S.D.Ind:Restrain Fee Reduction Without HHS Approval

A judge in the Southern District of Indiana has granted a temporary restraining order against the state government’s decision to reduce Medicaid dispensing fees to pharmacies before receiving approval for the reductions from the Department of Health and Human Services (HHS). Community Pharmacies of Indiana, Inc. v. Indiana Family and Social Services Administration, No. 1:11–cv–0893–TWP–DKL, 2011 WL 2680757 (S.D. Ind. July 8, 2011). The judge is an Obama appointee.

States that participate in Medicaid and thereby receive federal funds must submit their plans to HHS for approval. HHS reviews the plans for compliance with statutory and regulatory requirements. Changes to state Medicaid plans also require HHS approval. The state of Indiana issued an emergency rulemaking to reduce the dispensing fee it pays from Medicaid to pharmacies for each prescription filled from $4.90 to $3.00 to take effect starting July 1, 2011. Although the state submitted the rule to HHS in April, HHS had not yet approved the change and replied on July 6 that it would need more information from the state before deciding whether or not to allow the reimbursement reduction. However, the state proceeded to enforce the rule change according to its schedule. An Indiana pharmacy and a trade group representing community pharmacies in the state (the named plaintiff) sued the Indiana Family and Social Services Administration (FSSA), which administers the state Medicaid program, and various state officials to prevent enforcement of the rule. The pharmacies contended that the original dispensing fee was already “borderline inadequate.”

The District Court applied the Seventh Circuit’s test for issuing a preliminary injunction in deciding whether to grant a temporary restraining order. The initial requirements were “a likelihood of success on the merits,” “a lack of an adequate remedy at law,” and “a future irreparable harm if the injunction is not granted.” Reid L. v. Ill. State Bd. of Educ., 289 F.3d 1009, 1021 (7th Cir.2002). The fact that the Eleventh Amendment would prevent the plaintiffs from recovering damages from the State meant only the likelihood of success on the merits had to be examined in depth.

The Court found “dispositive” the plaintiffs’ argument that enforcing the fee reduction without HHS approval violates federal law and is preempted by the Supremacy Clause. Although the opinion conceded that it is unclear whether the plaintiffs have a right of private action, it expressed “belie[f] that there is validity to Plaintiffs argument that they need not show that the Medicaid Act confers a private right of action to seek injunctive relief under the Supremacy Clause.” The Court cited PhRMA v. Walsh, 538 U.S. 644, 123 S.Ct. 1855, 155 L.Ed.2d 889 (2003), also a Medicaid case, and interpretations of that case by circuit courts, to suggest that a preemption case could go forward without deciding whether plaintiffs have a right of private action. It also cited the Seventh Circuit’s ruling in Illinois Ass’n of Mortgage Brokers v. Office of Banks & Real Estate, 308 F.3d 762, 765 (2002) and other circuit court cases to suggest similarly that plaintiffs do not need to demonstrate a right to sue under 42 U.S.C. § 1983 to receive injunctive relief under a preemption claim.

After finding that the plaintiffs have a reasonable likelihood of succeeding, the Court balanced the harms without the injunction against the harms to the state, following Girl Scouts of Manitou Council, Inc. v. Girl Scouts of U.S., Inc., 549 F.3d 1079, 1086 (7th Cir.2008). The Court counted the financial losses to pharmacies, the effects on their ability to provide Medicaid services, and the possibility of harm to Medicaid patients in favor of the plaintiffs. FSSA noted that without the rule, it would have to reduce funds elsewhere to meet budgetary constraints. However, the opinion followed the Ninth Circuit’s logic in Lopez v. Heckler, 713 F.2d 1432, 1437 (9th Cir.1983) that human suffering trumps monetary concerns to find in favor of the plaintiffs on this point. Finally, in considering the public interest, according to Storck USA, L.P. v. Farley Candy Co., 14 F.3d 311, 314 (7th Cir.1994), the Court decided that the two sides were about evenly matched.

A preliminary injunction hearing will be held on August 24.


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