Medi-Cal Expansion May Be Next Case For NACDS; Suit Filed Against Florida

NACDS expects a response by the end of April to its request that California submit a Medicaid state plan amendment for its pharmacy-level prescription drug discount program.

If the state adheres to the National Association of Chain Drug Stores' request, the discount program, established in February 2000, would essentially be put on hold pending HHS approval.

The discount law requires pharmacies to pass along Medicaid discounts to cash-paying Medicare beneficiaries or forfeit participation in the state's Medi-Cal (Medicaid) program.

NACDS is pushing for an opportunity to outline its concerns with state discount programs at the HHS level.

The trade association filed a preliminary injunction request April 4 in Tallahassee federal court seeking to enjoin Florida from continuing with its pharmacy-level discount program, patterned on the California plan. The lawsuit was filed after Florida did not respond to NACDS' request that it file a state plan amendment.

NACDS will drop the lawsuit as soon as Florida files a state plan amendment, the association said.

Implementation of Florida's Pharmaceutical Expense Assistance program violates the Medicaid statute by creating a new condition of participation in Medicaid, NACDS believes.

"Pharmacies that participate as Medicaid providers must give price discounts to Medicare beneficiaries, even though those Medicare beneficiaries are not eligible to participate in Medicaid," the NACDS complaint states.

The discount program was created by "The Prescription Affordability Act (SB 940) in July 2000. NACDS calls for a "preliminary and permanent injunction enjoining [Florida] from implementing or enforcing SB 940's condition of participating in Medicaid, unless and until defendant has obtained approval of" HHS via the amendment process.

The association maintained that Florida's failure to apply for federal approval of the program "deprives NACDS and its members of their right to assert before [HHS] their position that SB 940 is unlawful under federal law and may not be approved."

Enacting the program represents a "material change" in the operation of the state's Medicaid program, NACDS said, and therefore must be approved by HHS through an amendment to the state plan.

The suit comes as the Florida legislature is considering a bill (SB 120) to expand the program (¹ (Also see "Florida Rx Bill Would Provide Discounts To Seniors Up To 150% Of Poverty" - Pink Sheet, 26 Mar, 2001.)).

The Pharmaceutical Research & Manufacturers of America is also pursuing litigation to block a state from adding conditions to the Medicaid program.

PhRMA is challenging former HHS Secretary Donna Shalala's November decision to grant a Medicaid waiver to the Vermont Agency of Human Services to expand a demonstration project enabling seniors and adults meeting certain income requirements to receive Medicaid prices on prescription drugs.

PhRMA expects a ruling by the end of June in its federal appeals court case challenging the Vermont Pharmacy Discount Program Medicaid waiver. The association lost a preliminary injunction ruling at the district court level, in part because rebate payments under the program are not due until June (² (Also see "Medicare Rx Impact On Overall Cost To Be Measured By Maine, Mine Workers" - Pink Sheet, 29 Jan, 2001.)).

During April 10 oral arguments before the Washington, D.C., appeals court, PhRMA Counsel Allen Snyder (Hogan & Hartson) maintained that Vermont does not make any payments to pharmacies under the program, and so cannot trigger Medicaid rebates. PhRMA characterized the state's role as solely passing along rebates from manufacturers to pharmacies.

"Neither Vermont nor the federal government will pay for any of the drugs prescribed to the new class of Medicaid beneficiaries created by Pharmacy Discount Program," PhRMA's appeals brief maintains. "The state must make an actual outlay of funds" to trigger Medicaid rebates, not just "loans, pass-throughs or individual beneficiaries' outlays."

Vermont attorney Ronald Shems responded that the weekly reimbursements to participating pharmacies do constitute payments, and that the payments come at a substantial cost to the state. Vermont reimburses pharmacies for the discounts on a weekly cycle, he noted, and rebates from manufacturers are not collected for three to six months.

The period following state payment to pharmacies but before manufacturer recompense represents an opportunity cost to the state, Shems said.

"At any given time, these payments will exceed the previous quarters' rebates because the number of PDP beneficiaries (and consequently, their prescription drug purchases) will increase over the next few years," Vermont's court brief maintains.

Vermont's outlays are projected to exceed rebates by $408,131 in 2001, $1,454,037 in 2002 and $986,737 in 2003, Vermont said.

Appellate Judges Judith Rogers, David Sentelle and David Tatel focused their questions on the judicial precedents for federal agency deference (under the Chevron standard).

Vermont argues that HCFA's decision to grant the waiver was a reasonable interpretation of the law, and so should trigger judicial deference. Justice Department Attorney Scott McIntosh agreed that the Chevron standard should lead the court to defer to HHS if there is ambiguity in the law.

Judge Sentelle asked Vermont's Shems for other examples of state health programs that shift the burden of cost to a third-party payor. Shems cited the Vermont Health Access Plan, which provides Medicare beneficiaries earning less than 150% of the federal poverty level with prescription drug benefits. VHAP is financed through cigarette taxes.

PhRMA's Snyder said the VHAP program is not a precedent because, unlike the PDP program, it requires a net expenditure from the state.

The Florida suit by NACDS and PhRMA's Vermont case could help define the limits for state experiments to expand drug coverage via the Medicaid program.

One challenge for the industry groups may be the Bush Administration's support for experimentation by states in implementing federal programs.

During the confirmation process, HHS Secretary Thompson criticized HCFA's performance in granting waiver requests when he was governor of Wisconsin. Thompson declared that if he finds that the agency is too slow in assessing waiver requests, he plans to approve them personally.

In fact, the defendant in the NACDS lawsuit, Florida Agency for Health Care Administration Secretary Ruben Jose King-Shaw, was recently nominated to join HHS as deputy administrator of the Health Care Financing Administration (³ (Also see "HCFA deputy" - Pink Sheet, 2 Apr, 2001.)).

The differing approaches in the state discount programs could also re-open the divisions between the brand name manufacturers and retail pharmacy.

The 1990 Medicaid rebate law was enacted after a period in which brand name manufacturers encouraged retail reimbursement cuts as an avenue to reduce Medicaid budgets. Pharmacists ultimately endorsed the manufacturer-level rebate approach on the federal level.

The division between the two trade groups carried over into the Clinton healthcare reform debate, where retail pharmacy was the one industry sector to work with the Administration on the plan.

Vermont and Maine are the only two states to have received federal approval for a Medicaid waiver; New Hampshire applied for a waiver in November but has placed the application on hold while the state finalizes the specifics of its request.

Maryland lawmakers appropriated $6.5 mil. of general funds April 6 to create a prescription drug insurance program that includes an instruction to apply for a HCFA waiver by Aug. 1. New Mexico Gov. Gary Johnson (R) vetoed a bill (S 142) the same day that would have required the state to apply for a waiver.

North Carolina, Wisconsin, Pennsylvania, New York and West Virginia are among states understood to be interested in pursuing a waiver.

California State Sen. Jackie Speier (D), the author of legislation upon which the current Medi-Cal discount program is based, has introduced a bill (SB 696) which would establish a drug rebate program to pass along voluntary manufacturer discounts to participating Medicare beneficiaries. The bill passed the Senate Health & Human Services Committee April 4 and has been referred to the Senate Appropriations Committee.