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Keffeler v. Partnership Healthplan of California

California Court of Appeal, First District, First Division

February 28, 2014

Tim KEFFELER et al., Plaintiffs and Appellants,

Trial Judge: Honorable Evelio M. Grillo, Trial Court: Alameda County Superior Court (No. RG12614261).

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[168 Cal.Rptr.3d 578] Medicaid Defense Fund and Lynn S. Carman; and Natallia Mazina, San Anselmo, for Plaintiffs and Appellants.

Burke, Williams & Sorensen and J. Leah Castella; and Douglas S. Cumming, Lincoln, for Defendant and Respondent.


Banke, J.


Petitioners own pharmacies in Marin and Yolo Counties and used to be paid by the state on a fee-for-service basis for dispensing prescription drugs to Medicaid beneficiaries. However, in late 2010, the state required Medicaid eligible seniors and persons with disabilities to be enrolled in managed health

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plans. As a result, in 2011, petitioners became part of Partnership Health Plan of California's managed care network of pharmacies. Petitioners claim the rates they are paid by Partnership are so low they are being driven to the brink of insolvency. They contend Partnership's failure to take their costs into account violates the " quality of care" and " equality of access" provisions of Section 1902(a)(30)(A) of the Social Security Act (hereafter Section 30(A)). (42 U.S.C. § 1396a, subd. (a)(30)(A).) [1] Petitioners ground their Section 30(A) claims on the Ninth Circuit Court of Appeals' decision in Orthopaedic Hosp. v. Belshe (9th Cir.1997) 103 F.3d 1491 ( Orthopaedic Hosp. ), in which the circuit court held Section 30(A) requires that Medicaid rates be reasonably related to provider costs and that states must base rates on cost studies.

Partnership demurred to the writ petition on several grounds, including that Section 30(A) applies only to fee-for-service programs, and not to managed care. The trial court agreed, sustained the demurrer and ultimately dismissed the writ petition. We affirm, but for a different reason. Regardless of whether Section 30(A) is applicable in the context of managed care, we conclude petitioners' Section 30(A) claims are no longer viable in the wake of the Ninth Circuit's decision in Managed Pharmacy Care v. Sebelius (9th Cir.2013) 716 F.3d 1235 ( Managed Pharmacy Care ), in which the circuit court repudiated its holding in Orthopaedic Hosp.


A. Statutory Framework

A rudimentary understanding of the Medicaid program is necessary to understand the allegations of the writ petition. We therefore start with a general overview of the applicable statutes and regulations.

1. Evolution of Federal Law

" ‘ Medicaid is a cooperative federal-state program through which the federal government reimburses states for certain medical expenses incurred on behalf of needy persons.’ " ( Managed Pharmacy Care, supra, 716 F.3d at p. 1241, quoting Alaska Dept. of Health and Soc. Services v. Ctrs. for Medicare & Medicaid Services (9th Cir.2005) 424 F.3d 931, 934 ( Alaska DHSS ).) " States do not have to participate in Medicaid, but those that choose to do so ‘ must comply both with statutory requirements imposed by the Medicaid Act and with regulations promulgated by the Secretary’ " of the

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U.S. Department of Health and Human Services (Secretary). ( [168 Cal.Rptr.3d 579] Managed Pharmacy Care, supra, 716 F.3d at p. 1241, quoting Alaska DHSS, supra, 424 F.3d at p. 935.)

Congress established the Medicaid program in 1965. (67 Fed.Reg. 40989 (June 14, 2002)[2]; see Life Care Centers of America v. CalOptima (2005) 133 Cal.App.4th 1169, 1174, [35 Cal.Rptr.3d 387] ( Life Care ).) " The program is jointly funded by the federal and state governments and is administered by the states. The states determine eligibility, the types of services covered, payment levels for services, and other aspects of administration, within the confines of federal law." ( Clayworth v. Bonta (E.D.Cal.2003) 295 F.Supp.2d 1110, 1113 ( Clayworth ), rev'd on another ground, 140 Fed.Appx. 677 (9th Cir.2005)).

" States must submit to a federal agency (CMS [Centers for Medicare & Medicaid Services], a division of the Department of Health and Human Services) a state Medicaid plan that details the nature and scope of the State's Medicaid program. It must also submit any amendments to the plan it may make from time to time. And it must receive the agency's approval of the plan and any amendments." ( Douglas v. Independent Living Center of Southern California (2012) __ U.S. __, 132 S.Ct. 1204, 1207.) " Congress expressly delegated to the Secretary the responsibility and the authority to administer the Medicaid program and to review state Medicaid plans and plan amendments for compliance with federal law." ( Managed Pharmacy Care, supra, 716 F.3d at p. 1241.)

Section 1902(a) of the Social Security Act enumerates the required contents of a state plan. (42 U.S.C. § 1396a, subd. (a)(1)-(83).) Section 30(A), in particular, requires that a state plan must " provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan ... as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care and are 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 in the geographic area...." (42 U.S.C. § 1396a, subd. (a)(30)(A).)

Exactly what Section 30(A) requires of states in terms of payments to providers has been the subject of considerable litigation. (See 76 Fed.Reg. 26343 (May 6, 2011) ...

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