State's Attempt to Reduce Medicaid Dispensing Fee Voided

Responding to an impending budget crisis, a Midwestern state took steps to reduce the dispensing fee paid for prescription services provided to Medicaid program beneficiaries from $4.90 to $3.00. A collection of community pharmacy owners went to federal court seeking a temporary restraining order to prevent this 38% reduction in service fees, arguing that state officials had not followed required procedure to effect the change.

Facts of the Case

State officials had submitted a request for approval to reduce the dispensing fee to the federal office that oversees this program, which is jointly funded by both the federal and state governments. This was done in April. The proposal was that the fee reduction would go into effect on July 1.

Having not received a response, the state officials used emergency rulemaking authority to order the reduction. This was done despite the fact that the relevant federal office indicated on July 6 that additional information was needed before it could render a decision.

A nonprofit group representing 170 community pharmacies in the state filed suit to block implementation of the action by the state officials. Also joining as a plaintiff in the action was 1 independent pharmacy. The argument they advanced was that this state-level action violated federal law governing operation of the Medicaid program and that implementing the proposed change would cause many pharmacies to cease serving Medicaid patients.

The plaintiffs filed the action in federal court because the issues in the case arose under federal law. Moreover, the nature of the filing was not to seek monetary damages, but rather the plaintiffs sought an equitable remedy, a court order that a party stop doing something. In this case, the specific remedy sought was a temporary restraining order. This is a short-term remedy customarily used while the court is considering whether to order a preliminary injunction, which can run for a longer period of time.

The Court’s Ruling

The court granted the motion made by the plaintiffs—the temporary restraining order was put in place to prohibit the state officials from effecting the reduction.

The Court’s Reasoning

Certain requirements exist for the court to grant the expedited equitable remedy of a temporary restraining order: the plaintiff must have a likelihood of prevailing on the merits of the case once it is heard in full; there must be no adequate legal remedy available to address the situation, making an equitable remedy appropriate; harm must be likely to occur that cannot be retroactively repaired; and the public interest must be weighed.

Looking at the first required element, the court concluded that the plaintiffs had a likelihood of prevailing because state officials had proceeded to implement the reduction without securing the approval of officials at the US Department of Health and Human Services. Such clearance is manifestly required by the federal laws applicable to the operation of Medicaid programs.

Second, looking at the availability of an adequate legal remedy, the court concluded that it would be very difficult for the pharmacies to recover monetary damages from the state agency because of sovereign immunity. This also addressed the third element, irreparable damages. The court cited an earlier case where the inability of a plaintiff to recover monetary damages from a state government made “any loss suffered by the plaintiff deemed per se (ie, automatically) irreparable.”

Focusing on the public interest, the court noted that both sides had strong arguments in this area. The state pointed to budgetary constraints, whereas the pharmacy owners identified a number of adverse consequences from the proposed fee reductions. It was anticipated that pharmacies would close, employees would be laid off, and Medicaid services to beneficiaries would be compromised. That last item could well result in serious health consequences for this at-risk population.

Pointing to a decision from a US Court of Appeals in the western United States, this court decided that when faced with a conflict between financial concerns and preventable human suffering, courts “often have little difficulty concluding that the balance of hardships tips in favor” of the plaintiffs in this case.

The temporary restraining order was entered immediately and the parties were ordered to meet with a federal magistrate judge 4 days later to work out a schedule to work toward a hearing on the preliminary injunction, the next rung up the ladder of equitable remedies, to be held 6 weeks later.

Dr. Fink is professor of pharmacy law and policy at the University of Kentucky College of Pharmacy, Lexington.