While not using the term “deference,” the Supreme Court was highly deferential to the position of the federal government in denying court access to a county health care facility that filed a federal common law third-party beneficiary claim.
Santa Clara County had sought to enforce limits in the § 340B program on the prices drug companies could charge for pharmaceuticals under Medicaid. The brief of the Solicitor General (SG) warned of a “flood of litigation” undermining federal enforcement efforts, if third-party beneficiary claims were permitted. The unanimous decision written by Ginsberg (Kagan did not participate) adopted the approach advocated by the SG. The Court did not preclude state law third-party claims, but the opinion’s complementary citation of lower court opinions denying third-party claims in the context of government contracts could be a barrier. Astra USA Inc. v. Santa Clara County, Cal, http://www.supremecourt.gov/opinions/10pdf/09-1273.pdf (March 29, 2011). The briefs, including the amicus briefs of the SG in support of petitioner and the AARP and NSCLC brief in support of respondent can be accessed through http://www.scotusblog.com/case-files/cases/astra-usa-inc-v-santa-clara-county?wpmp_switcher=desktop.
Reports from the Office of the Inspector General (OIG) revealed that in many instances, the government was not enforcing limits on drug prices. The County of Santa Clara, which purchased medications for Medicaid beneficiaries at the inflated prices, sued the drug companies, trying to enforce the federal price limits. The district court dismissed the complaint, but the Ninth Circuit held that the County was a third-party beneficiary of the contract between the federal government and the drug companies which limited pharmaceutical prices.
While neither the drug companies nor Santa Clara disputed the contractual relationship between the government and drug companies, the federal government argued that Pharmaceutical Pricing Agreements (PPA) were a regulatory mechanism of enforcing statutory requirements which did not confer contractual rights. The Court followed the government’s lead and held that PPAs “are not transactional, bargained-for contracts.” The Court stated that PPAs “simply incorporate statutory obligations” and “contain no negotiable terms.” Therefore, a third-party suit to enforce the PPA was “in essence a suit to enforce the statute itself.” The Court concluded that the absence of an express private right of action “would be rendered meaningless” if a third-party suit were permitted.
The drug companies argued that the third-party beneficiary suit should not be permitted, based on the Court’s jurisprudence rejecting implied private rights of action. Although the Court did not equate the two remedies, the Court, as urged by the government, held that enforcement had to be based on congressional intent to provide a private remedy. The Court cited with favor 3 cases denying relief under an implied private right of action, including Alexander v. Sandoval, 532 U.S. 275, 286 (2001). All three of the cases cited by the Court cast aspersions on J. I. Case Co. v. Borak, 377 U.S. 426, 433 (1964), which stated that it is the duty of courts to provide remedies to effectuate congressional objectives. The Court also cited two circuit court cases rejecting third-party beneficiary claims as inconsistent with the legislative scheme, one involving the Fair Labor Standards Act and the other addressing federal contracts to provide public housing.
Repeatedly citing the SG’s brief, the Court stated that Congress intended for centralized enforcement of the § 340B program by the government and that suits by the County and similar entitles “would undermine the agency’s efforts to administer both Medicaid and § 340B harmoniously and on a uniform, national basis.”
The Court acknowledged that OIG had found that the federal government did not have mechanisms to ensure that the law was followed. But the Court noted that in the Patient Protection and Affordable Care Act, Congress responded by “opt[ing] to strengthen and formalize [the federal government’s] enforcement authority,” not to invite providers “to launch lawsuits in district courts across the country.”
The case shows starkly the difficulty of advocating for court access when the federal government seeks exclusive enforcement ability. While the Court did not preclude third-party beneficiary claims under state law, the Court’s focus on congressional intent to confer remedies could make it harder to bring such claims under state law.