Maine Rx Prior Authorization Penalty Violates Federal Medicaid Law - PhRMA

Imposing prior authorization requirements in Medicaid on drugs from manufacturers that do not participate in the Maine Rx program violates federal law, the Pharmaceutical Research & Manufacturers of America maintains in a lawsuit against that state.

"Requiring prior authorization under the Medicaid program and restricting Medicaid patients' access to drugs for this purpose - to penalize nonparticipation in an unrelated state program that benefits a different, non-Medicaid population - is inconsistent with, and thus preempted by, federal Medicaid law," PhRMA stated.

The Maine Rx program would provide discounted drugs to residents without prescription drug coverage. To encourage manufacturers to offer rebates as part of the program, the law would impose Medicaid prior authorization requirements on products from non-participating firms.

The enforcement tool "conflicts with federal Medicaid law and Congressional intent," PhRMA maintained, and therefore violates the Supremacy Clause of the Constitution.

PhRMA cited "the House report accompanying the legislation enacting the Medicaid rebate program, [which] states that it 'does not intend that states establish or implement prior authorization controls that have the effect of preventing competent physicians from prescribing in accordance with their medical judgement.'"

PhRMA sued the state Aug. 10 in Maine federal court, seeking an injunction to prevent the program from beginning on Jan. 1. The association is represented by Preti, Flaherty, Beliveau, Pachios & Haley (Augusta, Maine) and Powell, Goldstein, Frazer & Murphy (Washington, D.C.).

An injunction is necessary because PhRMA members would "suffer irreparable harm," the association's motion states. "Due to its immunity from suit under the Eleventh Amendment, Maine cannot be sued in federal court for damages resulting from the enforcement of the act, even if the act is later found unconstitutional."

If a manufacturer "refuses to pay Maine Rx rebates and sees its drugs subjected to prior authorization, severely limiting patient access to the drugs and sharply reducing their market share and sales, it will not have adequate remedy at law to recover for this damage to its sales, market share and good will" if the provision is found unconstitutional, the motion states.

The suit followed an announcement by SmithKline Beecham that it would stop shipping product directly to the state in an effort to avoid the effects of the law (¹ (Also see "Maine Signs Rx Rebate Deals With 10 Small Firms; SB Stops Shipping To State" - Pink Sheet, 14 Aug, 2000.)).

The Maine law contains provisions that would charge a firm with illegal profiteering if it "prevents, limits, lessens or restricts the sale or distribution" of prescription drugs in Maine "in retaliation for" the law.

The "anti-retaliation" provision violates the Commerce Clause of the Constitution, PhRMA maintained, because it interferes with manufacturers' interstate business decisions. "The basic thrust of the provision - compelling companies to do business through certain channels in or directed toward Maine - flies in the face of the Commerce Clause's notion of an open national market," the motion states.

Other provisions of the Maine Rx law establishing anti-profiteering as a crime also violate the commerce clause, the motion states. The law links the rebates required from manufacturers to the rebates offered to out-of-state customers.

In Baldwin v. G.A.F. Seeling, Inc., the Supreme Court "struck down a statute prohibiting the resale in New York of any milk that had been purchased at a price below a minimum price set by New York."

"Courts have not permitted states to regulate the price at which goods are sold outside the state simply because the goods would later be re-sold within the state," PhRMA argued. "Rather, the courts have limited the reach of a state's powers to transactions that actually take place in the state."

PhRMA cited a Seventh Circuit decision finding that a Wisconsin law regulating milk sales prices could not constitutionally be applied to transactions in Illinois. "Dean Foods contacts with the state simply '[did] not appear relevant to [the] inquiry'; the salient question was the situs of the sales transaction, not Wisconsin's ability to exercise jurisdiction over the company."