Pharmaceutical Research v. Concannon

• Citation: 2001 WL 505645,249 F.3d 66
• Decision Date: 05 March 2001
• Docket Number: No. 00-2446,00-2446
• Parties: (1st Cir. 2001) PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff, Appellee, v. KEVIN CONCANNON, COMMISSIONER, MAINE DEPARTMENT OF HUMAN SERVICES, and MAINE ATTORNEY GENERAL, Defendants, Appellants. Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 66

249 F.3d 66 (1st Cir. 2001)

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff, Appellee, v. KEVIN CONCANNON, COMMISSIONER, MAINE DEPARTMENT OF HUMAN SERVICES, and MAINE ATTORNEY GENERAL, Defendants, Appellants.

No. 00-2446

United States Court of Appeals For the First Circuit

Heard March 5, 2001

Decided May 16, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Andrew S. Hagler, Assistant Attorney General, with whom G. Steven Rowe, Attorney General, Paul Stern, Deputy Attorney General, John R. Brautigam, Assistant Attorney General, Cabanne Howard, and University of Maine Law School, were on brief, for appellant.

Thomas C. Bradley, Arn H. Pearson and Maine Citizen Leadership Fund on brief for Viola Quirion, Michelle Campbell, Maine Council of Senior Citizens and Richard Donahue, M.D., amici curiae.

Kathleen M. Sullivan, with whom Daniel M. Price, Allen S. Rugg, Marinn F. Carlson, Powell, Goldstein, Frazer & Murphy, L.L.P., Bruce C. Gerrity and Preti, Flaherty, Beliveau, Pachios & Haley L.L.C., were on brief, for appellees.

Daniel J. Popeo, Richard A. Samp and Washington Legal Foundation, on brief for Washington Legal Foundation, Allied Educational Foundation, International Patient Advocacy Association, Kidney Cancer Association The Seniors Coalition, and The 60 Plus Association, amici curiae.

Steven J. Rosenbaum, David H. Remes, Covington & Burling, Robin S. Conrad and National Chamber Litigation Center on brief, for the Chamber of Commerce of the United States, amicus curiae.

Edwin D. Schindler on brief pro se, amicus curiae.

Before Bownes, Senior Circuit Judge, Keeton and Saris^*, District Judges.

BOWNES, Senior Circuit Judge.

In this case, we consider whether a Maine statute providing for affordable prescription drugs can survive facial constitutional challenges. On October 26, 2000, the district court issued a preliminary injunction preventing the implementation of the statute on the ground that it is preempted by the Supremacy Clause and violates the dormant Commerce Clause. We reverse.

I. BACKGROUND

On May 11, 2000, the Governor of Maine signed into law an Act to Establish Fairer Pricing for Prescription Drugs, 2000 Me. Legis. Ch. 786 (S.P. 1026) (L.D. 2599) (the "Act"), which establishes the "Maine Rx Program" (the "Program").¹

The statute was enacted because of the Maine Legislature's concern that many Maine citizens who were not Medicaid recipients could not afford necessary prescription drugs. It is predicated on the economic reality that volume buying of prescription drugs by Medicaid administrators, insurance companies and health maintenance organizations ("HMOs") resulted in substantially lower prices for these entities than for individual purchasers. A minority staff report for the United States House Committee on Government Reform and Oversight found that the average retail price for individual elderly purchasers was 86 percent higher than the price charged to the federal government and other favored customers, such as HMOs.

The Program is open to all State residents, and allows enrollees to purchase prescription drugs from participating Maine pharmacies at a discounted price. The discount offered by the pharmacies is reimbursed by the State out of a dedicated fund created with the money raised from "rebate payments" collected from participating drug manufacturers. Me. Rev. Stat. Ann. tit. 22, § 2681. The obligation to pay the "rebate" is triggered by the retail sale of the manufacturer's drugs to a Program enrollee through a participating pharmacy.

The Act directs the Commissioner of Maine's Department of Health Services to negotiate rebate agreements with manufacturers. Id. § 2681(3). These rebate agreements are similar in form to the rebate agreements required of manufacturers participating in the Maine Medicaid outpatient drug program. Id. § 2681(4). In negotiating the rebate, the Commissioner is directed to "consider" the rebate amount calculated under the Federal Medicaid Rebate Program, 42 U.S.C. § 1396r-8, and to use his or her "best efforts" to obtain an initial rebate in the same amount. Me. Rev. Stat. Ann. tit. 22, § 2681(4)(A)-(C). Rebate payments are made quarterly on the basis of retail sales records for that quarter. Id. § 2681(3).

In order to create an incentive for manufacturers to enter rebate agreements with the Commissioner, the Act provides that names of manufacturers who do not enter into agreements be released to health care providers and the public. Id. § 2681(7). More importantly, the drugs of all noncompliant manufacturers are required to be subject, "as permitted by law," to the "prior authorization requirements" in the State Medicaid program. Id. § 2681(7). When subjected to prior authorization, a drug may not be dispensed to a Medicaid beneficiary without the approval of the State Medicaid administrator.

The plaintiff-appellee, Pharmaceutical Research & Manufacturers of America ("PhRMA"), brought an action in the United States District Court in the District of Maine against defendant-appellants Commissioner of the Maine Department of Human Services and the Maine Attorney General, challenging the constitutionality of the Act. PhRMA claimed that the Act violated the dormant Commerce Clause and was preempted by the federal Medicaid statute under the Supremacy Clause, and moved for a preliminary injunction to prevent the implementation of the Act.

The district court issued the preliminary injunction and found the Act unconstitutional on the two asserted grounds. First, the district court held that the Act had an impermissible extraterritorial reach by regulating the revenues out-of-state pharmaceutical manufacturers receive when selling to out-of-state pharmaceutical distributors, thereby violating the dormant Commerce Clause. As to those distributors located in the State of Maine, the district court held that the Act was preempted under the Supremacy Clause because it conflicted with the federal Medicaid program.²

II. DISCUSSION

A. Standard of Review

"The criteria for the grant of a preliminary injunction are the familiar four: likelihood of success, risk of irreparable harm, the balance of equities and the public interest." Langlois v. Abington Hous. Auth., 207 F.3d 43, 47 (1st Cir. 2000) (citing Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 15 (1st Cir. 1996)). When a district court's grant of a preliminary injunction is appealed, our standard of review depends on the issue under consideration: we review pure issues of law de novo, findings of fact for clear error, and "judgment calls" with considerable deference. Id. (noting that our standard of review is sometimes summarized as being for "abuse of discretion").

The district court concluded that PhRMA's likelihood of success on the merits of most of its constitutional challenges was "overwhelming." Accordingly, it dealt only cursorily with the remaining preliminary injunction factors. Our review also focuses on PhRMA's likelihood of success on the merits of its challenges under the Supremacy Clause and the Commerce Clause. See Weaver v. Henderson, 984 F.2d 11, 12 (1st Cir. 1993) (stating that the "sine qua non" of preliminary injunction analysis is whether plaintiff is likely to succeed on merits of claim).

B. Standing

The initial question we face is whether PhRMA has prudential standing to challenge the prior authorization provision of the Act. PhRMA contends that Maine's standing argument was not briefed to the district court, and therefore was waived. We assume, without deciding, that Maine may assert this standing challenge on appeal, and hold that PhRMA falls within the relevant "zone of interest."³

The Supreme Court recently reiterated the standard for determining prudential standing:

[I]n applying the "zone of interests" test, we do not ask whether, in enacting the statutory provision at issue, Congress specifically intended to benefit the plaintiff. Instead, we first discern the interests "arguably . . . to be protected" by the statutory provision at issue; we then inquire whether the plaintiff's interests affected by the agency action in question are among them.

Nat'l Credit Union Admin. v. First Nat'l Bank & Trust Co., 522 U.S. 479, 492 (1998).

Maine contends that PhRMA's interest is purely financial and is limited to ensuring that its members' drugs are prescribed instead of competitors' drugs. Nothing in the Medicaid statute, Maine argues, suggests that Congress intended to protect sales of any particular drugs. See Tap Pharms. v. U.S. Dep't of HHS, 163 F.3d 199, 208 (4th Cir. 1998) (holding that pharmaceutical manufacturer lacked standing to challenge Medicare rules reducing reimbursement amounts paid for their products because manufacturer's financial interests were not within zone of interests protected by Medicare).

PhRMA has not asserted an action to enforce rights under the Medicaid statute, however, but rather a preemption-based challenge under the Supremacy Clause. In this type of action, it is the interests protected by the Supremacy Clause, not by the preempting statute, that are at issue. St. Thomas-St. John Hotel & Tourism Ass'n v. Virgin Islands, 218 F.3d 232, 241 (3d Cir. 2000). As the Third Circuit recently pointed out, an entity does not need prudential standing to invoke the protection of the Supremacy Clause:

We know of no governing authority to the effect that the federal statutory provision which allegedly preempts enforcement of local legislation by conflict must confer a right on the party that argues in favor of preemption. On the contrary, a state or territorial law can be unenforceable as preempted by federal law even when the federal law secures no individual substantive rights for the party arguing preemption.

Id. Thus, regardless of whether...