Pharmaceutical Research and Mfrs. v. Thompson
| Decision Date | 28 March 2003 |
| Docket Number | No. CIV.A.02-1306(JDB).,CIV.A.02-1306(JDB). |
| Citation | 259 F.Supp.2d 39 |
| Court | U.S. District Court — District of Columbia |
| Parties | PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff, and National Urban Indian Coalition, and National Alliance for the Mentally Ill of Michigan, Intervenor-Plaintiffs, v. The Honorable Tommy G. THOMPSON, in his official capacity as Secretary, United States Department of Health and Human Services, and Thomas A. Scully, in his official capacity as Administrator, Centers for Medicare & Medicaid Services, Defendants, and Michigan Department of Community Health, Intervenor-Defendant. |
Jeffrey David Pariser, Jeremy T. Monthy, Hogan & Hartson LLP, Washington, DC, Bert W. Rein, Michael Lee Sturm, Wiley Rein & Fielding LLP, Washington, DC, for Plaintiffs.
Vesper Mei, Office of Federal Programs, Civil Division, U.S. Department of Justice, Washington, DC, Charles J. Cooper, Washington, DC, Hamish P.M. Hume, Cooper & Kirk PLLC, Washington, DC, for Defendants.
Pharmaceutical Research and Manufacturers of America ("PhRMA") brings this case challenging a Medicaid initiative implemented by the State of Michigan's Department of Community Health ("DCH") and approved by the Secretary of the United States Department of Health and Human Services (the "Secretary" or "HHS") through the Administrator of Centers for Medicare & Medicaid Services ("CMS"). Under the initiative, unless drug manufacturers provide Michigan with rebates on drugs prescribed through Michigan's Medicaid programs (and two non-Medicaid programs) that are greater than the rebates ordinarily required under the Secretary's national Medicaid agreement, DCH may require that doctors prescribing the manufacturers' drugs to Medicaid patients must seek prior authorization from the State.
PhRMA asserts claims against HHS and CMS (the "Federal Defendants") under the Administrative Procedure Act ("APA"), U.S.C. § 701 et seq., for approving portions of the initiative that PhRMA alleges violate the Social Security Act and the Commerce Clause of the Constitution. PhRMA also asserts parallel claims against DCH under the Supremacy Clause and the Commerce Clause. PhRMA is joined in certain of its claims by two plaintiff-intervenors who purport to represent the interests of Medicaid beneficiaries.
Presently before the Court are PhRMA's motion for a preliminary injunction, motions for summary judgment filed by PhRMA and the two plaintiff-intervenors, and cross-motions for summary judgment by the Federal Defendants and DCH. For the reasons stated below, the Court concludes that the challenged portions of DCH's initiative, and the Secretary's approval of those portions, withstand statutory and constitutional challenge. Accordingly, the Court grants the cross-motions for summary judgment filed by the Federal Defendants and DCH and denies PhRMA's and plaintiff-intervenors' motions for summary judgment.
Medicaid is a cooperative federal-state program aimed at "furnish[ing] (1) medical assistance ... [to] families with dependent children and [to] aged, blind, or disabled individuals, whose incomes are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care." 42 U.S.C. § 1396. A state implementing Medicaid receives federal payments (known as federal financial participation or "FFP") based upon amounts expended by the state as "medical assistance" under the program. Id. §§ 1396b(a)(1), 1396d(b). In order to be eligible for FFP, a state must design, and obtain the Secretary's approval for, a state plan for implementing Medicaid. Id. §§ 1396, 1396a. The state plan must comply with numerous requirements, including that it "provide such safeguards as may be necessary to assure that eligibility for care and services under the plan will be determined, and such care and services will be provided, in a manner consistent with simplicity of administration and the best interests of the recipients." Id. § 1396a(a)(19).
This case centers around 42 U.S.C. § 1396r-8, which establishes a scheme under Medicaid for "Payment for covered outpatient drugs." Subsection (a) of that provision specifies that states are only eligible for FFP with respect to outlays on prescription drugs where the drugs are purchased from a manufacturer that has entered into an agreement with the Secretary on behalf of states (or with a state itself) to provide rebates on its products. See id. § 1396r-8(a)(1). Subsection (d) sets forth the circumstances under which a state may limit coverage of drugs. Among other things, subsection (d) allows a state to "subject to prior authorization any covered outpatient drug." Id. § 1396r-8(d)(1)(A). It also provides that a state may exclude a drug from a "formulary" only if, inter alia, "the excluded drug does not have a significant, clinically meaningful therapeutic advantage." Id. § 1396r-8(d)(4)(C).
In an effort to reduce its Medicaid expenditures, the State of Michigan has instituted a prescription drug program known as the Michigan Best Practices Initiative (the "Initiative"). Pursuant to the Initiative, Michigan established a committee of physicians and pharmacists (the "Committee") to review the scientific and clinical information concerning approximately 40 therapeutic classes of drugs on the "Michigan Pharmaceutical Product List" (the "MPPL"), a list of drugs available for reimbursement under Michigan's Medicaid program. Administrative Record ("AR") 373, 395-96. The 40 or so therapeutic classes of drugs reviewed by the Committee "account for the majority of increased drug spending in the Michigan Medicaid Program." Id. at 395.
The Committee sought to identify— based on clinical effectiveness and safety— at least two drugs in each therapeutic class that were the "best in class." Id. at 373, 395. Under the Initiative, these "best in class" drugs may be prescribed by physicians to Medicaid patients without the need for prior authorization. Id. at 395-97.1
In contrast, drugs in each therapeutic class that are priced unfavorably compared to the lowest priced "best in class" drug are designated on the MPPL as subject to prior authorization. Id. at 373-5, 397. That is, in order for a patient's use of an unfavorably priced non-"best in class" drug to be reimbursed under the Medicaid program, a physician must proceed through an administrative process to obtain approval from the State of Michigan's pharmacy benefit manager to prescribe the drug. Id. Requests for prior authorization are processed within a 24-hour period and a 72-hour supply of a medically necessary covered drug is provided in an emergency situation. Id. at 4.
Under the Initiative, manufacturers whose drugs are not identified as "best in class" can still ensure that their drugs are available without prior authorization, provided that they sign two agreements with the State of Michigan. Id. at 304-05, 380. First, a drug manufacturer must sign, on a drug-by-drug basis, an agreement requiring the manufacturer to provide a rebate that effectively reduces the price of its drug to that of the "best-priced clinically selected product" in the class—i.e., to the lowest price available in the United States for the lowest priced "best in class" drug in the relevant therapeutic class. See AR at 7-14; SAR at 307. This agreement is denominated a "Supplemental Drug Rebate Agreement" because the rebate is over and above the rebate that a manufacturer is otherwise required to provide under the rebate agreement negotiated by the Secretary and the manufacturer under the Social Security Act. See 42 U.S.C. § 1396r-8(c)(1); DCH's Statement of Uncontested Facts ¶ 11. Second, a manufacturer must sign a "Non-Medicaid Agreement" requiring it to provide rebates on its drugs prescribed under certain non-Medicaid programs; those rebates effectively reduce the prices for those drugs to the prices of the "best-priced clinically selected product" for each class. See SAR at 306-08, 717-724. Previously, nothing under the Social Security Act or Michigan's Medicaid program required manufacturers to provide any rebates with respect to these non-Medicaid programs.
Pursuant to the requirements of the Social Security Act, see 42 U.S.C. § 1396, in the fall of 2001, DCH submitted to the Secretary for approval a proposed State Plan Amendment ("SPA") to Michigan's State Medicaid Plan that would accommodate the new prescription drug program under the Initiative. CMS thereafter requested that DCH make certain changes to the proposed SPA, including specifically that DCH clarify that "the State Plan Amendment and State of Michigan Supplemental Drug Rebate Agreement ... require drug rebates with respect to the Medicaid population only." AR at 100. In response, DCH removed from its proposed Supplemental Drug Rebate Agreement "all references to non-Medicaid state funded pharmacy programs" and "included a statement in the SPA that the supplemental rebate contained in the SPA is for the Medicaid population only." Id. at 58.
On January 24, 2002, the Secretary approved the SPA—"SPA 01-015"—and the specific terms of the Supplemental Drug Rebate Agreement. Id. at 1. On February 1, 2002, DCH began pre-implementation testing of the Initiative, and by March 19, 2002, the Initiative was fully operational.
On June 28, 2002, PhRMA filed a complaint and a motion for a preliminary injunction in this Court challenging the Secretary's approval of SPA 01-015 on four grounds: (1) that it establishes an "illegal drug formulary" in violation of 42 U.S.C. § 1396r-8(d), Compl. ¶ 61-68; (2) that it permits "supplemental rebates" in addition to and above the rebates permitted...
To continue reading
Request your trial
-
Hoffmann v. U.S.
...See Foman, 371 U.S. at 182, 83 S.Ct. 227; Firestone: v. Firestone, 76 F.3d 1205, 1208 (D.C.Cir.1996); Pharm. Research & Mfrs. of Am. v. Thompson, 259 F.Supp.2d 39, 57-58 (D.D.C.2003). In this case, the court concludes that plaintiffs' motion for leave to file an amended consolidated complai......
-
S.E.C. v. Ross
...471 F.3d 1233 (11th Cir. 2006); County Sec. Agency v. Ohio Dept. of Commerce, 296 F.3d 477 (6th Cir. 2002); Pharm. Research & Mfrs. v. Thompson, 259 F.Supp.2d 39 (D.D.C. 2003); City of Santa Clara v. Kleppe, 428 F.Supp. 315, 317 (N.D.Cal.1976). Wright and Miller concurs in this view: "[T]he......
-
Ariz. Hosp. & Healthcare Ass'n, an Ariz. Corp. v. Betlach
...law. Doc. 44, at 3. Plaintiff does not appear to contest this assertion. This case is similar to Pharmaceutical Research and Manufacturers of America v. Thompson, 259 F.Supp.2d 39 (D.D.C.2003), in which appellants challenged the Secretary's statutory interpretation of another Medicaid statu......
-
Food & Water Watch, Inc. v. Vilsack
...any one of the individuals or entities it claims to represent has standing to sue in its own right”); Pharm. Research & Mfrs. of Am. v. Thompson, 259 F.Supp.2d 39, 51–53 (D.D.C.2003) (similar).2. FWW Does Not Have Standing To Sue In Its Own Right Undaunted, Plaintiffs maintain that FWW has ......