Pennsylvania Pharmacists Ass'n v. Houstoun, 00-1898.

• Decision Date: 13 March 2002
• Docket Number: No. 00-1898.,00-1898.
• Citation: 283 F.3d 531
• Parties: PENNSYLVANIA PHARMACISTS ASSOCIATION; Bell Edge Pharmacy; Broad Street Apothecary; Burns Pharmacy; Cambria Pharmacy #3; Christian Street Pharmacy; Elwyn Pharmacy; Esterson Pharmacy; Fosters Pharmacy; Getwell Pharmacy; McKean Street Pharmacy; Rosica Pharmacy; S & S Community Drug, Inc.; Silverman Pharmacy; Tioga Drug Company; Weldon Pharmacy, and Other Similarly Situated Pharmacies; Tirelli, Inc., dba Broad Street Apothecary; Robert Schreiber, dba Burns' Pharmacy; Cambria Pharmacies, Inc.; Barry Jacobs, dba Elwyn Pharmacy; 2401 East York Street, Inc., dba Esterson's Pharmacy; Riaz U. Rahman, dba Getwell Pharmacy; Foster Pharmacy, Inc.; Haussmann's Pharmacy; McKean Street Pharmacy, Inc.; Thomas Betteridge, dba Rosica Pharmacy; Weldon Pharmacy, Inc, Appellants, v. Feather O. HOUSTOUN.
• Court: U.S. Court of Appeals — Third Circuit

Page 531

283 F.3d 531

PENNSYLVANIA PHARMACISTS ASSOCIATION; Bell Edge Pharmacy; Broad Street Apothecary; Burns Pharmacy; Cambria Pharmacy #3; Christian Street Pharmacy; Elwyn Pharmacy; Esterson Pharmacy; Fosters Pharmacy; Getwell Pharmacy; McKean Street Pharmacy; Rosica Pharmacy; S & S Community Drug, Inc.; Silverman Pharmacy; Tioga Drug Company; Weldon Pharmacy, and Other Similarly Situated Pharmacies; Tirelli, Inc., dba Broad Street Apothecary; Robert Schreiber, dba Burns' Pharmacy; Cambria Pharmacies, Inc.; Barry Jacobs, dba Elwyn Pharmacy; 2401 East York Street, Inc., dba Esterson's Pharmacy; Riaz U. Rahman, dba Getwell Pharmacy; Foster Pharmacy, Inc.; Haussmann's Pharmacy; McKean Street Pharmacy, Inc.; Thomas Betteridge, dba Rosica Pharmacy; Weldon Pharmacy, Inc, Appellants, v. Feather O. HOUSTOUN.

No. 00-1898.

United States Court of Appeals, Third Circuit.

Argued April 20, 2001.

Argued En Banc November 28, 2001.

Opinion Filed March 13, 2002.

Gregory L. Liacouras, (Argued), Leslie H. Smith, Joseph W. Marshall, III, Liacouras & Smith, LLP, Philadelphia, PA, for Appellants.

Joseph McHale, Kimberley A. Hendrix Stradley, Ronon, Stevens & Young, LLP, Philadelphia, PA, John A. Kane, (Argued), Commonwealth of PA, Office of Legal Counsel, Department of Public Welfare, Harrisburg, PA, Doris M. Leisch, Chief of Litigation, Office of Legal Counsel, Department of Public Welfare, Philadelphia, PA, for Appellee.

Before BECKER, Chief Judge, MANSMANN, SCIRICA, NYGAARD, ALITO, ROTH, McKEE, RENDELL, BARRY, AMBRO, and FUENTES, Circuit Judges.

OPINION OF THE COURT

ALITO, Circuit Judge, with whom Judges NYGAARD, ROTH, BARRY, AMBRO and FUENTES join.

The Pennsylvania Pharmacists' Association¹ and 16 pharmacies operating in southeastern Pennsylvania brought this action under 42 U.S.C. § 1983 against Feather O. Houstoun, the Secretary of the Pennsylvania Department of Public Welfare (the "Department"), to challenge the reimbursement rates paid to pharmacies under Pennsylvania's Medicaid program. The plaintiffs claimed that the Department, in administering its HealthChoices Southeast program ("HealthChoices"), was violating provisions of Title XIX of the Social Security Act (the "Medicaid Act"), 42 U.S.C. §§ 1396a(a)-1396v. The plaintiffs' principal claim was based on 42 U.S.C. § 1396a(30)(A) ("Section 30(A)"). In accordance with its interpretation of prior circuit precedent, the District Court held that the plaintiffs could assert their Section 30(A) claim under § 1983, but the District Court nevertheless granted summary judgment against the plaintiffs. We now hold that the plaintiffs, as Medicaid providers, may not assert their claims under § 1983, and we therefore affirm the order of the District Court on this alternative ground.

I.

Medicaid is a cooperative federal-state program under which the federal government furnishes funding to states for the purpose of providing medical assistance to eligible low-income persons. See 42 U.S.C. § 1396; Rite Aid of Pennsylvania, Inc. v. Houstoun, 171 F.3d 842, 845 (3d Cir.1999). If a state chooses to participate in the program, it must comply with the Medicaid Act and implementing regulations promulgated by the Secretary of Health and Human Services ("HHS"). See Wilder v. Virginia Hosp. Ass'n., 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). In order to participate, a state must submit a medical assistance plan to the Secretary of HHS and obtain approval of the plan. See 42 U.S.C. § 1396; 42 C.F.R. § 430.10 (2001). With further administrative approval, a state may amend a previously approved plan. See 42 C.F.R. § 430.12 (2001).

Under the Medicaid Act, a state is required to pay for certain enumerated services and may choose to pay for certain additional services. 42 U.S.C. § 1396a(a)(10)(A); 42 C.F.R. § 440.210 (2001). Pennsylvania includes prescription drugs among its optional services. See 42 U.S.C. § 1396d(a)(12); 42 C.F.R. § 440.120(a) (2001).

Until 1997, Pennsylvania compensated participating pharmacists directly under a "fee-for-service" program. Payments to these pharmacies generally consisted of two components: (1) ingredient cost reimbursement and (2) a dispensing fee. Pharmacies were compensated for brand-name drugs based on the "estimated acquisition cost" of the drugs² plus a "reasonable" dispensing fee. See 42 U.S.C. § 1396(a)(30)(A); 42 C.F.R. § 447.300 et seq. Pharmacists were compensated for generic drugs using acquisition cost limits established by HHS plus a reasonable dispensing fee.

In 1997, the Pennsylvania Department of Public Welfare began to implement its HealthChoices program, a mandatory managed care program operated in five counties in the southeastern part of the state pursuant to an HFCA waiver from certain provisions of the Medicaid Act.³ The Department contracted with four health management organizations ("HMOs") to administer HealthChoices. Three of the four HMOs administer pharmacy benefits through contracts with pharmacy benefits managers. When an HMO contracts with a pharmacy benefits manager, the HMO and the pharmacy benefits manager set the rates at which pharmacies are reimbursed. The pharmacy benefits manager then contracts directly with the participating pharmacies to provide outpatient pharmacy services to eligible beneficiaries.

In order to participate in HealthChoices, the named pharmacy plaintiffs entered into standardized Medical Assistance Provider Agreements with the Department. The Agreements cover the provision of brand-name and generic prescription drugs to eligible beneficiaries and obligate the Department to reimburse the contracting pharmacies in accordance with state and federal law.

In January 1999, the plaintiffs commenced this action in the United States District Court for the Eastern District of Pennsylvania and requested declaratory and injunctive relief. The plaintiffs' principal claim was that the new payment rates violate Section 30(A), which requires a state Medicaid plan to assure that payments "are consistent with efficiency, economy, and quality of care" and "are sufficient to enlist enough providers so that 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." The plaintiffs alleged that the pharmacy benefits managers, without oversight from the Department, had decreased the outpatient pharmacy benefit rates so much that they were below the cost of acquiring and dispensing the drugs.

The District Court certified a class of pharmacy plaintiffs and denied the Department's motion to dismiss the complaint, holding that the plaintiffs had "a private right to enforce [Section 30(A)]." Pennsylvania Pharmacists Ass'n v. Houstoun, No. CIV.A. 99-491 (E.D.Pa. October 21, 1999). As support for its holding on this point, the Court cited a footnote in a prior panel opinion of this Court. See Rite Aid of Pennsylvania, Inc. v. Houstoun, 171 F.3d 842, 850 n. 7 (3d Cir.1999).

The District Court subsequently granted the defendant's motion for summary judgment. Pennsylvania Pharmacists Ass'n v. Houstoun, No. CIV.A. 99-491, 2000 WL 730344, at * 1 (E.D.Pa. June 7, 2000). The Court held that the Department, in implementing its new program, had properly considered efficiency, economy, and access to quality pharmacy services, that its procedures were neither arbitrary nor capricious, and that the resulting payment rates did not violate Section 30(A). Pennsylvania Pharmacists Ass'n, 2000 WL 730344, at * 3-5.

The Plaintiffs appealed, and their arguments were heard before a regular panel. Under a longstanding practice of our Court, a panel may not overrule another panel decision. A footnote in the panel opinion in Rite Aid appeared to hold that a provider may assert a Section 30(A) claim under § 1983, but the footnote provided no elaboration.⁴ By the time of the panel argument in this case, the other courts of appeals were divided on this issue. Prior to the issuance of a panel decision, we granted rehearing en banc primarily for the purpose of considering the § 1983 issue.

II.

The threshold issue that we must consider is whether the plaintiffs, as Medicaid providers (as opposed to Medicaid recipients), may assert a Section 30(A) claim under 42 U.S.C. § 1983. Section 1983 provides a private right of action against any person who, acting under the color of state or territorial law, abridges "rights, privileges, or immunities secured by the Constitution and laws" of the United States. See also Maine v. Thiboutot, 448 U.S. 1, 4, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980). In order to seek redress under § 1983, a plaintiff "must assert the violation of a federal right," and not merely a violation of federal law. Golden State Transit Corp. v. City of Los Angeles, 493 U.S. 103, 106, 110 S.Ct. 444, 107 L.Ed.2d 420 (1989). Thus, a plaintiff alleging a violation of a federal statute may not proceed under § 1983 unless 1) the statute creates "enforceable rights, privileges, or immunities within the meaning of § 1983" and 2) Congress has not "foreclosed such enforcement of the statute in the enactment itself." Wright v. Roanoke Redevelopment and Housing Auth., 479 U.S. 418, 423, 107 S.Ct. 766, 93 L.Ed.2d 781 (1987).

In considering the first of these requirements — that the statute must create an enforceable right, privilege, or immunity — we must determine whether the three conditions identified by the Supreme Court in Wilder and Blessing v. Freestone, 520 U.S. 329, 117 S.Ct. 1353, 137 L.Ed.2d 569 (1997), are satisfied. First, the provision in question must have been "intend[ed] to benefit the putative plaintiff." Wilder, 496 U.S. at 509, 110 S.Ct. 2510 (quoting Golden State Transit Corp., 493 U.S. at 106, 110 S.Ct. 444)(brackets added in Wilder); see also Blessing, 520 U.S. at 340-41, 117 S.Ct. 1353; Second, the right allegedly protected by the statute must not be so "vague and amorphous" that its enforcement would strain...