Starko, Inc. v. Gallegos

• Decision Date: 26 April 2006
• Docket Number: No. 25,042.,25,042.
• Citation: 2006 NMCA 085,140 P.3d 1085
• Parties: STARKO, INC., d/b/a Medicine Chest #1 and Jerry Jacobs d/b/a Pill Box Pharmacy #4, for and on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. LOU GALLEGOS, individually and as Secretary of the New Mexico Human Services Department; William Johnson, individually and as Secretary of the New Mexico Human Services Department; Alex Valdez, individually and as Secretary of the New Mexico Human Services Department; Robin Dozier-Otten, individually and as Secretary of the New Mexico Human Services Department; Ross Becker, individually and as Director of the Medical Assistance Division of the New Mexico Human Services Department; and Robert Maruca, individually and as Director of the Medical Assistance Division of the New Mexico Human Services Department, Defendants-Appellants, and Duke Rodriguez, individually and as Secretary of the New Mexico Human Services Department; Medical Assistance Division of the New Mexico Human Services Department; Charles Milligan, individually and as Director of the Medical Assistance Division of the New Mexico Human Services Department; Ramona Flores-Lopez, individually and as Assistant Director of the Medical Assistance Division of the New Mexico Human Services Department; Lovelace Health Systems, Inc., a New Mexico corporation, d/b/a Lovelace Health Plan; Presbyterian Health Plan, Inc., a New Mexico corporation, d/b/a Presbyterian Salud; and Cimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization a/k/a Cimarron HMO; and John Does 1-10, Defendants, and Lovelace Health Systems, Inc., a New Mexico corporation, d/b/a Lovelace Health Plan; and Cimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization a/k/a Cimarron HMO, Defendants and Third Party Plaintiffs, v. Regent Drugs of New Mexico, Inc., Kenneth L. Corraza; Robert Ghattas; Regent Services of New Mexico, a New Mexico corporation; Paid Prescriptions, LLC, a New Jersey corporation; Merck-Medco Rx Services of Fairfield, a Pennsylvania limited liability company; and Health-Extras Insurance Agency, Inc. a/k/a Health Extras, Inc., a Delaware corporation, Third Party Defendants.
• Court: Court of Appeals of New Mexico

Page 1085

140 P.3d 1085

2006 NMCA 085

STARKO, INC., d/b/a Medicine Chest #1 and Jerry Jacobs d/b/a Pill Box Pharmacy #4, for and on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. LOU GALLEGOS, individually and as Secretary of the New Mexico Human Services Department; William Johnson, individually and as Secretary of the New Mexico Human Services Department; Alex Valdez, individually and as Secretary of the New Mexico Human Services Department; Robin Dozier-Otten, individually and as Secretary of the New Mexico Human Services Department; Ross Becker, individually and as Director of the Medical Assistance Division of the New Mexico Human Services Department; and Robert Maruca, individually and as Director of the Medical Assistance Division of the New Mexico Human Services Department, Defendants-Appellants, and Duke Rodriguez, individually and as Secretary of the New Mexico Human Services Department; Medical Assistance Division of the New Mexico Human Services Department; Charles Milligan, individually and as Director of the Medical Assistance Division of the New Mexico Human Services Department; Ramona Flores-Lopez, individually and as Assistant Director of the Medical Assistance Division of the New Mexico Human Services Department; Lovelace Health Systems, Inc., a New Mexico corporation, d/b/a Lovelace Health Plan; Presbyterian Health Plan, Inc., a New Mexico corporation, d/b/a Presbyterian Salud; and Cimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization a/k/a Cimarron HMO; and John Does 1-10, Defendants, and Lovelace Health Systems, Inc., a New Mexico corporation, d/b/a Lovelace Health Plan; and Cimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization a/k/a Cimarron HMO, Defendants and Third Party Plaintiffs, v. Regent Drugs of New Mexico, Inc., Kenneth L. Corraza; Robert Ghattas; Regent Services of New Mexico, a New Mexico corporation; Paid Prescriptions, LLC, a New Jersey corporation; Merck-Medco Rx Services of Fairfield, a Pennsylvania limited liability company; and Health-Extras Insurance Agency, Inc. a/k/a Health Extras, Inc., a Delaware corporation, Third Party Defendants.

No. 25,042.

Court of Appeals of New Mexico.

April 26, 2006.

Certiorari Denied, No. 29,811, July 25, 2006.

COPYRIGHT MATERIAL OMITTED

Peifer, Hanson & Mullins P.A., Charles R. Peifer, Jane B. Wishner, Cavin & Ingram, P.A., Sealy H. Cavin, Jr., Stephen D. Ingram, Albuquerque, NM, for Appellees.

Hinkle, Hensley, Shanor & Martin, L.L.P., Ellen S. Casey, Paula M. Buchwald, Santa Fe, NM, for Appellants.

OPINION

FRY, Judge.

{1} This is the second appeal in a long-running case concerning the sufficiency of Medicaid payments to pharmacists. This Court previously declined to consider an appeal involving the class certification of the plaintiff pharmacies (Plaintiffs). Starko, Inc. v. Cimarron Health Plan, Inc., 2005-NMCA-040, ¶ 2, 137 N.M. 310, 110 P.3d 526. In this appeal, we consider the district court's denial of qualified immunity to several individual defendants (Defendants) who were executives within the Human Services Department (HSD) when HSD implemented a managed care system for Medicaid. For the reasons that follow, we conclude that Plaintiffs have not alleged conduct violating procedural due process protections that are actionable under federal civil rights law. Because the allegations failed to state a constitutional violation, the individual defendants are entitled to qualified immunity. Thus, we reverse the district court's denial of qualified immunity as to the individual defendants who have brought this appeal.

I. BACKGROUND

{2} New Mexico elects to participate in Medicaid, which is a voluntary federal-state program providing medical services to the needy. See Atkins v. Rivera, 477 U.S. 154, 156, 106 S.Ct. 2456, 91 L.Ed.2d 131 (1986). And, like a majority of states, New Mexico has adopted a type of managed care system to provide Medicaid services in order to control costs. See Meredith Warner Nissen, Pharmacists Without Remedies Means Serious Side Effects for Patients: Third Circuit Denies Pennsylvania Pharmacists Standing to Challenge Reimbursement Rates under Medicaid Act, 48 Vill. L.Rev. 1377, 1381 (2003) (describing the national shift in Medicaid from a fee-for-service model to a managed care model); see NMSA 1978, § 27-2-12.6(A) (1994) (stating that HSD "shall provide" a "cost-efficient," statewide managed care system for Medicaid). This managed care system in New Mexico is called "SALUD!."

{3} HSD presumes enrollment in the managed care system for all Medicaid recipients, although HSD still maintains the fee-for-service system for a limited set of recipients, such as Native Americans, who are exempt from managed care. 8.305.4.9 NMAC (2005) (stating that "[a]ll medicaid eligible clients are required to participate in the medicaid managed care program" and then listing certain exceptions). Under the managed care system, services are neither provided nor reimbursed directly by HSD; rather, HSD contracts with private managed care organizations (MCOs) which in turn provide health care to Medicaid recipients. See 8.305.1.7(M)(1) NMAC (2005) (defining a Medicaid MCO as "[a]n organization licensed to manage, coordinate and assume financial risk on a capitated basis for the delivery of specified services to enrolled members from a certain geographic area"). These contracts with the MCOs include coverage for prescription medications sold by pharmacists and pharmacies. The MCOs then execute sub-contracts with individual pharmacies, pharmacy chains, or pharmacy provider groups to provide services to Medicaid recipients.

{4} Plaintiffs are a class of pharmacists and pharmacies who claim that they are not being properly reimbursed for filling Medicaid managed care prescriptions. Starko, Inc., 2005-NMCA-040, ¶ 3, 137 N.M. 310, 110 P.3d 526. After initially bringing claims against HSD and certain of its executives individually, Plaintiffs amended their complaint to add the three MCO defendants as indispensable parties. Id. ¶ 4. Plaintiffs have raised claims against HSD, the MCOs, and nine individual defendants, including statutory, contract, tort, equitable, and civil rights claims. The present appeal considers only Plaintiffs' claim under federal civil rights law, 42 U.S.C. § 1983 (1996). Plaintiffs claim a property right in a certain dispensing fee set by state statute and claim that former executives within HSD allowed Plaintiffs to be deprived of that fee. Plaintiffs contend that their property right to this fee is protected by the procedural due process protections guaranteed by the Fourteenth Amendment to the United States Constitution. Plaintiffs claim that former executives within HSD violated Plaintiffs' procedural due process rights by allowing the MCOs to give them less than the fee required by the state statute and, therefore, that these executives are liable for damages and attorney fees. Central to the Plaintiffs' claim is a state statute, which discusses Medicaid reimbursement to pharmacists and which Plaintiffs contend confers the protected property interest on pharmacists who provide services to Medicaid recipients. We therefore begin with a review of the relevant state law and then describe the rulings of the district court, some of which led to this appeal.

A. The Relevant Statute and Plaintiffs' Contentions

{5} NMSA 1978, § 27-2-16 (1984) contains this subsection:

B. If drug product selection is permitted by Section 26-3-3 NMSA 1978, reimbursement by the medicaid program shall be limited to the wholesale cost of the lesser expensive therapeutic equivalent drug generally available in New Mexico plus a reasonable dispensing fee of at least three dollars sixty-five cents ($3.65).

(Emphasis added.) It is the italicized language that Plaintiffs claim creates a right to reimbursement in (1) wholesale cost, which they claim equates to what is known in the industry as average wholesale price; and (2) a fixed dispensing fee of $3.65 for each prescription filled for a Medicaid recipient. The parties and the district court focused their arguments and decision below on the dispensing fee rather than wholesale price. We will limit our focus accordingly.

{6} Plaintiffs have alleged that under the managed care program the MCOs are not reimbursing the $3.65 dispensing fee. Plaintiffs allege that the MCOs pay a dispensing fee of as little as $2.00, and some MCOs have admitted that their sub-contracts with pharmacists provide for dispensing fees substantially less than $3.65. Plaintiffs allege that HSD does pay the $3.65 dispensing fee to pharmacists for the limited populations that are served under the Medicaid fee-for-service system, but that starting in 1997, HSD "began to violate the minimum reimbursement rates established by law when it permitted its managed care organizations in the [managed care program] to cut reimbursement rates for pharmacy services." Plaintiffs contend this cut in reimbursement constituted a denial of procedural due process.

B. The District Court's Ruling Giving Rise to This Appeal

{7} As noted, the individual defendants in this case were executives within HSD, each of whom acted either as the Secretary of HSD or as the director of the division controlling Medicaid. This appeal involves a sub-set of the individual defendants, the so-called "new" individual defendants who were added in the fifth year of the litigation. The district court, in both 1998 and 2003, had denied qualified immunity to those individual defendants who had been named in the early stages of the litigation. In denying qualified immunity in 2003, the court concluded that (1) the dispensing fee provision created a property right to reimbursement, (2) this right was "clear and unambiguous," and (3) this provision was not discretionary. The district court recited that "plaintiffs must show that the...