Pharmaceutical Research and Mfrs. v. Meadows, 02-10151.

• Decision Date: 06 September 2002
• Docket Number: No. 02-10151.,02-10151.
• Citation: 304 F.3d 1197
• Parties: PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff-Appellant, v. Rhonda M. MEADOWS, Bob Sharpe, Deputy Secretary of Medicaid Agency for Health Care Administration of the State of Florida, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

304 F.3d 1197

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff-Appellant, v. Rhonda M. MEADOWS, Bob Sharpe, Deputy Secretary of Medicaid Agency for Health Care Administration of the State of Florida, Defendants-Appellees.

No. 02-10151.

United States Court of Appeals, Eleventh Circuit.

September 6, 2002.

David H. Remes, Steven J. Rosenbaum, Laura B. Gasho, Covington & Burling, Washington, DC, Martha Harrell Chumbler, Tallahassee, FL, for Plaintiff-Appellant.

Christa E. Calamas, William H. Roberts, Steven Alfons Grigas, Gregory J. Philo, Agency for Health Care Administration, Gary J. Anton, Stowell, Anton & Kraemer, Tallahassee, FL, for Defendants-Appellees.

Harold F.X. Purnell, Rutledge, Ecenia, Underwood & Purnell, P.A., Tallahassee, FL, for Womenheart and Florida Transplant Survivors Coalition, Amici Curiae.

Richard A. Samp, Washington Legal Foundation, Washington, DC, for Washington Legal Foundation and Allied Educational Foundation, Amici Curiae.

Thomas G. Schultz, Harold Eugene Lindsey, Joseph Beeler, P.A., Miami, FL, for Florida House of Representatives, Amicus Curiae.

Appeal from the United States District Court for the Northern District of Florida.

Before BIRCH, MARCUS and CUDAHY^*, Circuit Judges.

CUDAHY, Circuit Judge:

The Florida legislature recently added another chapter in the ongoing efforts of states to hold down their Medicaid drug costs. The new Florida law enacted changes in its Medicaid program by creating a "preferred drug formulary" (also referred to as a "preferred drug list"), which exempts certain Medicaid-eligible drugs from a "prior authorization" requirement. If a drug is not on the preferred list, the prescribing doctor must call a state pharmacist to obtain approval of its use. In the course of this procedure, the pharmacist informs the doctor of the availability of other drugs (usually on the preferred drug list) that allegedly have comparable therapeutic value but are less expensive. The actual phone calls tend to be relatively brief (usually less than 10 minutes in length), and approval of the prescribing doctor's first-choice drug is guaranteed in 100 percent of all cases, provided only that he or she make the telephone call. During the first three months of the program, approximately 55 percent of all these calls have resulted in a change of the prescription to a drug on the preferred drug list. Naturally, because this procedure may tend to promote less profitable drugs at the expense of more profitable ones, it is not favored by the pharmaceutical manufacturers that brought this lawsuit.

The prior authorization program gives the state of Florida considerable leverage in negotiating with pharmaceutical companies. Following its enactment, the Medicaid market share for drugs not on the preferred drug list has shrunk significantly. Companies that have agreed to pay a "supplemental rebate" to reduce or offset the state's Medicaid expenditures are guaranteed the right to have their products considered for the preferred drug list. And, as noted, preferred drugs are exempt from the prior authorization program. Currently, slightly less than half of all Medicaid-eligible drugs are included on Florida's preferred drug list.

Shortly after the Florida law went into effect, the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry trade group, sued the Agency for Health Care Administration (AHCA), which is the Florida agency that administers the state Medicaid program. The PhRMA alleged that the preferred drug provision was a "formulary" within the meaning of 42 U.S.C. § 1396r-8(d)(4). Since the Florida law did not satisfy all the requirements of that statute for a Medicaid formulary, the PhRMA argued that Florida's preferred drug list and prior authorization provisions were preempted by federal law. On cross-motions for summary judgment, the district court ruled that the Florida law was a permissible application of § 1396r-8(d)(1)(A), (d)(5), which expressly authorizes prior authorization programs. The court therefore granted summary judgment for the AHCA. The PhRMA subsequently filed this appeal. We now affirm.

I.

Both the PhRMA and the AHCA agree that the material facts of this case are not in dispute. Therefore, this case ultimately turns on questions of statutory interpretation, which we review de novo. See United States v. DBB, Inc., 180 F.3d 1277, 1281 (11th Cir.1999); Haynes Ambulance Svc., Inc. v. State of Alabama, 36 F.3d 1074, 1075 (11th Cir.1994). The central issue is whether there is a conflict between the recently enacted Florida law and the governing federal Medicaid statute, 42 U.S.C. § 1396r-8. The state of Florida argues that the new Florida law, ch. 2001-104, codified at Fla. Stat. § 409.91195, 409.912, provides for a "prior authorization program" within the meaning of 42 U.S.C. § 1396r-8(d)(1)(A), (d)(5). In contrast, the PhRMA contends that the same provisions contemplates a "formulary" within the meaning of § 1396r-8(d)(1)(B)(iv), (d)(4).

Before commencing our analysis, we must discuss the relevant provisions of the federal Medicaid statutes and the new Florida law. We note at the outset that questions of statutory interpretation begin "by examining the text of the statute to determine whether its meaning is clear." Harry v. Marchant, 291 F.3d 767, 770 (11th Cir.2002) (en banc) (citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999)). "In construing a statute we must begin, and often should end as well, with the language of the statute itself." United States v. Steele, 147 F.3d 1316, 1318 (11th Cir.1998) (en banc) (quoting Merritt v. Dillard Paper Co., 120 F.3d 1181, 1185 (11th Cir.1997)).

A.

Congress enacted the Medicaid program in 1965 in an effort to assist states with the cost of providing health care for the poor. Although the federal government provides approximately 56 percent of Florida's Medicaid funds, see 65 Fed.Reg. 69560-61, actual Medicaid relief is administered through state agencies pursuant to a Medicaid program that has been submitted to and approved by the U.S. Department of Health and Human Services. This cooperative venture between the federal and state governments is governed by the terms of Title XIX of the Social Security Act (SSA), §§ 1901-1935, codified at 42 U.S.C. §§ 1396-1396v. In addition, every state in the nation currently operates its own Medicaid program under its own statutes.

One large and growing part of the Medicaid program is the coverage of outpatient prescription drugs. Under 42 U.S.C. § 1396r-8, a drug is eligible for Medicaid coverage only if its manufacturer enters into an agreement with the Secretary of the Department of Health and Human Services to make a specified rebate on each covered drug. With a few limited exceptions, this rebate is set by statute at 15.1 percent of the average manufacturer price. See § 1396r-8(c)(1) (setting 15.1 percent as the "minimum rebate percentage" for any rebate period commencing after December 31, 1995); § 1396r-8(k)(1) (defining the term "average manufacturer price"). The states, of course, are interested in securing additional rebates, and this is where the Florida legislature enters the picture.

Under 42 U.S.C. § 1396r-8(d)(1), state Medicaid agencies can impose additional "restrictions" on the coverage of Medicaid-eligible drugs. One provision of this statute, subsection (d)(1)(A), permits a "prior authorization program" for any covered outpatient drug. A second provision, subsection (d)(1)(B), permits various mechanisms for the exclusion or restricted coverage of outpatient drugs, including the creation of a "formulary" that meets certain statutory criteria.

The AHCA maintains that the new Florida law provides for a "prior authorization program." Under the applicable provision, "A State may subject to prior authorization any covered outpatient drug. Any such prior authorization program shall comply with the requirements of paragraph (5)." § 1396r-8(d)(1)(A) (emphasis added). Paragraph (5), entitled "Requirements of prior authorization programs," reads as follows:

A State plan under this subchapter may require, as a condition of coverage or payment for a covered outpatient drug for which Federal financial participation is available in accordance with this section,... the approval of the drug before its dispensing for any medically accepted indication (as defined in subsection (k)(6) of this section) only if the system providing for such approval —

(A) provides response by telephone or other telecommunication device within 24 hours of a request for prior authorization; and

(B) except with respect to the drugs on the list referred to in paragraph (2), provides for the dispensing of at least 72-hour supply of a covered outpatient prescription drug in an emergency situation (as defined by the Secretary).

42 U.S.C. § 1396r-8(d)(5) (emphasis added). Under the plain language of this statute, any covered outpatient drug can be made subject to a prior authorization program if two requirements are met: (1) a response is provided within 24 hours of the request; and (2) a 72-hour supply of the drug is made available in emergency situations. In Pharmaceutical Research & Manufacturers of America v. Concannon, 249 F.3d 66, 76 (1st Cir.2001), the First Circuit adopted this same interpretation of a § 1396r-8(d)(5) prior authorization program. At present, Concannon is the only other appellate opinion that has addressed this issue. However, during the pendency of this appeal, the Supreme Court granted a writ of certiorari in Concannon. See Pharmaceutical Research & Mfrs. of Am. v. Concannon, ___ U.S. ___, 122 S.Ct. 2657, 153 L.Ed.2d 833 (2002).

In contrast to the interpretation proffered by the AHCA, the PhRMA contends that the new Florida law contemplates a "formulary," which is therefore subject to a requirements of § 1396r-8(d)(1)(B), (d)(4). Under these provisions, "A State may exclude or...