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Managed Pharmacy Care; et al; et al v. Kathleen Sebelius; et al

December 28, 2011

MANAGED PHARMACY CARE; ET AL; ET AL., PLAINTIFFS,
v.
KATHLEEN SEBELIUS; ET AL.; DEFENDANTS.



The opinion of the court was delivered by: Christina A. Snyder United States District Judge

ORDER GRANTING

PRELIMINARY INJUNCTION

I. INTRODUCTION AND BACKGROUND

On November 4, 2011, plaintiffs filed the instant action against Toby Douglas, Director of the California Department of Health Care Services (the "Director") and Kathleen Sebelius, Secretary of the U.S. Department of Health and Human Services (the "Secretary").

The California Department of Health Care Services ("DHCS") is a California agency charged with the administration of California's Medicaid program, Medi-Cal. The Secretary is responsible for administering the Medicaid program at the federal level. Through her designated agent, the Centers for Medicare and Medicaid Services ("CMS"), the Secretary is responsible for reviewing and approving policy changes that states make to their Medicaid programs.

Plaintiffs are a Medi-Cal beneficiary, five pharmacies that participate in the MedCal fee-for-service program, a large pharmacy organization with 340 member pharmacies throughout California, an independent living center, and the state association of independent living centers.

On March 25, 2011, California Governor Edmund G. Brown Jr. signed into law Assembly Bill 97 ("AB 97"), the health budget trailer bill for California fiscal year 2011--2012. AB 97 enacted significant payment reductions for many classes of services provided under the Medi-Cal program. Most significantly for the purposes of the instant action, AB 97 enacted California Welfare and Institutions Code § 14105.192, which provides that the Director shall reduce fee-for-service payments to pharmacies by 10 percent for services provided on or after June 1, 2011, and reduce payments to managed health care plans by the actuarial equivalent amount of the Medi-Cal fee-for-service payment reduction. Section 14105.192(o) provides that the rate reduction shall not be implemented until federal approval is obtained, but that when federal approval is obtained, rate reductions should be implemented retroactively to June 1, 2011.

DHCS submitted proposed State Plan Amendment ("SPA") 11-009 to CMS on July 15, 2011, seeking federal approval of the rate reduction and incorporation of that reduction into California's Medi-Cal State Plan. DHCS submitted an access analysis regarding pharmacy services as well as a plan for monitoring the effects of the rate reduction. On October 27, 2011, in a letter from the Associate Regional Administrator of the CMS Division of Medicaid and Children's Health Operations, CMS provided notice to the Director and DHCS that it had approved the SPA.

Plaintiffs allege that CMS's approval of the SPA was in violation of 42 U.S.C. § 1396a(a)(30)(A) ("Section 30(A)"), the Supremacy Clause,*fn1 the Due Process Clause of the 14th Amendment to the U.S. Constitution,*fn2 and the Privileges and Immunities Clause.*fn3 Compl. ¶ 32. Plaintiffs further allege that the Secretary's approval of the SPA violated the Administrative Procedure Act ("APA"), 5 U.S.C. § 706 et seq. because the Secretary failed to consider certain factors including the impact of the rate reduction on access to and quality of pharmacy services. Id. ¶ 35.

On November 7, 2011, plaintiffs filed the present motion seeking a preliminary injunction restraining the Director from implementing the rate reduction. Plaintiffs filed an amended motion for preliminary injunction on November 21, 2011. The Court denied the Director's ex parte application to stay the proceedings on December 2, 2011. On December 5, 2011, the Secretary and Director filed separate oppositions.*fn4 Plaintiffs replied on December 9, 2011. The Court heard oral argument on December 19, 2011. After carefully considering the parties' arguments, the Court finds and concludes as follows.

II. LEGAL STANDARD

A preliminary injunction is an "extraordinary remedy." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 9 (2008). The Ninth Circuit summarized the Supreme Court's recent clarification of the standard for granting preliminary injunctions in Winter as follows: "[a] plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Am. Trucking Ass'n, Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009); see also Cal Pharms. Ass'n v. Maxwell-Jolly, 563 F.3d 847, 849 (9th Cir. 2009) ("Cal Pharm. I"). Alternatively, "'serious questions going to the merits' and a hardship balance that tips sharply towards the plaintiff can support issuance of an injunction, so long as the plaintiff also shows a likelihood of irreparable injury and that the injunction is in the public interest." Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011); see also Indep. Living Ctr. of So. Cal. v. Maxwell-Jolly, 572 F. 3d 644, 657--58 (9th Cir. 2009) ("ILC II"). A "serious question" is one on which the movant "has a fair chance of success on the merits." Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1421 (9th Cir. 1984).

III. DISCUSSION

A. Standing

Before turning to the merits of plaintiffs' motion, the Court first addresses the Director's arguments that plaintiffs lack standing to bring this case.

1. Prudential Standing

The Director argues that plaintiffs' lack prudential standing to enforce Section 30(A)*fn5 because plaintiffs seek to enforce rights belonging to a third party, CMS.

According to the Director, this Section does not confer individual entitlements on any private parties, but instead serves as a "yardstick" by which the federal government may assess a state's performance under the Medicaid Act. Director's Opp'n at 4. Moreover, the Director argues that plaintiffs' claims run afoul of the bar against considering generalized grievances in that plaintiffs are not attempting to vindicate any right personal to them, but instead assert nothing more than "'the generalized interest of all citizens in constitutional governance.'" Id. (quoting Valley Forge Christian Coll. v. Amer. United for Sep. of Church and State, 454 U.S. 464, 483 (1982)).

The Court finds the Director's prudential standing arguments unavailing. In assessing prudential standing, a court need not "inquire whether there has been a congressional intent to benefit the would-be plaintiff," but instead must determine only whether the plaintiff's interests are among those "arguably . . . to be protected" by the statutory provision. Nat'l Credit Union v. First Nat'l Bank & Trust Co., 552 U.S. 478, 489 (1998). This "zone of interest" test "is not meant to be demanding." Clarke v. Secs. Indus. Ass'n, 479 U.S. 388, 399--400 (1987). To this end, Section 30(A) establishes standards to assure that payments to providers are "consistent with efficiency, economy, and quality of care . . . sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population." Accordingly, Medi-Cal providers and beneficiaries are undoubtedly within the zone of interests protected by Section 30(A). ...


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