substantive results required by Section 1396a(a)(30)(A) when services are provided through mandatory participation in HMOs rather than through the usual fee-for-service system.

II

DPW's second objection, also a demurrer, maintains that Petitioners have no enforceable right to challenge DPW's administration of the HealthChoices waiver. DPW acknowledges the requirement in the regulation relating to waiver of provisions of 42 U.S.C. § 1396a in general that an agency such as DPW must document in its request and maintain data regarding "[t]he effect of the project on the accessibility and quality of services...." 42 C.F.R. § 431.55(b)(2)(ii). DPW notes that the Health Care Financing Administration must monitor the implementation of the waiver, 42 C.F.R. § 431.55(b)(4), and that it may determine, after notice and a hearing, that an agency is not in compliance and may revoke the waiver. DPW asserts that the remedy for allegations of non-compliance with a waiver is within the exclusive purview of the Health Care Financing Administration and that Petitioners' sole remedies are to cease...