Starko, Inc. v. Presbyterian Health Plan, Inc.

• Decision Date: 15 December 2011
• Docket Number: 29,016.,Nos. 27,992,s. 27,992
• Citation: 2012 -NMCA- 053,276 P.3d 252
• 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–Appellants/Cross–Appellees, v. PRESBYTERIAN HEALTH PLAN, INC., a New Mexico corporation, d/b/a Presbyterian Salud, Defendant–Appellee, and Cimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization, a/k/a Cimarron HMO, Defendant–Appellee/Cross–Appellant, 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–Appellants, v. New Mexico Human Services Department, Defendant–Appellee.
• Court: Court of Appeals of New Mexico

276 P.3d 252

2012 -NMCA- 053

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–Appellants/Cross–Appellees,

v.PRESBYTERIAN HEALTH PLAN, INC., a New Mexico corporation, d/b/a Presbyterian Salud, Defendant–Appellee,andCimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization, a/k/a Cimarron HMO, Defendant–Appellee/Cross–Appellant,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–Appellants,

v.New Mexico Human Services Department, Defendant–Appellee.

Nos. 27,992, 29,016.

Court of Appeals of New Mexico.

Dec. 15, 2011.

Peifer, Hanson & Mullins, P.A., Charles R. Peifer, Robert E. Hanson, Lauren Keefe, Elizabeth Radosevich, Cavin & Ingram, P.A., Sealy H. Cavin, Jr., Stephen D. Ingram, Albuquerque, NM, for Appellants/Cross–Appellees.

Long, Pound & Komer, P.A., John B. Pound, Santa Fe, NM, Rodey, Dickason, Sloan, Akin & Robb, PA, Edward Ricco, Albuquerque, NM, for Appellee Presbyterian Health Plan, Inc.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Albuquerque, NM, for Appellee/Cross–Appellant Cimarron Health Plan, Inc.

Gary K. King, Attorney General, Jerome Marshak, Special Assistant Attorney General, Eric R. Miller, Assistant Attorney General, Santa Fe, NM, for Appellee New Mexico Human Services Department.

OPINION

KENNEDY, Judge.

{1} Today, we update a continuing saga of Medicaid-related litigation spanning more than eleven years.¹ Starko, Inc. and Jerry Jacobs are representatives of a certified class of pharmacists (collectively, Plaintiffs), who contend they were not properly reimbursed for their services under Medicaid. They argue that the New Mexico Human Services Department (HSD) and managed care organizations, namely, Presbyterian Health Plan, Inc. and Cimarron Health Maintenance Corporation (collectively, the MCOs), which administered Medicaid for the State of New Mexico, were required to pay Plaintiffs in accordance with NMSA 1978, Section 27–2–16(B) (1984), but refused to do so. In two consolidated appeals, Plaintiffs appeal four district court orders dismissing their claims against the MCOs and HSD for violation of Section 27–2–16(B), breach of contract, breach of contract on a third-party beneficiary theory, unjust enrichment, declaratory relief, and injunctive relief.

{2} We hold that Section 27–2–16(B) confers upon participating Medicaid pharmacists an implied cause of action to enforce the statute directly against the MCOs. Furthermore, (1) the district court properly dismissed Plaintiffs' claim concerning HSD's reduction of reimbursement without federal approval for a six-month period; (2) Plaintiffs' breach of contract claim, third-party beneficiary contract, and unjust enrichment claims may proceed; (3) the district court properly concluded that Section 27–2–16(B) conferred non-waivable rights; (4) the district court did not abuse its discretion in denying Plaintiffs' demands for injunctive and declaratory relief; and (5) the district court properly certified Plaintiffs' class in these cases.

{3} Consequently, we affirm in part, reverse in part, and remand to the district court for proceedings consistent with this Opinion.

I. BACKGROUND

{4} Congress created the Medicaid program in 1965 to supplement the Social Security Act. Atkins v. Rivera, 477 U.S. 154, 156, 106 S.Ct. 2456, 91 L.Ed.2d 131 (1986); see42 U.S.C. § 1396w–2 (2009). The program provides “medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care” and compels participating states to share the costs of administering the program with the federal government. Atkins, 477 U.S. at 156–57, 106 S.Ct. 2456. New Mexico is a participant state. Initially, New Mexico's Medicaid program operated on a fee-for-service model, in which Medicaid services were provided directly to recipients by HSD. More recently, in the interest of cutting costs, the state has significantly curtailed the fee-for-service model. Now, like most states, the greatest number of New Mexico's Medicaid recipients receive their treatment via a managed care program, in which the state contracts with the MCOs to provide services. Starko II, 2006–NMCA–085, ¶ 3, 140 N.M. 136, 140 P.3d 1085. The MCOs then contract with pharmacists, either directly or through intermediaries called “Pharmacy Benefits Managers” (PBMs), and pharmacists, in turn, provide prescription medication to Medicaid recipients.²Id.

{5} Section 27–2–16(B) governs how New Mexico's Medicaid program pays participating pharmacists. It was modified to its current form in 1984 and remains unchanged to the present day. Section 27–2–16(B) thus bridges New Mexico's transition from the original fee-for-service model to today's managed care and provides as follows:

If drug product selection is permitted by [NMSA 1978, Section 26–3–3 (2005) ], reimbursement by the [M]edicaid 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 [and] sixty-five cents ($3.65).³

Section 26–3–3, referenced in Section 27–2–16(B), allows Medicaid pharmacists in their professional discretion to substitute any “therapeutically equivalent” drug for the drug actually prescribed as long as the substitution conforms with federal guidelines. Section 26–3–3. Under fee-for-service Medicaid, HSD followed this requirement and paid pharmacists the wholesale cost of the lesser expensive drug plus an additional $3.65 for each transaction.

{6} That began to change in 1994. At that time, the Legislature authorized HSD to transition from a fee-for-service to a managed care program and, in 1997, HSD implemented SALUD!, a managed care program, in which it entered into competitively bid contracts with the MCOs to provide care to Medicaid recipients. The contracts, known as Medicaid Managed Care Service (MMCS) Agreements required the MCOs to provide medical care and pharmacy services to all qualified Medicaid recipients. These contracts explicitly incorporated “[a]ll applicable statutes, regulations and rules implemented by the [f]ederal [g]overnment, the State of New Mexico ..., and [HSD], concerning Medicaid services[.]” Shortly after the adoption of SALUD!, HSD notified pharmacists that, in order to continue to provide services under Medicaid, pharmacists would be required to contract with the MCOs instead of HSD. Under the new MCO-pharmacist contracts, pharmacists would be reimbursed by the MCOs at the “current and applicable Medicaid reimbursement rates” which, Plaintiffs allege, had the potential to be significantly lower than the statutory reimbursement rates guaranteed by Section 27–2–16(B). Yet, pharmacists wishing to participate in the program had no choice. Anyone who refused the new contracts would be “terminated from the active provider list” by HSD.

{7} Under SALUD!, pharmaceutical costs were negotiated directly between HSD and the MCOs, and Plaintiffs allege that, under the new regime, the MCOs were sufficiently paid by HSD to comply with Section 27–2–16(B). Fearing that their rights under Section 27–2–16(B) would be waived by agreeing to contracts with the MCOs, Plaintiffs filed suit against HSD and obtained a temporary restraining order from the district court. In essence, the district court gave HSD an ultimatum: either withdraw the requirement that pharmacists contract with the MCOs, or agree that the new contracts would not waive pharmacists' right to sue pursuant to Section 27–2–16(B). HSD chose the latter and, with other aspects of the litigation still pending against HSD, pharmacists entered into new contracts, either with the MCOs themselves or with the MCOs' intermediary, the PBMs. Plaintiffs claim that the reimbursable amounts ultimately paid under these contracts were often substantially lower than the amounts required by Section 27–2–16(B).⁴ Likewise, they claim that HSD, by instituting this new regime, circumvented its obligations under the statute by using the MCOs as intermediaries.

{8} Over HSD's protests, Plaintiffs were certified as a class in October 1999. At that time, the MCOs had not yet been added as Defendants. In 2000, Plaintiffs moved for summary judgment, and the district court ruled that HSD was affirmatively required to comply with Section 27–2–16(B). It found that HSD could not “delegate or contract away” its responsibilities under the statute. Then, after winning on their summary judgmentmotion against HSD, Plaintiffs argued that the MCOs were indispensable parties. In October 2000, the district court allowed them to be added and held that, like HSD, the MCOs were required to comply with Section 27–2–16(B).

{9} The MCOs attacked the class certification. They filed briefs asking the court to decertify the class and included a number of supporting exhibits. As a result, the district court allowed discovery into “whether the class should be decertified.” The MCOs never requested an evidentiary hearing on their motions, but oral arguments were heard in September 2002. After this second consideration of the class certification issue, the district court denied the MCOs' motions to decertify the class and found that the requirements of Rule 1–023 NMRA continued to be met. The MCOs appealed to this Court pursuant to Rule 1–023(F). We refused to consider the merits of their claim and held that an appeal under Rule 1–023(F) was unavailable. See Starko I, 2005–NMCA–040, ¶¶ 2, 18, 137 N.M. 310, 110 P.3d 526 (discussing the applicability of Rule 1–023(F)).

{10} It appears that such wrangling through the years has directly influenced the language of contracts between the parties. Most notably, contracts between HSD and the MCOs have taken...