Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 1 of 86FIPLaEgeDID #:1

1 LYNN S. CARMAN, State Bar 028860 Medicaid Defense Fund
2 28 Newport Landing Dr. Novato, CA 94949-8214
3 Telephone: (415) 927-4023 FacsImile: (415) 499-1687
4 Email: lynnscarman@hotmail.com

2009 NOV -9 PM I: 39
,v.C.E.N.,~[l·"~t"'·loJLr· PIST::?ICT CCUR; "LO, <;;) G1'\NIS~·T\.E}L. ·(;FESC"ALIF .
By _ _ _ _ _ _ _._ _

5 STANLEY L. FRIEDMAN, State Bar 120551 445 S. Figueora St., 27th Floor
6 Los Ange1es CA 90071-1631 Telephone: (213) 629-1500
7 FacsImile: (213) 489-6899 Email: friedinan@friedmanlaw.org
8
Attorneys for Plaintiffs
9 California Pharmacists Association; Gerald Shapiro,
Pharm.D., dba Uptown Pharmacy & Gift Shappe;
10 Sharon Steen, dba Central Pharmacy; and Tran
Pharmacy, Inc., dba Tran Pharmacy

11

IN THE UNITED STATES DISTRICT COURT

12

CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION

13
California Pharmacists Association;

CIVIL NO.

CV09 08200 CAS (Rlx) 14 Gerald Shapiro, Pharm.D., dba Uptown Pharmacy & Gift Shoppe; Sharon Steen, 15 dba Central Pharmacy; and Tran Pharmacy,

16 Inc., dba Tran Pharmacy.

Plaintiffs,

COMPLAINT FOR

17 -vs.-

INJUNCTIVE AND

DECLARATORY

18 DAVID MAXWELL-JOLLY, Director of

RELIEF

19 Department of Health Care Services of the

State of California,

20 __________________~D~e~£~en~d~a~n~t~.__~!

21

22

23

24

25

26

27

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 2 of 86 Page ID #:2

1

Plaintiffs complain of the defendant DAVID MAXWELL-JOLLY, Director

2 of Department of Health Care Services of the State of California, and for claims for relief

3 allege:

4

INTRODUCTION'

5

1. This is a Supremacy Clause claim.

6

Plaintiffs challenge the validity of the reduction of reimbursement to pharmacies

7 of new §14105.455 Cal. Welf. & Inst. ("Welf. & Inst.") Code in the Medi-Cal FFS

8 program and Medi-Cal managed care program which commenced October 1,2009, and

9 the reduction of reimbursement to pharmacies of amended § 14105.45 Cal. Welf. & Inst.

10 Code in the Medi-Cal FFS program which is stated by defendant to commence in June

11 2010.

12

2. (a) The Court has jurisdiction under 28 U.S.C. § 1331. Shaw v. Delta Air

13 d.h3 U" R5 06 £tal T inco Tnc ....... ~~ ......." .... ~"' ,'-'

_v.v,--' n,,-1,\.(11.--0' 81J.\j·l.LT/nUAjeJ-e/nde .U.~-~I-.LTJ~.;~v.t;·h..o ~ rv"eF·,L'er- 0',J/D,°U- ........ ,1TfL·· C.·V.

14 Shewry 543 F3d. 1047 (9th CiT. 2008), cert denied 129 S.Ct. 2828, and California

15 Pharmacists Assn. v. Maxwell-Jolly, Case No. 2:09-CV-0722 (C.D.Cai. 2009), ("CPhA

16 F'), affirmed in Appeals Case 09-56365 (9th Cir. 2009), ("CPhA IF')2

17

3. The actions of the Defendant complained were and will be done in all parts

18 of California, including the County of Los Angeles. The injuries which are inflicted and

19 threatened which are complained of, to the plaintiff pharmacies, the pharmacy members of

20 CPhA, and their patients in the Medi-Cal fee-for-service and Medi-Cal managed care

21 program, have occurred and are threatened to continue to occur in all parts of California,

22 including the County of Los Angeles. The Defendant and the California Attorney General

23

24 , Captions and footnotes are not allegations or part of this Complaint, hence need
25 not be answered or traversed by the defendant.
26 2 A copy of CPhA I is attached as Exhibit J. A copy of CPhA II is attached as
27 Exhibit K.

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 3 of 86 Page ID #:3

1 has an office in the County of Los Angeles.

2

Parties

3

4. The plaintiff CALIFORNIA PHARMACISTS ASSOCIAnON ("CPhA")

4 represents more than 5,000 pharmacists in California. CPhA is incorporated in the State

5 of California with its principal office in Sacramento, California. It is the largest state

6 professional association of pharmacies in the United States. Many of CPhA's members

7 own pharmacies in the State of California. The mission of CPhA is to represent

8 pharmacies in all practice settings in the State, and to advocate the role of pharmacy as an

9 essential venue of health care for patients. CPhA brings this action on its own behalf and

10 its representative capacity on behalf of its members, and on behalf of the millions of Medi-

11 Cal patients served by its members, who will be directly and adversely affected by the

12 existing and threatened rate reductions which are the subject of this complaint.

13

C
J.

(a) The plaintiff GERALD SHAPIRO, Phann.D., is a duly licensed

14 registered pharmacist with License No. 24377. He owns and operates a duly licensed

15 retail pharmacy under the fictitious name of Uptown Pharmacy & Gift Shoppe, under

16 retail pharmacy license No. PHY 41615, in the City of Los Angeles, California.

17

(b) The plaintiff SHAPIRO's pharmacy participates in the Medi-Cal fee-for-

18 service program and also in Medi-Cal managed care plans, under Medi-Cal provider

19 identification No. PHA 416150.

20

6. (a) The plaintiff SHARON STEEN is co-owner and operates a duly licensed

21 retail pharmacy under the fictitious name of Central Pharmacy, under retail licenses No.

22 PHY 38051, in the City of Santa Monica, California.

23

(b) The plaintiff STEEN's pharmacy participates in the Medi-Cal fee-for-

24 service program and also in Medi-Cal managed care plans, under Medi-Cal provider

25 identification No. PHA 380510.

26

7. (a) Plaintiff TRAN PHARMACY, INC. is a California corporation

27 which owns and operates a duly licensed retail pharmacy under the fictitious name of Tran

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 4 of 86 Page ID #:4

1 Phannacy, under retail pharmacy license No. PHY 43647, in Garden Grove, California.

2

(b) The TRAN PHARMACY, INC.'s pharmacy participates in the Medi-

3 Cal fee-for-service program and also in Medi-Cal managed care plans, under Medi-Cal

4 provider identification No. PHA 436470.

5

8. The defendant DAVID MAXWELL-JOLLY ("Director"), is the director of

6 the Department of Health Care Services ("Department") of the State of California. The

7 Director is exclusively empowered by §§ 14100.1 and 14105 We1f. & Inst. Code to set all

8 policies, rules and regulations in the joint federal-state Medicaid program in California,

9 under the Medicaid Act, 42 U.S.C. § 1395 et seq., - which is called "Medi-Cal,"-

10 including setting all the rates payable to Medi-Cal providers which the Department is

11 exclusively authorized by the Single State Agency provisions of the Medicaid Act and its

12 regulations to set and administer. The Director has an office in the County of Los Angeles.

13 The Director DAVID I\1AXV/ELL-JOLLY is sued in his official capacity only.3

14

Standing

15

9. Each of the plaintiffs providers sue on their own behalf and, also, on behalf

16 of their patients who are beneficiaries in the Medi-Cal FFS program and the Medi-Cal

17 managed care program, to prevent injury and threatened injury to themselves and their

18 patients who are beneficiaries in the Medi-Cal FFS program and Medi-Cal managed care

19 program, from actions of the Director which are contrary to, hence preempted under the

20 Supremacy Clause by, provisions of the Medicaid Act and its regulations, as more

21 particularly set forth below.

22

10. CPhA sues on its own behalf and, also, on behalf of its pharmacy members

23 who are providers in, and the patients of its members who are beneficiaries in, the Medi-

24 Cal FFS program and the Medi-Cal managed care program, to prevent injury and

25 threatened injury to itself, its pharmacy members, and the aforesaid patients of its

26 members, from actions of the Director which are contrary to, hence preempted under the

27 3 A copy of § 14105 Cal. Welf. & Inst. Code is attached as Exhibit F.

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 5 of 86 Page ID #:5

1 Supremacy Clause by provisions of the Medicaid Act and its regulations, as more

2 particularly set forth below.

3

FACTS COMMON TO ALL CLAIMS

4

The Director has exclusive authority and power to set all provider

payment rates for both the Medi-Cal FFS program and the Medi-Cal

5

managed care program

6

11. The Medicaid Act, 42 U.S.C. § 1395 et seq., provides for medical assistance

7 to be administered and provided to qualified poor or disabled beneficiaries by a single

8 state agency ("Single State Agency"), which has been historically funded 50% with

9 federal funds and 50% with state funds; subject to the proviso that if a State accepts the 10 federal funding then it is bound to comply with all the provisions of the Medicaid Act and

11 its regulations, so long as it continues to voluntarily participate in the Medicaid program.'

12

12. In California the State's federal-state funded Medicaid program is called

13 "I\1edi-Cal." In this Complaint, this federal~state program is sometimes referred to as

14 "Medicaid" and sometimes referred to as "Medi-Cal;" but all such references are to the

15 exact same federal-state funded Medicaid program, whichever appellation is used.

16

13. (a) Under § 1396a(a) a State participating in Medicaid must file and have

17 approved a state Medicaid plan (the "state Plan") by the Secretary of U.S. Health and

18 Human Services. The state Plan must, by § 1396a(a)(5) and by 42 Code of Federal

19 Regulations ("CFR") § 431.1 0 specify a single State agency ("Single State Agency") to

20 administer or to supervise the administration of the plan.' In California, the state Plan

21 designates the Department as the Single State Agency.'

22

23

4All statutory references are to 42 U.S. Code unless otherwise specified.

A copy of § 1396a(a)(l) through (30)(A) is attached as Exhibit G. 24

25

5 §1396a(a)(5) provides:

"A State plan for medical assistance must-(5) ... provide for the establishment

26

of a single State agency to administer or to supervise the administration of the

plan ... " 27

, Relevant portions of the state Plan are attached as Exhibit H.

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 6 of 86 Page ID #:6

1

(b) 42 CFR § 431.10 provides that if other State agencies or local agencies, (as for

2 example Medi-Cal managed care plans which are local agencies of the State), perform

3 services to the Single State Agency, that they have no authority to change or disapprove

4 any administrative decision of the Single State Agency, or otherwise substitute their

5 judgment for that of the Single State Agency with respect to the application of the policies,

6 rules, and regulations issued by the Single State Agency.'

7

(c) A copy of 42 CFR § 431.10 is attached labeled Exhibit E.

8

(d) Pursuant to the above provisions of § 1396a(a)(5) and 42 CFR § 431.10, the

9 Department, not the California Legislature, has been exclusively delegated and authorized

10 by Congress in the Medicaid Act to set all payment rates for pharmacy providers in the

11 Medi-Cal program, including both the Medi-Cal FFS program and the Medi-Cal managed

12 care program, any contract of the Department with any Medi-Cal managed care plan

13 notwithstanding.

14

(e) Consequently, by the facts above alleged, the Director has and retains at all

15 times, under both the Single State Agency provisions of § 1396a(a)(5), 42 CFR § 431.10

16 and § 14105 Cal. Welf. & Inst. Code, the exclusive authority, power, and jurisdiction to 17 adopt all regulations and to set all pharmacy provider rates in both the Medi-Cal FFS

18 program and the Medi-Cal managed care program of the State; - including the ultimate

19 exclusive power to require all managed care plans in the Medi-Cal managed care program

20 to adopt pharmacy payment rates set or directed by the Director to be set for payment of

21 pharmacies in Medi-Cal managed care plans.

22 II

23 II

24

25

'42 CFR § 431.10(e)(3) provides:

26

"(3) If other State or local agencies or officers perform services for the Medicaid agency, they must not have the authority to change or disapprove any

27

administrative decision of that agency, or otherwise substitute their judgment for that of the Medicaid agency with respect to the application of policies, rules,

and regulations issued by the Medicaid agency." (Boldface emphasis supplied.)

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 7 of 86 Page ID #:7

1

14. The Medicaid Act, in § 1396a, subd. (a)(30)(A), provides:

2

"(a) A State plan for medical assistance must - (30)(A) provide for such methods

and procedures relating to the utilization of, and the payment for, care and

3

services available under the plan (including but not limited to utilization review

plans as provided for in section 1396b(i)(4) of this title) as may be necessary to

4

safeguard against unnecessary utilization of such care and services and to assure

that payments are consistent with efficiency, economy, and quality of care and

5

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

6

general population in the geographic area; ... " (Boldface emphasis supplied.)

7

15. § 1396a(a)(30)(A), shall hereinafter be referred to as "Sec. 30A."

8

FIRST CLAIM FOR RELIEF

9

16. Plaintiffs refer to each of the allegations in the preceding Paragraphs and

10 incorporates each of the those allegations as if fully set forth herein.

II

17. By each and all of the facts alleged above:

12

(a) Congress in the Medicaid Act elected to assign to the Department, - not

13 to the California Legislature, - the exclusive power, authority, and jurisdiction to set all

14 provider payments in the California's Medicaid program.

15

(b) Also the Department, - which has the exclusive authority, power, and

16 jurisdiction under Sec. 30A and the Single State Agency provisions of the Medicaid Act

17 to set all provider payments, - is precluded by state law and by California Constitution

18 Article 3.5 from doing anything except carry out, willy nil/y, all enactments of the

19 Legislature which reduce payments to pharmacies in the Medi-Cal fee-for-service

20 ("FFS") program and the Medi-Cal managed care program'

21

(c) Therein the Department has no ability or power (under state law and

22 California Constitution Article 3.5), of doing anything except a post hoc analysis of the

23

24

8 Article 3.5, California Constitution, provides: "An administrative agency, including an administrative agency created by the

25

Constitution or an initiative statute, has no power: ... (c) To declare a statute unenforceable, or to refuse to enforce a statute on the basis that federal law or federal

26

regulations prohibit the enforcement of such statute unless an appellate court has made a determination that the enforcement of such statute is prohibited by federal law or federal

27

regulations. " A copy of Article 3.5 is attached as Exhibit I.

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 8 of 86 Page ID #:8

1 enacted rate reduction; which post-hoc analysis, however, does not satisfy the requirement

2 of Orthopaedic Hospital v. Belshe, 103 F3d. 1451,1496, 1499-1500, under Sec. 30A, that

3 the Single State Agency (the Department) which is responsible for Medicaid rate setting,

4 must consider the relevant factors of Sec. 30A contemporaneously with the adoption of

5 the rates, (not, post hoc). (See, the CPhA decision, so holding. Case No. 2:09-CV-0722

6 CAS (MANx), [C.D. Cal. 2009];' affirmed, Appeal Case 09-55365 (9th Cir. 2009).10)

7

18. By each and all of the facts alleged above, and by the stare decisis decision

8 of Ron. Christina A. Snyder in the CPhA case, (Exhibit J attached), which was affirmed

9 by the 9th Circuit, (Exhibit K attached), it follows, and is the law in the 9th Circuit, that:

10

(1) the California Legislature has no authority, power, or jurisdiction under

11 the Single State Agency provision of the Medicaid Act and its regulations to set any

12 payments for pharmacies in the Medi-Cal FFS and managed care programs; and,

13

(2) the Department and its Director have no authority, po'.ver, or jurisdiction

14 under the Medicaid Act, and are precluded by and are preempted nnder the Supremacy

15 Clanse by the contrary provisions of Sec. 30A of the Medicaid Act and its above-

16 mentioned regulations, from implementing any Medicaid provider payment reductions

17 which are enacted by the Legislature.

18

19. In this respect the CPhA decision, (Exhibit J attached), specifically held

19 that Assembly Bill 1183, - which was enacted by the Legislature to reduce pharmacy

20 reimbursement 5% in the Medi-Cal FFS program as of March 1,2009, - was preempted

21 by the Medicaid Act because it was the Legislatnre, not the Department, which

22 promulgated the 5% provider payment reduction. Thus the CPhA decision held, at Page

23 11, as follows:

24

25

, A copy of this March 9, 2009 decision of the Hon. Christina A. Snyder is attached,

26 labeled Exhibit J.

27

10 A copy of this April 6, 2009 decision of the 9th Circuit is attached, labeled

Exhibit K.

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 9 of 86 Page ID #:9

I

In [Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cif. 1997)], ... the court

2

stated that "the Department must rely on responsible cost stndies, its own or others', that provide reliable data as a basis for its rate setting." 103 F.3d at 1496

3

(emphasis added); see also id. _at 1499-1500 ("Since the Department did not

adequately consider hospitals' costs when readopting its rates, the Department's

4

actions were arbitrary and capricious and contrary to law") (emphasis added). The

5

[Orthopaedic Hospital] holding therefore indicates that the body responsible for

rate setting!! must consider the relevant factors [of Sec. 30A]

6

contemporaneously with the adoption of the rates. Because the Department has

no authority to alter the rates set by the Legislature, the Department's post hoc

7

analysis does not satisfy the requirements of [Orthopaedic Hospital]." (Boldface

8

emphasis supplied.)

9

20. Accordingly, due to this decision by Judge Christina A. Snyder which was

10 sustained by the 9th Circuit in respect to the provisions of the Single State Agency

11 requirement of § 1396a(a)(5) and 42 CFR § 431.10, and the efficiency, economy, quality

12 of care, and equal access provisions of Sec. 30A, it follows that all actions of the

13 Departm_ent and the Director to implement Medi-Ca! rate statutes enacted by the

14 Legislature are always contrary to, hence preempted under the Supremacy Clause of

15 the U.S. Constitntion, by these contrary provisions of the Medicaid Act and its

16 regulations.

17

Legislative enactment of the new MAIC payment reduction

of the new Upper Billing Limit payment reduction

18 21. Notwithstanding the foregoing, the Legislature did, on July 28,2009,

19 enact Assembly Bill CAB") X4 5, which amended § 14105.45 Cal. Welf. & Inst. Code to

20 reduce reimbursement to pharmacies for their costs to acquire multi-source drug

21 products (generics) to which a Maximum Allowable Ingredient Cost ("MAIC) limit has

22 been placed by the Department. This rate reduction was estimated by the Legislature in

23 the Assembly Bill Analysis to reduce pharmacies' reimbursements by at least $24 million

24 annually, commencing in June 2009; and

25 22. Also, the same AB X4 5 enacted new § 14105.455 Cal. Welf. & Inst. Code

26

27 II I.e., the Single State Agency, (the Deportment), as per § 1396a(a)(5).

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 10 of 86 Page ID #:10

I to impose an upper billing limit to reduce reimbursement to pharmacies' for their costs

2 to acquire both brand drug products and generic drug products in both the Medi-Cal FFS

3 program and the Medi-Cal managed care program. This rate reduction was estimated by

4 the Legislature in the Assembly Bill Analysis to reduce pharmacies' reimbursements by at

5 least $45 million annually, commencing at once.

6

23. A copy of the amended § 14105.45 Cal. Welf. & Inst. Code is attached to

7 this Complaint as ExhibitA. A copy of the new § 14105.455 Cal. Welf. & Inst. Code is

8 attached to this Complaint as Exhibit B. A copy of the Assembly Floor Analysis for both

9 of these measures is attached to this Complaint as Exhibit C.

10

24. The Legislature found in Sec. 62 of AB X4 5 that:

11

Sec. 62. This act addresses the fiscal emergency declared by the Governor by

proclamation on July 1,2009, pursuant to subdivision (f) of Section 10 of Article

12

IV of the California Constitution.

13

25. The Legislature also found in Sec. 63 of AB X4 5 that

14

Sec. 63. This act is an urgency statute necessary for the immediate preservation of

15

the public peace, health, or safety within the meaning of Article IV of the Constitution and shaH go into immediate effect. The facts constituting the

16

emergency are: In order to make changes necessary for the implementation of the Budget

17

Act of 2009, it is necessary that this act take effect immediately.

18

26. Also, the Director published a notice in the California Regulatory Notice

19 Register, dated August 28, 2009, which admits that these two changes in payments to

20 pharmacies are expected to generate a General Fund savings of $20.9 million in the Medi-

21 Cal program in budget year 2009-2010. So, this is a reduction of $41.8 million in

22 payments to pharmacy providers in the Medi-Cal FFS program and Medi-Cal managed

23 care program, when the matching 50% of federal Medicaid funds are counted. 12

24

27. Further, when the Legislature reduced provider payments by 5% to adult day

25 care health centers in the CPhA case, supra, both Judge Snyder and the 9th Circuit held

26

27

12 A copy of this August 28, 2009 public notice in the Registry is attached to this

Complaint as Exhibit D.

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 11 of 86 Page ID #:11

1 that actions of the Director to implement the statntory payment reduction were

2 preempted under the Supremacy Clause due to the fact that:

3

- the Legislature, - who had no authority under the Siugle State Agency provision

4

of the Medicaid Act and 42 CFR § 431.10 to set Medicaid provider payments, --

5

had nevertheless enacted AB 1183 to set the 5% pharmacy payment reduction,

6 and that:

7

- the Department, - who did have the exclusive authority to set Medicaid provider

8

payments, - had no authority vis-a-vis the Legislature to alter the rate reduction

9

imposed by the Legislature, so that the Department's post hoc analysis of whether

10

the payment cut complied with Sec. 30A "does not satisfy the requirements" of

11

the Orthopaedic Hospital decision, (103 F.3d, at 1496 and 1499-1500);]]

12 so that, as held by Judge Snyder and affirmed by the 9th Circuit, the action of the

13 Department to implement the state Legislature's statute which reduced payrIlent rates to

14 ADHCs was ipso facto contrary to, hence preempted under the Supremacy Clause by

15 Sec.30A.

16

28. Further, the 9th Circuit held in the CPhA case that preempted State action

17 which reduces payments to Medicaid providers constitutes and comprises irreparable

18 injury to providers, due to the fact that the Eleventh Amendment bars a legal remedy in

19 damages. (See, Pages 8-10 of the 9th Circuit's CPhA decision, - a copy of which is

20 attached to this Complaint as Exhibit K).

21

Conclusion, from these precedents in the CPltA District Court and

9th Circuit rulings.

22

29. It follows from these CPhA District Court and 9th Circuit rulings in the

23

CPltA case, (a copy of which rulings are set forth in Exhibits J and K attached to this

24

Complaint), that the 9th Circuit has definitively ruled, stare decisis, that all

25

implementations by the Director of Medicaid provider payment reductions enacted in the

26

27 13 Page 11, lines 3-14, of Exhibit J.

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 12 of 86 Page ID #:12

1 first instance by the state Legislature, are contrary to hence preempted by the Medicaid

2 Act, (specificallY, the Single State Agency and the EEQA factors of Sec. 30A), and that

3 the resultant reductions in Medicaid pharmacy payments, - as in case at bar, - constitute

4 and comprise irreparable injury, without more: so that a preliminary injunction should and

5 must issue in this case at bar, as requested by the Plaintiffs.

6

30. Plaintiffs have no administrative relief and have no plain, speedy, or

7 adequate relief at law or equity except by the remedy prayed for in this Complaint.

8

WHEREFORE, each of the Plaintiffs prays for judgment as shall hereinafter be

9 specified:

10

SECOND CLAIM FOR RELIEF

11

For Declaratory Relief

12

31. Plaintiffs refer to each of the allegations in the preceding Paragraphs and

13 incorporates each of the those allegations as if fuily set forth herein.

14

32. By all the facts hereinbefore alleged, a controversy exists between the

15 Plaintiffs and the Defendant, for which the Court is respectfully requested to issue its'

16 declaratory judgment which specifies the rights and duties of the parties in this matter.

17

WHEREFORE the Plaintiffs pray for judgment and orders as follows:

18

A. That Plaintiffs have judgment against the defendant, and that the defendant take

19 nothing.

20

B. That the defendant DAVID MAXWELL-JOLLY, the Director of the

21 Department of Health Care Services of the State of California, and his agents, servants,

22 employees, attorneys, successors, and all those working in concert with him, shall, pending

23 the final determination of the within action or until further order of the Court, refrain from

24 the following acts:

25

- (I) refrain from implementing, and to stay, § 14105.45 California Welfare &

26

Institutions ("Welf. & lnst. ") Code, including (without limitation thereby) refraining

27

from reducing any payments to pharmacies in respect to prescription drugs in the

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 13 of 86 Page ID #:13

1

Medi-Cal fee-for-service program, on account of or related to any provision in the

2

aforesaid § 14105.45 Welf. & Inst. Cod'e which was enacted on July 28,2009 by

3

Section 38 of Assembly Bill ("AB") X4 5, (Chapter 5, Statutes of 2009-10 Fourth

4

Extraordinary Session);

5
- (2) refrain from implementing, and to stay, § 14105.455 Welf. & Inst. 6
Code, including (without limitation thereby) refraining from reducing any payments 7
to pharmacies in respect to prescription drugs in the Medi-Cal fee-for-service 8
program, on account of or related to any provision in the aforesaid § 14105.455 9
Welf. & Inst. Code which was enacted on July 28, 2009 by Section 39 of AB X4 5; 10

11

C.

That Plaintiffs have costs of suit, reasonable attorneys' fees as may be

12 provided by law, and such other and further relief as may be just.

13 14

LYNN S. CARMAN

~dcarman STANLE}~. FRIED~~L""""""_____

By:

-.......

15

Attorneys for Plaintiffs

16

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EXHIBIT A

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Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 15 of 86 Page ID #:15 Case 2:09-cv-00382-CAS-MAN Document 57-2 Filed 10/11/2009 Page 2 of .122

Assembly Bill No.5
CHAPTER 5
An act to add Section 293 to theFinancial Code, to amend Sections 1250, 1265.5,1266,12753,132420, 1326,1337,1418,1567.50,104820,105250, 116565, 125.J75, 130500, 130507, 130509, and 130543 of, to amend and repeal Section 125165 of, and to add Sections 125155.1,125157, and 125166 to, the Health and Safety Code, to amend Section 12739 of the InsUrance Code, and to amend Sections 4107, 4684.60, 4684.74, 4684.75,75025, 14005.40, 14007.9,14011.2,14087.9, 14105.191, 14105.436,14105.45, 14110.55,14126.033,14132, 14132.951,1416620,14166.225,1416623, 14166.245,14495.10, and 14526.1 of, to add Sections 5783, 14005.50, 14013.5,14105.455,14105.46, 14132.20,14132.952, I4166.1l5,14522.4, 14525.1,145262,and 14550.6 to, and to repeal Section 145223,14526.1, and 14550.5 of, the Welfure and Institutions Code, relating to health, and declaring the urgency thereaf, to take effect innnediately.
[Approved by Governor July 28, 2009, Filed with Sccrelaly ofState July 28. 2009.J

AB 5, Evans. Health.

Existing law provides for the lie

and regnlation ofhealth fucilities

by Il'.e State Department of Public iea1th, includit1.g an intennediate care
fucility/developmentally disabled- mg. Violation of these pl;'ovlsions is

a niisdemeanor.

This bill would create as a new c gory ofhealth facility for, and require

the department to license and regulate, intermediate care

filcility/developmentally disabled tinuous nursing (ICFIDDCN) facilities,

as defined. This bill would require facilities providing continuous skilled

nursing services 10 persons with d elopmental disabilities pursuant to. the

above-descrlbed provisions to appl for liCensure as an IC,vID:o..cN within

90 days after licensing regnlations ecomo effective. This bill would make

other conforming changes. By orea a;new crime, this- bill would impose

a statIO-mandated local program.

Existing law, until January I, 2 0, anthorizes the State Department of

So!:!,] Services and the State Dep eII! of Developmental Services, to

. jointly establish and administer a p at project for licensing and regulating

Adult Residential Facilities for Pons with Special Health Care Needs

(ARFPSHN). to the extent that

are appropriated for this pnrp·ose in

the annual Budget Act. Under ex ling law, a licensed ARFPSHN may

provide 24-hour services to up to adults with developmental disabilities who have special health. care and . ive support needs.

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phmmaceuticalmanufuclll1'er's drug rodm:t shall be made available oo1y through an approved 1reatmenlauth .on request pursuant to subdivision

s_(h). For supplemental rebale agreem ts executed more than 120 days after
the addition of the drug product to Medi-CaJ list ofcontract drugs, the rebate shall equal an amount n I less than 20 percent of the average

manufiloturers price based on Medi utilization data for any drug prodm:ts

thaI have been added to the Medi- allist of contrsct drugs pursuanl 10

Section 14105.43 or 14133.2.

(h) Notwithatanding any otherp . ion oflaw, drug products added to

theMedi-Callistofcontractdrugs nanlto Section 14105.43 or 14133.2

ofmanufilcturers who do not execute agreement to pay additional rebates pursoant to this section, shall b. vajlable only through an approved ,1reatment authorization request.

(i) For drugproducts added on or may obtafu a drug product that pursuanl to subdivision· (h) if the b status. To be eligible fur contiuuing

oreDecember31, 2009, a beneficiaIy a treatment aUthorization request
clary qualifies for continuing (:are status, a beneficiarymusl be taking

the drug productand the department usthaverecordofareimbursed claim

fur the drug product with a date ofs ice that is within 100 days prior 10 the date the drug product was pia on treatmenl authorization requesl status. A beneficiary may remain elig! e fur continuing care status, provided

that a claim is submitted for the drug roduct 10 que.tim at II""'I OVel)' 100 days and the date of service of the cl' is within,100 days of the date of service ofthe lasI claim submitted ~ the same drug product

(j) ChangesmadetotheMedi-Call lofcontrsctdrugsunderthissection

shall be exempl from the requiremen oftheAdministrstive Procedure Act (Chapter 3.5 (commencing with Sec on 11340), Chapter 4 (commencing with. Sl!~on 11-370), and Chapter 5 _-ommencing with Section 11500) of

Part I ofDivision 3 ofTitle 2 of the ovemmenl Code), and shall not be '

sub'eel to the review and roval 0 e Office ofAdministrstive Law.

. ection 5. 0 e e an nstitutlons e IS

amended to read:

14105.45. (a) For pmposes of this section, the followiog definitions

shall apply:

(I) "Average manufucturers price" means the price reported to the department by the Centers for Medicare and Medicald Services pursuanl to
Section 1927 of the Social Security Act (42 U.S-C. Sec. 1396r-8). In the

even! an average manufucturer'. price is not available, the department shall use tb~ direct price as the average manufacturer's price.

(2) "Average wholesale price" mean. the price for a drug product listed

as the avmge wholesale price in the department's primary price reference

SOUIte.
(3) "Direct price" means the price for a drug prodoct pun:hased by a pharmacy directly from a drug manufacturer listed in the department'.

primary reference source.

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Ch.5

(4) "Estimated acquisition cost" means the departmerit's bes.t estimate of the price generally and currently paid by providers for a drug product sold by a particular manufucturer or principallabeler in a standard package.
(5) "Federal upper limit" means the maximum per"unit reimbursement
when established by the Centers for Medicare and Medicaid ~ervice. and
.published by the dopartment in Medi-Cal phartna<lY provider bulletins and
manuals. (6) "Generically equivalent drugs" means drug products with the same
active chemical ingredients ofthe same strength.• quantity, and dosage fonn, and of the same generic drug name, as detennined by the United States Adopted Names (USAN) and accopted by the federal Food and Drug
Administration (FDA), as those drag products having the sarae ohemical
ingredients. (7) "Legend drug" means any drug whose labeling states "Caution:
Federallawprohibits dispensing without prescription:' "Rx only;' or words
of similar import. (8) ''Maximum allowable ingredient cost" (MAle) means the maximum
amOlmt the dopartment will reimborse Medi-Cal phannacy providers for generically equivalent drugs. .
(9) ''Innovator multiple source drug;' "noninnovator multiple ;ource drug;' and c<single source drug" have the same meaning as those tenns are
defined in Section 1396r-8(k)(7) ofTitle 42 ofthe United States Code. (10) "Nonlegend drug" means any drug whose labeling does not conrain
the statement referenced in paragraph (7). (11) "Selling price" means the price used in the establishment of the
estimated acquisition cost. The department shall base the sel1ing price on the average m~ufacturer's price plus ~ -ferceri.t markup- detennined by the department to De necessary for the selling pnce to represent the average purchase price.paid by retail pharmacies in California. The seUingprice shall not be considered confidential ~nd shan be subject to disclosure under the California Puhlic Records Act (Chapter 3.5 (cortunenciog with Section
6250) ofDivision 7 ofTitle 1 ofthe'Government Code). -(12) "Volume weighted average>t means the aggregated average volume
for generically equivalent drugs, weighted by each drug's percentage of the total volume in t1l.e Medi-Cal fee-for-service program during the previous six months. Forpurposes of this paragraph, volume is based on the standard
billiog unit used for the generically equivalent drugs. (13) ''Wholesaler acquisition cosf' means the price fut a drug product
listed as the wholesaler acquisition cost in the department's primary price reference source.
(b) (1) Reimbursement to Medi-Cal pharmacy providers for legend and nonlegend drugs shall consist of the estimated acquisition cost of the drug plus a professional fee for dispensing. lJ1e professional fee shall be seven dollars and twenty-five cents ($7.25) per dispensed prescription. The professional fee for legend drugs dispensed to a beneficiarY residing in a skilled nursing fucility or intermediate care facility shall be eight dollars ($8) per dispensed prescription. For purposes. of this paragraph "skilled

96

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-62-

nUISing facility" and "intennedJate care facility" shall have the same meaning as defined in Division 5 (commencing with Section 70001) of Title 22 of the California Code ofRegulations.
(2) Thedepartment shall establish the estimated acquisition cost oflegend
and nonlegend drugs as follows: (A) For single SOUlCe and innovator multiple source drugs, the estimated
acquisition cost shall be equal to the lowest of the average wholesale price minus 17 percent, the selling price, the federal upper limit, or the MAle.
(B) For noninnovator mUltiple source drugs, the estimated acquisition cost shall be equal to the lowest of the average .wholesale price minus 17 percen~ the selling price, the federal upper limit, Or the MAlC.
(3) For purposes of paragraph (2), the department shall establish a list of MAlCs for generically equivalent drugs, which shall be published in phannacy provider bulletins and manuals. The department shall establish
aMAle only when three or mOre generically equivalent drugs are avaHable
for purchase and dispensing by retaIl phannacies in California. The departmentshaIl update the list ofMAICs and establish additional MAICs in accordance with all of the following:
(Al The department shall base the MAlC on the mean of the average manumcturer's price of drugs generically equivalent to the particular innovator drug plus a percent markup determined by the department to be necessary for the MAIC to represent the average purchase price paid by retail phannacies in California.
(B) Ifaverage manufacturer prices are unavailable, the department shall establish the MAIC in either of the following ways:
(i) Based on the volume weighted average ofwholesaleracquisition costs
ofdrugs genericallyequivalent to the particular innovator dTug plus apercent markup determined by the department to be necessary for the MAlC to represent the average purchase price paid by retail pharmacies in California.
(ii) Pursuant to a contract with a vendor for the purpose.of surveying drug price infonnafion, collecting data, and calculating a proposed MAle.
(C) The departm:entmay enter into contractSwith a vendor for the purpose ofthis section on a bid or nonbid basis. In order to achieve maximum cost savings, the Legislature declares that an expedited process for contracts under this section is necessary. Therefore, contracts entered into on anonbid basis shall be exempt from Chapter 2 (commencing with Section 10290) of
Part 2 ofDivision 2 of the Public Contract Code. (D) The department ,hall update MAlCs at least every three months and
notifY Modi·CaI providers at least 30 days prior to the effective date of a MAle.
(E) The department shaIl establish a process for providers to seek a change to a specific MAle when the providers believe the MAle does not reHet! current available market prices. Ifthe department detennines a MAIC change is warranted, the department may update a specifiC MAIC prior to notifying providers.
(F) In determining the average purchase price, the department shall consider the provider-related costs ofthe products that include, but are not

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Cb.S

limited to, shipping, handling, storage, and delivery. Costs of the provider

thatare included in the costs ofthe dispensing shall not be used to determine

the average purchase price.

(c) The department shall update the Medi'Cal claims processing system

to reflect the selling price ofdrugs not later than 30 day' after receiving the

average manufacturer's· price.

.

Cd) In order to maintain heneficiary.aeces5 to prescription drug services,

no later than 30 days after the departmenHnitially implements seIling price

as a component of estimated acquisition cost, pursuant to paragraph (2) of

subdivision (b), the department.:ball make a one-time adjustment to the

disPensing fees paid to pharmacy providem in' accordance with paragraph

(I),ofsnbdivision (b). This change shall only hamad. ifselling price results

in a lower aggregate drug reimbnrsement. Any increase in dispensing fee

made pursuant to this subdivision shall not exceed the aggregate sav:ings

associated with the implementation of selling price. At least 30-days prior

to implementing the dispensing fee increase, the department shall issne a

copy ofthe department's request for federal epproval PUISuantto subdivision

(e), to the chairperson in each house thal considers appropriations and the

Chairperson ofthe Joint Legislative Budget Committee, or whatever ~esser. -

time the Chairperson of the Joint Legislative Budget Committee or his or

her designee may datermine.

'

(e) The director shall implementthis section in amannerthat is consistent

with federal Medicaid law and regnlations, The director shall seek any

necessary federal approvals fur the implementation of this section. This

section shall be implemented only to the extent thal federal approval is

obtained.

(f) Notwithstaoding Chapter 3.5 (commencing with Seetion 11340) of
Par-t 1 ofDrvision 3 ofTitle2 ofihe Governm~t Code; me·department may

take the actions specified in this section by means of a provider bu11etiri or

notice, policy letter. or other- similar instructions. withOut taking regulatory

action.

.

(g) The department shall issne a Medi-Cal pharmacy reimbursement fuet'

sheet to the chairperson of the committee in each house of the Legislature

be that considers appropriations no later than March I, 2008. The
reimbursement fact sheet shall contain, Out not limited to. available data

and ·infonnation regarding the change in reimbursement due to the federal

Deficit Reduction Act·of 2005 implemen'tation of average manufactUrer's

price based federal upper limits, the implementation of selling price, change

in the average wholesale price reported to the department by the primary

price reference source, change in. phannacy dispensing fees, 'prescriptio~

drug volume trends, and thenumber ofactiveMedi-Cal pharmacy providers.

The fact sheet shall also contain general information and definitions

tenninology and a description of pha~acy.'claims

.

I

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Ch. 5

all waiver programs. This q':.:~~rsr~~ shall be provided to the fiscal

and policy committees tl

within 14 working days of the

close ofthe quarter, th;U COmmences I, 2009. The first quarterly update

to be received by the Legislature iil 2009, shall reflect key issues and

fiscal data as if pertains to the October 1; 2008, to June 30,'

ARRA retroactive claiming from

SEC. 59. Due to

regarding coordination of core;

prognnnmatic functions

Department of Mental Health

and the

as they pertain to: (a) the

reimbursement county

and providers for services

provided under Medi'Cal; (b)

and maintenance

of the state's Medicaid waiver

of mental health care

~'~~'~ce~s~;(~C~)~;~~~~~~~~~~~f~~ of audit and Audits (OSEA), Services (CMS), the Cal:ifl>lma

CfreonmtertshIIefdoOar tMfafiSecde%icoteafrmeS;taaanntedd snd H1lman Services

Agency-or a-SUCCessor entity, shall

Theptnposeofthis action plan is

have a coordinated

approach betweeo these two

to prodnce IlIngible

outcomes for addressing core

This action plsn shall

be provided to the Legislature no

2010.

SEC. 60. The State

Care

shall provide·

=,. tho applicable fiscal >"'''">

.Legislature with copies

. ofall federal audits and

to any component of the

Medi-Cal Progratn, i~:~~;~~!~~~,~!i:t:~~;~~~~,admi~ninaistitmeree:1dybmyaontnheerr

to

days ofreceipt ofa

fiual

by

and .Medicaid

Services (CMS) or other

or agencies.

SEC. 61. No

to Section

6 ofArticle XIllB ofthe

only costs that

may be incorred byalocal

be incurred because

othrisCahcatncgreesattehse apnenewaltcyrifmore aor~~~~U~~~:~wiathcirnimtheeormineafroaicntgioon,f

Section 17556 ofthe GOVernment

the definition ofa crime

within the meaning of Section 6

X1I1B "f the. California

the Governor by proclamation on July 1, 2009, pursuant
Section 10 ofArticle N ofthe California Constitution.
SEC. 63. This· act is an urgency statute necessary for tlie immediate preservation of the public peace, health, or safety within the·"me~ing of" Article IV of the Constitution and shall go into irinnediate effect The facts
constituting the necessity are:"

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In order-to make cbanges necessary for implementation of the Budget Act of 2009, it is necessary that this act take effect immediately.

o
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EXHIBITB

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J\.ssembly BUI No.5 CHAPTER 5

An act to. add Sectien 293 to. the Fimincial Code, to. amend Sectiens 1.250,

1265.5,1266, 1275.3,1324.20,1326,1337,1418, 1567.50,104820,105250,

116565, 125:175, 130500,130507, 130509, aad 13054Yef, toamead and

repeal SectiDn 125165 Df, and to. add SectiDns 125155.1, 125157, and 125166

to., the Health and Salety CDde, to. amend Sectien 12739 Df the Insurance

CDde, and tDameod SectiDns 4107; 4684.60, 4684.74, 4684.75, 7502.5,

14005.40, 14007.9, 14011.2, 14087.9; 14105.19i; 14105.436, 14i05.45, '

14110.55,14126.033, 14132, 14132.951; 14166.20, 14166.225, 14166.23,

14166.245, 14495.10, and 14526.1 Df, to add SectiDns 5783, 14005.50,

14013.5,14105.455,14105.46,14132.20. 14132.952,14166.115,14522.4,

14525.1,14526.2, and 14550.6 to., and to' repeal Sectien 14522.3, 14526.1,-

and 14550.5 ef, the Welfare and InstitutiDns CDde, relating to. bealth,and

declaring the urgency thereof, to. take' effect immediately,

'

[Approved by Governor July 28, 2~. Filed with S,"",,,,,, or State July 28.2009.1

LEGJSLATIVBbSE.L'S DIGBST

AB 5, Evans. Health. '"

,

Existing law prDvideS fDr the li~ are an~ resu!atiDn ~fhealth facilities

by the State Department Df Pubhc ealth, Including an mtermedla!e care

fucilityfdevelopmentaJ1y disabled- ing. ViDlatiDn Dfthese proVisions is

a misdemeanor.

This biiI would create as a-new C . gory ofhealth facility for, and reqUire

the department to., license and ' regulate, intermediate care

mcility/develepmentaJly disabled-<:o 'uouS nursing (lCFIDD.CN) mcllities,

as defined. This bill would require mcilities previding continueUs skilled

nursing services to persens with d elepmental disabilities pursuaIit to. the

above-described provisions to appl for lic.ensure as an ICFIDD~CN within

.90 days after licensing r~atiens eceme effective. This bill would make

other confonning changes. By crea ". g a Jlew crime, this bill would· impose

a state-mandated lecal program,

Existing law, until January I, 2 0, autherizes the State Department ef '

Secial Services and the State Dep ent ef Developmental Services, to

jeintly establish and administer a: let prDject fer licensing and regulating

Adult Residential Facilities fer. Pe ons with Special Health Care Needs

(ARFI'SHN), toth" ex!elit that

are appropriated fer this purpose in

the annual Budget Act. Under sting law" a licensed ARFPSHN may

provide 24-heur serviCes to. up to' adults withdevelepmental disabilities

who have special health care ~d i ensive support .needs.

96

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Co.S

'-

limited to, shipping, handling, stora e, and delivery. Costs of the provider that are included in the costs ofthe di ensing shall not be used to detennine

the average purchase price.

(c) The department shal! update e Modi·C.1 claims processing system

to reflect the selling price ofdrugs n t later than 30 days after receiving the

average manufacturer's price.

(d) In order to maintain benefici access to prescription drug seryices)

no later than 30 days after the de ent initially implements selling price

as a component ofestimated acquisi ion cost, pursuant to paragraph (2) of

subdivision (b), the department sha I make a one·time adjustment to the

dispensing fees paid to pharmacy pr viders in .ccoro.nce with paragraph

(I) ofsubdivision (b). This change sh 11 onlybe made ifsellingprice results

in a lower aggregate drug reimburs ent Any increase in dispensing fee

made. pursuant to this sUbdivision s all not exceed the aggregate savings

associated with the implementation f selling price. At least 30-days prior

to implementing the dispensing fee ncrease, the department shall issue a

copy ofthe department's request for f< deral approval pursuantto subdivision (e), to the chairperson in each house at considers appropriations and the

Chairperson of the Joint Legislative udget Committee, or whatever lesser

time the Chairperson of the Joint Le islative Budget Committee or his or

her designee may determine.

(e) The directorshall implement th section in amanner that is consistent

with federal Medicaid law and re lations. The director shalt seek any

necessary federal approvals for the mplementation of this section. This"

section shall be implemented only , the extent that federal approval is

obtained.

(I) Notwithstanding Chapter 3.5 ( ommencing with Section 11340) of

Part 1ofDivision 3 ofTitle 2 oft."'le G Veulll1ent Code, the department may

take the actions specified in this secti n by means of a provider bulletin or

notice. policy letter, or other similar' structions. without taking regulatory

action.

(g) The department shall issue a M di-Cal pharmacy reimbursementfac!

sheet to the chairperson of the carom ttee in each house of the Legislature

that considers appropriations no later than March I, 2008. 'The

reimbursement fact sheet shall contai , but not be lirnited to, available data

and infOmlation regarding the chang in reimbursement due to the"federal

Deficit Reduction Act of 2005 impl entation of average manufacturer's

price"based federal upper limits. the 1 plementation ofselling price, change

in the average wholesale price rep d to the department by the primary

price reference source, change in ph aey dispensing fees. prescription

drug vohune trends, and the number 0 ctive Medi-Cal pharmacy providers.

The fact sheet shall also contain eral information and definitions

regarding drug pricing tenninology a description ofphannacy claims

/ processing in Medi-Cal.

SEC. 39. Section 14105.455 is added to the Welfare and Institutions

Code, to read:

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-64-

14105.455. (a) Pharmacy providers ~hall ~ubmit their usual aud

customary ch"'1le when billing the Modi-Cal program for prescribed drugs.

(b) "Usual aud customary ch"'1le" means the lower of the following:

(I) The lowest price reimbursed to the pharmacy by other third-party

payers in California, excluding Medi-Cal managed Care plans and Medicare

Part D prescription drug plaus.

(2) The lowest price routinely offered to any segment of the general

public.

(c) Donations or discounts provided to a charitable organization are not

considered usual and customary charges.

(d) Pharmacy providers shalI.keep and maintain records of their nsual

aud customary ch"'1les for a period of three years from the dete the service

was rendered.

(e) Payment to phannacy providers shall be the lower of the pharmacy's

usual and customary charge or the reimbursement rate pursuant to

subdivision (b) of Section 14105.45.

(I) Notwithstanding Chapter 3.5 (connoencing with Section 11340) of

Part I ofDivision3 ofTitle 2 ofthe Govennnent Code, thedepartment may

take-the actions specified in this section by means of a provider bulletin or

notice, policy letter, or other similar instructions, without taking regulatory

action .

.40. echonI4105.46isadd totheWelfareandlnstitutionsC e,

to ad:

1 5.46. (a) For p1llJloses oft' section:

(l)" vered entity" ineans a p vider defined as a cove

Section25 ofTitle 42 ofthe Unit States Code.

(2) "340B' eans the disconnt rug purchasing pro described in

Section 256b of 1" e42 afme Unit d States Code.

(b) A covered

shall disp nse only 3

beneficiaries.

(c) If a covered entity I nable

a specific 340B drug, the

covered entity may dispense dru par ed at regular drug wholesale

rates to a Modi-Cal benefici . I covercd entity dispenses a drug

purchased at regular drug wholesal les pursuant to this subdivision, the

covered entity is reqoired t o ·

cumentation of tileir inability to

obtain the 340B drug.

(d) Acoveredentitysh

acquisition cost for th g, as c

consistent with Sec' 256b ofTiU 42 of the Uni States Code plus the

professional fee nant to Section 4105.45 or the dis ing fee pursuant

to Section 141 .01.

(e) A c red entity shall identi a 340B drug on the cl' submitted

to the M -Cal program for reimb ement.

(I) o!withstanding Chapter 3.5 commencing with Section 11 0) of

P ofDivision 3 ofTitle 2 of the overnment Code, the department ay

e the actions specified in this sec 'on by means ofa provider bulletin a

96
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-99-

all waiver progrnms. This quarterly pdate shall be provided to the fiscal

and policy committees of the Legis ture within 14 working days ofthe

elose ofthe quarter, that conunences y I, 2009. The first quarterly update

to be received by the Legislature in J Iy 2009; shall reflect key issues and

fiscal data as it pertains to the fede ARRA retroactive claiming from

October I, 2008, to June 30, 2009.

SEC. 59. Due to continued cone IDS regarding coordination of ~ore

programmatic functions between the State Department of Mental Health

and the State Department ofHealth C Seryices as they pertain to: (a) the

reimbursement of county mental be th plans and providers fo~ services

provided under Medi-Cal;"(b) activities or the development and maintenance

of the state's Medicaid waiver for e operation of mental health care

services; (c) implementation of the st 's Short-Doyle !Idata system; and

(d) implementation of audit recomm ndations from the Office of State:

Evaluation andAudits (OSEA), and e federal Ceilters for Medicare and

Medicaid Services (CMS), the Cali mia Health and Human Services

Agency or a successor ~ntity. shall de lop an action plan,_

The pmpose ofth.is action plan ista ·ess~e need to have a"coordinated

approach between these two de

ntS _in order to produce tangible

outcomes for addressfug core function as outlined. This action plan shall

be provided to the Legislature no later an February I, 20 IO.

SEC. 60. The State Department of ealth care Services shall provide

the applicable fiscal and ·policy commi ees. of the Legislature with copies·

ofall federal audits and their findings t t pertain to any component ofthe

Medi-Cal Program, including program . mponents adniinistered by other

state departments. This infdrmation s 1- be provided in a timely manner

to the Legislature and preferably within eVen working days of receipt ofa

final determination by the federal .Ce ters for Medicare and Medicaid

Services (CMS) or other applicable fed departments or agencies.

SEC. 61, No reimbursement is requ· ed by this- a.ct pursuant to Section

.6 ofArticle Xln B of the Cali fornia Cons 'tutiOD because the only costs that

may be incurred bya local agency orseh Idistric! will be incurred because

this act-creates a new crime or inftactio eliminates a crime or infraction,

or changes the penaity for a crime or i ction, within the meaning of

Section 17556 ofthe Government Code. cbangesthe definii.ionofacrime .

within' the meaning of Section 6 of 'de XIII B of the California

Constitution.

SEC. 62. This act addresses the fiscai emergency declared by the

Governor by proclamation on Juiy 1, 2009. pursuant to subdivision (f) of .

Section 10 ofArticle IV of the California Constitution.

SEC. 63. This· act is an urgency statute necessary for: the immediate

preservation of the public peaceJ health. or safety within the meaning.of

Article IV of the Constitution and shall go into immediate effect The facts

constituting the necessity are:

/2-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 27 of 86 Page ID #:27

Case 2:09-cv-00382-CAS-MAN Document 57-2 Filed 10/11/2009 Page 14 of 122

Ch.S

-100-

In order to make changes necessary for implementation of the Budget Act of2009, it is necessary that this act take effect immediately_

o
95
/3

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 28 of 86 Page ID #:28
EXHIBITC

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 29 of 86 Page ID #:29
Pag~;w.5

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _-,-1.'J4,9.Ua l3.,

w. ehaD.gU UII e36.15 1I11l1q;Q, (418.3 1li111ou GtMt:41 !'WId cor) t,

tor 2f1Ot.o2OlD. . lit ·~t1Da,

btll f:eel•• Chtl rata

paid to of 53. ')

MIiC5 it
silliClll

the :zona ~~
'Grl..·

leorel:

t'. ~ .. :116"' Ii2l;a

,wi em? S' FnHiP an !!ltv hid W !!min,

ptM'£

tprg:!'tp egg. "aia I;)ill'&eu_ -u..·N~_t Ht.

paid to 14vel. 111 ~ EQau (lB. 1&3 ___1.. U WIll ..

all ot:h.U ~ ~ tactlitJ.ea ror .....rinqa ~ aut

,,'IS ~OII. (1m. KeY Be'r'iaClll.

mit; ~~ "U put: of"tlu! ~'"

.

.

~ fn:_ 'CuIi f ... aft·. . . . . ~~'bjo t;ll..'~~.

.-. n. 'to ~>ddo: ~
expeDdi~.

rate &d:jutMDb AlId. to ~':I *Y ilari..LQtI.

Gfta.!r:;GJ'
~ ~.

fMI to incl_ *41CUe ft'IIUUR. izI. ~ C&lCRladClll, tbl:

~t~y $18 1I11110ll m ~ ~ to tile

"''0 ':1 Qtppgu sa !betsy 'mtpiS;ing SPA· 'ltU.i: bill

~ to the -.tJateit ~~ «!IIi"' (1:IICl ~

of lUI

~ requutQcll"rVw

bJo tb.-.

• t pdd Goftnot.-

1III4&r. ~!IIId1-e.J.'~ lJpcUi~y 11; rmau ~

~ lOX' 1It:~ t::u ......... ~1owaW.•.~

= - - - ea.t- Q!Me). !he _ lO.lC ~. %ot' :. .~ dnp ..Ul

1D ~ 2~O.

.

tJndar ~

tlu At

lttbIIIdmi-:eCiallll~ d &-~._t- iP::f :8 H ~..u 1M

~•• f~
1N';:"toz. _uic

or dnp i::; defirled. iUS the i'*'='t of. ~ Ktlt:, tha tflllul,l .
uppu' l~t. t k a'ftBp lIboleAl. ~r1ce. J. . .~ Of

$Z idll10il {$1 id.l.l..iQiI Gi1 b. ~~:t:ecl f~ r::bu.gu to th.

lIAIC •

. U

tbe·lgwpt pl'1c;e ~ to ~.. :by otliU'

KtId.1cu: :01:, , , . thi.w. ~y~, PCl~ ~~ lJuapicl c:u. plau

mlI1

h1t D p.ru~t10D..~ lJ~;

-If-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 30 of 86 Page ID #:30
EXHIBITD

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 31 of 86 Page ID #:31
Case 2:09-cv-00382-CAS-MAN Document 57-2 Filed 10/11/2009· Page 16 of 122

ARNOLD SCHWARZENEGGER. GOVERNOR

OFFICE OF ADMINISTRATIVE LAW

California ReguIatoryNotice· Register

OF REGISTER 2009. NO. 35-Z . PUBLISHED WEEl'.LY BY THE OFFICE ,o.DMINISTPATM, LAW

AUGUST 28. 2009

PROPOSED ACTION ON REGULATIONS
TITLE 2.. FAIR POLITICAL PRACTICES COMMISSION Conflict ofInterest Code - NQtice Pile No. Z20iJ9~81 8-04 ;......................................... 1355 . . MULTI-COUNTY:· Desert Mountain· Conservatiori' Aufuority
TITLE 2. STATE ALLOCATION BOARD Leroy R Greene School Facilities AcJ ofi998 - Notice File No. Z2009-;{)818'-35 ..... ' . . . . . . . . . . . . . . . . . . .. 1356
TITLE 8. OCCUPATIONAL sAFETY AND HEALTH STANDARDS BOARD Generallndustry Saftty Orders (GISO) - Heat Illness Prevention - Noliee File No, Z2009-0818-34 . . . . . . . .. 1358
TITLE 14. DEPARTMENT OF PARKS AND RECREATION Grants & CooperativeAgreemenls Program - NolieeFile No. Z2009-0818-32 ...... , ........ ,.......... 1362
TITLE 14. FISH AND GAME COMMISSION Spon Fishing Regulationsfor 2010-2012 -Notice File No. Zl009-0818-02 ................. ,.......... 1366
TITLE 16. BOARD OF OPTOMETRY Repeal Section 1569 Scope ofPraciiee- Notice File No. Z2009-0818-03 .. ',' ...... , ...... , .. : ..... , , . .. 1377
TITLE 22. DEPARTMENT OF AGING Allocation. Use, and Transftr ofFederal Funds -Notice File No. Z2009-0818-33 . ............. '. . • . . . . . .. 1379
TITLE 24. BUILDING STANDARDS COMMISSION 2009 international Building Codel20i 0 California BuildingCorle- Notice File No. 2009-0818-28 .......... 1382
TITLE 24. BUILDING STANDARDS COMMISSION
2009 Triennial Rulemaking Cycle - CCR, TItle 24. Pan 3~ NotleeFile No. 2009-0818-29 ....• , .. ,....... 1385
TITLE 24. BUILDING STANDARDS COMMISSION' 2009 Triennial Rulemaking Cycle- CCR, TItle 24, Pan 4-NmiceFile No. 2009-0818-30 .•.. , .. , ........ 1389
TITLE 24. BUILDING STANDARDS COMMISSION 2009 Triennial Rulemaking Cycle - CCR, TItle 24, Part 5'-Notiee File No. 2Q09-0818-31 ...............• 1394
(Continued on next page)

TimeDated Material

/S"

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 32 of 86 Page ID #:32 Case 2:09-cv-00382-CAS-MAN Document 57-2 Filed 10/11/2009 Page 17 of 122

TITLE 24. BillLDING STANDARDS COMMISSION California Green Building Standarrls Code (part 11 Title 24) - Notice File No. 2009-0818-18 '" . . . . . . . . . .. 1441

TITLE 24. BmLDING. STANDARDS COMMISSION California Mechanical Code (part 4, Title 24) - Not/ce File No. 2009-IJ818-fJ6 ........... , .. , ... , . , . , . ,. 1444

TITLE 24. BUILDING STANDARDS COMMISSION California Plumbing Code (Part 5, Title 24) ~ Notice File No. 2009-IJ818-05 ................ , .... '...... 1447

mLE 24. BmLDING STANDARDS COMMISSION Part 2 (2010 California Building Code) CBC -Not/ce File No. 2009-IJ818-17 .. , ...... , .. , ... , ..... ".. 1449

TITLE 24, BmLDING STANDARDS COMMISSION Part 3 (2010 California Electrical Code) CEC -NoliceFile No. 2009-IJ818-16 .. , ................... ". 1453

TITLE 24. BmLDING STANDARDS COMMISSION Part 4 (2010 California Mechanical Code) CMC -Notice File No. 2009-{)818-15 .. , ... "." .... , .. ',." 1456

TITLE 24, BmLDING STANDARDS COMMISSION Part 5 (2010 California Plumbing Code) CPC -Notice File No. 2009-IJ818-J4"", .. , ...... , .. , ....... , 1459

TITLE 24. BmLDING S1i\NDARDS COMMISSION Part 9 (2010 CalifomiaFire Code) CFC -Notice FileNo. 2009-IJ818-13 ............ ' " ' ' ' ' ........... 1463

TITLE 24. BmLDING STANDARDS COMMISSION Title 24, Part 1 (Admihistration Code) and Part 11 (California Green Building Standards Code)Not/ce File No. Z2009-IJ818-24 .,', .. , ... , ...... , ... , ...... " ................ ', ....... , .. , ..... 1466

GENERAL PUBLIC INTEREST

. DEPARTMENT OF HEALTH CARE SERVICES

20W-Budget Act Changes to Billing Requirements

1470

DEPARTMENT OF HEALTH CARE SERVICES

Revised Billing Codes for Medi-Cal Program

1471

PROPOSITION 65

OFFICE OF ENVIRONMENTAL HEALTH HAZARD ASSESSMENT WarningsforExposurestoListedChemicalsinFoods ... " .. , ..... , .. , .... "., .... ' ................. 1472

OAL REGULATORY DETERMINATION

REGIONAL WATER QUALITY CONTROL BOARD, CENTRAL VALLEY REGION (REGIONAL BOARD) Document Entitled "Developing Protective Hardness-Bosed Metal Effluent Limitat/ons" .. . . . . .. . . . .. .. .. ... 1473
(Continued on next page)

/6

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 33 of 86 Page ID #:33

Case 2:09-cv-00382"CAS-MAN Document 57-2 Filed 10/1112009 Page 18 of 122

CALIFORNIA REGULATORY NOnCE REGISTER 2009,. VOLUME NO. 35-Z

PROPOSING STi\: AGENCY CONTACT PERSON FOR S TANTIVE AND/OR

• Phamiacy providers have been requir~d to bill Medi-Cal a price that does-not exceed that charged

TECHNICAL QUESTI NS ON THE PROPOSED

to the general public often referred to bypharmacy

BUILDING TANDARDS

providers as the "usual and ~ustomary" price. For

datesofserviceonorafierOctoberl,2009, "Usual

Specific questions reg . g the su~stantive andlor

-8..'ld Customary"isnow defined as the lowerof:

technical aspects of the p posed changes to the buildingstandards shouldbe ad essedto:

o The lowest price reimbursed t6 the pharmacy by other third-party payers in California,

DougHensel AssistantDeputy Direc DivisionofCodes and Department ofHous· and Community Develop-

exclUding Medi-Cal managed care plans and MedicarePartDprescriptiondrugplans. a Theiowest price routinely offered to any segmentofthe general public.

ment

I Statute_ allows the DRCS 10 base the state

E-mail:

c

Maximum Allowable Ingredient Cost(MAIC) on

Telephone: (916)445- 71 Fax: (916)327-4712
Back-up:

the mean of the average manufacturer's price of
drugs generically equivalent to the particular
innovator drug plus a percent markup determined
by the DHCS to be necessary for the MAlC to

Shawn Ruff

HousingStandards Pro amsManager

DivisionofCodesand dards

Department of Housin and Community Develop-

ment

E-mail; hu

.c . ov

Tclephone:(916)44S- 71

Fax: (916) 327-4712

represent the average purchase price paid by retail pharmacies in California. Effective October I, 2009, if the average manufacturer prices fire unavailable, the DRCS willestabIish theMAIC in eitherofthefoHowing ways:
o B""ed on the _vohane weighted average of
whoiesaler acquisition costs 'Of d.'1lgS generically'
equivalent to the particolar innovator drug plus a percent niarkupdetermined by the DRCS to he

--..-
I GENERALPUBIJC INTEREST

necessary for the MAlC to represent the average purchase price paid by retail -pharmacies in California. o _Pursuant to a contract with a vendor fur -the

purpose of surveying drug price information,

DEPARTMENT OF HEALTH CARE SERVICES

conecting data, andcalcolatinga proposedMAIC.
• Effective October I, 2009, covered entities that purchase drugs under the 340B Drug Pricing

Program shall dispense only 340B purchased

drugs to -Meili-Cal beneficiaries. Providers are

2009 BUDGET ACT CHANGES TO BILLING REQUIREMENTS AND REIMBURSEMENT OF
DRUGS DISPENSED BY PHARMACY PROVIDERS AND 340B COVERED ENTITIES

also-required to bill an amount not to exceed the entity's actual acquis.ition- cost for the drug~ -as charged-by the manufacturer at a price consistent
willi SeGtion 256b ofTitle 42 of the United States
Code plus theprofessional fee pursuant to Welfun;

This notice is being given to provide infonnation of
public interest with respect to the changes being made
hy the Medi-Cal fee-for-service program, in com-

and IDstitutions (W&I) Code section 14105.45 ur the dispensing fee pursuant to W &1 Code section 14132.01.

pliance with ABX4 5 (2009). It is the intent of the De- • The above changes in reimbursement to providers

partmentofHealth Care Services" (DRCS) to submit to

are expected to generate a total General Fund

the federal Centers for Medicare & Medicaid Se_rvkes an amendment to California's Medicaid State Plan un-
der Title xiX the Social Security Actto-implement a

savings of$20.9 million in theMedi-Calprogram
in budgetyear2009-.20 IO.

change to pharmacy provider reimbursement rates, for dates ofserviceon orafterOetober I, 2009. The signifi-_

PUBLIC REVIEW

cant elements of the proposed amendment aTe"" follows:

The proposed amendment to the California'S Medicaid State Plan, which details the changes discussed

1470

17

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 34 of 86 Page ID #:34

Case 2:09-cv"00382-CAS-MAN Document 57-2 Filed 10/11/2009 Page 19 of 122

CAliFORNIA REGULATORY NOTICE REGISTER 2009, VOLUME NO. 35,z

.above. will be available for review at local county welfare offices throughout the State. Copies of the proposedameiuimentmayberequestedfrom,
KathleenHenry,PharmaceuticalAna1yst Pharmacy BenefitsDivision Department ofHealthCare Services 1501 CapitolAvenue Suite7l.5131,MS4604 Sacramento, CA 95814
Writtencommentsmaybesubrnitted as follows:
l\ilailingAddress.viathe u.s. Postal Office:
CaliforniaDepartment ofHealth Care Services Phannacy BenefitsDivision (Attn: K Henry) MS4604· P.O.Box997417 SaCralllebto, CA 95899-7417
MallingAddress for CourierDeliveries ONLY (UPS, FedE:., GOldenState Overnight, etc): CalifomiaDepartment ofHealth Care Services PbaimacyBenelitsDivision (Attn:KHenry) 1501 Capitol Avenue, Suile 71.S131,MS4604 Sacramento,CA95814-5005 .
Email-PharBene@dhcs.ca.gov By F,-\X: (916) 552-9563
An comments should"inc1ude the-author's name,
organization or affiliation; phone number and Provider IDnnmber, ifappropriate.

EREST

THE CALIFORNIA

MENT OF

HEALTH CARE SER

WILL ADOPT

REVISED BILLING CO S FOR MEDI,.-CAL

PROGRAM 2009 CU Nt PROCEDURAL

TERMINOLOGY 4 EDITION (CPT-4)

AND 2009 ALTH ARE COMMON

PROe RE CO INGSYSTEM

(HCPCS}L VELU

Elfec' e for dales ofservi e On or after September I , 2009 . e California Dep ent of Health Care Ser-
vi s (DHCS) will adopt the 009 Healthqrre Common rocedure Coding System PCS) Update, including
. the 2009 Current Procedura Terminology-4th Edi·

tion (CPT-4),.and the 2009 HCPCS LevelIT codes d modifiers.DHCS will establish specific reimbllIlle ent

rates.asfoIIows:

• Themaximumreimbursementfordurable edical
. eqUipment using the updated billing cod , except
wheelChairs and wheelchair accesso .. s, will be
established at an amount not to exce 80 percent

of the 2009 Medicare rates. Reim ement for

wtWelchair and wheelchair ac sories will be established at an amount notto e eed 100 percent of the 2009 Medicare ra s (Welfare arid

Institutions CodesectiOlil41 .48).

• The maximum reimburse ent for orthotic and
prosthetic appliances d clinical laboratory ·services using the up' d billing codes will be

established.at an amo t notto exceed 80 percent
of the 2009 Me care rates (Welfare and lnstitutions Cod sections 14lO5.21 and

14105.22).

.• Maximum re' ursemen,t for" physician services,

including cal procedures, using the updated billing code will be established at an amount not

to exceed percent ofthe 2009 Merucare rate for the same ervice.
GScd changes will imptfut the following
.providerc gories:

• Cill call.boratories

•

blemedical equipment

. , ospital outpatientdapartments and clinics

Long-'term care fucilities

. Groundmedical transportation

Otheroutpatientdinics

Optometrists

Orthotists and prosthetisis

• Pharmacies/pharmacists

• Physicians

• odiatrists

• Pr. iders of services under the California Chil n's Services/Genetically Handicapped

Persons gram

P LICREVlEW
The proposed cliange e available for pubUc review at local county welfare 0 Written comments must be mitted within 45 days from the publication date of the changes in the Califofnia Regulatol}' Notice Regis " All conunents should includethe author's name, org .zationor affiliation, phone number and Provider ID ber, if appropriate. Members of the public may (Oqu t the proposedUst ofbilling codes, and proposedreim ement rates under the 2009 HCPCS 'Update from, and mit comments to:

1471

-33-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 35 of 86 Page ID #:35

EXHIBITE

- 34 -

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 36 of 86 Page ID #:36

Electronic Code of Federal Regulations:

Page I of2

e-CFR Data is current as of November 5, 2009
Title 42: Public Health
f'A8T.,!,11=iHALE.P8GAN1Z'lJJQN.ANQ9[,;NERbl..AQMINI§TRAI!QN S\[bpm:tA-:-c.SiDg.leJ'.t~te BOOD9Y

§ 431.10 Single State agency.
(a) Basis and purpose. This seciion implements section 1902(a)(5) of the Act. which provides for designation of a single State agency for the Medicaid program.
(b) Designation and certification. A State plan must-
(1) Specify a single State agency established or designated to administer or supervise the administration of the plan; and
(2) Include a certification by the State Attorney General. citing the legal autholity for the Single State
agencyta-
(i) Administer or supervise the administration of the plan; and
(ii) Make rules and regulations that it follows in administering the plan or that are binding upon local agencies that administer the plan.
(c) Determination of eligibility. (1) The plan must specify whether the agency that determines eligibility for families and for individuals under 21 is-
(i) The Medicaid agency; or
Oi) The single State agency for the financial assistance program under title IV-A (in the 50 States or the District of Golumbia). or under title I Dr XVI (AABDJ. in Guam. Puerto Rico. or the Virgin Islands.
(2) The plan must specify whether the agency that determines eligibility for the aged. blind. or disabled is-
(i) The Medicaid agency;
(iI) The Single State agency for the financial assistance program under title IV-A (in the 50 States or the District of Golumbia) Dr under title I or XVI (AABD). in Guam. Puerto Rico. or the Virgin Islands; or
(iii) The Federal agency administering the supplemental security income program under title XVI (8SI). In this case, the plan must also specify whether the Medicaid agency or the title IV-A agency determines eligibility for any groups whose eligibility is not determined by the Federal agency.
(d) Agreement with Federal or State agencies. The plan must provide for written agreements between the Medicaid agency and the Federal or other State agencies that determine eligibility for Medicaid. stating the relationships and respective responsibilities of the agencies.
http://ecfr.gpoaccess.gov/cgiltitextitext-idx?c=ecfr&sid=1655e21 01 ?fR?r!'l71 ~o~70f"7-,-''''rI

.- 35--
11!O/'"'Jf\{"\A

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 37 of 86 Page ID #:37

Electronic Code ofFederal Regulations:

Page 2 of2

(e) Authorfty of the single State agency. In order for an agency to qualify as the Medicaid agency-
(1) The agency must not delegate, to other than Its own officials, authority to-
(i) Exercise administrative discretion in the administration or supervision of the plan, or
(ii) Issue policies, rules. and regulations on program matters.
(2) The authority of the agency must not be impaired if any of its rules, regulations, or deCisions are subject to review, clearance, or similar action by other offices or agencies of the State.
(3) If other State or local agencies or offices perform services for the Medicaid agency, they must not have the authority to change or disapprove any administrative decision of that agency, or othel"lNise substitute their judgmentfor that of the Medicaid agency with respectto the application of pOlicies, rules, and regulations issued by the Medicaid agency.
[44 FR 17930, Mar. 23, 1979]

For questions or comments regarding e-CFR editorial content, features, or design, email ~QfI@nqra._g9Y. For questions concerning e-CFR programming and delivery issues, email web.WJ~m@gRQ.gQ.y..

-)(;-
http://ecfr.gpoaccess.gov/cgilVtextitext-idx?c=ecfr&Sid=1655e21a12f82c1371 cac7'lf7??rlrl 11/RI?()()0

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 38 of 86 Page ID #:38

EXHIBITF

-]7-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 39 of 86 Page ID #:39
14105. (a) The director shall prescribe the policies to be followed in the administration of this chapter, may limit the rates of payment for health care services, and shall adopt any rules and regulations as are necessary for carrying out, but are not inconsistent with, the provisions thereof. The policies and regulations shall include rates for payment for services not rendered under a contract pursuant to Chapter 8 (commencing with Section 14200).
In order to implement expeditiously the budgeting decisions of the Legislature, the director shall, to the extent permitted by federal law, adopt regulations setting rates that reflect these budgeting decisions within one month after the enactment of the Budget Act and of any other appropriation that changes the level of funding for Medi-Cal services. The proposed regulations shall be submitted to the Department of Finance no later than five days prior to the date of adoption.
With the written approval of the Department ofFinance, the director shall adopt the regulations as emergency regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (co1l11l1encing with Section 11340), Part 1, Division 3, Title 2 of the Government Code). For purposes ofthat act, the adoption of these regulations shall be deemed an emergency and necessary fot· the i1l11l1ediate preservation of the public peace, health, and safety or general welfare.
(b) (1) Insofar as practical, consistent with the efficient and economical administration of this part, the department shall afford recipients of public assistance a choice of managed care arrangements under which they shall receive health cafe benefits and a choice ofprimary care providers under each managed care arrangement.
(2) Notwithstanding any other provision oflaw, Medi-Cal beneficiaries shall be entitled to affirmatively select, or to be assigned by default to, any primary care provider as defined in paragraph (1) of subdivision (b) of Section 14088.
(3) Notwithstanding any other provision of law, when a Medi-Cal beneficiary is assigned, £i'om any source, to a primary care physician, as defined in Section 14254, and that primary care physician is an employee of a primary care provider,.as defined in paragraph (I) of subdivision (b) of Section 14088, the assignment shall constitute an assignment to the primary care provider.
(c) If, in the judgment of the director, the actions taken by the director under subdivision (c) of Section 14120 will not be sufficient to operate the Medi-Cal program within the limits of appropriated funds, he or she may limit the scope and kinds ofhealth care services, except for minimum coverage as detined in Section 14056, available to persons who are not eligible under Section 14005.1. When and if necessary, that action shall be taken by the director in ways consistent with the requirements ofthe federal Social Security Act.
(d) The director shall adopt regulations implementing regulatory changes required to initially implement, and annually update, the United States Health Care Financing Administration's common procedure coding system as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Part I of Division 3 ofTitIe 2 of the

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 40 of 86 Page ID #:40
Government Code. For the purposes of the Administrative Procedure Act, the adoption ofthe regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. These regulations shall become effective immediately upon filing with the Secretary of State.
(e) Notwithstanding any other provision oflaw, prospective reimbursement for any services provided to a Medi-Cal beneficiary in a nursing facility that is a distinct part of an acute care hospital shall not exceed the audited costs of the facility providing the services.
(f) Notwithstanding any other provision of law, reimbursement for anesthesiology, surgical services, and the professional component ofradiology procedures except for comprehensive perinatal and obstetrical services shall be reduced by 9.5 percent of the amount of reimbursement provided for any of those services prior to the operative date of this subdivision. The director may exclude emergency surgical services performed in the emergency department of a general acute care hospital. To be excluded, emergency surgical services must be performed by an emergency room physician or a physician on the emergency department's on-call list.
(g) (1) It is the intent of the Legislature in enacting this subdivision to enable the department to obtain Medicare cost reports for the purpose of evaluating its Medi-Cal reimbursement rate methodology for nursing facilities.
(2) Skilled nursing facilities licensed pursuant to Chapter 2 (commencing with Section 1250) ofDivision 2 of the Health and Safety Code shall submit copies of all Medicare cost reports to the department by Octoher 1, 1995, for reporting periods that ended between July 1, 1993, and June 30, 1995. On or after July 1, 1995, those facilities shall submit the copies to the department on the date that the Medicare cost reports are submitted to the Medicare fiscal intermediary.
(3) Hospitals providing skilled nursing care licensed pursuant to Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code shall submit a copy of all Medicare cost reports for reporting periods ended: (A) January 1, 1993, through June 30, 1995, to the department by October 1, 1995. (B) On or after July 1, 1995, to the department when the Medicare cost reports are submitted to the Medicare fiscal intermediary.
-39-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 41 of 86 Page ID #:41
EXHIBITG

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 42 of 86 Page ID #:42

Social Security Act §1902

Page 1 of43

Compilation of the Social Security Laws Socia1 Securit;y Online

STATE PLANS FOR MEDICAL ASSISTANCE[~1

Sec. 1902. [42 U.S.C. 1396a] (a) A State plan for medical assistance must-

(1) provide that it shall be in effect in all political subdivisions of the State, and, if administered by them, be mandatory upon them;

(2) provide for financial participation by the State equal to not less than 40 per centum of the non-Federal share of the expenditures under the plan with respect to which payments under
section lQQ3 are authorized by this title; and, effective July 1, 1969, provide for financial participation by the State equal to aU of such non~Federal share or provide for distribution of funds from Federal or State sources, for carrying out the State plan, on an equalization or other basis which will assure that the lack of adequate funds from local sources will not result
in lowering the amount, duration, scope, or quality of care and services available under the
plan;

(3) provide for granting an opportunity for a fair hearing before the State agency to any individual whose claim for medical assistance under the plan is denied or is not acted upon with reasonable promptness;

(4) provide (A) such methods of administration (including methods relating to the establishment and maintenance of personnel standards on a merit basis, except that the Secretary shall exercise no authority with respect to the selection, tenure of office, and compensation of any individual employed in accordance with such methods, and including provision for utilization of professional medical personnel in the administration and, where administered locally, supervision of administration of the plan) as are found by the Secretary to be necessary for the

proper and efficient operation of the plan,8!J (8) for the training and effective use of paid subprofessional staff, with particular emphasis on the full-time or part-time employment of recipients and other persons of low income, as community service aides, in the administration
ofthe plan and for the use of non paid or partially paid volunteers in a social service volunteer program in providing services to applicants and recipients and in assisting any advisory committees established by the State agency, (C) that each State or local officer. employee, or independent contractor who is responsible for the expenditure of substantial amounts offunds under the State plan, each individual who formerly Was such an officer, employee, or contractor and each partner of such an officer or employee shall be prohibited from committing any act, in relation to any activity under the plan, the commission of which, in connection with any activity concerning the United States Government, by an officer or employee of the United States Government, an individual who was such an officer, employee, or contractor or a
- Lf'

httn:llwww.~~a.!!ov/OPHome/ssactititle1911902.htm

1118/2009

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 43 of 86 Page ID #:43

Social Security Act §1902

Page 2 of43

partner of such an officer or employee is prohibited by section 207 or 208 of title 18, United States CodeU?l, and (0) that each State or local officer, employee, or independent contractor who is responsible for selecting, awarding, or otherwise obtaining items and services under the State plan shall be subject to safeguards against conflicts of interest that are at least as stringent as the safeguards that apply under section 27 of the Office of Federal Procurement Policy Act (41 U.S.C. 423) to persons described in subsection (a)(2) of such section of that Act;
(5) either provide for the establishment or designation of a single State agency to administer or to supervise the administration of the plan; or provide for the establishment or designation of a single State agency to administer or to supervise the administration of the plan, except that the determination of eligibility for medical assistance under the plan shall be made by the State or local agency administering the State plan approved under title I. or XVI (insofar as it relates to the aged) if the State is eligible to participate in the State plan program established under title XVI, or by the agency or agencies administering the supplemental security income program established under title XVI or the State plan approved under part A of title IV if the State is not eligible to participate in the State plan program established under title XVI;
(6) proVide that the State agency will make such reports, in such form and containing such . information, as the Secretary may from time to time require, and comply with such provisions
as the Secretary may from time to time find necessary to assure the correctness and verification of such reports;
(7) provide safeguards which restrict the use or disclosure of information concerning applicants and recipients to purposes directly connected with-
(A) the administration of the plan; and
(8) at State option, the exchange of information necessary to verify the certification of eligibility of children for free or reduced price breakfasts under the Child Nutrition Act of 1966[(31 and free or reduced price lunches under the Richard B. Russell National School Lunch Actl7l, in accordance with section 9(b) of that Act, using data standards and formats established by the State agency;
(8) provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals;
(9) provide-
(A) that the State health agency, or other appropriate State medical agency (whichever is
utilized by the Secretary for the purpose specified in the first sentence of section J894(8)),
shall be responsible for establishing and maintaining health standards for private or public institutions in which recipients of medical assistance under the plan may receive care or services,
(8) for the establishment or designation of a State authority or authorities which shall be responsible for establishing and maintaining standards, other than those relating to health, for such institutions, and

http://www.ssa.gov/OP Home/ssactltitle19/1902.htro

1 1 /Q 1'1 (1(10

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 44 of 86 Page ID #:44

Social Security Act §1902

Page 11 of43

medical treatment within the institution, and that there will be a periodic determination of his need for continued treatment in the institution; and
(C) provide for the development of alternate plans of care, making maximum utilization of available resources, for recipients 65 years of age or older who would otherwise need care in such institutions, including appropriate medical treatment and other aid or assistance; for
services referred to in section ~(g)HHA)ill and (ii)ll:21 or section 1603(a)(4)(A)(i) and (ii)[J3]
which are appropriate fOi such recipients and for such patients; and for methods of administration necessary to assure that the responsibilities of the State agency under the State plan with respect to such recipients and such patients will be effectively carried out;
(21) if the State plan includes medical assistance in behalf of individuals 65 years of age or older who are patients in public institutions for mental diseases, show that the State is making satisfactory progress toward developing and implementing a comprehensive mental health program, including provision for utilization of community mental health centers, nursing facilities, and other alternatives to care in public institutions for mental diseases;
(22) include descriptions of (A) the kinds and numbers of professional medical personnel and supporting staff that will be used in the administration of the plan and of the responsibilities they will have, (8) the standards, for private or public institutions in which recipients of medical assistance under the plan may receive care or services, that will be utilized by the State authority or authorities responsible for establishing and maintaining such standards, (C) the cooperative arrangements with State health agencies and State vocational rehabilitation agencies entered into with a view to maximum utilization of and coordination of the provision of medical assistance with the services administered or supervised by such agencies, and (0) other standards and methods that the State will use to assure that medical or remedial care and services provided to recipients of medical assistance are of high quality;
(23) provide that (A) any individual eligible for medical assistance (including drugs) may obtain such assistance from any institution, agency, community pharmacy, or person, qualified to perform the service or services required (including an organization which provides such services, or arranges for their availa:bility, on a prepayment basis), who undertakes to provide
a him such services, and (8) an enrollment of an individual eligible for medical assistance in
primary care case-management system (described in section 1Jl1 _!;iLl;!)(1)), a medicaid managed care organization, or a similar entity shall not restrict the choice of the qualified person from whom the individual may receive services under section J!=!QEi(<J}(4)!C), except as provided in subsection (9), in section1J!Js, and in section 1!;l}2(<J), except that this paragraph shall not apply in the case of Puerto Rico, the Virgin Islands, and Guam, and except that nothing in this paragraph shall be construed as requiring a State to provide medical assistance for such services furnished by a person or entity convicted of a felony under Federal or State law for an offense which the State agency determines is inconsistent with the best interests of beneficiaries under the State plan;
(24) effective July 1,1969, provide for consultative services by health agencies and other appropriate agencies of the State to hospitals, nursing facilities, home health agencies, clinics, laboratories, and such other institutions as the Secretary may specify in order to assist them (A) to qualify for payments under this Act, (8) to establish and maintain such fiscal records as may be necessary for the proper and efficient administration of this Act to provide information needed to determine payments due under this Act on account of care and services furnished to individuals;

httn://www.ssa.gov/OPHome/ssact/title1911902.htm

11/812009

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 45 of 86 Page ID #:45

· Social Secilfity Act §1902

Page 14 of43

(I) the claim is submitted by the State within the 3-year period beginning on the date on which the item or serVice was furnished; and
(II) any action by the State to enforce its rights with respect to such claim is commenced within 6 years of the State's submission of such claim;
(26) if the State plan includes medical assistance for inpatient mental hospital services, provide, with respect to each patient receiving such services, for a regular program of medical review (including medical evaluation) of his need for such services, and for a written plan of care;
(27) provide for agreements with every person or institution providing services under the State plan under which such person or institution agrees (A) to keep. such records as are necessary fully to disclose the extent of the services provided to individuals receiving assistance under the State plan, and (8) to furnish the State agency or the Secretary with such information, regarding any payments claimed by such person or institution for providing services under the State plan, as the State agency or the Secretary may from time to time request;
(28) provide-
(A) that any nursing facility receiving payments under such plan must satisfy an the requirements of subsections (b) through (d) of section lJ!JQ as they apply to such facilities;
(8) for including in "nursing facility services" at least the items and services specified (or deemed to be specified) by the Secretary under section 1919.(f).(Z) and making available upon request a description of the items and services so included;
(e) for procedures to make available to the public the data and methodology used in establishing payment rates for nursing facilities under this title; and
(D) for compliance (by the date specified in the respective sections) with the requirements of-
(i) section lQJQ{e);
(ii) section 1QJJ!{g) (relating to responsibility for survey and certification of nursing facilities); and
(iii) sections 191f!(11)(2)(13) and 1919(h)(Z)(0) (relating to establishment and application of remedies);
(29) include a State program which meets the requirements set forth in section lQQa, for the licensing of administrators of nursing homes;
(30)(A) provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan (including but not limited to utilization review plans as provided for in section 1.9~3{U(4» 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; and

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ll/RI?(\(\()

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 46 of 86 Page ID #:46

Social Security Act §1902

Page 15 of43

(8) provide, under the program described in subparagraph (A), that-

(i) each admission to a hospital, intermediate care facility for the mentally retarded, or hospital for mental diseases is reviewed or screened in accordance with criteria established by medical and other professional personnel who are not themselves directly responsible for the care of the patient involved, and who do not have a significant financial interest in any such institution and are not, except in the case of a hospital, employed by the institution providing the care involired, and

(ii) the information developed from such review or screening, along with the data obtained from prior reviews of the necessity for admission and continued stay of patients by such professional personnel, shall be used as the basis for establishing the size and composition of the sample of admissions to be subject to review and evaluation by such personnel, and any such sample may be of any size up to 100 percent of all admissions and must be of sufficient size to serve the purpose of (I) identifying the patterns of care being provided and the changes occurring over time in such patterns so that the need for modification may be ascertained, and (II) subjecting admissions to early or more extensive review where information indicates that such consideration is warranted to a hospital, intermediate care facility for the mentally retarded, or hospital for mental diseases;

(31) with respect to services in an intermediate care facility for the mentally retarded (where the State plan includes medical assistance for such services) provide, with respect to each patient receiving such services, for a written plan of care, prior to admission to or authorization of benefits in such faciiity, in accordance with regulations of the Secretary, and for a regular program of independent professional review (including medical evaluation) which shall periodically review his need for such services;

(32) provide that no payment under the plan for any care or service provided to an individual shall be made to anyone other than such individual or the person or institution providing such care or service, under an assignment or power of attorney or otherwise; except that-

(A) in the case of any care or service provided by a physician, dentist, or other individual practitioner, such payment may be made (I) to the employer of such physician, dentist, or other practitioner if such physician, dentist, or practitioner is required as a condition of his employment to turn over his fee for such care or service to his employer, or (ii) (where the care or service was provided in a hospital, clinic, or other facility) to the facility in which the care or service was provided if there is a contractual arrangement between such physician, dentist, or practitioner and such facility under which such facility submits the bill for such care or service;

(8) nothing in this paragraph shall be construed (i) to prevent the making of such a payment in accordance with an assignment from the person or institution providing the care or service involved if such assignment is made to a governmental agency or entity or is established by or pursuant to the order of a court of competent jurisdiction, or (ii) to preclude an agent of such
person or institution from receiving any such payment if (but only if) such agent does so pursuant to an agency agreement under which the compensation to be paid to the agent for . his services for or in connection with the billing or col/ection of payments due such person or institution under the plan is unrelated (directly or indirectly) to the amount of such payments or the blllings therefor, and is not dependent upon the actual collection of any such payment;

(e) in thecase of services furnished (during a period that does not exceed 14 continuous days
---05'" ~

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n 11 /2 t1(\l1

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 47 of 86 Page ID #:47
EXHIBITH

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 48 of 86 Page ID #:48

Revision: HCFA-PH-9l- 4
AUGUST 1991

(BPD)

OMB No. 0938Page 1

STATE PLAN UNDER TITLE XIX OF THE SOCIAL SECURITY ACT MEDICAL ASS ISTANCE PROGRAM
State/Territory: _______C~AL~I~FO~R~N~I~A~_____________________________________

Citation 42 CFR 430.10

As a condition for receipt of Federal funds under title XIX of the Social Security Act, the
Department of Health Services (Single State Agency)
submits the following State plan for the medical assistance proqram, and hereby agrees to administer the proqram in accordance with the provisions of this State plan, the requirements of titles XI and XIX of the Act, and all applicable Federal regulations and other official issuances of the Department.

TN No. 92-09

Supersedes

Approval Date

TN No. .-.:.'~".....;..___

NOV 1 S'W~l

Effective Date JAN 0] 199)
HCFA ID: 7982E

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 49 of 86 Page ID #:49

2
Revision: . ~-AT-80-38(BPP) May 22, 1980
State Cali£ornia

SE!:TICN 1

Citation 42 CPR 431.10 AT-79-29

1.1 lJesignatiCl1. and AutOOdty (a) '!be Department of

Health Services is the siD;le State agency des ignated to aaninister or supervise the administration of the Medicaid program uOOer title XIX of the Social Security Act. (All references in this plan to "the Medicaid agency" mean the agency named in this paragraph. )

ATlXllMENl' l.l-A is a osrtificatioo signed by the State Attorrey General identifyiD; the siD;le State agency and citir,g the le<Jal aub...J. Ori Li under which it administers or supervises administration of the program.

'lNt
supe·-'-o-rsede=-'.-:-s-'IN .t.._ _ __

~roval Date,_ _ _ __

Effective Date_ _ __

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 50 of 86 Page ID #:50

3
Revisicn: !£FA-AT-SD-38 (BPP) May 22, 1980
state.______c_a_l_if_o_r_n_i_a_________________________________

Cltaticn
Sec. 1902 (a) of the Act

1.1 (b)

The State agency that administered or supervised the administration of the plan awroved under tiUe X of the Act as of January 1, 1965, has been separately designated to administet or supervise the administration of that part of this plan which relates. to blim imividuals.
D Yes. '!'he State agency so designated is

This agency has a separate plan OOI1ering that portion of the . State plan under tiUe X~x for which it is responsible.
lSI }bt afPlicable. The entire pl&i
under title XIX is administered
or supervised I::1i the State
agency named in paragraph l.l(a).

------ - - ---------------

W supe~trs-ede.,..-s---
w,!.._ _ __

lIfproval Date.______ Effective Date._______

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 51 of 86 Page ID #:51

4
Revision: HCFA-AT-80-38(BPP)
May 22, 1980
State.____C~a~l~i~f~o;rn~ia~_________________________________

Citation Intergovernmental ~ration Act of 1968

1.1(0)

Waivers of the single State lIgency requirement which are currently operative have been granted under authority of the Intergovernmental
Cooperation Act of 196B.

Dyes. M'l'AOlMENT 1.1-8 describ;!s these waiVetS and the atproved alternative organizational arrangements.

D Not applicable. Waivers are 00
-le<>ger in effect.

[jJ Not applicable. No waivers have eVer been granted.

'sIuNpert~s::-ede=s=---
'IN .!..t_ __

Afproval Date'--_ _ __ Effective Date'-_____

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 52 of 86 Page ID #:52

5

Revisicn: IO'A-AX-So-38 (BPPl May 22., 1980

State California

Citation
42 em 431.10
AX-79-29

D 1.1 (d)

The '"3ency named in paragraph l.l(a) has responsibility for aU determinations of eligibility for Medicaid under
this plan.

t]( Determinations of eligibility for Medicaid under this plan are made by the agency (ies) spec ified in ATI1>C!IMEm 2.2-A.
There is a wr Itten '"3reement
between the '"3ency named in paragraph l.l(a) and other
agency(iesl making such
determinations for specific
groups covered under th is plan.
The agreen-ent defines the
relationships and respective respcnsibilities of the agencies.

'IN .!.J_=:_ _ Supersedes
'lNz.J_ _ __

Afproval Date,_ _ _ __ Effective Date,_ _ __

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 53 of 86 Page ID #:53

6

Revisicn: B::F1>.-M'-8(}-38 (BPP) May 22, 1980

State California

Citaticn
42 CFR 431.10
AT-79-29

1.1 (e)

All other provisions of this plan axe administered by the Medicaid agency except for those functions for k'hich final authority has been granted to a
ProfessiCl"lal Standards Review
Organizaticn under title XI of the 1.ct.

(f) All other requirE!tlents of 42 CFR 431.10 axe met.

'INt Super-'-:sede=:-:s'--
'IN L' _ __

l\WrOllal Date_ _ _ __ Effective Date_ __

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 54 of 86 Page ID #:54
EXHIBIT I

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 55 of 86 Page ID #:55
SEC. 3.5. An administrative agency, including an administrative agency created by the Constitution or an initiative statute, has no power:
(a) To declare a statute unenforceable, or refuse to enforce a statute, on the basis of it being unconstitutional unless an appellate court has made a determination that such statute is unconstitutional;
(b) To declare a statute unconstitutional;
(c) To declare a statute unenforceable, or to refuse to enforce a statute on the basis that
federal law or federal regulations prohibit the enforcement of such statute unless an appellate court has made a determination that the enforcement of such statute is prohibited by federal law or federal regulations.

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 56 of 86 Page ID #:56

, -._,- ';"

"_':_" .,0.

~.'

.,'-.-

"- .:,.

~:- ,..
-- ,.;~: -,<."-
:-.- ~':-:

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 57 of 86 Page ID #:57
Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 1 of 18

1

o

2

3

4

5

6

7

8

UNITED STATES DISTRICT COURT

9

CENTRAL DISTRlCT OF CALIFORNIA

10

WESTERN DIVISION

11 Managed Phannacy Care, et al.

Case No. CV 09-382 CAS (MANx)

12
13 P1aintiff(s),
14 vs.
15 David Maxwell Jolly
16

1 ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

17

Defendant(s).

18

19 I. INTRODUCTION AND BACKGROUND
20
On September 16, 2008, the California Legislature passed Assembly Bi1l1183 21
("AB 1183"), which was subsequently signed by the Governor and filed with the
22
Secretary of State on September 30, 2008. AB 1183 amends Cal. Welf. & Inst. Code. § 23
14105.19 and mandates that, effective March 1, 2009, Medi-Cal reimbursement 24
payments to some fee-for-service providers will be reduced by one percent or five 25
percent, depending on provider type. Particularly relevant to the instant action, AB 26
1183 enacts a modified Cal. Welf. Inst. Code § 14105.191(b)(3) so as to require that 27
Medi-Cal fee-for-service payments to phannacies be reduced by 5 percent. 28

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 58 of 86 Page ID #:58 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 2 of 18

1

These reductions mandated in AB 1183 replace the ten percent rate reduction put

2 into place by Assembly Bill X3 5 ("AB 5"), which is scheduled to terminate on

3 February 28,2009. See Cal. Welf. & Inst. Code § 14105.l9(b)(l). AB 5 was passed by

4 L'1e California Legislature on February 16, 2008. On August 18, 2008, the ten percent

5 rate reduction mandated by AB 5 was partially enjoined by this Court in a related

6 action, Independent Living Center of Southern California. Inc. v. Sandra Shewn', CV-

7 08-3315 CAS (MANx). In issuing the preliminary injunction, this Court found that

8 petitioners had, inter alia, demonstrated a strong likelihood of success in showing that

9 AB 5 was preempted by § 30(A) of the Medicaid Act (referred to herein as "§ 30(A)").

10 The Court's August 18, 2008 order is currently being appealed to the Court of Appeals

11 for the Ninth Circuit. I

12

On January 16, 2009, Managed Pharmacy Care, Independent Living Center of

13 Southern California, Inc., Gerald Shapiro, Sharon Steen, and Tran Pharmacy, Inc. filed

14 the instant action against David Maxwell-Jolly, Director of the Department of Health

15 Care Services ofthe State ofCalifornia. Plaintiffs' complaint challenges the five

16 percent Medi-Cal reimbursement rate reduction to providers ofpharmacy services under

17 AB 1183. Plaintiffs seek an order directing defendant "to set aside his preempted

18 policy to implement § 14105.19 Welf. & Inst. Code, ofAB 1183, and the 5% Rate

19 Reduction, and, to refrain from implementing the same; including but not limited to

20 refraining from reducing payments by five percent or by any other deduction, / / /

21

22

23

I The Court's August 18,2008 order was issued on remand from the Ninth Circuit,

24 after plaintiffs appealed this Court's original June 25, 2008 ruling on their preliminary

injunction motion. The Court's June 25, 2008 order found that plaintiffs in Independent 25 Living lacked any federal rights under § 30(A), and therefore had denied petitioners'

26 motion for preliminary injunction. On appeal, the Ninth Circuit held that plaintiffs could

27

bring suit under the Supremacy Clause to enjoin AB 5 as preempted under the Medicaid Act, and remanded to this Court. See Independent Living Center of Southern California

28 et. al. v. Sandra Shewry et aI., 543 F.3d 1050 (9th Cir. 2008).

.

2

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 59 of 86 Page ID #:59 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 3 of 18

1 to pharmacy providers in the Medi-Cal FFS program, for services furnished on and after

2 March 1,2009."2 Compl. at 8; Mot. at l.

3

On February 2,2009, plaintiffs filed the instant motion for a preliminary

4 injunction. Defendant filed an opposition thereto on February 11, 2009. A reply was

5 filed on February 16,2009. Plaintiffs' motion for a preliminary injunction is currently

6 before the Court.

7 II. LEGAL STANDARD

8

A preliminary injunction is appropriate when the moving party shows either (1) a

9 combination ofprobable success on the merits and the possibility of irreparable harm,

10 or (2) the existence of serious questions going to the merits and that the balance of

11 hardships tips sharply in the moving party's favor. ~ Rodeo Collection, Ltd. v. West

12 Seventh, 812 F.2d 1215, 1217 (9th Cir. 1987). These are not two distinct tests, but

13 rather "the opposite ends ofa single 'continuum in which the required showing ofharm

14 varies inversely with the required showing of meritoriousness. ", Id. A "serious 15 question" is one on which the movant "has a fair cha..llce of success on the merits."

16 Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1421 (9th Cir. 1984).

17 III. DISCUSSION

18

A. ELEVENTH AMENDMENT AND PRUDENTIAL STANDING

19

Before addressing the merits of plaintiffs' argument for preliminary injunction,

20 the Court must first address two arguments raised by defendant: (1) that plaintiffs' suit

21 is barred by the Eleventh Amendment and (2) that plaintiffs lack standing. The Court

22 finds that neither of these arguments is persuasive.

23

The essence of defendant's Eleventh Amendment argument is that plaintiffs' suit

24 effectively amounts to a request for money damages to be paid out ofthe state treasury,

25 in violation of the Eleventh Amendment. See Opp'n at 20 ("the primary purpose

26

27

2On January 26, 2009, plaintiffManaged Pharmacy Care was voluntarily dismissed

28 as a plaintiff in this action.

3

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 60 of 86 Page ID #:60 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 4 of 18

1 driving this lawsuit is to obtain funds from the State above the 5% payment reduction"),

2 citing Edelman v. Jordan, 415 U.S. 651 ("Thus the rule has evolved that a suit by

3 private parties seeking to impose a liability which must be paid from public funds in the

4 state treasury is barled by the Eleventh Amendment"). However, the Court disagrees

5 with defendant's characterization ofplaintiffs' claim. Plaintiffs complaint does not

6 seek money damages, but instead seeks only prospective irDunctive relief-namely, an

7 injunction preventing defendant from enforcing a state law that, defendants argue, is

8 preempted by the Medicaid Act. Such prospective injunctive relief against a state

9 official is permissible under Ex Parte Young, 209 U.S. 123 (1908), even where such an

10 irDunction will have an effect on the state treasury. ~, ~ Miliken v. Bradley, 433·

11 U.S. 267 (federal courts permitted "to enjoin state officials to c'onform their conduct to

12 requirements of federal law, notwithstanding a direct and substantial impact on the state

13 treasury").

14

Defendant also argues that plaintiffs lack prudential standing, because they are

15 health care providers who have no "rights" tmder the federal law they seek to enforce.

16 Opp'n at 22. The Court disagrees. In its September 17, 2008 order in the related action

17 Independent Living, 543 F.3d at 1065, the Ninth Circuit determined that petitioners in

18 that action had standing:

19

20

Petitioners include independent pharmacies and health care providers

21

participating in the State's Medi-Cal program that, according to their

22

complaint, will be directly injured, by loss of gross income, when the

23

ten-percent rate reduction takes effect. The Supreme Court repeatedly has

24

recognized that such [direct economic] injuries establish the threshold

25

requirements ofArticle III standing. Moreover, this injury is directly

26

traceable to the Director's implementation of AB 5, and would certainly be

27

redressed by a favorable decision ofthis court erDoining the ten-percent

28

rate reduction.

4

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 61 of 86 Page ID #:61 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 5 of 18

1 As in Independent Living, plaintiffs in the instant action include independent

2 pharmacies participating in the Medi-Cal program, and an independent living center

3 which serves over 8,000 individuals with disabilities annually, 96 percent of whom are

4 Medi-Cal beneficiaries, who, plaintiffs allege, would be directly injured by the five

5 percent Medi-Cal reimbursement rate reduction. See Vescovo Dec!. ~ 5. Therefore, the

6 Ninth Circuit's holding in Independent Living. 543 F.3d at 1065, with regard to

7 standing applies in this case as well, and the Court fmds defendant's argument that

8 plaintiffs lack standing to be without merit.

9

B. LlKELmOOD OF SUCCESS ON THE MERITS

10

Pursuant to the holding of the Ninth Circuit in the related action Independent

11 Living, 543 F.3d at 1065, the Court finds, as an initial matter, that plaintiffs may pursue

12 a claim for relief under the Supremacy Clause based on the allegation that AB 1183 is

13 preempted by § 30(A). Here, plaintiffs' Supremacy Clause claim is predicated upon

14 federal conflict preemption. Under general principles offederal preemption, state law is

15 preempted only to t.~e extent that it actually conflicts with federal law. Pacific Gas &

16 Elec. Co. v. State Energy Comm'n, 461 U.S. 190,204 (1983). Such a conflict may

17 arise either where "compliance with both federal and state regulations is a physical

18 impossibility, or where state law stands as an obstacle to the accomplishment and

19 execution ofthe full purposes and objectives of Congress." Id. at 203-04 (citations

20 omitted).

21

Thus, to prevail on the merits plaintiffs will have to prove either that it is not

22 possible for the Department to comply with both AB 1183 and the Medicaid Act or that

23 AB 1183 stands as an obstacle to the enforcement of § 30(A). As such, the Court turns

24 to the statutory provisions at issue here.

25

The "quality of care" provision of § (30)(A) provides that

26

[a] State plan for medical assistance must ... provide such methods and

27

procedures relating to the utilization of, and the payment for, care and

28

services available under the plan ... as may be necessary to safeguard

5

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 62 of 86 Page ID #:62
Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 6 of 18

1

against unnecessary utilization of such care and services and to assure that

2

payments are consistent with efficiency, economy, and quality of care.

3 42 U.S.C. § 1396a(30)(A). The "equal access" provision of § 30(A) provides that

4

[a] State plan for medical assistance must ... provide such methods and

5

procedures relating to the utilization of, and the payment for, care and

6

services available under the plan ... as may be necessary to safeguard

7

against unnecessary utilization of such care and services and to assure that

8

payments are ... sufficient to enlist enough providers so that care and

9

services are available under the plan at least to the extent that such care and

10

services are available to the general popUlation in the geographic area.

11 Id.

12

13

In Orthopaedic Hospital v. Kizer, 1992 WL 345652 (C.D. Cal. 1992)

14 ("Orthopaedic I"), plaintiff·hospital providers filed suit pursuant to 42 U.S.C. § 1983

15 ("§ 1983"), claiming that the Director violated § 30(A) by setting reimbursement rates

16 for hospital outpatient services without considering the effect ofhospital costs on

17 efficiency, economy, and quality of care.3 rd. at *1. The district court concluded that §

18 30(A) was enforceable in a § 1983 action, and that the Department "had a judicially

19 enforceable obligation" to consider and make fmdings each time it modified

20 reimbursement rates. Id. at *2. According to the district court, § 30(A) obligated the

21 Department to consider efficiency, economy, and quality of care, which it referred to as

22 the "relevant factors." Id. at *4. The district court found that the Director had acted

23 arbitrarily and capriciously in establishing six ofthe seven challenged rates. Id. The
24 court then remanded the matter to the Department for further consideration. Id. at *14.

25

26

27

J The hospitals did not, however, challenge the rates under the "equal access"

28 provision. Orthopaedic 1,1992 WL 345652 at *14 n.4.

6

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 63 of 86 Page ID #:63 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02127/2009 Page 7 of 18

1 Upon remand, the Department conducted a rate study, and readopted the reimbursement

2 rates without change. Orthopaedic Hospital IIIIII, 103 F.3d at 1495.

3

The hospitals returned to the district court, filing two lawsuits (Orthopaedic IIIIII)

4 that the district court consolidated, arguing that the adopted rates did not comply with §

5 30(A). Id. The district court entered judgment in favor of the Department, finding that

6 the Department was not statutorily required to consider hospital costs when setting

7 reimbursement rates. Id. The hospitals appealed, and the Ninth Circuit reversed. The

8 Ninth Circuit's interpretation held that § 30(A) "provides that payments for services

9 must be consistent with efficiency, economy, and quality of care, and that those

10 payments must be sufficient to enlist enough providers to provide access to Medicaid

11 recipients." Id. at 1496 (emphasis in original). The Ninth Circuit therefore concluded

12 that under § 30(A)

13

14

the Director must set hospital outpatient reimbursement rates that bear a

15

reasonable relationship to efficient and economical hospitals' costs of

16

providing quality services, unless the Department shows some justification

17

for rates that substantially deviate from such costs. To do this, the

18

Department must rely on responsible cost studies, its own or others', that

19

provide reliable data as a basis for its rate setting.

20 Id.4 Further, the Ninth Circuit found that "[ilt is not justifiable for the Department to

21

22 4 See~, Alaska Dep't of Health & Soc. Servs. v. Ctrs. for Medicare & Medicaid
23 Servs., 424 F.3d 931,940-41 (9th Cir. 2005); see also Arkansas Med. Soc'y v. Reynolds,

24 6 F.3d 519, 530 (8th Crr. 1993) ("We agree with the trial court's conclusion that the relevant factors thatDHS is obliged to consider in its rate-making decisions are the factors
25 outlined in 42 U.S.C. § 1396a(a)(30)(A)."); cf. MethodistHosps. v. Sullivan, 91 F.3d 1026,

26 1030 (7th Crr. 1996) (fmding that § 30(A) does not require a state to consider any

27

particular factors, but rather, requires that the state arrive at substantive results consistent with the Medicaid Act); Rite Aid. Inc. v. HOllStoun, 171 FJd 842 (3d Cir. 1999) (same).

28

7

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 64 of 86 Page ID #:64 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 8 of 18

1 reimburse providers substantially less than their costs for purely budgetary reasons."

2 Id. at 1499 n.3.5

3

Whatever else its effect may have been, it is clear that Sanchez v. Johnson, 416

4 F.3d 1051 (9th Cir. 2005) left undisturbed the rule announced in Orthopaedic JIlIn that

5 § 30(A) creates duties on behalf of the Department, i.e., the duty to consider efficiency,

6 economy, and quality ofcare when establishing reimbursement rates. Indeed, the

7 Sanchez court recognized that "[§ 30(A)] speaks ... of the State's obligation to develop

8 'methods and procedures' for providing services generally.,,6 Sanchez, 416F.3d at

9

10

5 Subsequently, in Sanchez v. Johnson, 416 F.3d 1051 (9th Cir. 2005), the Ninth

Circuit held that § 30(A) does not confer individual rights that are enforceable under 42

11 U.S.C. § 1983. Id. at 1060. However, in Independent Living, 543 F.3d 1050 (9th Cir.

12 2008), the Ninth Circuit held that "aplaintiffseeking injunctivereliefunderthe Supremacy Clause on the basis offederal preemption need not assert a federally created 'right,' in the
13 sense that term-has been recently used itl suits brought under § 1983, but need only satisfy

14 traditional standing requirements." Independent Living, 543 F.3d 1050, 1058 (9th Cir. 2008).
15

16

.6 Defendant nevertheless argues herein that under Sanchezv. Johnson, 416 F.3d 1051, plaintiffs are precluded from obtaining a judicial remedy, and that "Plaintiffs are

17 attempting to have this Comt undercut decades offederal jurisprudence to say that, merely

18 by claiming to be suing under the Supremacy Clause instead of § 1983, a party can obtain a remedy in federal court against a state agency for non-compliance with a provision ofthe
19 Medicaid Act ... " Opp'n at 18. Defendant argues that the Ninth Circuit's holding in

20 Independent Living, 543 F.3d 1050, does not contradict this argument, because the issue presented herein is substantially different fi'om the issue presented in that case. Opp'n at
21 16 ("the only issue in front of the Court of Appeals in the Independent Living Center

22 matter was 'whether ILC may maintain a valid cause of action to enjoin implementation
of AB 5 on the basis of federal preemption"). However, the Court finds defendant's 23 arguments unpersuasive. The Court disagrees that the issue presented herein is

24 substantially different from the issue before the Ninth Circuit in Independent Living, 543 F.3d at 1063, and further notes that the Ninth Circuit in Independent Living specifically
25 distinguished Sanchez:

26

27

[In Sanchez] [w]e held that the quality of care and access provisions of § 30(A) do not give rise to the type of unambiguously conferred rights

28

(continued ... )

8
-b3-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 65 of 86 Page ID #:65 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02127/2009 Page 9 of 18

1 1059 (emphasis added).

2

Because Orthopaedic IIIIII is binding authority on this Court, the Court finds that

3 when the State of California seeks to modifY reimbursement rates for health care

4

5

6( ... continued)

6

required under Gonzaga. But our decision in [Sanchez] had nothing to say

7

about a claim for injunctive relief brought under the Supremacy Clause.

Indeed, even as the Supreme Court has tightened the requirements for

8

seeking damages under § 1983, it has consistently reaffirmed the availability

9

of injunctive relief to prevent state officials from implementing state

legislation allegedly preempted by federal law.

10

11

Defendant also argues herein that Congress has evinced an intent that § (30)(a) not

be judicially enforced. Opp'n at 17, n.S. Specifically, defendant notes that the so-called 12 "Boren Amendment,"which required that states provide the Secretary with assurances that

13 Medicaid reimbursements according to rates that were "reasonable and adequate" to meet

14

costs, was repealed by Congress subsequent to a Supreme Court decision fmding that providers had rights under the Boren Amendment to challenge the adequacy of a state's

15 reimbursement rates under the Medicaid statute. Opp'n at 5. However, defendant's
16 arguments are belied by Orthopaedic HlIII, which held that the Department's obligations
under §30(a) were independent ofthe obligations imposed by the Boren Amendment: 17

18

The BorenAmendmentrequires the Department to make assurances

to the Secretary of Health and Human Services that rates are

19

reasonable and adequate to meet the hospitals' costs, and requires

20

periodic cost reports from hospitals subject to audit by the

Department. These requirements are not part of § 1396a(a)(30)(A).

21

The requirements of § 1396a(a)(30)(A) are more flexible than the

22

Boren Amendment, but not so flexible as to allow the Department to

ignore the costs of providing services. For payment rates to be

23

consistent with efficiency, economy, quality ofcare and access, they

24

must bear a reasonable relationship to provider costs, unless there is

some justification for rates that do not substantially reimburse

25

providers their costs.

26 27 Orthopaedic IIIIII, 103 F .3d at 1499.

28

9

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 66 of 86 Page ID #:66 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 10 of 18

1 services provided under the Medi-Cal program, it must consider efficiency, economy,

2 and quality of care, as well as the effect of providers' costs on those relevant statutory

3 factors.

4

In the instant motion for preliminary iqjunction, plaintiffs argue that AB 1183's

5 five percent reimbursement rate reduction to pharmacies is preempted by § 30(A),

6 because the Legislature did not consider any of the relevant factors as required by

7 Orthopaedic IIIIIT. To demonstrate that the Legislature did not consider any of the

8 relevant factors, plaintiffs first note that Sec. 76 ofAB 1183 indicates that the purpose

9 ofthe bill was budgetary:

10

11

[t]his act is an urgency statute necessary for the immediate

12

preservation ofthe public peace, health, or safety within the meaning

13

ofArticle IV ofthe Constitution and shall go into immediate effect.

14

The facts constituting the necessity are: In order to make the necessary

15

statutory changes to implement the Budget Act of2008 at the earliest

16

possible time, it is necessary that this act take effect immediately.

17 Plaintiffs further describe the legislative history ofAB 1183, which, they argue,

18 demonstrates that the Legislature did not consider any ofthe relevant factors:

19

AB 1183 was introduced Feb. 2,2008 as a hazardous material bill and

20

was amended several times as solely a hazardous material bill.

21

However, on September 15, 2008, the bill was amended in the Senate

22

so as to be at once turned into a trailer bill, on many different subjects

23

... All without any public hearings or any hearing by any committee

24

ofthe Legislature; was passed shortly before midnight of the same day

25

of September 15,2008 by the Senate; was sent to the Assembly, and

26

was immediately passed by the Assembly before 2:08 a.m. of

27

September 16, 2008, - all within the space of a few hours ...

28 Mot. at 8.

10

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 67 of 86 Page ID #:67 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 11 of 18

1

Defendant does not appear to contest that the Legislature did not in fact consider

2 the relevant factors prior to passing AB 1183. However, defendant appears to argue that

3 the requirements of Orthopaedic IIIIII are nevertheless satisfied, because the

4 Department itself performed a detailed analysis ofthe relevant factors. Opp'n at II.

5 Specifically, defendant submits the Department's report "Analysis ofPharmacy

6 Reimbursement under AB 1183," ("Department Analysis") completed in February

7 2009, well after the enactment ofAB 1183 on September 16, 2008. Opp'n at 11. The

8 Department Analysis analyzes the impact ofthe five percent rate reduction, and

9 ultimately concludes:

10

After a 5% payment reduction is implemented on March 1, 2009,

11

Medi-Cal reimbursement paid to pharmacies will comply with title 42,

12

United States Code, section 1396(a)(30)(A). The available data

13

indicates that Medi-Cal recipients will continue to have sufficient

14

access to pharmacy services as required by federal law.

15

Reimbursement will be below applicable federal upper payment limits.

16

The 5% payment reduction will result in more efficient and economical

17

Medi-Cal coverage. It will not have any negative impact for Medi-Cal

18

recipients. Finally, the Department determined that Medi-Cal

19

reimbursement will in the aggregate compensate pharmacy drug costs

20

at a level that is well above the "range ofreasonableness" that was

21

acceptable under the repealed Boren Amendment. Thus,

22

reimbursement will be sufficient under the more flexible requirements

23

of section 1396(a)(30)(A).

24 Def's Ex. A-A (Analysis ofAssembly Bill 1183 Medi-Cal Reimbursement for

25 Pharmacies) at 12-13. The Department Analysis further concludes that the Legislature

26 "had other alternatives for reducing spending in the Medi-Cal program, which would

27 have had a much more negative impact on Medi-Cal recipients. Def's Ex. A-A

28 (Analysis ofAssembly Bill 1183 Medi-Cal Reimbursement for Pharmacies) at 4.

11

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 68 of 86 Page ID #:68 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 12 of 18

1

Plaintiffs, however, argue that the Department's post-hoc analysis does not satisfy

2 the requirements of Orthopaedic IIIIII. The Court agrees. First, the Court notes that AB

3 1183, as passed by the Legislature, does not provide the Department with any discretion

4 to determine whether the five percent rate reduction should be implemented based on

5 the Department's consideration of the relevant factors. See Mot. at 5-6; Cal. Welf &

6 Inst. Code. § 14105.191 ("Notwithstanding any other provision oflaw, or order to

7 implement changes in the level of funding for health care services, the director shall

8 reduce provider payments, as specified in this section ...") (emphasis added). In

9 Orthopaedic IIIlII, in which rates set by the Department, rather than the Legislature,

10 were at issue, the court stated that the "the Department must rely on responsible cost

11 studies, its own or others', that provide reliable data as a basis for its rate setting." 103

12 F.3d at 1496 (emphasis added); see also id. at 1499-1500 ("Since the Department did,

13 not adequately consider hospitals' costs when readopting its rates, the Department's

14 actions were arbitrary and capricious and contrary to law") (emphasis added). The

15 Orthopaedic IIIlII holding therefore indicates that the body responsible tor rate setting

16 must consider the relevant factors contemporaneously with the adoption ofthe rates.

17 Here, the legislative history shows no indication that the Legislature considered any of

18 the relevant factors before implementing AB 1183. Instead, it appears that the

19 Legislature enacted the rate reduction purely for budgetary reasons. Because the

20 Department has no authority to alter the rate reduction imposed by the Legislature, the

21 Department's post hoc analysis does not satisfy the requirements of Orthopaedic IIIIII.

22

Therefore, because the Legislature did not consider any of the relevant factors

23 prior to implementing the five percent rate reduction in AB 1183, the Court [mds that

24 plaintiffs have a strong likelihood of success on the merits.

25

C. IRREPARABLE HARM

26

The next question before this Court is whether plaintiffs have shown that Medi-

27 Cal beneficiaries will be uTeparably harmed if the five percent rate reduction to

28 pharmacies is permitted to go into effect After reviewing the declarations submitted by

12

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 69 of 86 Page ID #:69 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 13 of 18

1 plaintiffs and defendant, the Court finds that plaintiffs have made a sufficient showing

2 of irreparable harm to warrant an irUunction.

3

Plaintiffs submit the declaration of Richard Wilson, a Certified Public Accountant

4 who has examined various data regarding Medi-Cal prescription drug reimbursement-

5 including the Survey ofDispensing and Acquisition Costs of Pharmaceuticals in the

6 State of California, a December 2007 study prepared by Myers and Stauffer, CPA's

7 ("Myers Stauffer study") - in order to examine the impact of the five percent rate

8 reduction on pharmacies.

9

Wilson notes that there are two primary cost components in the provision of

10 prescription drugs: dispensing cost and drug acquisition cost. Wilson states that the

11 average cost to a pharmacy for dispensing a prescription is currently $11.49 per

12 prescription, and that the five percent reimbursement rate reduction will reduce Medi-

13 Cal coverage for pharmacies' dispensing fees, from an average of $7.25 per

14 prescription to an average of $6.88 per prescription. Wilson Dec!. ~ 21-22. Wilson

15 states that the five percent reduction will therefore increase the loss incurred by

16 pharmacies on dispensing fees from $3.56 per Medi-Cal prescription to $4.61 per Medi-

17 Cal prescription. Wilson Decl. ~ 22.

18

Furthermore, Wilson, states that the five percent rate reduction will also cause

19 pharmacies to experience a loss on the acquisition of many brand and generic dmgs.

20 For example, Wilson states that the average acquisition costs for brand drugs is 79

21 percent of average wholesale price, while the amount of reimbursement that pharmacies

22 will receive under the five percent rate reduction is only 78.85 percent of average

23 wholesale price. Wilson Dec!. ~ 24. As a result, Wilson states that the five percent rate

24 reduction will cause pharmacies to operate at a loss in the acquisition of 51 percent of

25 the 200 top-selling brand drugs, and that pharmacies will make only a very small gross

26 profit on an additional 12.5 percent of the top-selling brand drugs, a profit which will

27 generally be insufficient to compensate for the loss that the pharmacies incur in

28 dispensing costs. Wilson Decl. ~ 25. With regard to generic drugs, Wilson states that

13

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 70 of 86 Page ID #:70 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 14 of 18

1 the five percent rate reduction will cause phannacies to operate at a loss or obtain only a
2 very small gross profit on 39 percent ofthe top-selling generic drugs. Wilson Dec!. 'If

3 31.

4

Wilson concludes that because phannacies, on average, will suffer a financial loss

5 to acquire and dispense brand drugs as a result of the five percent rate reduction, many

6 will be forced to stop dispensing many if not most brand products to Medi-Cal patients.
7 Wilson Dec!. 'If 28. Wilson further concludes that, as a result of the five percent rate

8 reduction, many phannacies will also be forced to stop dispensing many of the generic
9 drugs to Medi-Cal patients. Wilson Dec!. 'If 32.

10

Petitioners also submit additional declarations providing further evidence to the

11 effect that the five percent rate reduction will cause independent pharmacy owners to

12 limit the scope of the services they provide to Medi-Cal beneficiaries. Specifically,

13 plaintiffs submit the declarations of ten independent pharmacists, many of whom state

14 that the five percent rate reduction will significantly affect their ability to provide
15 services to Medi-Cal patients. See Davis Dec!. 'If 8; Dunckel DecL 'If 8; Faast Decl. 'If 8.

16 For example, the phannacists' declarations state that the total reimbursement under AB

17 1183 will cover neither their acquisition costs nor their dispensing costs on many drugs,

18 and that, as a result, they will not be able to fill all Medi-Cal prescriptions, including

19 some prescriptions for AIDS medications and name-brand antipsychotropics, and will
20 not be able to serve all existing Medi-Cal customers. See Davis Decl. 'If 8, 11; Dunckel 21 DecL ~ 8, 11; Faast Dec!. 'If 11; Shapiro DecL 'If 26; Tran Dec!. 'If 17; Medina Dec!. ~ 11; 22 Tran Decl. 'If 20. Some of the pharmacists also state that the five percent rate reduction 23 will prevent them from accepting new Medi-Cal patients. See Dunckel Dec!. 'If 11; Jeha 24 Dec!. 'If 11. In addition, some pharmacists say they will be forced to cut the business

25 hours of the phannacy and layoff employees in order to remain profitable, while others

26 state that the five percent rate reduction will force them out of business. ~~, Jeha
27 DecL 'If 11; Leonelli Decl. 'If 11. Some pharmacists state that the five percent rate

28 reduction will prevent them from providing prescription delivery service to their Medi-

14

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 71 of 86 Page ID #:71 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02127/2009 Page 15 of 18

1 Cal beneficiary patients who are unable to leave their homes. See Medina Dec!. ~ 9;

2 Shapiro Dec!. ~ 26.

3

Defendant counters that plaintiffs' showing of harm is speculative and that, in

4 fact, under the five percent rate reduction, "an extremely high percentage ofpharmacy

5 costs will be compensated and the more efficient pharmacies should be able to obtain a

6 substantial profit from providing services under the Medi-Cal program." Opp'n at 5.

7 For example, defendant notes that the Department Analysis estimates that under the five

8 percent rate reduction, pharmacies will continue, on average, to be compensated above

9 their costs for Medi"Cal prescriptions. See Defs Ex. A·A at 8 (stating that the five

10 percent rate reduction will reduce the aggregate Medi-Cal reimbursement for

11 prescription drugs from compensating approximately 108.7 percent of pharmacy costs

12 to approximately 103 percent of pharmacy costs).

13

Defendant also submits the declaration ofKevin Gorospe, who is employed as the

14 Department's Chief ofMedi-CaI Pharmacy Policy Branch. Gorospe states that he has

15 examined plaintiffs' submitted declarations, and has calculated that, with one exception,

16 the total revenue loss after the five percent rate reduction for each pharmacist submitting

17 a declaration in support of plaintiffs' motion will be less than 2 percent. Gorospe Dec!.

18 ~ 12. Gorospe further argues that some of plaintiffs' cost estimates are misleading,

19 because much of the average dispensing fee costs are costs of operation that a pharmacy

20 incurs regardless of whether it provides drugs to Medi-Cal recipients, so that "continued

21 participation in Medi-Cal by these pharmacies brings in additional reimbursement that

22 will help to pay for many of the costs of operating a pharmacy that the pharmacy would

23 incur even if [it] didn't participate in Medi-Ca!." Gorospe Dec!. ~ 13. Gorospe further

24 echoes the Department Analysis, stating that dispensing cost increases will not cause

25 irreparable harm, because "Medi-Cal reimbursement for the drug itself frequently is

26 well above pharmacy acquisition cost, that any loss on the dispensiug fee portion of

27 reimbursement is made up for by a significant profit on MediCal reimbursement for the

28 drug itself" Gorospe Dec!. ~ 21.

15

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 72 of 86 Page ID #:72 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 16 of 18

I

The Court concludes that defendant has failed to refute plaintiffs' showing of

2 irreparable harm. Even if defendant is correct that, on average, pharmacies will be

3 compensated above their acquisition costs even after the five percent rate reduction,

4 defendant has not refuted plaintiffs' fmdi.,gs that many brand and generic drugs will be

5 reimbursed at a level below cost, thereby preventing pharmacies from providing those

6 drugs and limiting access for Medi-Cal patients. Indeed, the Gorospe declaration

7 confirms that only 98-99 percent, on average, of pharmacy costs for single source drugs

8 will be compensated after the five percent rate reduction. Because many single source

9 drugs are protected from competition by patents, there are no available generic 10 alternatives. See August 18, 2008 Preliminary I~unction Order. There can be little or

11 no doubt that Medi-Cal patients will be harmed if these necessary drugs are placed

12 outside oftheir reach.

13

Furthermore, ifpharmacists are forced to curtail services or go out of business,

14 there is no indication that all existing customers will have access to other pharmacies in

15 which to obtain their medication and, in some cases, home-delivery services for such

16 medication. Indeed, the many declarations submitted by petitioners show that

17 independent pharmacy providers, who constitute approximately thirty-three percent of

18 the licensed community pharmacies in California, will be hard-hit by the five percent

19 rate reduction, and may discontinue, or at least severely reduce, services to Medi-Cal

20 beneficiaries. See August 18, 2008 Preliminary I~unction Order. Therefore, the Court

21 concludes that plaintiffs have demonstrates a significant likelihood of irreparable harm.

22

D. BALANCE OF HARDSIllPS

23

The Court is mindful ofthe difficulty facing the State of California in light of its

24 fiscal crisis.7 However, the State has accepted federal funds under the Medicaid Act. In

25

26

7 The Court notes that there is evidence to suggest that if the five percent rate

27

reduction is given effect, many Medi-Cal beneficiaries will tum to more costly forms of medical care, such as emergency room care, thereby diminishing the State's projected

28

(continued ... )

16

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 73 of 86 Page ID #:73 Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 17 of 18

I so doing, the State agreed to abide by the conditions imposed by Congress. Further,

2 retroactive relief for Medi-Cal beneficiaries will likely be inadequate and, and it will

3 come too late, to remedy their pain, suffering, and harm to their mental and physical

4 well-being. See ~ Lopez v. Heckler, 713 F.2d 1432, 1437 (9th Cir. 1983). In light of

5 the significant threat to the health of Medi-Cal recipients, reducing payments to health-

6 care service providers will likely cause, and given that nothing in this Court's order

7 prevents respondent from imposing a rate reduction after she has appropriately

8 considered and applied the relevant factors, the Court fmds that the balance of hardships

9 tips in favor of granting the preliminary injunction.

10

E. PUBLIC INTEREST

II

"The district court's public interest analysis should be whether there exists some

12 critical public interest that would be injured by the grant of preliminary relief."

13 Hybritech, 849 F.2d at 1458. Clearly, there is a public interest in ensuring that the State

14 has enough money to meet its financial obligations in the face of competing demands.

15 However, there is also a public interest in ensuring access to health care. In light of all

16 the circumstances, including the fact that the State may decide to implement a rate

17 change upon making a properly reasoned and supported analysis, the Court fmds that

18 the public interest does not weigh against the issuance ofa preliminary illiunction.

19 IV. CONCLUSION

20

For the foregoing reasons, the Court GRANTS plaintiffs' motion for preliminary

21 injunction. The Court hereby orders respondent Director, his agents, servants,

22 employees, attorneys, successors, and all those working in concert with him to refrain

23 from enforcing Cal. Welf. & lnst. Code § 14105.191(b)(3), as modified by AB II83

24 beginning Oil March 1,2009, by refraining from reducing by five percent payments to

25 pharmacies for prescription drugs (including prescription drugs and traditional over-the-

26

27

7( ... continued)

28 savmgs. Seei<.,g" Rodde v. Bonta, 357 F.3d 988, 999 (9th Cir. 2004).

17

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 74 of 86 Page ID #:74
Case 2:09-cv-00382-CAS-MAN Document 34 Filed 02/27/2009 Page 18 of 18

1 counter drugs provided by prescription) provided under the Medi-Cal fee-for-service 2 program}

3 4 Dated: February 27, 2009

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

8 Plaintiffs motion appears to seek an injunction as to the five percent rate reduction for all pharmacy products, not just drugs. However, plaintiffs' arguments regarding

26 irreparable harm focus on brand and generic drugs dispensed by pharmacies; plaintiffshave

27 not shown irreparable harm as to the effect of the five percent rate reduction on other pharmacy products. Therefore, the Court limits the scope of the injunction to drug

28 products dispensed by pharmacies.

18

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 75 of 86 Page ID #:75
EXHIBITK

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 76 of 86 Page ID #:76

Case: 09-55365 04/06/2009 Page: 1 of 11 DktEntry: 6873214
FILED

FOR PUBLICATION UNITED STATES COURT OF APPEALS

APR 06 2009
MOLLY C. DWYE~ CLERK U.S. COURT OF AePEALS

FOR THE NrNTH CIRCUIT

CALIFORNIA PHARMACISTS ASSOCIATION, et a!.,
Plaintiffs - Appellants,
v.

No. 09-55365
D.C. No. 2:09-cv-722-CAS-MAN Central District of California, Los Angeles

DAVID MAXWELL-JOLLY, Director of the Department of Health Care Services, State of California,

ORDER

Defendant - Appellee.

Before: REINHARDT, BERZON, and M. SMITH, Circuit Judges. Plaintiffs-Appellants, the California Pharmacists Association, et aI., filed
this suit to challenge the Medi-Cal reimbursement rate reductions to various providers as set forth in AB 1183. A group of the plaintiffs, the Hospital Plaintiffs, which comprises the California Hospital Association and some individual hospitals, filed a motion in the district court for a preliminary injunction to enjoin the defendant from reducing Medi-Cal fee-for-service rates to hospitals,l arguing
1 Specifically, the Hospital Plaintiffs sought to enjoin the rate reductions as to four types of services: (1) inpatient services for non-contract hospitals, (2)

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 77 of 86 Page ID #:77 Case: 09-55365 04/06/2009 Page: 2 of 11 DktEntry: 6873214
that AB 1183 was enacted in violation of § 1396a(a)(30)(A) of Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (§ (a)(30)(A)). The district court denied the preliminary i11iunction. The Hospital Plaintiffs filed an Emergency Motion Pursuant to Circuit Rule 27-3 for Preliminary Injunction Pending Appeal.
We review the denial of a preliminary injunction for abuse of discretion.
Earth Island Inst. v. u.s. Forest Serv., 442 F.3d 1147, 1156 (9th Cir. 2006). A
district court abuses its discretion in denying a request for a preliminary injunction if it "base[s] its decision on an erroneous legal standard or clearly erroneous findings offact." Id. (citation omitted). It also does so if in reaching its decision it makes a material error ofiaw. We review conclusions oflaw de novo and tindings of fact for clear error. Id.
Plaintiffs seeking a preliminary injunction in a case in which the public interest is involved must establish that they are likely to succeed on the merits, that they are likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in their favor, and that an injunction is in the public interest. Winter v. Natural Res. De! Council, Inc., 129 S. Ct. 365, 376 (2008). When deciding whether to issue a stay, including a stay ofa state action that the
outpatient services, (3) Distinct Part Nursing Facilities, and (4) subacute services. 2

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 78 of 86 Page ID #:78 Case: 09-55365 04/06/2009 Page: 3 of 11 DktEntry: 6873214
district court has declined to enjoin, we consider: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4)
us. where the public interest lies. See Humane Soc:V of v. Gutierrez, 527 F.3d
788, 789-90 (9th Cir. 2008). . In this case, the district court found that the Hospital Plaintiffs were likely to
succeed on the merits, but that they failed to demonstrate irreparable harm. We address these issues in turn, and, in view of the time-urgency and the irreparability of the harm, also consider the other Winter factors which necessarily follow. I. Likelihood of Success on the Merits
In Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997), we held that 42 U.S.C. § 1396a(a)(30)(A) requires the state to consider efficiency, economy, quality of care, and access before setting Medi-Cal reimbursement rates. Id. at 1496. The district court concluded that the Hospital Plaintifft; have shown a likelihood of success on the merits under Orthopaedic because the Legislature did not consider any such factors before passing the rate cuts in AB 1183. The court ruled that although the Department of Health Care Services (the Department) had
3
-77-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 79 of 86 Page ID #:79 Case: 09-55365 04/06/2009 Page: 4 of 11 DktEntry: 6873214
performed some studies after AB 1183's passage, those post-hoc studies failed to meet the requirements of Orthopaedic, 103 FJd at 1496. It noted that AB 1183 gives the Department no discretion to alter the rate cuts based on the Department's own analysis, and, therefore, the cuts were not "based on" the Department's consideration ofthe relevant factors, but instead constituted a post-hoc rationalization for a legislative decision that had already been made. Op. at 9-11. Moreover, the district court determined that, although the state Legislative Analyst Office issued a report analyzing the proposed cuts, there was no evidence the legislature actually considered the report before enacting AB 1183. Id at 10 n.8.
We conclude that the district court did not abuse its discretion in concluding that the Hospital Plaintiffs demonstrated a likelihood of success on the merits. Indeed, the Hospital Plaintiffs made a strong showing ofsuch likelihood. II. Irreparable Harm
The Hospital Plaintiffs must also show a likelihood of irreparable harm. See Winter, 129 S.Ct. at 375.
A. Harm We first address the type ofharm we may consider in the irreparable harm analysis. The Department argues that only harm to Medi-Cal beneficiaries is
4

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 80 of 86 Page ID #:80 Case: 09-55365 04/06/2009 Page: 5 of 11 DktEntry: 6873214
relevant to this motion, while the Hospital Plaintiffs assert that harm to Medi-Cal service providers is also relevant, and that they need show only the latter type of harm, in this case harm to themselves or their members, in order to obtain injunctive relief. The Hospital Plaintiffs further claim that they or their members
will lose considerable revenue between the effective date of AB 1183 and the date
their claims can be reviewed on the merits if injunctive relief is denied. We agree with the Hospital Plaintiffs. In Independent Living Center v.
Shewry (ILC), we held that "a plaintiff seeking irtiunctive relief under the Supremacy Clause on the basis offederal preemption need not assert a federally created 'right,' in the sense that term has recently been used in suits brought under ~.. § 1983, but need only satisfY traditional standing requirements." 543 F.3d 1050, 1058 (9th CiT. 2008). We rejected the contention that federal statutes enacted pursuant to Congress's spending power, such as the one here at issue, are excluded from this principle, id at 1059-{i2, and concluded that the health care providers in that case (which at that point did not include hospitals) had standing because:
[A]ccording to their complaint, [they] will be "directly injured, by loss of gross income," when the ten-percent rate reduction takes effect. The Supreme Court "repeatedly has recognized that such [direct economic] injuries establish the threshold requirements" ofArticle III standing.... Moreover, this injury is directly traceable to the Director's implementation ofAB 5 [the statute atissue in that case],
5

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 81 of 86 Page ID #:81 Case: 09-55365 04/06/2009 Page: 6 of 11 DktEntry: 6873214
and would certainly be redressed by a favorable decision of this court enjoining the ten-percent rate reduction. ld. at 1065. Notably, lLC did not indicate that the service providers had standing to assert the interests ofthe beneficiary plaintiffs as third parties, as, for example, the medical service providers do in cases concerning the constitutional rights of patients. See, e.g., Eisenstadt v. Baird, 405 U.S. 438 (1972). A cause of action based on the Supremacy Clause obviates the need for reliance on third-party rights
~----------------~~
because the ca!lse of action is one to enforce the proper constitutional structural relationship between the state and federal governments and therefore is not rights~d. Tn 5ontrast, a case brought to enforce the Due Process or Equal Protection Clauses is rights based, and requires that the rights of someone be advanced, even if not the rights of the plaintiffs who have been iITIured.
Consistent with this understanding, in the various precedents cited throughout the lLC opinion in which plaintiffs brought cases directly under the Supremacy Clause, the interests asserted were basically economic, and there was no inquiry into whether the plaintiffs asserting the economic injury were in any sense intended beneficiaries of the federal statute on which the Supremacy Clause cause of action was premised. For example, in Bud Antle, Inc. v. Barbosa, one of the cases upon which we relied in lLC, we held that employers could sue to enjoin
6
-f'O'-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 82 of 86 Page ID #:82 Case: 09-55365 04/06/2009 Page: 7 of 11 DktEntry: 6873214

a California statute as preempted by the National Labor Relations Act (NLRA)

"regardless of whether the NLRA conferred a federal 'right' on employers." 45

F.3d 1261, 1271 n.l3 (9th Cir. 1994). It was forthatvery reason that we

concluded the § 1983 cases were inapposite, and that Sanchez v. Johnson, 416 F.3d

1051 (9th Cir. 2005), did not preclude the plaintiffs' suit. Essentially, the line of

cases on which we relied held that private parties could enforce the structural

relationship between the federal and state governments so long as they had Art~cle

I.I-I--s-ta-n.-d-i-nrg

as,

essen_tially,

private

enforcers

of

the

Supremacy

Clause;

the specific
~

relationship of those parties to the federal statute on which the Supremacy Clause

cause of action is premised does not matter.

Given these underpinnings ofILG, there is little basis on which to import an

"intended beneficiary" concept back into the case for purposes of determining

irreparable injury. Applying this determination to the present motion, it is clear

that AB 1183 harms the Hospital Plaintiffs and their members through reductions

in Medi-Cal revenue payments.

B. Irreparability of Harm

Having determined that the Hospital Plaintiffs have shown unlawful harm

under § (a)(30)(A), we next consider whether the harm is irreparable. Typically,

7

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 83 of 86 Page ID #:83 Case: 09-55365 04/06/2009 Page: 8 of 11 DktEntry: 6873214
monetary harm does not constitute irreparable harm. L.A. Mem'l Coliseum Comm'n v. Nat 'I Football League, 634 F.2d 1197,1202 (9th Cir. 1980). The Hospital Plaintiffs argue that in this case, however, the monetary injury is irreparable because the Eleventh Amendment sovereign immunity of the Department (a branch of the State of California govemment) bars the Hospital Plaintiffs from ever recovering damages in federal court. The most relevant authority on this issue-though not controlling-supports the Hospital Plaintiffs' argument. See Kan. Health Care Ass'n v. Kan. Dep'tofSoc. & Rehab. Servs., 31 F.3d 1536, 1543 (10th Cir. 1994)("Because the Eleventh Amendment bars a legal remedy in damages ... the court held that plaintiffs' injury was irreparable. We agree. "). We note also that Supreme Court case law and some of our own cases clari:fy that economic damages are not traditionally considered irreparable because the injury can later be remedied by a damage award. See Sampson v. Murray, 415 U.S. 61,90 (1974) ("[I]t seems clear that the temporary loss of income, ultimately to be recovered, does not usually constitute irreparable injury.... The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm." (internal quotation omitted»; Rent-A-Center, Inc. v. Canyon
8
--!2-

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 84 of 86 Page ID #:84
Case: 09-55365 04/06/2009 Page: 9 of 11 DktEntry: 6873214
Television & Appliance Rental, Inc., 944 F.2d 597, 603 ("It is true that economic injury alone does not support a fmding of irreparable harm, because such ir!iury can be remedied by a damage award."(emphasis added)); Caribbean Marine Servs. Co. v. Baldridge, 844 F.2d 668,676 (9th Cir. 1988); Arcamuzi v. Cont'! Air Lines, Inc., 819 F.2d 935,938 (9th Cir. 1987); Colo. River Indian Tribes v. Town ofParker, 776 F.2d 846, 850-51 (9th Cir. 1985); Goldie's Bookstore, Inc. v. Superior Court, 739 F.2d 466,471 (9th Cir. 1984) ("Mere financial injury ... will
not constitute irreparable harm ifadequate compensatory reliefwill be available in
the course oflitigation." (emphasis added)). Because the economic injury doctrine rests only on ordinary equity
principles precluding injunctive relief where a remedy at law is adequate, it does not apply where, as here, the Hospital Plaintiffs can obtain no remedy in damages against the state because of the Eleventh Amendment. See Kan. Health Care Ass'n, 31 F.3d at 1543.2
2 We observe that, although damages may become available to the Hospital Plaintiffs in state court, persuasive authority suggests that federal courts may consider only what federal remedies are available. See United States v. New York, 708 F.2d 92,93-94 (2d Cir. 1983) (per curiam) (holding that "federal courts may consider only the availablefederallegal remedies"). But see Kan. Health Care Ass'n, 31 F.3d at 1543 ("Because the Eleventh Amendment bars a legal remedy in damages, and the court concluded no adequate state administrative remedy
9

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 85 of 86 Page ID #:85 Case: 09-55365 04/06/2009 Page: 10 of 11 DktEntry: 6873214
Considering the relevant authorities, we are persuaded that because the Hospital Plaintiffs and their members will be unable to recover damages against the Department even if they are successful on the merits of their case, they wili suffer irreparable harm if the requested injunction is not granted.
Ill. Equities and the Public Interest
The district court did not reach the question of the equities and the public interest. Although the state argues that these factors weigh in its favor because an iJ1junction will worsen the state's budget crisis, the record reflects that the impact of a stay on the budget crisis will be minimal at most. Further, it is clear that it would not be equitable or in the public's interest to allow the state to continue to violate the requirements of federal law, especially when there are no adequate remedies available to compensate the Hospital Plaintiffs for the ineparable hanD that would be caused by the continuing violation. In such circumstances, the interest of preserving the Supremacy Clause is paramount. See Am. Trucking Ass 'n
v. City ofLos Angeles, - F.3d -,2009 WL 723993, at *12 (9th Cir. Mar. 20, 2009)
existed, the court held that plaintiffs' injury was irreparable. We agree." (emphasis added)). We fmd the reasoning ofNew York to be more persuasive, and consider only prospective federal remedies for the purpose of gauging whether the harm caused to the Hospital Plaintiffs and their members is irreparable.
10
//./'-....... _/~'. /

Case 2:09-cv-08200-CAS-MAN Document 1 Filed 11/09/09 Page 86 of 86 Page ID #:86 Case: 09-55365 04/06/2009 Page: 11 of 11 DktEntry: 6873214
(considering the public interest represented by ''the Constitution's declaration that federal law is to be supreme").
In light of the showing made by the Hospital Plaintiffs in this case, we grant their motion for an order staying the rate cuts in AB 1183 with respect to the specified hospital services pending their appeal to this court of the district court's order denying the motion for preliminary injunction.
MOTION FOR STAY PENDING APPEAL IS GRANTED.
11
--------

 
 Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 1 of 51 Page ID #:103

1 LYNN S. CARMAN, State Bar 028860 Medicaid Defense Fund
2 28 Newport Landing Dr. 3 Novato, CA 94949-8214
Telephone: (415) 927-4023 4 Facsimile : (415) 499-1687
Email: lynnscarman@hotmail.com
5

6 STANLEY L. FRIEDMAN, State Bar 120551 445 S. Figueora St., 27th Floor
7 Los Angeles, CA 90071-1631
Telephone: (213) 629-1500 8 Facsimile : (213) 489-6899
9 Email: friedman@friedmanlaw.org

10 Attorneys for Plaintiffs
California Pharmacists Association; Gerald 11 Shapiro, Pharm.D., dba Uptown Pharmacy & Gift
Shoppe; Sharon Steen, dba Central Pharmacy; and 12
Tran Pharmacy, Inc., dba Tran Pharmacy

13

14

IN THE UNITED STATES DISTRICT COURT

15

CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION

16
California Pharmacists Association;

No. 2:09-CV-08200 CAS (MANx)

17 Gerald Shapiro, Pharm.D., dba Uptown

18 Pharmacy & Gift Shoppe; Sharon Steen, dba Central Pharmacy; and Tran Pharmacy,
19 Inc., dba Tran Pharmacy,

FIRST AMENDED

20
-vs.-
21

Plaintiffs,

COMPLAINT FOR INJUNCTIVE AND DECLARATORY

22 DAVID MAXWELL-JOLLY, Director of
Department of Health Care Services of the 23 State of California,

RELIEF

24

Defendant.

/

25

26

27

Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 2 of 51 Page ID #:104

1

Plaintiffs complain of the defendant DAVID MAXWELL-J0LLY, Director of

2 Department of Health Care Services of the State of California, and for claims for relief

3 allege:

4

INTRODUCTION1

5

1. The claims in this case are Supremacy Clause claims.

6

2. Plaintiffs challenge:

7

- (1) § 14105.45 California Welfare & Institutions ("Welf. & Inst.") Code,

8

and seek an injunction to require the defendant Director to refrain from reducing any

9

payments to pharmacies in respect to prescription drugs in the Medi-Cal fee-for-

10

service program, on account of or related to any provision in the aforesaid

11

§ 14105.45 Welf. & Inst. Code which was enacted on July 28, 2009 by Assembly Bill

12

(“AB”) X4 5, section 38, (Stats. 2009 Fourth Extraordinary Session, c. 5, § 38);

13

- (2) § 14105.455 Welf. & Inst. Code, and seek an injunction to require the

14

Director to refrain from reducing any payments to pharmacies in respect to

15

prescription drugs in the Medi-Cal fee-for-service program and Medi-Cal managed

16

care program, on account of or related to any provision in the aforesaid § 14105.455

17

Welf. & Inst. Code which was enacted on July 28, 2009 by AB X4 5, section 39,

18

(Stats. 2009 Fourth Extraordinary Session, c. 5, § 39);

19

- (3)

20

- (A) to refrain from implementing the 4% reduction on September 26, 2009

21

in payments to pharmacies for reimbursement of brand drug acquisition costs in the

22

Medicaid program in California (which is called “Medi-Cal”), in both the Medi-Cal

23

fee-for-service (“FFS”) program and Medi-Cal managed care program, concomitant

24

25

26 1 Captions, footnotes, and citations of cases are not allegations or part of this First
27 Amended Complaint (“FAC”), hence need not be answered or traversed by the defendant.

-1-

Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 3 of 51 Page ID #:105

1

with the 4% Average Wholesale Price (“AWP”) markdown on September 26, 2009

2

by the AWP pricing publisher used by the Department of Health Care Services;

3

- (B) to pay pharmacies in the Medi-Cal FFS program, from and since

4

September 26, 2009, the same amounts that the pharmacy would have received for its

5

prescription had the 4% markdown of published AWP to 1.20 of WAC not occurred;

6

- (C) to take all steps necessary to cause pharmacies in the Medi-Cal managed

7

care program to be paid the same amounts that the pharmacy would have received for

8

its prescription had the markdown of published AWP to 1.20 of WAC not occurred.

9 3. (a) The Court has jurisdiction under 28 U.S.C. § 1331. Shaw v. Delta Air
10 Lines, Inc., 463 U.S. 85, 96 n.4 (1983); Independent. Living Center of So. Cal., Inc. v.
11 Shewry, 543 F3d. 1047 (9th Cir. 2008), cert denied 129 S.Ct. 2828, (“ILC I”),; and
12 California Pharmacists Assn. v. Maxwell-Jolly, 2:09-CV-0722 (C.D.Cal. 2009),
13 (“CPhA I”), affirmed in 09-56365 (9th Cir. 2009), (“CPhA II”).2
14 4. The actions of the Defendant complained were and will be done in all parts of
15 California, including the County of Los Angeles. The injuries which are inflicted and
16 threatened which are complained of, to the plaintiff pharmacies, the pharmacy members of
17 CPhA, and their patients in the Medi-Cal fee-for-service and Medi-Cal managed care
18 program, have occurred and are threatened to continue to occur in all parts of California,
19 including the County of Los Angeles. The Defendant and the California Attorney General
20 has an office in the County of Los Angeles.
21 Parties
22 5. The plaintiff CALIFORNIA PHARMACISTS ASSOCIATION (“CPhA”)
23 represents more than 5,000 pharmacists in California. CPhA is incorporated in the State of
24 California with its principal office in Sacramento, California. It is the largest state
25

26 2 A copy of CPhA I is at Exhibit J of Plaintiffs’ Request for Judicial Notice,
27 (Plaintiffs’ RJN). A copy of CPhA II is at Exhibit K of Plaintiffs’ RJN.

-2-

Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 4 of 51 Page ID #:106

1 professional association of pharmacies in the United States. Many of CPhA’s members own

2 pharmacies in the State of California. The mission of CPhA is to represent pharmacies in all

3 practice settings in the State, and to advocate the role of pharmacy as an essential venue of

4 health care for patients.

5

6. (a) The plaintiff GERALD SHAPIRO, Pharm.D., is a duly licensed registered

6 pharmacist with License No. 24377. He owns and operates a duly licensed retail pharmacy

7 under the fictitious name of Uptown Pharmacy & Gift Shoppe, under retail pharmacy

8 license No. PHY 41615, in the City of Los Angeles, California.

9

(b) The plaintiff SHAPIRO’s pharmacy participates in the Medi-Cal fee-for-

10 service program and also in Medi-Cal managed care plans, under Medi-Cal provider

11 identification No. PHA 416150.

12

7. (a) The plaintiff SHARON STEEN is co-owner and operates a duly licensed

13 retail pharmacy under the fictitious name of Central Pharmacy, under retail licenses No.

14 PHY 38051, in the City of Santa Monica, California.

15

(b) The plaintiff STEEN’s pharmacy participates in the Medi-Cal fee-for-

16 service program and also in Medi-Cal managed care plans, under Medi-Cal provider

17 identification No. PHA 380510.

18

8. (a) Plaintiff TRAN PHARMACY, INC. is a California corporation

19 which owns and operates a duly licensed retail pharmacy under the fictitious name of Tran

20 Pharmacy, under retail pharmacy license No. PHY 43647, in Garden Grove, California.

21

(b) The TRAN PHARMACY, INC.’s pharmacy participates in the Medi-Cal

22 fee-for-service program and also in Medi-Cal managed care plans, under Medi-Cal provider

23 identification No. PHA 436470.

24

9. (a) The defendant DAVID MAXWELL-JOLLY (“Director”), is the director

25 of the Department of Health Care Services (“Department”) of the State of California.

26 The Director has an office in the County of Los Angeles.

27

-3-

Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 5 of 51 Page ID #:107

1

(b) The Director DAVID MAXWELL-JOLLY is sued in his official capacity only.3

2

Standing

3

10. Each of the plaintiff providers sue on their own behalf and, also, on behalf of

4 their patients who are beneficiaries in the Medi-Cal FFS program and the Medi-Cal

5 managed care program, to prevent injury and threatened injury to themselves and their

6 patients who are beneficiaries in the Medi-Cal FFS program and Medi-Cal managed care

7 program, from actions of the Director which are contrary to, hence preempted under the

8 Supremacy Clause by, provisions of the Medicaid Act and its regulations, as more

9 particularly set forth below.

10

11. CPhA sues on its own behalf and, also, on behalf of its pharmacy members

11 who are providers in, and the patients of its members who are beneficiaries in the Medi-Cal

12 FFS program and the Medi-Cal managed care program, to prevent injury and threatened

13 injury to itself, its pharmacy members, and the aforesaid Medi-Cal beneficiaries who are

14 patients of its members, from actions of the Director which are contrary to, hence preempted

15 under the Supremacy Clause by provisions of the Medicaid Act and its regulations, as more

16 particularly set forth below.

17

FACTS COMMON TO ALL CLAIMS

18

The Director has exclusive authority and power to set all provider

payment rates for both the Medi-Cal FFS program and the Medi-Cal managed

19

care program.

20

12. The Medicaid Act, 42 U.S.C. § 1396 et seq., provides for medical assistance

21 to be administered and provided to qualified poor or disabled beneficiaries by a single state

22 agency (“Single State Agency”), which has been historically funded 50% with federal funds

23 and 50% with state funds; subject to the proviso that if a State accepts the federal funding

24 then it is bound to comply with all the provisions of the Medicaid Act and its regulations, so

25

26

27

3 A copy of § 14105 Welf. & Inst. Code is at Exhibit F of Plaintiffs’ RJN.

-4-

Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 6 of 51 Page ID #:108

1 long as it continues to voluntarily participate in the Medicaid program.4

2

13. In this First Amended Complaint (“FAC”) this federal-state funded program is

3 sometimes referred to as “Medicaid” and sometimes referred to as “Medi-Cal;” but all such

4 references are to the exact same Medicaid program, whichever appellation is used.

5

14. (a) Under § 1396a(a) a State participating in Medicaid must file and have

6 approved a state Medicaid plan (the “state Plan”) by the Secretary of U.S. Department of

7 Health and Human Services (“HHS”). The state Plan must, by § 1396a(a)(5) and by

8 42 Code of Federal Regulations (“CFR”) § 431.10 specify a single State agency (“Single

9 State Agency”) to administer or to supervise the administration of the plan.5 In California,

10 Section 1 of the state Plan designates the Department as the Single State Agency.6

11

(b) 42 CFR § 431.10 provides that if other State agencies or local agencies, (as for

12 example Medi-Cal managed care plans which are local agencies of the State), perform

13 services to the Single State Agency, that they have no authority to change or disapprove any

14 administrative decision of the Single State Agency, or otherwise substitute their judgment

15 for that of the Single State Agency with respect to the application of the policies, rules, and

16 //

17 //

18 //

19 //

20

21

22

4All statutory references are to 42 U.S. Code unless otherwise specified.

A copy of portions of § 1396a(a)(1) through (a)(30)(A) is at Exhibit G of

23

Plaintiffs’ RJN.

24

5 §1396a(a)(5) provides:

25

“A State plan for medical assistance must–(5) . . . provide for the establishment

of a single State agency to administer or to supervise the administration of the

26

plan . . . ”

27

6 Section 1 of the state Plan is attached as Exhibit H of Plaintiffs’ RJN.

-5-

Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 7 of 51 Page ID #:109

1 regulations issued by the Single State Agency.7

2

(c) A copy of 42 CFR § 431.10 is at Exhibit E of Plaintiffs’ RJN.

3

(d) Pursuant to the above provisions of § 1396a(a)(5), 42 CFR § 431.10, and

4 Section 1 of the state Plan:

5

(1) The Department, not the California Legislature, has been exclusively

6 delegated and authorized by Congress in the Medicaid Act to set all payment rates, or cause

7 to be set all payment rates, for pharmacy providers in the Medi-Cal program, including both

8 the Medi-Cal FFS program and the Medi-Cal managed care program, any contract of the

9 Department with any Medi-Cal managed care plan notwithstanding; and,

10

(2) The Director, within the Department, is the sole officer who, under

11 § 14105 Welf. & Inst. Code, is authorized to exercise the above-stated exclusive authority,

12 jurisdiction, power, and ultimate control over all the rates set or to be set in both the Medi-

13 Cal FFS program and the Medi-Cal managed care program, – any contract of the

14 Department with any Medi-Cal managed care plan notwithstanding.

15 APPLICABLE STATUTES, REGULATIONS, AND STATE MEDICAID

16

PLAN (“STATE PLAN”)

17

15. The Medicaid Act, in § 1396a, subd. (a)(30)(A), provides:

18

“(a) A State plan for medical assistance must - (30)(A) provide for such methods

and procedures relating to the utilization of, and the payment for, care and

19

services available under the plan (including but not limited to utilization review

plans as provided for in section 1396b(i)(4) of this title) as may be necessary to 20
safeguard against unnecessary utilization of such care and services and to assure

21

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

22

under the plan at least to the extent that such care and services are available to the

23

24

7 42 CFR § 431.10(e)(3) provides:

25

“(3) If other State or local agencies or officers perform services for the Medicaid

agency, they must not have the authority to change or disapprove any administrative

26

decision of that agency, or otherwise substitute their judgment for that of the

Medicaid agency with respect to the application of policies, rules, and regulations

27

issued by the Medicaid agency.” (Boldface emphasis supplied.)

-6-

Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 8 of 51 Page ID #:110

1

general population in the geographic area; . . . ” (Boldface emphasis supplied.)

2 § 1396a(a)(30)(A), shall hereinafter be referred to as “Sec. 30A.”

3

16. The thousands of drug products which require, by federal law, a prescription

4 from a licensed practitioner, – including variations of the differing dosages such as 5 ml. or

5 75 ml. – each have an assigned National Drug Code (“NDC”) identification number.

6

17. (a) Under Sec. 30A, the Medicaid provider payment statute, a federal upper

7 payment limit (“FUL”) has been established by HHS for the maximum amount the Medi-

8 Cal program may reimburse pharmacies for their costs to acquire certain multi-source

9 (“generic”) drug products. A state-imposed Maximum Allowable Ingredient Cost upper

10 payment limit (“MAIC”) has also been established for the maximum amount the Medi-Cal

11 program may reimburse pharmacies for the costs to certain generic drug products listed by

12 the Department.

13

(b) The generic drug products which are subject to a FUL or MAIC upper

14 limit account for only approximately 12% of expenditures by the Department for

15 prescription drugs.

16

18. 42 CFR § 447.512 provides that, – except for those generics which are

17 subject to a FUL or a MAIC upper limit cap, – that the upper limit for payment for both

18 single source (“brand”) drugs and generic drugs is the lower of:

19

Estimated Acquisition Cost (“EAC”) plus a reasonable dispensing fee, or

20

providers’ “usual and customary charges to the general public;”

21 in which “EAC” is defined by 42 CFR § 447.512 as:

22

The State agency’s best estimate of the price generally and currently paid by

providers for a drug market or sold by a particular manufacturer or labeler in the

23

package size of drugs most frequently purchased by providers.

24

(c) The state Plan filed and approved by HHS provides that Department shall

25 pay EAC plus a dispensing fee of $7.25 for drug products and professional services, in

26 which the EAC is the lowest of:

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 9 of 51 Page ID #:111

1

- Average Wholesale Price (“AWP”) minus 17%;

2

- the state’s MAIC cap or the federal FUL cap if the drug is a generic; or,

3

- the “charges to the general public;”

4 in which AWP is defined as “the price for a drug product listed in the department’s primary

5 price reference source.”8

6

(d) At all times relevant and continuing, the primary AWP price reference

7 source of the Department has been and is the AWP publisher, First DataBank, Inc., (“First

8 DataBank”).

9

BACKGROUND

10

19. In the pharmaceutical industry, drug manufacturers typically sell to drug

11 wholesalers at a list price – called in the industry the “wholesale acquisition cost,” or WAC.

12 Discounts may be provided to the wholesaler (e.g., for volume sales). Wholesalers add a

13 markup in selling the drugs to retail pharmacies and other purchasers like hospitals.

14 Pharmacies then add a markup of their own when they sell the drugs to insurers (“3d party

15 payors,” or “TPPs”).9

16

20. (a) Nearly all TPPs contract with pharmacy benefit managers (“PBMs”) to

17 assist in the process of reimbursement to pharmacies. PBMs are the “800-pound gorillas of

18 pharmaceutical reimbursement” and their relationships with TPPs are heavily negotiated

19 and highly individualized. (In re Pharm. Indus. Average Wholesale Price Litig., 230

20 F.R.D. 61, 71-72 (D.Mass. 2005). TPPs negotiate drug pricing discounts with PBMs based

21 on AWP, and PBMs, in turn, negotiate discounts with pharmacy networks based on AWP.10

22

23

8 Section 1 of the state Plan is at Exhibit H of Plaintiffs’ RJN.

24

9 Page 6 of September 3, 2009 opinion in New England Carpenters Health Benefits Fund v.

25 First DataBank (2d Cir. 2009), (“First DataBank”). Copy attached as Exhibit

26

10 Page 6 of March 3, 2009 Memorandum and Order approving settlement in First

27 DataBank, 1:05-11148-PBS (D. Mass. 2009). A copy is attached as Exhibit

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1

(b) Where the consumer is insured, customarily a pharmacy benefit manager

2 (“PBM”) or a pharmacy services administrator organization (“PSAO”) which administers a

3 pharmacy network reimburses the pharmacy for the drug acquisition cost plus a dispensing 4 fee pursuant to a contract with the pharmacy.11

5

(c) For drug purchases that are covered by health insurance, the insurer pays

6 the PBM or the PSAO, who contracts to reimburse the pharmacy for the drug products it

7 supplies to the insured beneficiary based on a discount, which varies, from the published 8 AWP price for that drug product.12

9

21. The published AWP figure is usually derived by the publisher by applying a

10 multiplier to the WAC for the drug, and publishers of AWP lists normally obtain their

11 AWP figures from manufacturers or wholesalers. Historically, published AWPs were

12 derived by applying different markups to different drugs, the most common multiplier

13 being 1.20 or 1.25 – percentage markups of 20 and 25 percent, respectively.13

14

22. (a) The March 17, 2009 order approving the First DataBank settlement

15 found that First DataBank conspired with McKesson to inflate the AWP for brands

16 from the First DataBank standard of 20% over WAC, to 25% over WAC. This

17 conspiracy commenced in 2001 so that by 2002, 95% of all brand drug

18 manufacturers used First DataBank’s inflated 25% markup, and by 2004, 99% of 19 all brand drug manufacturers did so.14

20

(b) In 2001 Myers and Stauffer, C.P.A.s, under retention by the Department,

21

22

11 Ibid., Pages 6-7.

23

12 Declarations of John Cronin, Lynn Rolston, Paul Lofholm, Gerald Shapiro, Thu-Hang

Tran, Sharon Steen, Odette Leonelli, and Schedule of Declarations; and Summary of Declarations 24 served herewith.

25 13 Page 7 of September 3, 2009 opinion in First DataBank (2d Cir. 2009).
26 14 Page 5 of Exhibit C of Request for Judicial Notice of First DataBank Documents,
27 (“First DataBank RJN”).

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 11 of 51 Page ID #:113

1 surveyed pharmaceutical costs in California, and reported in its 2002 report (“2002 Myers 2 Survey”) that as of year 2001, when reimbursement by Medi-Cal for costs to acquire brand 3 drugs was:

4

AWP minus 5%, or .95 of AWP

5 and the dispensing fee was $3.80 per prescription,15 that the average net profit per

6 prescription, (defined as the excess of what Medi-Cal paid the pharmacy, less the

7 pharmacy’s costs to acquire-and-dispense), was:

8 - 9.6% for single source drugs

9

- 24.7% ” multi-source drugs not subject to a FUlL or MAIC cap

- 10.9% ” multi-source drugs with a federal FUL cap

10

- 11.6% ” multi-source drugs with a state-imposed MAIC cap.16

11

23. As a result it was well-known to the Department from the 2002 Myers

12 Survey that the published AWP was over-inflated in respect to basing reimbursement to

13 pharmacies for acquisition costs on the AWP published by the Department’s AWP publisher.

14

24. (a) However in 2004 the State adjusted to any excessive published AWP by

15 reducing the EAC (i.e., the amount of the Medi-Cal reimbursement for cost to acquire brand 16 and generics drugs) to its present level of 83% of published AWP,17 and in 2006 amended

17 the state Plan to provide that the EAC now be 83% of AWP published by its AWP publisher, 18 for both single source and multi-source drug products without a FUL or MAIC.18

19

(b) This was, among other things, a tremendous 12% decrease in the

20 percentage of AWP payable by Medi-Cal to reimburse pharmacies for their cost to acquire

21 brand drugs, (i.e., a change from 95% of the published AWP in 2002 to now only 83% of the

22 published AWP), – which more than offset the secret markup by the AWP publisher from

23

24

15 Pages 5 and 41 of 2002 Myers Survey.

25

16 Table 5.2 at Page 50 of 2002 Myers Survey.

26

17 Senate Bill 1103, enacted as Statutes 2004, Chapter 228.

27

18 Supplement 2 to Attachment 4:19-B of state Plan.

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 12 of 51 Page ID #:114

1 1.20 of WAC to 1.25 of WAC as the formula for published AWP for brand drugs.

2

(c) This Department action in 2004, to reduce the EAC paid to pharmacies for

3 drug acquisition costs, took all the artificial inflation out of the AWP published by First

4 DataBank, by reducing the pharmacy net profit per prescription in the Medi-Cal program to

5 the following lower net profit per prescription:

6

- 2.95% for single source drugs

- 12.5% ” multi-source drugs not subject to a FUlL or MAIC cap

7

- 44.2% ” multi-source drugs with a federal FUL cap,

8 as per the analysis by the Department in February 2009.19
9 What the Medi-Cal pharmacy rates were before September 26, 2009
10 25. Prior to September 26, 2006 and currently, both the Medi-Cal FFS program
11 and managed care plans in the Medi-Cal managed care program used and are using the AWP
12 published by First DataBank for each brand drug product NDC, from which;
13 - the Medi-Cal FFS program subtracts 17% to arrive at Estimated Acquisition Cost
14 (“EAC”) to be paid to pharmacies as reimbursement for brand acquisition costs;
15 and,
16 - the various Medi-Cal managed care plans, – (under authority granted to them by
17 the Director but subject to ultimate control by the Director pursuant as prior set forth
18 in this FAC), – each subtract a percentage, (typically 15% as in the CalOptima
19 managed care plan in Orange County) from the published AWP for a given brand
20

21 19 Pages 8 and 9 of Analysis of Assembly Bill 1183, dated February 8, 2009, of Toby

22 Douglas, Chief Deputy Director of the Department. I.e., the analysis claimed that the average

amount paid by Medi-Cal, and the average cost to acquire-and-dispense a drug, are currently:

23

Single source drugs: $204.01, less $198.15 = $6.81 = $2.95% net profit

Multi-source w/o a FUL or MAIC cap: $49.25 less $43.77 = $5.48 = 12.5% net profit 24
Multi-source with a FUL cap: $28.94 less $20.07 = $8.87 = $44.2% net profit

25 (Copy of this February 2009 analysis at Exhibit of Plaintiffs’ RJN. )

26 NOTES: (1) The actual net profit per prescription is less, because the $11.59 overhead costs figure used by the Department is too low. (2) The Department analysis did not specify figures for net
27 profit/loss for multi-source drugs with a MAIC cap.

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1

product, so as to arrive at the EAC amount be paid to pharmacies in their managed

2

care plan as reimbursement for their brand acquisition costs.

3

The 4% markdown of published AWP on September 26, 2009

4

26. (a) However, the Department’s AWP publisher marked down published AWP

5 4% on September 26, 2009 for 18,000 to 20,000 brand drug product NDCs, from a formula

6 or basis of 1.25 of Wholesale Acquisition Cost (“WAC”) to 1.20 of WAC.

7

(b) This caused an automatic reduction of 4% on the amount the Medi-Cal

8 program reimburses for brand drug acquisition costs on at least 3,415 drug products out of

9 the more than 20,000 drug products that the Medi-Cal program has paid for within the past

10 year.20

11

(c) However, the 3,415 drug products in the Medi-Cal program whose EAC

12 was reduced 4% on September 26, 2009 by the 45 markdown of published AWP, included

13 the great majority of the 1,000 top selling brand drug products (ranked by total

14 reimbursement by the Medi-Cal program for the calendar year 2006) in the Medi-Cal

15 program, – which 1,000 top selling brand products comprise 98.7%, or nearly all, the

16 expenditures in the Medi-Cal program for brand drug prescriptions.21

17 The 4% markdown of published AWP causes brand drugs to be acquired-and-

18

dispensed at a net loss, in respect to brand NDCs which comprise 98.7% of the

total expenditures in the Medi-Cal program for brand prescriptions:

19

hence preventing pharmacies from dispensing brand drugs in the Medi-Cal

20

program at all, or forcing pharmacies to quit the Medi-Cal FFS program and

the Medi-Cal managed care program.

21

22

20 ¶ 12 of Declaration of Kevin Gorospe, Chief of the Medi-Cal Pharmacy Policy Branch of

the Department, filed as Document 68, (Pages 24-39) in the MPC case, 2:09-CV-0382 CAS 23 (MANx)

24

21 Pages 35-36, with Table 4.1, of the 2007 Myers Survey, found that the 1,000 top selling

25 brand products, ranked by total reimbursement by the Medi-Cal program for calendar year 2006, comprise 98.7% of the total Medi-Cal expenditures in 2006 for brand drug products.
26

20 ¶¶ 13-14 of Declaration of Richard D. Wilson, C.P.A. (“Wilson Declaration”), to 27 be filed herein.

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1

27. In sum, by the foregoing facts, the reimbursement to pharmacies for their cost

2 to acquire was cut 4% on September 26, 2009, for the vast majority of the 1,000 brand

3 drug products for which 98.7% of the expenditures for brand drug prescriptions are made

4 by the Medi-Cal program; all, due to the artificial 4% markdown of published AWP on

5 September 26, 2009 by the Department’s AWP publisher, First DataBank; – which 4%

6 reduction in reimbursement for brand drug acquisition costs causes pharmacies to be

7 unable to acquire-and-dispense most brand drug products except at a net loss, in the Medi-

8 Cal FFS program and the Medi-Cal managed care program.

9 re expended.

10 28. This allegation is supported by the Declaration of Richard D. Wilson, C.P.A.,

11 (“Wilson Declaration”), served herewith, which concludes that the 4% reduction

12 on reimbursement for brand acquisition costs, caused by the 4% markdown on

13 published AWP on September 26, 2009, directly reduces total reimbursement, per

14 brand drug prescription, to below pharmacies’ costs to acquire-and-dispense

15 most of the brand drug products (ranked by total reimbursement expended for

16 brand drugs by the Medi-Cal program) for which the Medi-Cal program expends

17 98.7% of its total expenditures for brand drug prescriptions, annually. 20/

18

FIRST CLAIM FOR RELIEF

19

Supremacy Clause Claim

All enactments of Medicaid provider rate reductions by the California

20

Legislature are facially contrary, without more, to the Single State Agency

21

provisions of § 1396a(a)(5), 42 CFR § 431.10, and Section 1 of the state Plan,

and Sec. 30A; so that the Director’s action to implement the provider rate

22

reductions enacted by the Legislature in §§ 14105.45 and 14105.455 Cal.

Welf. & Inst. Code, are contrary to, hence preempted under the Supremacy

23

Clause by, these provisions of the Medicaid Act and its regulations.

24

29. Plaintiffs refer to the allegations in the preceding Paragraphs and

25 incorporate each of those allegations as if fully set forth herein.

26

30. This is a Supremacy Clause claim.

27

31. By the facts alleged above:

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1

(a) Congress in the Medicaid Act elected to assign to the Department, not

2 to the California Legislature, – the exclusive power, authority, and jurisdiction to set all

3 provider payments in the California’s Medicaid program; so that it is the Department, not

4 the Legislature, which is the body responsible for rate-setting under the Medicaid Act.

5

(b) Also the Department, – even though it is the body which has the exclusive

6 authority, power, and jurisdiction under Sec. 30A and the Single State Agency provisions

7 of the Medicaid Act to set all provider payments, – has no power under state

8 law and California Constitution Article 3.5 to alter any Medicaid provider payment rates

9 enacted, ultra vires of the Medicaid Act, by the Legislature, (which latter has no power, as

10 above alleged, to enact any Medicaid rates whatsoever); so that therein, any post hoc

11 analysis by the Department of any provider payment rates enacted by the Legislature does

12 not satisfy the requirement of Orthopaedic Hospital v. Belshe, 103 F3d. 1451, 1496, 1499-

13 1500, under Sec. 30A, that the Single State Agency (the Department) which is responsible

14 for Medicaid rate setting, must consider the relevant factors of Sec. 30A

15 contemporaneously with the adoption of the rates, (not, post hoc). (See, the CPhA I

16 decision, 2:09-CV-0722 CAS (MANx), C.D. Cal. 2009], so holding:22

17

In [Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997)], . . . the court

18

stated that “the Department must rely on responsible cost studies, its own or

others’, that provide reliable data as a basis for its rate setting.” 103 F.3d at 1496

19

(emphasis added); see also id. at 1499-1500 (“Since the Department did not

adequately consider hospitals’ costs when readopting its rates, the Department’s 20
actions were arbitrary and capricious and contrary to law”) (emphasis added). The

21

[Orthopaedic Hospital] holding therefore indicates that the body responsible for

rate setting23 must consider the relevant factors [of Sec. 30A] contemporaneously

22

with the adoption of the rates. Because the Department has no authority to alter

23

the rates set by the Legislature, the Department’s post hoc analysis does not satisfy

the requirements of [Orthopaedic Hospital].” (Boldface emphasis supplied.)

24

25 22 The March 9, 2009 decision of the District Court is at Exhibit J of Plaintiffs’ RJN.
26 23 I.e., the Single State Agency, (the Department), as per § 1396a(a)(5).
27
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1

32. Accordingly, due to this decision of the District Court in CPhA I which was

2 sustained in CPhA II, (09-55635, 9th Cir. 2009),24 it is now the law of the Ninth Circuit

3 that all actions of the Department and the Director to implement Medi-Cal rate statutes

4 enacted by the Legislature are always contrary to, hence preempted under the

5 Supremacy Clause of the U.S. Constitution, by these contrary provisions of the Medicaid

6 Act and its regulations, (namely, the Single State Agency provisions of § 1296a(a)(5), 42

7 CFR § 431.10, and Section 1 of the state Plan), and Sec. 30A).

8

Legislative enactment of the new MAIC payment reduction

and the new Upper Billing Limit payment reduction

9

33. (a) Notwithstanding the foregoing, the Legislature did, on July 28, 2009,

10 enact Assembly Bill (“AB”) X4 5, which amended § 14105.45 Welf. & Inst. Code to

11 reduce reimbursement to pharmacies for their costs to acquire multi-source drug

12 products (generics) to which a Maximum Allowable Ingredient Cost (“MAIC) limit has

13 been placed by the Department. This rate reduction was estimated by the Legislature in

14 the Assembly Bill Analysis to reduce pharmacies’ reimbursements by at least $24 million

15 annually, commencing in June 2009; and

16 (b) Also, notwithstanding the foregoing, the same AB X4 5 enacted new

17 § 14105.455 Welf. & Inst. Code to impose an upper billing limit to reduce

18 reimbursement to pharmacies’ for their costs to acquire both brand drug products and

19 generic drug products in both the Medi-Cal FFS program and the Medi-Cal managed care

20 program. This rate reduction was estimated by the Legislature in the Assembly Bill
21 Analysis to reduce pharmacies’ reimbursements by at least $45 million annually,
22 commencing at once.
23 34. The amended § 14105.45 Welf. & Inst. Code is at Exhibit A of Plaintiffs’
24 RJN. The new § 14105.455 Welf. & Inst. Code is at Exhibit B of Plaintiffs’ RJN. The
25

26 24 Copy at Exhibit K of Plaintiffs’ RJN.
27
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1 Assembly Floor Analysis for both these measures at Exhibit C of Plaintiffs’ RJN.

2

35. Further, when the Legislature reduced provider payments by 5% to adult day

3 care health centers in the CPhA I case, supra, both the District Court and CPhA II held that

4 the actions of the Director to implement the statutory payment reduction were

5 preempted under the Supremacy Clause due to the fact that:

6

- the Legislature, – which had no authority under Sec. 30A, and was not the body

7

responsible under Sec. 30A, to et Medicaid provider payments, – had nevertheless

8

enacted AB 1183, ultra vires of the Medicaid Act, to set the 5% pharmacy payment

9

reduction,

10 and that:

11

- the Department, – who did have the exclusive authority and was the body

12

responsible under Sec. 30A to set Medicaid provider payments, – had no authority

13

under state law, vis-a-vis the Legislature, to alter the rate reduction imposed by the

14

Legislature, so that the Department’s post hoc analysis of whether the payment cut

15

complied with Sec. 30A “does not satisfy the requirements” of the Orthopaedic

16

Hospital decision, (103 F.3d, at 1496 and 1499-1500);25

17 so that, as held in CPhA I,26 and affirmed by the Ninth Circuit in CPhA II,27, the action of

18 the Department to implement the state Legislature’s statute which reduced payment rates

19 to ADHCs was facially contrary to, hence preempted under the Supremacy Clause by,

20 Sec. 30A.

21

36. Further, CPhA II held that preempted State action which reduces payments

22 to Medicaid providers constitutes irreparable injury to providers, due to the fact that the

23

24

25 Page 12, lines 3-14, of Exhibit J of Plaintiffs’ RJN.

25 26 Exhibit J of Plaintiffs’ RJN.
26 27 Exhibit K of Plaintiffs’ RJN.
27

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1 Eleventh Amendment bars a legal remedy in damages. (See, Pages 8-10 of CPhA II, – at

2 Exhibit K of Plaintiffs’ RJN.)

3

(a) Also, see National Assn. of Chain Drug Stores et al. v. Leavitt, –

4

1:07-CV-2017(D. Col. 2007), – (“NACDS”) – so holding.28

5

Conclusion, from these CPhA precedents in the District Court and Ninth

Circuit.

6 37. It is the law in the Ninth Circuit, from CPhA I and CPhA II, that all

7 implementations by the Director of Medicaid provider payment reductions enacted in the

8 first instance by the state Legislature, are contrary to hence preempted by the Medicaid

9 Act, (specifically, the Single State Agency provisions of § 1396a(a)(5), 42 CFR § 431.10,

10 and Section 1 of the state Plan; and Sec. 30A).

11 Preempted State action

12 38. By the foregoing, the action of the Legislature to enact, and the action of

13 the Director to implement:

14 - the MAIC reimbursement reduction enacted and made possible by

15 § 14105.45 Welf. & Inst. Code, and

16

17

- the reimbursement reductions due to the Upper Billings Limit payment

18

cut enacted by § 14105.455 Welf. & Inst. Code,

19 are contrary to, hence preempted under the Supremacy Clause by, the Medicaid Act

20 and its regulations (namely, § 1396a(a)(5); 42 CFR § 431.10, and Section 1 of the state

21 Plan, and Sec. 30A), and cause the below irreparable injury:

22

23

28 In NACDS a preliminary injunction issued to protect pharmacy members of the plaintiff

organizations from injury by HHS’s action of implementing the AMP rate to reimburse pharmacies 24 in the Medicaid program. Held:

25

“Unless enjoined, Defendant’s actions are likely to cause Plaintiffs irreparable injury for

which no adequate remedy at law exists as Plaintiffs’ members will not be able to recover

26

from the Defendants if the AMP Rule is implemented, . . . ” (First page of slip opinion.)

(Emphasis supplied). (A copy of this order is at Exhibit L of Plaintiffs’ RJN.) 27

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1

(a) The Plaintiff pharmacies and the pharmacy members of CPhA will not be

2 able under the Eleventh Amendment to recover from the Department if these two

3 provider rate cuts are implemented; and (b) by the reductions in reimbursement the

4 Plaintiff pharmacies and pharmacy members of CPhA will be forced to stop filling brand

5 and generic prescriptions in the Medi-Cal FFS program and the Medi-Cal managed care

6 program; and pharmacies will be forced to quit the Medi-Cal program, cease accepting

7 new Medi-Cal patients, reduce hours and services, or be forced to close. (CPhA II, CPhA

8 II, and NACDS). See, declarations of John Cronin, Lynn Rolston, Paul Lofholm, Gerald

9 Shapiro, Thu-Hang Tran, Sharon Steen, Odette Leonelli, and Schedule of Declarations; and

10 Summary of Declarations served herewith, (“Plaintiffs’ Supporting Declarations”).

11

- (b) In turn, millions of Medi-Cal beneficiaries who are patients of the

12 Plaintiffs and the pharmacies who are members of the plaintiff CPhA, will suffer

13 irreparable injury for which there is no adequate remedy from being denied access, and

14 equal access, to quality pharmacy services, in both the Medi-Cal FFS program and the

15 Medi-Cal managed care program, (caused by the fact that many if not most pharmacies in

16 the Medi-Cal FFS program and Medi-Cal managed care program will cease to dispense

17 brand drugs and generic drugs to their Medi-Cal patients, if these provider payment cuts

18 are not enjoined. (Plaintiffs’ Supporting Declarations.)

19

39. Accordingly a permanent injunction, preliminary injunction, and temporary

20 restraining order should and must issue to order the Director to refrain from

21 implementing:

22 - amended § 14105.45 Welf. & Inst. Code and its provider payment reduction;
23 - new § 14105.455 Welf. & Inst. Code and its provider payment reduction;
24 and to instead (A) pay all pharmacies in the Medi-Cal FFS program the same rates which
25 they would be paid had the AWP published by the publisher used by the Department not
26 been marked down to 120% of WAC on September 26, 2009, and (B) take all steps
27

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1 necessary (pursuant to the authority and power granted by the Single State Agency

2 provisions of § 1396a(a)(5), 42 CFR § 431.10, and Section 1 of the state Plan), to direct

3 plans in the Medi-Cal managed care program to pay pharmacy providers in the Medi-Cal

4 managed care program the same amounts they would otherwise receive had the published

5 AWP not been marked down from 1.25 of WAC to 1.20 of WAC on September 26, 2009.

6

WHEREFORE the plaintiffs pray for orders and judgment as shall hereinafter be

7 specified:

8

SECOND CLAIM FOR RELIEF

Supremacy Clause Claim

9

Injunction to prevent injury threatened by Director’s actions which are

10

contrary to, hence preempted under the Supremacy Clause by, the equal

11

access provisions of 42 CFR § 447.204 and Sec. 30A.

12

40. Plaintiffs refer to and incorporate each of the allegations of each of the

13 preceding Paragraphs as if herein fully set forth.

14

41. This is a Supremacy Clause claim.

15

Sufficiency of the State’s Medicaid program

16

42. The equal access provision of Sec. 30A and of 42 CFR § 447.204 require

17 that a State must pay sufficient to enlist enough providers so that beneficiaries have the

18 same access to quality services as is available to the general population in the same

19 area.29

43. (a) However, as concluded by Richard D. Wilson, C.P.A., –

20

21 29 A State plan for medical assistance must - (30)(A) provide for such methods

22

and procedures relating to . . . the payment for, care and services available under

the plan . . . as may be necessary . . . to assure that payments are . . . sufficient to

23

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

24

geographic area; . . . ”

25

42 CFR § 447.204 provides:

26

“The agency payments must be sufficient to enlist enough providers so that

services under the plan are available to recipients at least to the extent that

27

those services are available to the general population.”

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 21 of 51 Page ID #:123

1 and the Plaintiffs allege – that since September 26, 2009 the Department has cut or will

2 cut payments to pharmacies by more than 5% overall in the Medi-Cal FFS program, and

3 by more than 4.2% in the Medi-Cal managed care program, as follows:

4 Cut in total payment,

5

annually, to pharmacies in Caused by:

Medi-Cal FFS

6

Cut in total payment, annually, to pharmacies in MediCal managed care program

7

2.6%

8

The AWP markdown of September 26, 2009

2.6%

1.6% 9

The Upper Billing Limit statute - (§ 14105.455

1.6%

10 .8%.

Welf. & Inst. Code)

Change in calculating the

n.a.

11
12 5.0%
13

MAIC limit - (14105.45 Cal. Welf. & Inst. Code)
TOTAL OF CUTS IN ANNUAL PAYMENTS TO PHARMACIES

4.2%

14

– with:

15

- (1) the first pharmacy provider payment cut of approximately more than 2.6%

16

being due to a 4% cut on September 26, 2009 in reimbursement for brand drug

17

acquisition costs caused by the Director’s ultra vires acceptance, in excess of and

18

without jurisdiction so to do, of the September 26, 2009 markdown of published

19

AWP by the Department’s AWP publisher;

20
- (2) the Upper Billing Limit provider payment cut of approximately more than 21
1.6% overall being due to enactment of § 14105.455 Welf. & Inst. Code on July 22
28, 2009; and, 23

24

- (3) the MAIC payment cut of approximately more than 8/10th of 1% overall

25

being due to enactment of an amendment to § 14105.45 Welf. & Inst. Code on

26

July 28, 2009,

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 22 of 51 Page ID #:124

1 with the direct result of the aggregate amount of this 5% cut by these three provider

2 payment cuts, both in their whole and in their severality, being that – if these 5% payment

3 cuts are not enjoined, – that pharmacies will stop participating in Medi-Cal, – or if they

4 do continue to participate at all, will no longer accept new patients in the Medi-Cal

5 program, or will not dispense brand drug products and generic drugs to the Medi-Cal

6 patients they do continue to serve; – which result of deprivation of pharmaceutical

7 services to beneficiaries in both the Medi-Cal FFS program and the Medi-Cal managed

8 care program by these three provider payments cuts in the Medi-Cal program is contrary

9 to, hence preempted under the Supremacy Clause by, the equal access provisions of

10 Sec. 30A and 42 CFR § 447.204.30

11

44. Accordingly, the payment reductions of :

12

- the 4% markdown of published AWP on brand products on September 26, 2009,

13

- the 1.6% reduction enacted by the Upper Limit Law (§ 14105.455 Welf. & Inst.

Code),

14

- the 0.8% reduction enacted by the MAIC reduction law (§ 14105.45 Welf. &

Inst. Code), 15

constitute and comprise irreparable injury to pharmacy providers because: 16

(a) the Plaintiff pharmacies and the pharmacy members of CPhA will not be able 17

under the Eleventh Amendment to recover from the Department if these three 18

provider rate cuts are implemented; and (b) by the reductions in reimbursement the 19

Plaintiff pharmacies and pharmacy members of CPhA will be forced to stop filling 20

brand and generic prescriptions in the Medi-Cal FFS program and the Medi-Cal 21

managed care program; and pharmacies will be forced to quit the Medi-Cal 22

23

program, cease accepting new Medi-Cal patients, reduce hours and services, or be

24

forced to close. (CPhA II, CPhA II, and NACDS). (Plaintiffs’ Supporting

25

Declarations).

26

27

30 Pages 10, 11, 16 and ¶ 27 of Wilson Declaration; Plaintiffs’ Supporting Declarations.

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 23 of 51 Page ID #:125

1 - (b) In turn, millions of Medi-Cal beneficiaries who are patients of the Plaintiffs
2 and the pharmacies who are members of the plaintiff CPhA, will suffer irreparable
3 injury for which there is no adequate remedy from being denied access, and equal
4 access, to quality pharmacy services, in both the Medi-Cal FFS program and the
5 Medi-Cal managed care program, (caused by the fact that many if not most
6
pharmacies in the Medi-Cal FFS program and Medi-Cal managed care program 7
will cease to dispense brand drugs and generic drugs to their Medi-Cal patients, if 8
these three provider payment cuts are not enjoined. (Wilson Declaration, supra; 9
Plaintiffs’ Supporting Declarations). 10
45. Accordingly a permanent injunction, preliminary injunction, and temporary 11
restraining order should and must issue to order the Director to refrain from 12
implementing: 13
- amended § 14105.45 Welf. & Inst. Code and its provider payment reduction; 14
- new § 14105.455 Welf. & Inst. Code and its provider payment reduction; 15
- the 4% reimbursement reduction to pharmacies for brand drug acquisition costs; 16

and to instead (A) pay all pharmacies in the Medi-Cal FFS program the same rates which 17

they would be paid had the AWP published by the publisher used by the Department not 18

been marked down to 120% of WAC on September 26, 2009, and (B) take all steps 19

necessary (pursuant to the authority and power granted by the Single State Agency 20

provisions of § 1396a(a)(5), 42 CFR § 431.10, and Section 1 of the state Plan), to direct 21

plans in the Medi-Cal managed care program to pay pharmacy providers in the Medi-Cal 22

23 managed care program the same amounts they would otherwise receive had the published

24 AWP not been marked down from 1.25 of WAC to 1.20 of WAC on September 26, 2009.

25

WHEREFORE the plaintiffs pray for orders and judgment as shall hereinafter be

26 specified:

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 24 of 51 Page ID #:126

1

THIRD CLAIM FOR RELIEF

Supremacy Clause Claim

2

Implementation of:

- amended § 14105.45 Welf. & Inst. Code

3

- new § 14105.455 Welf. & Inst. Code

is contrary to, hence preempted under the Supremacy Clause by Sec. 30A,

4

in that the Legislature prevented itself from any adequate consideration

of the EEQA factors by considering and voting upon them as but one

5

single measure.

6

46. Plaintiffs refer to and incorporate each of the allegations of each of the

7 preceding Paragraphs as if herein fully set forth.

8

47. This is a Supremacy Clause claim.

9

48. The Legislature, in enacting Sections 38 and 39 of AB X4 5, containing the

10 § 14105.45 and new § 14105.455 of Welf. & Inst. Code measures as but one single

11 indivisible measure, together, (instead of considering each of them by a separate bill in

12 which one bill contained only the proposed amended § 14105.45 Welf. & Inst. Code and

13 the other bill contained only the proposed new § 14105.455 Welf. & Inst. Code), thereby:

14

- excluded itself from any ability to separately and adequately consider the

15

EEQA factors in relation to the reduced payments under § 14105.45 Welf.

16

& Inst. Code, and

17 - excluded itself from any ability to separately and adequately consider the
18 EEQA factors in relation to the reduced payments under new §14105.455 of
19 Welf. & Inst. Code;
20
so that therein the enactment of each of amended § 14105.45 and new § 14105.455 of 21
Welf. & Inst. Code: 22
- was without adequate consideration of the relevant EEQA factors in respect to 23
the proposed amendment to § 14105.45 Welf. & Inst. Code, and, 24

25

- was without adequate consideration of the relevant EEQA factors in respect to

26

the proposed new § 14105.45 Welf. & Inst. Code,

27 so that therein the enactment of these two Medicaid provider rate proposals in one single

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 25 of 51 Page ID #:127

1 indivisible measure, (on a vote to approve both of them or none), was contrary to, hence

2 preempted under the Supremacy Clause by, Sec. 30A.

3

49. Unless enjoined, the preempted actions of the Director to implement the

4 preempted pharmacy payment reductions of §§ 14105.45 and 14105.455 Welf. & Inst.

5 Code will cause irreparable injury to the Plaintiffs, the member pharmacies of the

6 plaintiff CPhA, and the millions of patients of the Plaintiffs and the pharmacy members

7 of CPhA; all as prior alleged in Paragraph 38(a) and (b) of the Second Claim for Relief of

8 this FAC.

9

50. Accordingly a permanent injunction, preliminary injunction, and temporary

10 restraining order should and must issue to order the Director to act, and to refrain from

11 acting, as specified in Paragraph 39 of the Second Claim for Relief in this FAC.

12

WHEREFORE the plaintiffs pray for orders and judgment as shall hereinafter be

13 specified:

14

FOURTH CLAIM FOR RELIEF

Supremacy Clause Claim 15

Implementation of the Upper Billing Limit law is contrary to, hence

16

preempted under the Supremacy Clause by, the equal access provision of Sec.

30A and 42 CFR 447.204. 17

51. Plaintiffs refer to and incorporate each of the allegations of each of the 18

preceding Paragraphs as if herein fully set forth. 19

52. This is a Supremacy Clause claim. 20

53. The methods and procedures related to payments of pharmacy providers, 21

specified in new Upper Billing Limit law, (§ 14105.455 Welf. & Inst. Code, or“UBL”) 22

are antithetical to participation in Medi-Cal, so as to drive pharmacies out of Medi-Cal 23

participation to the degree that equal access to pharmaceutical services is destroyed or 24

threatened to be destroyed by the UBL. Accordingly, implementation of the Upper Billing 25

Limit law is contrary to, hence preempted under the Supremacy Clause by, the equal 26

access provision of Sec. 30A and 42 CFR 447.204. 27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 26 of 51 Page ID #:128

1

54. Plaintiffs allege in support of but without limitation of the allegations in

2 the preceding Paragraph, as follows:

3

(a) Third-party payors (“TPP”) often contract with pharmacy benefit

4 managers (“PBM”)31 or with wholesaler’s organizations (e.g. LeaderNet, Cardinal Health,

5 H.D. Smith),32 to handle contracting with pharmacies.33 Depending on the agreement, the

6 PBM may act as an agent for the TPP or on its own behalf.34 TPPs negotiate drug pricing

7 discounts with PBMs,35 and PBMs, in turn, negotiate discounts with pharmacy

8 networks.36 These pharmacy networks are known as Pharmacy Service Administration

9 Organizations (“PSAO”) which serve as centralized entities to administer contract

10 negotiations, payments and other administrative tasks for networks of pharmacies.37 In

11 nearly all cases, the contracts themselves are actually entered into by the TPP and the

12 PSAO and not the individual pharmacies.38

13

(c) Where the consumer is insured, customarily the TPP pays the PBM,39 or

14

15

16

31 Page 6 of March 3, 2009 Memorandum and Order approving settlement in the First

DataBank Case, 1:05-11148-PBS (D. Mass. 2009), – (“First Data Bank Order”). 17

18

32 ¶ 13 of Declaration of Paul Lofholm, Pharm.D., (“Lofholm Dec.”); ¶ 19 of Declaration of

Thu-Hang Tran, Pharm.D., (“Tran Decl.”), to be filed herein.

19

33 Page 5 of slip opinion in First DataBank Case appeal, (2d Cir. Sept. 3, 2009), – “First 20 DataBank opinion.” (Copy at Exhibit L of Plaintiffs’ RJN.)

21

34 Pages 5-6 of First DataBank opinion.

22 35 Page 6, First Data Bank Order.
23 36 Page 6 of First DataBank Order.
24
37 ¶ 17 of Declaration of John Cronin, (“Cronin Decl.”). 25

26

38 ¶ 17 of Cronin Decl.

27

39 Page 6 of First DataBank Order.

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 27 of 51 Page ID #:129

1 a PSAO,40or wholesaler organization,41 who reimburses the pharmacy for the drug

2 product dispensed.

3

(b) The pharmacy has direct control over their cash charges but in most

4 cases it is the PBM, PSAO or wholesaler organization who contracted with the TPP, who

5 reimburses the pharmacy.42 The decision by the PBM, PSAO or wholesaler organization

6 (or their electronic claims processor) to accept or deny a prescription claim is done real

7 time while the patient waits at the counter. However, if the claim is accepted

8 electronically and signaled to the pharmacist that the claim is accepted, nevertheless,

9 the pharmacy does not know what amount it will be paid by the PBM, PSAO, wholesaler

10 organization, or their electronic claims processor, until a check is periodically sent with a

11 listing of the accepted prescriptions claims and the amounts paid, per prescription, which

12 equals the total of that reimbursement check for that period.43

13

55. There are over 22,000 drug product NDCs in the Medi-Cal program,44

14 which range in different forms (tablet, liquid, etc.), and units dispensed; and many of the 15 rates paid by PBMs, PSAOs, wholesaler organizations, or their electronic claims 16 processors change weekly, and sometimes form day to day.45 Thus to be presented with a 17 prescription by a Medi-Cal patient and to know whether to charge Medi-Cal the Medi-Cal 18 rate or a lower charge equal to what some PBM, PSAO, wholesaler organization, or their 19

20 40 ¶ 13 Lofholm Decl.
21 41 ¶ 13 Lofholm Decl.
22
42 ¶ 13 of Lofholm Decl. 23

24

43 ¶ 19 Tran Declaration. ¶ 13 Lofholm Decl.: “The pharmacy does not know of the

payments until the service is performed and only then an electronic message will be sent to the

25 pharmacy, with payment to follow.”

26

44 ¶ 10 of Declaration of Kevin Gorospe, (to be filed herein).

27

45 ¶ 19 Tran Decl.; ¶ 22 Cronin Decl.; § 20 of Gerald Shapiro Dec., to be filed herein.

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 28 of 51 Page ID #:130

1 electronic claims processor has paid the pharmacy for that particular drug NDC, and

2 number of units, – in order to comply with, and, comply with, the new UBL, is impossible

3 or at the very least difficult and impractical to attempt to accomplish for many if not all 4 pharmacies. (¶ 13 of Lofholm Decl.;46 ¶ 19 Tran Decl.;47 ¶ 24 Cronin Decl.; ¶ 20 Shapiro 5 Decl,.48 to be filed herein.)

6

56. Further, the Plaintiffs declare that it is also impossible for the great majority

7 of pharmacies to be able to comply with the requirement of the Upper Billing Limit law

8 to keep and maintain records of their usual and customary charges. (¶ 19 Tran Decl.;49

9 ¶¶ 21, 23 Cronin Decl.; ¶§ 20 Shapiro Decl.)

10

57. In conclusion the Plaintiffs’ declarants state:

11 Plaintiff Shapiro (Uptown Pharmacy): 12

13

14

15

46 ¶ 13 Lofholm Decl.: “The pharmacy does not know of the (amount of) payments until the

service is performed and only then an electronic message will be sent to the pharmacy, with

16 payment to follow. Thus to be presented with a prescription and to know what to charge the State

Government and be compliant with the new legislation is impossible.” 17

18

47 ¶ 20 Tran Declaration: “Also, all third party payer contracts of the Tran Pharmacy and all

the owner members of VAPA, are all handled exclusively by and through our wholesaler, H. D.

19 Smith. As a result my pharmacy and the pharmacy owner members of VAPA have no knowledge

of what the rates are in these third party payer contracts . . . Further, many of the rates in these 20 many, many third party payer contracts, change weekly and sometimes from day to day – so that my

21 pharmacy and the pharmacy owners of VAPA are completely unable to comply with the Upper Billing Limit law which started October 1, 2009.”

22
48 ¶ 20 of Shapiro Decl.: “It is impossible for me to ascertain exactly what my usual and 23 customary rates to third party payers are because there are so many variables for each of the tens of

24 thousands of drug NDCs under many different 3d party plans.

25

49 ¶ 19 Tran Declaration: “My pharmacy and the pharmacy members of VAPA have no such

records. . . . I can only tell you what has been paid when I get my monthly billing statement 26 . . . and these billings do not disclose 3d party payment rates but, primarily, only quantities and

27 medications sold, which are paid me.”

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 29 of 51 Page ID #:131

1

“If these cuts are allowed to stand I will be forced out of business.”50

2 John Cronin (Community Pharmacy of Escondido, and Community Pharmacy of 3 Valley Center):

4

“(M)any if not most pharmacies will either discontinue filling Medi-Cal

prescriptions; or, pharmacies who continue to accept Medi-Cal will discontinue

5

servicing other third party payer contracts. Unless they make one of these two

6

elections they cannot comply with the requirements of Sec. 14105.455 Welf. &

Inst. Code. The result will be that those frail, elderly, and disabled Medi-Cal

7

patients whose pharmacies stop serving Medi-Cal patients will have their access

to pharmaceutical services greatly diminished. Many, particularly those who are

8

homebound, will be unable to locate any pharmacy within a reasonable distance

that is willing to serve their needs, resulting in a denial of access to medically

9

necessary medicines and a decrease in the quality of their care.”51

10 Paul Lofholm, Pharm.D. (Ross Valley Pharmacy):

11

– Clinical Professor of Pharmacy at U.C.S.F.

– Immediate past president of CPhA. 12

13

“In respect to the upper billing limit legislation especially, it does not matter if the

pharmacy is a chain or independent, neither can comply and to lessen their

14

exposure to recoupment, many will cease serving Medi-Cal beneficiaries because

that will be better for them rather than to try to continue providing services to

15

Medi-Cal beneficiaries under an upper billing limit statute they cannot, as a

16

practical matter, comply with.”

17

58. Hence by each of the facts alleged in this Fifth Claim for Relief, it is

18 impossible and impractical for pharmacies to comply with the Upper Billing Limit law of

19 § 14105.455 Welf. & Inst. Code when dispensing a prescription which is paid by or on

20 behalf of a TPP, or with the requirement of the Upper Billing Law that the pharmacy

21 keep and maintain records of their usual and customary charges for three years from the

22 date the service was rendered; so that thereby, implementation of the preempted

23 provisions of amended § 14105.45 and new § 14105.455 of Welf. & Inst. Code has and

24 will cause irreparable injury to the Plaintiffs, by forcing them, in self-protection, to elect

25
50 ¶29 Shapiro Decl. 26

27

51 ¶ 27 Shapiro Decl.

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1 between serving only private pay and insureds, members and employees of TPPs, or

2 serving only Medi-Cal and Medicare Part D patients, which in turn deprives Medi-Cal

3 beneficiaries who are patients of the Plaintiff pharmacies, and of the pharmacies of the

4 plaintiff CPhA, from any access or any equal access to pharmaceutical services in the

5 State’s Medicaid program, contrary to, hence preempted under the Supremacy Clause

6 by, the equal access provision of Sec. 30A and 42 CFR § 447.204.

7

WHEREFORE the Plaintiffs pray for orders and judgment as shall be specified

8 hereinafter:

9

FIFTH CLAIM FOR RELIEF

Supremacy Clause Claim

10

Fifth Claim for Relief, for injunctive relief in respect to 4% reduced

11

reimbursement for cost to acquire brands, which reduction is contrary

to, hence preempted under the Supremacy Clause by, the EEQA factors

12

of Sec. 30A.

13

59. Plaintiffs refer to the allegations in the preceding Paragraphs and

14 incorporate each of those allegations as if fully alleged herein.

15

60. This is a Supremacy Clause claim.

16

61. As prior set forth in this FAC, the Department as the Single State Agency

17 has the exclusive and ultimate power to set or cause provider payment rates to be set in

18 all parts of the State’s Medicaid program, including both the Medi-Cal FFS program and

19 the Medi-Cal managed care program; which Department, or agency, and its powers to set

20 or cause to be set provider payment rates in all parts of the State’s Medicaid program, is

21 exclusively controlled by the defendant Director.

22

62. Prior to September 26, 2006 and currently, both the Medi-Cal FFS program

23 and the Medi-Cal managed care program used and are using a published AWP from

24 which:

25

- the Medi-Cal FFS program subtracts 17% to arrive at Estimated Acquisition

26

Cost (“EAC”) to be paid to pharmacies as reimbursement for their brand

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 31 of 51 Page ID #:133

1

acquisition costs;

2 and,

3

- the various Medi-Cal managed care plans, – (under authority granted to them by

4

the Director but subject to ultimate control by the Director pursuant as prior set

5

forth), – each subtract various percentages, (typically 15% as in the CalOptima

6

managed care plan in Orange County) from the published AWP for a given brand

7

product, so as to arrive at the EAC amount be paid to pharmacies in their managed

8

care plan as reimbursement for their brand acquisition costs.

9

63. However, on September 26, 2009, the formula or the published AWP used

10 by both the Medi-Cal FFS program and the Medi-Cal managed care program was

11 unilaterally and artificially changed or marked down 4% by the AWP publisher used by

12 the Department, – from a formula for published AWP of 125% of Wholesale Acquisition

13 Cost (“WAC”) to a new formula for published AWP of 120% of WAC, – for 18,000 to

14 20,000 or more brand drug products each having a National Drug Code (“NDC”)

15 identification number or code.52

16

17

52 1,400 of these NDCs, only, were marked down by First DataBank pursuant to a voluntary

18 class action settlement which First DataBank entered into in the First DataBank case, – after the

Boston court refused to approve markdowns on more than these few 1,400 NDCs. 19 (See, Page 2 of March 17, 2009 order in the First DataBank case which approved a lass action

20 settlement which authorized a markdown of AWP to 1.20 of WAC for 1,400 NDCs, only.)

21 Hence it is not true as the Attorney General incorrectly claims or infers, that the 18,000 to 20,000
reduced AWP markdowns were the “result of a lawsuit in Massachusetts.” (Page 5:21-26 of 22 Defendants’ Memorandum which is Document 58-7 in MPC, 2:09-cv-0382 CAS (MANx)).

23 To the contrary, the Boston court denied a settlement proposal to markdown AWPs of

24 approximately 8,000 brand NDCs, for the reason that:

“The Court was also troubled by the proposal that over 8,000 National Drug

25

Codes (“NDCs”) for branded drugs were to be rolled back four percent.”

26

(Page 2, ibid.). (Emphasis supplied).

27 Thus the act of unilaterally marking down more than 20,000 brand drug NDCs on February 26,

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1

64. Richard D. Wilson, C.P.A., reviewed public documents and data of the

2 Department and concluded in his supplemental declaration filed herewith,53 – and

3 Plaintiffs allege – that:

4

(a) The 18,000 to 20,000 brand drug products whose published AWP was

5

artificially marked down 4% included most of the 1,000 top selling brand

6

drug NDCs the expenditu8res for which comprise 98.7% of all Medi-Cal

7

expenditures for brand drugs,54

8 and sub-included:

9

- virtually all the 200 top selling brand NDCs the expenditures for which

10

comprised $313,629,963, or 44.7% of the total of $701,454,170 in

11

expenditures by the Medi-Cal program for brand drug prescriptions in

12

the typical 2d Quarter 2009.55

13

65. C.P.A. Wilson further found from printouts of the price that was paid by

14 Medi-Cal for each of these 200 Top Selling Brand Drugs on September 25, 2009,

15

16
2009, was not the act of a person ordered to do so by a federal court who had considered the harms, 17 and approved it, as incorrectly inferred by the Attorney General.

18

53 Supplemental Declaration of Richard D. Wilson, C.P.A., (“Wilson Supp. Declaration”),k

19 to be filed herein.

20

54 See, Table 4.1, and Pages 35-36 of the 2006 study of Myers and Stauffer, C.P.A.s, of

pharmaceutical costs in California, which was commissioned by the Department and published in 21 2007. (“2007 Myers Survey”).

The 2007 Myers Survey found on Pages 35-36, and Table 4.1, that the top 1,000 single 22
source drug products, – ranked by total reimbursement for all prescriptions in the Medi-Cal

23 program for calendar year 2006, – accounted for 98.7% of all expenditures by the Medi-Cal program for brand drug products, as well as for 75% of all expenditures by the Medi-Cal program

24 for all drug products, (brand and generics, combined).

25

55 ¶¶ 9, 10, 11 of Wilson Supp. Declaration.

26

Specifically, C.P.A. Wilson found in ¶ 8 that reimbursement by Medi-Cal was reduced 4%

for 168 or 84% of the 200 Top Selling Brand Drug NDCs, as a result of the 4% markdown of

27 published AWP on September 26, 2009 by the Department’s AWP publisher.

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 33 of 51 Page ID #:135

1 compared to printouts of the price that was paid by Medi-Cal for each of these same 200

2 Top Selling Brand Drugs on the markdown day of September 26, 2009, – and Plaintiffs

3 hereby allege, – that most of the 200 Top Selling Brand NDCs suffered a 4% payment 4 reduction, due to the September 26, 2009 markdown of published AWP.56

5

66. Further, by applying the known pharmacy costs reported by the 2007 Myers

6 Survey to the 4% reduced prices paid by Medi-Cal for the 200 Top Selling Brand Drug

7 NDCs on the markdown day of September 26, 2009 to a spreadsheet, – which costs

8 factors are:

9

- pharmacies’ brand drug acquisition costs which are equal to 79% of AWP

10

(as it existed prior to September 26, 2009), as found by the 2007 Myers

11

Survey at Page 6 of the 2007 Myers Survey;

12
- pharmacies’ average overhead costs of $12.57 per prescription as found 13
by the 2007 Myers Survey, adjusted as per standard inflation factor of 1.725 14
used by the Department through 2008,57 15
C.P.A. Wilson determined – and the Plaintiffs hereby allege, – that 191 or 95.6% of the 16
200 Top Selling Brand Drugs – which account for 44.7% of all prescription expenditures 17
by the Medi-Cal program, – cannot be acquired-and-dispensed except at a net loss to the 18
pharmacy, on average, due to the 4% payment reduction in reimbursement for brand drug 19
acquisition costs commenced on September 26, 2009.58 20
67. Similarly, C.P.A. Wilson’s conclusion was – and the Plaintiffs hereby 21

22 56 ¶ 8 and 14 of Wilson Supp. Declaration and Exhibit I of his declaration, to be filed herein.
23 57 See, Page 7 of Analysis of Assembly Bill 1183, dated February 8, 2009, by Toby Douglas,
24 Chief Deputy Director of the Department, in which the Department uses and approves the costs
25 inflation factor of 1.0725 from the common point of December 31, 2006 to March 1, 1009.

26

58 ¶ 8, 14, and the spreadsheet which is Exhibit I , of the Wilson Supp. Declaration to be

filed herein.

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 34 of 51 Page ID #:136

1 allege, – that the majority of the 800 remainder of the 1,000 top selling brand drug NDCs,

2 ranked by amount of expenditures by the Medi-Cal for all brand drug NDCs, – (which

3 together with the 200 Top Selling Brand Drug NDCs account for 98.7% of all Medi-Cal

4 expenditures for brand drugs), – also suffered a 4% reimbursement reduction due to the

5 4% markdown of published AWP on September 26, 2009; and that the majority of the

6 800 remainder of the 1,000 top selling brand drug NDCs also can now no longer be

7 acquired-and-dispensed except at a net loss to the pharmacy, on average, due to the 4%

8 payment reduction in reimbursement for brand drug acquisition costs commenced on 9 September 26, 2009.59

10

68. Thus in summary, the effect of the September 26, 2009 markdown of

11 published AWP on 18,000 to 20,000 brand drug NDCs by the AWP publisher used by

12 the Medi-Cal FFS program and the Medi-Cal managed care program, was devastating, as

13 if a cyclone had hit the Medi-Ca program, in that:

14

- virtually all of the 200 Top Selling Brand Drug products for which 44.7%

15

of all Medi-Cal drug expenditures are expended, and,

16 - many if not most of the remaining 800 of the 1000 top selling brand drug
17 products (for which 1,000 top selling drug products 98.7% of all Medi-Cal
18 drug expenditures are expended),
19

20 suffered a 4% reduction in reimbursement paid to the pharmacy by the Medi-Cal FFS

21 program and the Medi-Cal managed care program; and, most significant at all, can now be

22 acquired-and-dispensed only at a net loss, per brand drug prescription, in the Medi-

23 Cal FFS and managed care programs.

24

69. In contrast to the vast majority of state Medicaid programs and PBMs

25

26 59 ¶¶ 13 and 14 of the Wilson Supp. Declaration, to be filed herein.
27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 35 of 51 Page ID #:137

1 throughout the country, the Director has unconscionably taken advantage of

2 pharmacies in the Medi-Cal program:

3

- by refusing to adjust or adopt a new payment rate to offset and

4

neutralize the 4% reduction in brand acquisition reimbursement to

5

pharmacies in the Medi-Cal FFS program,

6 - by refusing to order all managed care plans and their officers, in the
7 Medi-Cal managed care program, to adjust or adopt a new payment rate
8 to offset and neutralize the 4% reduction in brand acquisition
9 reimbursement to pharmacies in the Medi-Cal managed care program,
10 so as to offset and eliminate the devastating effect on the brand drug part of the Medi-
11 Cal pharmacy program, of the 4% markdown of published AWP on September 26,
12 2009.
13 70. Instead the Director, by the action of passively doing nothing except
14 paying 4% less to pharmacies for reimbursement for brand drug acquisition costs in
15
the Medi-Cal FFS program (as the result of the publisher’s 4% AWP markdown of 16
September 26, 2009) and allowing all managed care plans in the Medi-Cal managed 17
care program to pay 4% less to pharmacies since September 26, 2009, (as the result of 18
the publisher’s 4% AWP markdown of September 26, 2009), has therein de facto and 19
de jure adopted a new formula or rate for reimbursing pharmacies in the Medi-Cal 20
FFS program and the Medi-Cal managed care program for their brand drug acquisition 21
costs; namely: 22
- a new EAC rate, reduced by 4%, in the Medi-Cal FFS program for 23
reimbursing providers for brand drug acquisition costs, which is a 24
formula or EAC rate which is now equal to only: 25
120% of WAC, minus 17%, and, 26

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 36 of 51 Page ID #:138

1

- a new EAC rate, reduced by 4%, in each Medi-Cal managed care plan

2

for reimbursing pharmacies for brand drug acquisition costs, which is now

3

a new formula or EAC rate which is now equal to only:

4

120% of WAC, minus (whatever percentage of subtraction

from AWP is provided by the particular Medi-Cal managed 5
care plan).

6 71. The Department, in passively so adopting the change in AWP formula from

7 a de facto formula of 125% of WAC to 125% of WAC, – entirely failed and refused to

8 consider the EEQA factors required by Sec. 30A to be considered, including whether the

9 reduced payments bear any reasonable relationship to pharmacy costs, (Orthopaedic,

10 supra, 103 F.3d at 1496, 1500).

11 72. More particularly, but without limitation thereby, the Department failed to

12 consider EEQA or pharmacies’ costs in so adopting the change of formula for AWP

13 because the Department has a fixed (erroneous) policy and fiction, to wit, that the change
14 in formula for AWP in the Medi-Cal program for brand drug NDCs, 1.25 of WAC to
15 1.20 of WAC, on September 26, 2009, did not involve any change in any Medi-Cal
16 statute, regulation, or reimbursement policy, (sic);60 and that any impact on a provider’s
17 reimbursement for a drug was based on an existing Medi-Cal reimbursement statute,
18

19

20

60 Statement of Department policy by the Director in the Defendant’s Memorandum 21 filed as Document 68 in Managed Pharmacy Care v. Maxwell-Jolly, 2:09-CV-0382 CAS

22 (MANx), which states, (at ibid. 5:21-24) that the 4% reduced payment from the September 26, 2009 markdown of published AWP:

23

“ . . . does not involve any change in Medi-Cal statute, regulation, or reimbursement

policy,” 24 citing the statement of Department policy by Kevin Gorospe, Chief of Medi-Cal Pharmacy

25 Policy Branch of the Department, speaking for the Department, who states in Paragraph 10 of his declaration that this 4% reduced payment

26

“ . . . does not involve any change in Medi-Cal statute, regulation, or policy,”

(ibid. 26:21-22).

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 37 of 51 Page ID #:139

1 regulation, or policy, not any new statute, regulation, or policy, (sic);61– and that the

2 AWP markdowns are simply changes in the specific numbers that go into reimbursement 3 equation federally approved in the state Plan in Supplement 2 to Attachment 4:19-B.62

4

73. Therein and thereby, the Director’s and the Department’s aforesaid

5 actions in so adopting the aforesaid reduced 4% rates in the Medi-Cal FFS program and

6 the Medi-Cal managed care program without consideration of the EEQA factors required

7 by Sec. 30A to be considered, – (including failure to consider whether pharmacies, in

8 light of their costs, could sustain the 4% cut in reimbursement for brand acquisition

9 without a loss of quality or equal access for Medi-Cal beneficiaries) – were arbitrary and

10 capricious and contrary to, hence preempted under the Supremacy Clause by, the

11 EEQA provisions of 30A. (See, Orthopedic Hospital v. Belshe, 103 F.3d 1491,1500 (9th 12 Cir. 1997; Clayworth v. Bonta, 295 F.Supp.2d 1110, 1128 (E.D.Cal. 2003);63 and ILC II,

13 572 F.3d 644 (9th Cir.2009).

14

Direct irreparable injury to pharmacies

15

74. Further, such preempted State action, (which is contrary to the EEQA

16 provisions of Sec. 30A), directly results in irreparable injury to pharmacies in both the

17 Medi-Cal FFS program and the Medi-Cal managed care program, due to inability of

18 pharmacies, under the Eleventh Amendment in this federal court litigation, ever

19 recovering the amount of these preempted payment cuts, – for which the plaintiff Medi-

20

21
61 Ibid. 6:1-4: “To reiterate, any impact on a provider’s reimbursement for a drug 22
will be based on existing Medi-Cal reimbursement statute, regulation, or policy,

23

not any new statute, regulation, or policy.”.

24

62 ¶ 26 of Gorospe Declaration, (ibid, 36:7-14):

25

“Rather, these are simply changes in the specific numbers that go into the

federally approved reimbursement equation.”

26 63 Reversed on other grounds on appeal.
27

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1 Cal pharmacies in the Medi-Cal FFS program and the Medi-Cal managed care program

2 are entitled to a permanent injunction, preliminary injunction, and a temporary restraining

3 order to prevent such injury to them from such preempted State action of the Department

4 and its Director. See, California Pharmacists Association v. Maxwell-Jolly, (“CPhA II”),

5 563 F.3d 847 (9th Cir. 2009)

6

Direct irreparable injury and threat of injury to Medi-Cal beneficiaries.

7

75. Also, such preempted State action directly results in irreparable injury to

8 Medi-Cal beneficiaries from being denied access to, or being threatened to be denied

9 equal access to, quality pharmacy care and services, in both the Medi-Cal FFS program

10 and the Medi-Cal managed care program, due to the fact that many if not most

11 pharmacies in the Medi-Cal FFS program and Medi-Cal managed care program will

12 cease to dispense brand drugs to them, if this 4% reduction in reimbursement to

13 pharmacies for brand drug acquisition cost is not stopped by a court injunction; for

14 which:

15

- the 5,000-plus homebound Medi-Cal beneficiaries to whom the

16

plaintiff Gerald Shapiro, Pharm.D. delivers brand prescriptions in the

Medi-Cal FFS program and the Medi-Cal managed care program;

17

- the patients of the plaintiff Tran Pharmacy and the plaintiff Sharon Steen,

18

dba Central Pharmacy, who receive their services both under the Medi-Cal

19

FFS program and the Medi-Cal managed care program;

20

- the several million patients of the thousands of pharmacies who are

members of the co-plaintiff California Pharmacists Association (“CPhA”),

21

who are beneficiaries in the Medi-Cal FFS program and the Medi-Cal

managed care program, 22

23 are entitled to a permanent injunction, preliminary injunction, and a temporary restraining

24 order to prevent injury to them from such preempted State action of the Department and

25 its Director.

26

76. The aforesaid remedies to prevent injury from the preempted action of the

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 39 of 51 Page ID #:141

1 Director which is complained of, must include the following relief, at the minimum, that

2 the Director must be enjoined permanently, preliminarily, and by temporary restraining

3 order from implementing the 4% reimbursement reduction for brand drug acquisition

4 costs; and to instead take all steps, at once and without delay, which are reasonably

5 necessary in order to continue to pharmacies the same rates which would be paid had the

6 AWP published by the publisher used by the Department not been marked down to 120%

7 of WAC on September 26, 2009, (at least, so long AWP remains a component of EAC in

8 the state Plan filed by the Department with HHS).

9

WHEREFORE the plaintiffs pray for orders and judgment as shall hereinafter be

10 specified:

11

SIXTH CLAIM FOR RELIEF

Supremacy Clause Claim

12 The Director is deemed in law to have himself made the change in the AWP

13

formula, from 1.25 of WAC to 1.20 of WAC; so that for disregard of

providers’ costs the Director’s action to reduce the rate of payment of

14

September 26, 2009 was contrary to, hence preempted under the Supremacy

Clause by, the quality of care provision of Sec. 30A: for which an appropriate

15

preliminary injunction must issue.

77. It was the Director who selected, approved, and ratified all that First DataBank 16

has done in respect to marking down published AWP for 18,000 to 20,000 or more brand 17

NDCs on September 26, 2009, and, who had the power to amend the state Plan to adjust 18

the formula for paying pharmacies in the Medi-Cal FFS program, before First DataBank 19

promulgated the change in AWP formula from 1.25 of WAC to 1.20 of WAC. 20

78. Hence the Director stands in law the same as if the Director himself 21

promulgated the change in formula of AWP for brand NDCs from 1.25 of WAC to 1.20 of 22
WAC. 23
79. Here the maxim and rule of the Field Code applies: 24

He who can and does not forbid that which is done on his behalf, is deemed to have

25

bidden it. § 3521 California Civil Code.

26

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 40 of 51 Page ID #:142

1 I.e., he who has the power to stop the guillotine blade from falling, is as responsible for
2 the blade falling, as he were the executioner himself.
3 80. Accordingly, this September 26, 2009 change in formula from 1.25 of WAC
4 to 1.20 of WAC for 18,000 to 20,000 or more brand NDCs, was in law the action of the
5 Director, to wit, a change by the Director himself of the pharmacy payment rate in the
6 Medi-Cal program.
7 81. Therein and thereby, the Director’s action on September 26, 2009 to reduce
8 the AWP formula for 18,000 to 20,000 or more brand NDCs, from 1.25 of WAC to 1.20 of

9 WAC, was contrary to, hence preempted under the Supremacy Clause by, the quality of

10 care and equal access provisions of Sec. 30A, (which required that (1) this reduced

11 Medicaid provider payment rate bear a reasonable relationship to provider’s costs to furnish

12 quality care, (2) that the Director consider providers’ costs to furnish quality pharmaceutical

13 care, contemporaneously with changing the rate formula from 1.25 of WAC to 1.20 of

14 WAC; and (3) that the reduced rates ultimately, be sufficient to assure equal access to

15 pharmaceutical services for Medi-Cal beneficiaries).

16 SEVENTH CLAIM FOR RELIEF

17

(Supremacy Clause Claim)

18

A seventh and alternative Claim for Relief, for injunctive relief in respect

to the 4% reduced reimbursement for cost to acquire brands, which reduction

19

is contrary to, hence preempted under the Supremacy Clause by, the EEQA

provisions of Sec. 30A. 20

82. The 1,000 top selling brand NDCs, ranked by total reimbursement for an 21

annual period, typically comprise 98.7% of Medi-Cal program expenditure for brand 22
proscriptions on an annual basis.64 23

83. However, Richard D. Wilson, C.P.A., concluded in his November 16, 2009 24

25

26

64 Table 4.1 on Pages 35-36 of 2007 Myers Survey.

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 41 of 51 Page ID #:143

1 analysis of the effect of the 4% markdown of published AWP for 18,000 to 20,000 or more

2 brand NDCs, on September 26, 2009, that:

3

One: This reduced the total reimbursement by the Medi-Cal program (in both the

4 Medi-Cal FFS program and the Medi-Cal managed care program) for a brand NDC

5 prescription, to less than what it costs the pharmacy to acquire-and-dispense the majority of

6 the brand NDCs which are among the 1,000 top selling brand NDCs in the Medi-Cal

7 program (which comprise 98.7% of all the annual expenditures in the Medi-Cal program for 8 brand drug prescriptions);65 such that,

9

Two: If this 4% cut in reimbursement for brand drug acquisition costs is not stopped,

10 then pharmacies will have no choice except to quit the Medi-Cal program entirely; or if they

11 do continue, to only accept their present Medi-Cal patients and exclude all new Medi-Cal

12 patients, or only dispense those few drug products in the Medi-Cal program which they can

13 acquire and dispense at a net profit. (Pages 10-11 of Wilson Supp. Declaration.

14

84. Accordingly it is manifest that the methods and procedures now specified in

15 the state Plan (at Pages 1 and 2 of Supplement 2 of Attachment 14-B of the state Plan),

16 relating to payments for care and services available under the Plan are no longer sufficient

17 or constitute any assurance, – as required by Sec. 30A – (and have become insufficient

18 and do not assure), – that payments for prescription drugs (especially, brand prescriptions),

19 are consistent with efficiency, economy, quality of care and are sufficient to enlist enough 20 pharmacy providers so as to provide equal access to pharmaceutical services; so that 21 therein, the actions of the Director to continue to use the present methods and 22 procedures specified in the state Plan, relating to payments for brand drugs, are contrary 23 to, hence preempted under the Supremacy Clause by: 24

25

26

65 ¶ 14 of Wilson Supp. Declaration.

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 42 of 51 Page ID #:144

1

- the methods and procedures provisions of Sec. 30A,

2

- the quality of care provision of Sec. 30A, and,

3

- the equal access provisions of Sec. 30A and 42 CFR § 447.204;

4 for which appropriate preliminary injunction must issue to prevent irreparable harm to

5 Medi-Cal beneficiaries who are patients of the Plaintiffs and the members of CPhA.

6

85. Further, pharmacies also suffer irreparable injury from these preempted

7 actions of the Director because they are being paid less than what they would receive if the

8 Department methods and procedures relating to payments for brand drugs complied with

9 Sec. 30A, but cannot recover the same due to the Eleventh Amendment; hence the Plaintiff

10 pharmacies are also entitled to preliminary injunction.

11

EIGHTH CLAIM FOR RELIEF

Supremacy Clause Claim 12

13

Implementation of the MAIC law enacted by § 14105.45 Cal. Welf. & Inst.

Code, by:

14

- Stats. 2004, c. 228, section 17, enacted August 16, 2004, (Senate Bill

(“SB”) 1103, section 17;

15

- Stats. 2007, c. 188, section 64, enacted August 24, 2007, (Assembly Bill

(“AB”) 203, section 64;

16

- Stats. 2009, c. 5, section 38, enacted July 28, 2009,

AB X4 5, section 38;

17

is contrary to hence preempted by the quality and equal access requirements

18

of Sec. 30A.

19

86. Plaintiffs refer to and incorporate each of the allegations of each of the

20 preceding Paragraphs as if herein fully set forth.

21

87. This is a Supremacy Clause claim.

22

88. Prior to 1990 the Department placed a maximum allowable ingredient cost

23 (“MAIC”) cap on certain multi-source drug products, under then-22 California Code of

24 Regulations § 51513.3. However, in 1990 the Legislature enacted Senate Bill 2097,

25 section 17, which abolished the MAIC regulation, established a MAIC list of multi-source

26

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 43 of 51 Page ID #:145

1 drugs by grandfathering in the then-existing regulatory list of MAIC drugs, and instructed

2 the Department to update and establish additional MAIC drugs.

3

89. The Department has ever since administered a list of MAIC multi-source

4 drugs at a MAIC cap or limit which allows a large margin of gross profit, (excess of what

5 the pharmacy is paid by Medi-Cal FFS to acquire a MAIC drug, over what it costs the

6 pharmacy to acquire the MAIC drug). Thus both the 2002 Myers Survey and the 2007

7 Myers Survey of pharmaceutical costs in California, reported that although MAIC multi-

8 source drugs are low-price drugs, nevertheless, that there is a large percentage of gross

9 profit to pharmacies (defined as the excess of what Medi-Cal pays a pharmacy to acquire a

10 drug product, less what it costs the pharmacy to acquire the drug product).66

11

90. In 2004 the Legislature decided to take all the gross profit out of the

12 acquisition side of the MAIC transaction.

13

91. To do this, the Legislature first enacted SB 1103, § 17 in 2004, to cut the

14 amount paid by Medi-Cal to the pharmacy for a MAIC drug to the “manufacturer’s average

15 sale price,” (which is a price which is actually less than what it costs retail pharmacies to

16 acquire MAIC drugs wholesale): which would result in net loss to pharmacy per MAIC

17 transaction, (due to the fact, among other things, that the $7.25 dispensing fee does not

18 cover pharmacy overhead costs, per prescription).

19

92. Then in August 2007 the Legislature enacted AB 203 to cut the acquisition

20 reimbursement amount to only “average manufacturer’s price” or “AMP,” plus a markup to 21 “average purchase price,” on MAIC drugs; and, instructed the Department to increase the 22

23

24

66 Table 5.2 of 2002 Myers Survey, and Page 41 of 2007 Myers Survey.

(The large percentage of gross profit on the acquisition side of the MAIC transaction is

25 needed to enable the pharmacy to offset a loss on the dispensing side of the transaction, in order to

have any net profit at all on these small-priced MAIC drugs.) 26

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 44 of 51 Page ID #:146

1 dispensing fee to match the aggregate savings to the State which would occur once the

2 Department commenced to implement AB 203.

3

93. However, AB 203 never got off the ground, due to the fact that in

4

December 2007 the U.S. District Court, District of Columbia, enjoined

5

HHS from implementing AMP, and from providing AMP figures to the

6

States. Therefore the Department has never hand any AMP figures by

7

which to implement the MAIC reimbursement provisions of AB 203.

8 94. (a) Accordingly on July 28, 2009, the Legislature, to jumpstart the AB 203

9 MAIC reimbursement scheme, enacted AB X4 5, section 38, amended § 14105.45 Welf. &

10 Inst. Code again to now add, in new subd. (b)(3)(B) that so long as AMP figures are not

11 available, that the Department shall instead reimburse pharmacies for their cost to acquire-

12 and-dispense a MAIC drug product first, an amount equal to wholesaler average cost

13 (“WAC), with a percent markup to the “average purchase price” paid by retail pharmacies

14 in California to acquire a given MAIC drug product, plus a new dispensing fee calculated

15 (as per subd. (d) of § 14105.45 Welf. & Inst. Code) to equal the aggregate savings to the

16 State from the implementation of this new MAIC reimbursement scheme, of amended

17

§ 14105.45 (of AB X4 5, section 38).

18

The new MAIC reimbursement formula is contrary to, hence is preempted

19

under the Supremacy Clause by, the quality and equal access provisions of Sec.

30A.

20

FIRST NET LOSS ON THE NEW MAIC RATE TRANSACTION 21

95. (a) First, assuming arguendo that the Department correctly calculates the new 22

increased dispensing fee for MAIC drugs to be exactly equal to the amount of savings to the 23

State accruing from cutting out the net profit on a pharmacy’s acquisition-and-dispensing a 24

MAIC drug product, nevertheless, approximately half the pharmacies will still suffer a 25

net loss on any new MAIC transaction. 26

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 45 of 51 Page ID #:147

1

(b) This net loss is due to the fact that because the new MAIC reimbursement

2 formula of the amended § 14105.45 Welf. & Inst. Code (enacted by AB X4 5 in July 2009),

3 is based on an average, (i.e.,“average purchase price”) to reimburse pharmacy acquisition

4 costs, it follows that the approximately one-half of all pharmacies who, by definition,

5 comprise the group who expend more than the average amount to acquire a given MAIC

6 drug product, suffer a net loss in the transaction.

7

(c) Accordingly, approximately one-half of all pharmacies will, foreseeably,

8 not fill MAIC prescriptions because, by mathematical definition, they suffer a net loss on

9 the transaction.

10

SECOND NET LOSS ON THE NEW MAIC RATE TRANSACTION

11

96. (a) Worse, the new increased dispensing fee called for by the AB 203

12 version and now the AB X4 5 version of § 14105.45 Welf. & Inst. Code is only a one-time

13 dispensing fee increase which (1) does not return a net profit to pharmacies on the MAIC

14 transaction on Day One of initial implementation of the new MAIC rate, and (2) devolves

15 into a bigger and bigger net loss per MAIC transaction as time goes forward, due to the

16 fact that inflation increases pharmacy overhead costs as time goes forward.

17

Summary of this sub-point:

18

97. (a) By the above facts, all the MAIC payment rates under § 14105.45 Cal.

19 Welf. & Inst. Code under all three of the versions, – namely, under SB 1103,67 under AB

20 203,68 and now AB X4 5,69 – are contrary to, hence preempted under the Supremacy

21 Clause by, the quality and equal access clauses of Sec. 30A, due to the fact that some

22

23 67 Enacted 2004.
24
68 Enacted 2007. 25

26

69 Enacted July 28, 2009.

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 46 of 51 Page ID #:148

1 pharmacies suffer a net loss at the outset of implementation of the new MAIC provider

2 payment rates of § 14105.45 Cal. Welf. & Inst. Code, and all pharmacies suffer a net loss

3 which increases as time moves forward, due to inflation in overhead costs as time moves

4 forward: so that, therein, the Director’s actions to implement the new MAIC provider

5 reimbursement rates of § 14105.45 Cal. Welf. & Inst. Code – (in all three of its SB 1103,

6 AB 203, and AB X4 5 versions), – are contrary to, hence preempted under the

7 Supremacy Clause by, the quality and equal access provisions of Sec. 30A.

8

98. As a result of the foregoing, pharmacies will not reasonably dispense MAIC

9 prescriptions under the rates in each of these three versions of § 14105.45 Cal. Welf. &

10 Inst. Code, so that (1) pharmacies are injured irreparably because they are not reimbursed

11 their costs to acquire-and-dispense MAIC drugs under § 14105.45 Cal. Welf. & Inst. Code

12 ; and (2) Medi-Cal beneficiaries on whose behalf the Plaintiffs sue, will be unable to obtain

13 those multi-source drug prescriptions which are placed under a MAIC cap, under §

14 14105.45 Cal. Welf. & Inst. Code, (under any of the three versions of § 14105.45 Cal.

15 Welf. & Inst. Code in SB 1103, AB 203, and now AB X4 5).

16

WHEREFORE, Plaintiffs pray for orders and judgments as shall be specified

17 hereinafter.

18

NINTH CLAIM FOR RELIEF

Supremacy Clause Claim 19

The provision of the Upper Billing Limit statute of § 14105.455 Cal. Welf. 20
& Inst. Code is contrary to, hence preempted under the Supremacy Clause

21

by, both 42 CFR § 447.512 and the state Plan.

22

99. Plaintiffs refer to and incorporate each of the allegations of each of the

23 preceding Paragraphs as if herein fully set forth.

24

100. This is a Supremacy Clause claim.

25

101. § 14105.455 Cal. Welf. & Inst. Code, implemented as of October 1, 2009,

26

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 47 of 51 Page ID #:149

1 provides in subd. (a) that pharmacies shall submit their "usual and customary charge" when

2 billing the Medi-Cal Medi-Cal FFS program or the Medi-Cal managed care program for

3 prescribed drugs; and that "usual and customary price" means:

4

"(1) The lowest price reimbursed to the pharmacy by other third-party payers

in California, excluding Medi-Cal managed care plans and Medicare Part D

5

prescription drug plans.

6

(2) The lowest price routinely offered to any segment of the general public."

7

The state Plan does not permit an upper payment limit of "usual and

8

customary charge.

9

102. However, Supplement 2 of Attachment 4:19-B of the state Plan does not

10 permit any methods or standards for establishing a payment limit of "usual and customary

11 charge." To the contrary, Supplement 2 of Attachment 4:19-B of the state Plan only

12 permits an upper payment limit in this respect of the pharmacy's "charges to the general

13 public."

14

Thus, ¶ A at Page 1 of Supplement 2 of Attachment 4:19-B of the state Plan, which

15 is entitled:

16

"METHODS AND STANDARDS FOR ESTABLISHING PAYMENT

RATES-PRESCRIBED DRUGS"

17

provides: 18

"A. The method used to establish maximum drug product payments is that

19

payments for drugs dispensed by pharmacists shall consist of the state's

Estimated Acquisition Cost (EAC) of the drug product dispensed plus a

20

dispensing fee that is added to the drug product payment . . . The EAC is

the lowest of the Average Wholesale Price (AWP) minus 17 percent,

21

the Maximum Allowable Ingredient Cost (MAIC); the federal upper limit

of reimbursement for listed multiple source drugs (called "Federal Upper

22

Limit" or FUL), or the charges to the general public." (Boldface

emphasis supplied.) 23

Also, 42 CFR § 447.512 does not permit an upper payment limit of "usual

24

and customary charge."

25

103. Thus, 42 CFR §§ 447.512 provides that except for multi-source drugs for

26

27

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1 which a payment cap has been established under 42 CFR § 447.518, that agency payments

2 for brand name drugs and other drugs:

3

" . . . must not exceed, in the aggregate, payment levels that the agency

has determined by applying the lower of the--

4 (1) EAC plus reasonable dispensing fees established by the agency; or

5

(2) Providers' usual and customary charges to the public."

6

(Boldface emphasis supplied.)

7

104. I.e., the term, "usual and customary" is and always has been a regulatory 8

term descriptive of and referring, in 42 CFR § 447.512 to "charges to the public." The 9

new State law, (the UBL), legislates a different meaning to the phrase, “usual and 10

customary” charge or price, to mean and refer in the state UBL to usual and customary 11

charges or price to entities which are both not a part of the general public, and not included 12

in the phrase, “charges to the general public” is utilized to indicate the maximum charges 13

which a provider is permitted to charge the Medi-Cal program in California. 14

Thus, third party payers (“TPPs) are not the general public and have always been 15

construed by HHS and the Department not to be included in the phrase, “charges to the 16

general public,” so that the new UBL is contrary to, hence preempted under the 17

Supremacy Clause by, the Medicaid rate-setting statute, (namely, Sec. 30A) and 42 CFR 18

§ 447.512 in which HHS implements Sec. 30A. 19

In sum, the federal regulatory meaning in the state Plan and in 42 CFR § 447.512, 20

which were adopted and approved by HHS to carry out Sec. 30A, (among other provisions 21

of the Medicaid Act), cannot be injected and given a new and different meaning by 22

California legislature, – especially as in case at bar the "new" legislative meaning or 23

definition is in flat contradiction to plain words in the state Plan and in 42 CFR § 447.512 24

which prohibit the State from imposing a Medi-Cal upper billing limit which is different 25

26

27

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 49 of 51 Page ID #:151

1 from the meaning of "charges to the public;” and when HHS and the Department have 2 never construed or enforced "usual and customary" in respect to TPPs, (in the manner and 3 meaning to be ascribed to “usual and customary” charge or price enacted by the UBL), 4 in more than 40 years of the Medicaid program in California: which establish a de facto 5 and de jure federal regulatory meaning that “usual and customary” refers to charges to the

6 public, not, to charges to TPPs, and is not a term or meaning which may be changed by the

7 State Legislature to now mean, that “usual and customary” means and refers to TPPs, (so

8 that in respect also, the UBL of § 14105.455 Welf. & Inst. Code is contrary to, hence

9 preempted under the Supremacy Clause by, Sec. 30A and the aforesaid state Plan

10 provisions and 42 CFR § 447.512 which implement Sec. 30A.

11

WHEREFORE, each of the Plaintiffs prays for orders and judgment as follows;

12

FIRST:

13

A. That judgment be entered against the defendant DAVID MAXWELL-JOLLY,

14 Director of the Department of Health Care Services and in favor of each of the Plaintiffs;

15

B. That a permanent injunction, preliminary injunction, and temporary restraining

16 order be rendered and filed which orders the Director, and his agents, servants, attorneys,

17 and those working in concert with him, as follows;

18

- (1) To refrain from implementing, and to stay, § 14105.455 California Welfare

19 & Institutions ("Welf. & Inst.") Code, including (without limitation thereby) refraining

20 from reducing any payments to pharmacies in respect to or on account of any provision

21 in § 14105.455 Welf. & Inst. Code:

22

- (2) To refrain from implementing, and to stay, § 14105.45 Welf. & Inst. Code,

23 including (without limitation thereby) refraining from reducing any payments to pharmacies

24 in respect to drug products which are subject to a MAIC limit or cap in the Medi-Cal

25 fee-for-service program, on account of or related to any provision in the aforesaid §

26

27

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1 14105.45 Welf. & Inst. Code, both in its present form and wording and in each of its prior

2 forms and wordings, including:

3

- as it was enacted or amended on July 28, 2009 by Section 38 of Assembly

4

Bill ("AB) X4 5, (Chapter 5, Statutes of 2009 Fourth Extraordinary Session);

5 - as it was enacted or amended on August 24, 2007 by Section 64 of AB 203,
6 (Chapter 188, Statutes 2007);
7

8

- as it was enacted or amended on August 16, 2004 by Section 17 of Senate

9

Bill 1103, (Chapter 228, Statutes 2004);

10

11

- (3) (a) To refrain from implementing or allowing the implementation of

12 the September 26, 2009 markdown of published Average Wholesale Price ("AWP") to 1.20

13 of Wholesale Average Cost ("WAC") by the AWP pricing publisher, First DataBank, Inc.,

14 used by the Department, in the Medi-Cal fee-for-service program and in all plans, plan, or

15 organization in the Medi-Cal managed care program; and to pay pharmacies and to take all

16 steps necessary to cause pharmacies in both the Medi-Cal fee-for-service program and the

17 Medi-Cal managed care program to be paid the same amounts, from and since September

18 26, 2009, that they would otherwise have received for covered pharmacy services had the

19 published AWP not been marked down from over 1.20 of WAC to 1.20 of WAC on

20 September 26, 2009 by the AWP publisher used by the Department.

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C. That this above-entitled Court issue a judgment for declaratory relief which

22 states the rights and duties of the respective parities in respect to the matters which are the

23 subject of this action.

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D, That Plaintiffs have reasonable attorneys fees by all statutes made and

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Case 2:09-cv-08200-CAS-MAN Document 6 Filed 12/05/09 Page 51 of 51 Page ID #:153

1 provided therefore, together with costs and such other and further relief as may be just.

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Dated: December 2, 2009

3t 4 5 6

LYNN S. CARMAN STANLEY L. FRIEDMAN

By:

/s/ Lynn S. Carman

Attorneys for Plaintiffs

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 Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 1 of 21 Page ID #:2903

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UNITED STATES DISTRICT COURT

9

CENTRAL DISTRICT OF CALIFORNIA

10

WESTERN DIVISION

11 CALIFORNIA PHARMACISTS

) Case No. CV 09-8200 CAS (MANx)

ASSOCIATION; GERALD SHAPIRO, )

12 Pharm. D. dba Uptown Pharmacy and )

Gift Shoppe; SHARON STEEN, dba ) ORDER GRANTING IN PART AND

13 Central Pharmacy; TRAN PHARMACY, ) DENYING IN PART PLAINTIFFS’

INC. dba Tran Pharma,

) MOTION FOR PRELIMINARY

14

) INJUNCTION

Plaintiffs,

)

15

)

vs.

)

16

)

)

17 DAVID MAXWELL-JOLLY, Director )

of Department of Health Care Services of)

18 the State of California

)

)

19

)

Defendant.

)

20

)

_______________________________ )

21

I. INTRODUCTION

22

On November 9, 2009, plaintiffs California Pharmacists Association; Gerald

23

Shapiro, Pharm. D., dba Uptown Pharmacy & Gift Shoppe; Sharon Steen, dba Central

24

Pharmacy; and Tran Pharmacy, Inc., dba Tran Pharmacy, filed the instant action against

25

David Maxwell-Jolly, Director of the Department of Health Care Services of the State of

26

California (the “Director”). The Department of Health Care Services of the State of

27

California (the “Department”) is a California agency charged with the administration of

28

California’s Medicaid program, Medi-Cal. Plaintiffs represent certain providers of

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 2 of 21 Page ID #:2904

1 Medi-Cal pharmaceutical services. On December 5, 2009, plaintiffs filed an amended

2 complaint (“FAC”) for injunctive and declaratory relief, alleging nine claims for relief.

3

On December 7, 2009, plaintiffs filed the instant motion for preliminary

4 injunction. On December 28, 2009, the Court denied plaintiffs’ December 10, 2009

5 application for temporary restraining order, pending final determination of their motion

6 for preliminary injunction. On February 1, 2010, defendant filed his opposition.

7 Plaintiffs’ reply was filed on February 8, 2010. The Court heard oral argument on

8 February 22, 2010, and then took this matter under submission. After carefully

9 considering the arguments set forth by both parties, the Court finds and concludes as

10 follows.

11 II. BACKGROUND

12

Medicaid is a cooperative federal program: the federal government provides

13 federal funding to the states, so that states may provide medical care to their needy

14 citizens. State participation is voluntary; however, once a state chooses to participate by

15 accepting federal funds, it must comply with the requirements imposed by the Medicaid

16 Act. Because California has elected to participate in the Medicaid program, it must

17 administer its state Medicaid program, Medi-Cal, in compliance with a State Medicaid

18 Plan (“State Plan”) that has been pre-approved by the Secretary of the U.S. Department

19 of Health and Human Services (the “Secretary”), and which complies with federal

20 Medicaid law, including the requirements set forth in 42 U.S.C. § 1396a(a)(1)-(70). In

21 accordance with these requirements, California must provide “methods and procedures”

22 for the payment of care and services that (1) are “consistent with efficiency, economy,

23 and quality of care,” and (2) ensure their availability to the Medicaid population to the

24 same “extent as they are available to the general population in the geographic area.” 42

25 U.S.C. § 1396a(a)(30)(A). These requirements are known, respectively, as the “quality

26 of care” and “equal access” provisions of § 30(A) of the Medicaid Act.

27

The subject of this case is reimbursement to pharmacies in the Medicaid program.

28 Medi-Cal reimburses pharmacies that dispense prescription drugs to patients covered by

2

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 3 of 21 Page ID #:2905

1 Medicaid. The department reimburses these pharmacies the lower of the pharmacy’s

2 “usual and customary charge,” (known as the Upper Billing Limit, “UBL”) or the

3 reimbursement rate outlined in § 14105.45. See Cal. Welf. & Inst. Code § 14105.455(e).

4 Under § 14105.45, the department reimburses pharmacies the “estimated acquisition

5 cost” of drugs along with a fixed dispensing fee per prescription. Cal. Welf. & Inst.

6 Code § 14105.45(b)(1). The reimbursement of drug costs is based on the lesser of four

7 alternatives: (1) average wholesale price (“AWP”) minus 17%; (2) the selling price; (3)

8 the federal upper limit; or (4) the maximum ingredient cost (“MAIC”).1 Id. §

9 14105.45(b)(2).

10

Plaintiffs here challenge three different pharmacy provider cuts. First, is an

11 alleged 4% reduction in reimbursements tied to the AWP, which is the “price for a drug

12 product listed as the average wholesale price in the department's primary price reference

13 source.”2 The Department uses First DataBank, Inc. (“First DataBank”), a drug pricing

14 publisher, as its primary price reference source for determining the AWP. On March 17,

15 2009, as part of a class action settlement in a separate lawsuit, First DataBank agreed to

16 reduce the mark-up of 1.25 over the wholesale acquisition cost (“WAC”) to 1.20 over

17 WAC, when setting the AWP for approximately 1,400 drug products.3 See New

18

19

1 MMAIC means the maximum amount the department will re imburse Medi-Cal

20

pharmacy providers for generically equiva lent drugs. Cal. Welf. & Inst. Code § 14105.45(8).

21 2 The AWP reductions are the subject of plaintiffs’ fifth, sixth, and seventh claims
22 for relief. Specifically, plaintiffs request that the Court order the Director to (1) “refrain

23 from implementing” the September 26, 2009, markdown of published AWP; (2) “pay all

pharmacies in the Medi-Cal fee-for-service program the same amounts that they would 24 otherwise have received” absent the markdown in published AWP; and (3) “take all steps

25 necessary, at once, to order and to cause all managed care plans” to pay the same amount

26 to all pharmacy providers had the published AWP not been marked down. Mot. at 1-2.

27

3 The AWP figure is u sually derived by applying a m ultiplier to the wholesale

acquisition cost (“WAC”). See Nat’l Ass’n of Chain Dr ug Stores v. New England

28

(continued...)

3

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 4 of 21 Page ID #:2906

1 England Carpenters Health Benefits Fund v. First DataBank, Inc., 602 F. Supp. 2d 277

2 (D. Mass. 2009) (approving the settlements). On appeal, the district court’s order

3 approving the settlement agreements was affirmed by the First Circuit. See 582 F.3d 30

4 (1st Cir. 2009). Plaintiffs allege that the settlements in First DataBank had the effect of

5 reducing the markup to 1.20 over WAC when setting the AWP for approximately 18,000

6 to 20,000 additional drug products. FAC ¶ 26. Implementation of these AWP

7 reductions occurred on September 26, 2009. Plaintiffs contend that the practical effect

8 of these reductions is that the reimbursement for drug products tied to AWP has been

9 reduced by slightly more than 4%. Id.

10

Second, is the alleged payment reduction pursuant to the UBL statute, codified at

11 Cal. Welf. & Inst. Code § 14105.455, and enacted by the California legislature on July

12 28, 2009, when California Governor Arnold Schwarzenegger signed into law Assembly

13 Bill X4 5 (“AB 5"). The relevant code section provides that pharmacy providers are

14 required to submit their usual and customary charge when billing the Medi-Cal program

15 for prescription drugs.4 Id. § 14105.455(a). The “usual and customary charge” means

16 the lower of the following: (1) the lowest price reimbursed to the pharmacy by other

17 third-party payers in California; or (2) the lowest price routinely offered to any segment

18 of the general public. Id. § 14105.455(b). Plaintiffs allege that as a practical matter

19 compliance with the record keeping requirements of the UBL statute is impossible for

20 the great majority of pharmacies because of the way pharmacies handle third-party payer

21 claims—namely, third-party payers usually contract with pharmacy benefit managers or

22 wholesaler’s organizations to contract with pharmacy networks, which are called

23

24

3(...continued)

25 Carpenters Health Benefits Fund , 582 F.3d 30, 36-37 (1st Cir. 2009) (providing a

26 background to drug pricing and the controversy in the underlying case).

27

4 Further, pharmacy providers are required now “to keep and maintain records of

their usual and customary charges for a periodof three years from thedate the service was

28 rendered.” Cal. Welf. & Inst. Code § 14105.455(d).

4

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 5 of 21 Page ID #:2907

1 Pharmacy Service Administration Organizations; in this way, third-party payers do not

2 directly contract with the individual pharmacies. FAC ¶¶ 54-56; Mot. at 11.

3 Accordingly, plaintiffs allege, in their fourth claim for relief, that because pharmacy

4 providers do not know when they submit a claim, whether the claim is higher or lower

5 than the Medi-Cal rate for the same prescription, many pharmacy providers will simply

6 elect to fill only third-party payer claims, rather than Medi-Cal claims. Id.; Reply at 12.

7

Finally, plaintiffs challenge any reduction in reimbursement for generic drugs

8 which are subject to a MAIC cap, commencing in June 2010. According to plaintiffs,

9 since 1990, the Department has administered a list of MAIC multi-source drugs at a

10 MAIC cap or limit which allows a large percentage of gross profit, which however is

11 only a small dollar amount of gross profit per MAIC prescription because MAIC

12 generics are low-priced drugs. Mot. at 19. Plaintiffs allege that since 2004, the

13 legislature has enacted a series of measures to reduce this profit. Id. First in 2004, the

14 legislature reduced payment for a MAIC drug to the “manufacturer’s average sale price.”

15 Id. Then, § 14105.45, as enacted by Assembly Bill 203 (“AB 203") in August 2007,

16 required the Department to establish a MAIC list for generically equivalent drugs; and to

17 update the list and establish new MAICs based on the mean of the “average

18 manufacturers price” of drugs generically equivalent to the particular innovator drug,

19 plus a percent markup determined by the department to be necessary for the MAIC to

20 represent the “average purchase price” paid by retail pharmacies in California.5

21 According to plaintiffs, because the U.S. District Court for the District of Columbia

22 enjoined the Department from implementing average manufacturers prices, the

23 legislature enacted the new MAIC reimbursement provisions of AB 5. As amended by

24 AB 5, § 14105.45 now provides that if “average manufacturer prices” are unavailable,

25 the Department shall establish the MAIC, either

26

27

5 “Average manufacturers price” means the“price reported to the department by the

Centers for Medicare and Medicaid Services pursuant to Section 1927 of the Social

28 Security Act, 42 U.S.C. § 1396r-8.” Cal. Welf. & Inst. Code § 14105.45.

5

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1

(i) based on the volume weighted average of wholesaler acquisition costs of

2

drugs generically equivalent to the particular innovator drug plus a percent

3

markup determined by the department to be necessary for the MAIC to

4

represent the average purchase price paid by retail pharmacies in

5

California; or (ii) pursuant to a contract with a vendor for the purpose of

6

surveying drug price information, collecting data, and calculating a

7

proposed MAIC.

8 Cal. Welf. & Inst. Code § 14105.45(b)(2)(B) (emphasis added). Further, subsection (d)

9 provides that “in order to maintain beneficiary access to prescription drug services,” the

10 Department shall make a “one-time adjustment to the dispensing fees paid to pharmacy

11 providers” calculated to equal the aggregate savings to the State from implementing the

12 new MAIC reimbursement scheme.6 See id. § 14105.45(d). Finally, the Department is

13 required to establish a process for providers to seek a change to a specific MAIC when

14 the providers believe the MAIC does not reflect current available market prices. Id. §

15 14105.45(b)(3)(E). Plaintiffs allege that this change in calculating the MAIC results in a

16 reduction in payments to pharmacy providers of more than .8%. Mot. at 7. Further,

17 plaintiffs allege in their eighth claim that because the new MAIC formula is based on an

18 average, i.e. “average purchase price,” that approximately one-half of all pharmacies

19 which by definition comprise the group who expend more than the average amount to

20 acquire a given MAIC drug product, will suffer a net loss. FAC ¶ 95. Moreover,

21

22

6 Specifically, subsection (d) provides, in pertinent part, that

23

no later than 30 days after the department initially implements selling price

as a component of estimated acquisiti on cost, pursuant to paragraph (2) of

24

subdivision (b), the department shall make a one-time adjustment to the

25

dispensing fees paid to pharmacy providers in accordance with paragraph (1)

of subdivision (b). This change shall only be made if selling price results in

26

a lower aggregate drug reimbursement. Any increase in dispensing fee made

27

pursuant to this subdivision shall notexceed the aggregatesavings associated

with the implementation of selling price.

28 Cal. Welf. & Inst. Code § 14105.45(d).

6

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 7 of 21 Page ID #:2909

1 plaintiffs allege that because the new dispensing fee that is set by the amended § 1405.45

2 is fixed and increased only one time, all pharmacy providers will suffer a net loss over

3 time, “due to inflation in overhead costs.” Id. ¶ 97.

4 III. LEGAL STANDARD

5

The purpose of a temporary restraining order is to “preserve the status quo

6 pending hearing on the moving party’s application for a preliminary injunction.”

7 William A. Schwarzer et al., California Practice Guide: Federal Civil Procedure Before

8 Trial § 13:11 (The Rutter Group 2002) (citing Granny Goose Foods, Inc. v. Brotherhood

9 of Teamsters & Auto Truck Drivers, 415 U.S. 423, 439 (1974)). “A preliminary

10 injunction is not a preliminary adjudication on the merits: it is an equitable device for

11 preserving the status quo and preventing the irreparable loss of rights before judgment.”

12 Textile Unlimited v. A..BMH & Co., 240 F.3d 781, 786 (9th Cir. 2001). The Ninth

13 Circuit summarized the Supreme Court’s recent clarification of the standard for granting

14 preliminary injunctions in Winter v. Natural Res. Def. Council, 129 S. Ct. 365, 374

15 (2008), as follows: “[a] plaintiff seeking a preliminary injunction must establish that he

16 is likely to succeed on the merits, that he is likely to suffer irreparable harm in the

17 absence of preliminary relief, that the balance of equities tips in his favor, and that an

18 injunction is in the public interest.” Am. Trucking Ass’n, Inc. v. City of Los Angeles,

19 559 F.3d 1046, 1052 (9th Cir. 2009); see also Cal Pharms. Ass’n v. Maxwell-Jolly, 563

20 F.3d 847, 849 (9th Cir. 2009).

21 IV. DISCUSSION

22

A. LIKELIHOOD OF SUCCESS ON THE MERITS

23

As noted above, plaintiff brings nine claims for relief based on the allegation that

24 the three pharmacy provider cuts are preempted by § 30(A). The Ninth Circuit has held

25 that plaintiff may bring suit under the Supremacy Clause to enjoin implementation of

26 state legislation preempted by the Medicaid Act. See, e.g., Indep. Living Ctr. of S. Cal.

27 v. Shewry, 543 F.3d 1050, 1065-66 (9th Cir. 2008) (“ILC I”). Under general principles

28 of federal conflict preemption, state law is preempted only to the extent that it actually

7

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 8 of 21 Page ID #:2910
1 conflicts with state law. Pacific Gas & Elec. Co. v. State Energy Res. Conservation & 2 Dev. Comm'n, 461 U.S. 190, 204 (1983). Such a conflict may arise either where 3 “compliance with both federal and state regulations is a physical impossibility, or where 4 state law stands as an obstacle to the accomplishment and execution of the full purposes 5 and objectives of Congress.” Id. at 203-04. In so far as the California Legislature and 6 the Department fail to consider the factors required by § 30(A) before setting Medi-Cal 7 reimbursement rates, the Court may find that such state legislation frustrates the purpose 8 underlying § 30(A), and is thus preempted. See Indep. Living Ctr. of S. Cal. v. 9 Maxwell-Jolly, 572 F.3 644, 653 (9th Cir. 2009) (“ILC II”). Section 30(A) creates 10 duties on behalf of the Department, i.e., the duty to consider efficiency, economy, and 11 quality of care when establishing reimbursement rates. Id. at 65 (citing Orthopedic 12 Hospital v. Belshe, 103 F.3d 1491, 1492, 1496-97 (9th Cir. 1997)). Thus when the State 13 of California seeks to modify reimbursement rates for health care services provided 14 under the Medi-Cal program, it must consider efficiency, economy, quality of care, and 15 equality of access, as well as the effect of providers’ costs on those relevant factors. See 16 ILC II, 572 F.3d at 651-53. As the Ninth Circuit held in Orthopedic Hospital, 103 F.3d 17 at 1496, § 30(A) requires that the Director set reimbursement rates that “bear a 18 reasonable relationship to efficient and economical hospitals' costs of providing quality 19 services, unless the Department shows some justification for rates that substantially 20 deviate from such costs.” See also ILC II, 572 F.3d at 651-52 (affirming the standards 21 established in Orthopedic Hospital). To meet this statutory requirement, the Director 22 “must rely on responsible cost studies, its own or others', that provide reliable data as a 23 basis for its rate setting.” 103 F.3d at 1496. Further, the Ninth Circuit clarified in Cal. 24 Pharms. Ass’n v. Maxwell-Jolly, 596 F.3d 1098, 1105-07, 1115 (9th Cir. 2010), that 25 when the California legislature “elects to by-pass the Department, and set rates itself,” 26 the legislature “must study the impact of the contemplated rate reduction on the statutory 27 factors of efficiency, economy, quality of care, and access to care prior to setting or 28 adjusting payment rates,” “or in a manner that allows those studies to have a meaningful
8

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 9 of 21 Page ID #:2911

1 impact on rates before they are finalized.”7

2

1. Claims One, Two, and Three

3

In their first three claims for relief, plaintiffs challenge the three pharmacy

4 provider cuts for the following same reasons. First, plaintiffs claim that all the Medi-Cal

5 rate reductions by the legislature are facially contrary to the single state agency

6 provisions of 42 U.S.C. § 1396a(a)(5), and are thus preempted under the Supremacy

7 Clause. FAC at 13-17; Mot at 4-6. The Ninth Circuit has not interpreted the Medicaid

8 Act to require that rate setting be the exclusive purview of the Department. To the

9 contrary, the Ninth Circuit recently clarified in Cal. Pharms. Ass’n, 596 F.3d at 1105-07,

10 that the legislature may “by-pass the Department, and set rates itself” so long as it

11 considers the relevant § 30(A) factors prior to setting or adjusting rates. Second,

12 plaintiffs claim that the three provider cuts constitute a substantive violation of § 30(A)

13 because their cumulative effect is allegedly a 5% reduction in total reimbursement,

14 which in turn will cause a reduction in participation by pharmacy providers to such a

15 degree that equal access to services is threatened. FAC at 19-22; Mot at 6-8. For the

16 reasons articulated infra subsection IV.A.1, the Court finds that the claimed 4%

17 reduction in payments tied to AWP does not implicate § 30(A). Accordingly, plaintiffs’

18 challenge to the cumulative effect of the provider cuts, most notably the 4% AWP

19

20

7 In Cal. Pharms. Ass’n , the Ninth Circuit rejected the State’s argument that the

21

holding in Orthopedic Hospital stood for the proposition that only the Departm ent is required to consider the § 30(A) factors and in any way “absolves the legislature of the

22 same requirements when it sets rates.” 596 F.3d at 1105-06. The Ninth Circuit

23 emphasized that none of the disputed rate-settings in Orthopedic Hospitawl ere actually set by the legislature because the legislative enactments granted the Director broad discretion

24 to set applicable rates in the faceof general governing criteria. Id. Because “the Director

25 set the challenged rates, [Orthopedic Hospital] addressed whether the Medicaid Act ‘requires the Department to consider the costs hospitals incur in delivering services when
26 setting specific payment rates under [§ 30(A)]”, and found that “the Department cannot

27 know that is setting rates that are consistent with [§ 30(A)’s relevant factors] without considering the costs of providing such services. Id.(quoting 103 F.3d at 1496 (emphasis
28 added)).

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Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 10 of 21 Page ID #:2912

1 markdown, is denied. Third, plaintiffs claim that the legislature precluded itself from an

2 adequate consideration of the relevant § 30(A) factors by virtue of its merging the MAIC

3 limitation and UBL provision in one bill. FAC at 23-24; Mot. at 8. As this Court has

4 noted in related matters, the State is free to exercise its “considered judgment” and

5 reduce Medi-Cal reimbursement rates, so long as the decision is not based solely on

6 budgetary constraints. See accord Cal. Pharms. Ass’n, 596 F.3d at 1115. The fact that

7 the legislature chose to enact the payment cuts in the same bill, AB 5, by itself does not

8 demonstrate that the legislature failed to consider the relevant § 30(A) factors.

9 Accordingly, the Court concludes that plaintiffs have not made out a sufficient showing

10 that they have a strong likelihood of success on the merits of their first, second, and third

11 claims.

12

2. Claims Five, Six, and Seven

13

In their fifth and sixth claims, plaintiffs contend that the 4% reduction resulting

14 from the FirstData Bank settlements constitutes a rate reduction in violation of § 30(A).

15 For the reasons stated in the Court’s December 28, 2009 order denying plaintiffs’

16 application for a temporary restraining order, the Court disagrees.

17

Plaintiffs alternatively contend that assuming that the 4% reduction in

18 reimbursements tied to the AWP is not a “rate cut” caused by a state action, the Court

19 should nevertheless find that the payment reduction is a substantive violation of § 30(A).

20 In support of their seventh claim for relief, plaintiffs argue that the reduction in

21 payments violates § 30(A)’s substantive requirements because pharmacies will cease

22 filling brand drug prescriptions, thereby denying recipients both quality pharmaceutical

23 services and equal access to brand drugs. Reply at 12. In other words, plaintiffs are

24 arguing that it is immaterial under § 30(A) whether the state acted to reduce

25 reimbursement rates because § 30(A) requires that payments not be effectively reduced

26 in such a way that would undermine the requirements mandated by the quality of care

27 and equal access provisions. Plaintiffs point to the language of § 30(A) which provides,

28 in pertinent part, that the State Plan “must . . . provide . . . payment for, care and services

10

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 11 of 21 Page ID #:2913

1 available under the plan . . . to assure that payments are consistent” with the relevant § 2 30(A) factors, to argue that the State has an affirmative obligation to assure that 3 payments are substantively consistent with quality of care and equal access. Mot. at 3-4.

4

5

In ILC II, the Ninth Circuit discussed the distinction between § 30(A)’s

6 procedural and substantive requirements. 572 F.3d at 657; see also Cal. Pharms. Ass’n,

7 596 F.3d at 1113 (discussing the distinction). The court noted the “potential difficulties

8 inherent in assessing substantive compliance with the factors laid out in § 30(A),” which

9 made more attractive, by comparison, the “process-oriented view of the statute espoused

10 in [Orthopedic Hospital].” Id. Moreover, the Ninth Circuit explained that while there is

11 a difference between the substantive and procedural compliance with § 30(A), the two

12 requirements are interdependent. Id. at 656 (“[I]t is fair to assume that a rate that is set

13 arbitrarily, without reference to the Section 30(A) requirements, is unlikely to meet the

14 equal access and quality requirements.”). Finally, the Ninth Circuit suggested that

15 “[e]ven if we were to interpret § 30(A) to mandate a substantive rather than procedural

16 result, [the rate reduction] might still conflict with the quality of care and access

17 provisions of § 30(A)” if at least some providers stop treating Medi-Cal beneficiaries.

18 Id. at 656-57; see also Cal. Pharms. Ass’n, 596 at 1114 (finding in the alternative that

19 even if the court were to require a substantive violation of the statute to support a finding

20 of irreparable harm, the court would find a violation in this case because at least some

21 providers would stop treating beneficiaries due to the five percent rate reduction enacted

22 by AB 1183).

23

Notwithstanding the fact that there is a difference between substantive and

24 procedural compliance with § 30(A), it appears that the obligations created by § 30(A)

25 are not implicated in circumstances such as these where the State has not affirmatively

26 acted to create a new, or modified, “method or procedure” for establishing

27 reimbursement rates to Medi-Cal providers. In the instant case, the challenged

28 reductions in reimbursement are the result of changes in how First DataBank, a private

11

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1 party, establishes wholesalers’ prices. For this reason, the Court finds this case is

2 distinguishable from every case in this circuit in which the court has enjoined

3 implementation of State mandated Medi-Cal rate reductions. See, e.g., Managed

4 Pharmacy Care v. David Maxwell Jolly, 603 F. Supp. 3d 1230 (C.D. Cal. 2009)

5 (enjoining the Director from implementing the five percent payment reductions codified

6 in Cal. Welf. & Inst. Code § 14105.191(b)(3), as modified by Assembly Bill 1181); see

7 also, Indep. Living Ctr., No. CV 08-3315 CAS (MANx), 2008 WL 3891211 (C.D. Cal.

8 Aug. 18, 2008)). In the absence of such a duty under § 30(A), it is inappropriate to order

9 the Department to remediate the effects of a reduction in payments occasioned by a

10 private settlement. Moreover, to the extent that these external changes in published

11 prices may allow California’s State Plan to fall out of compliance with §30(A), the

12 Secretary may in her discretion initiate a compliance action and withhold federal funds.8

13 See 42 U.S.C. § 1396c. The Court concludes that the Secretary is better able to address

14 the potential impact of the markdown in AWP, as it pertains to Medicaid reimbursement

15 rates nationally, than is the State.

16

For all these reasons, the Court concludes that plaintiffs have not made out a

17 sufficient showing that they have a strong likelihood of success on the merits of their

18 seventh claim for relief. As to plaintiffs’ alternative request for preliminary injunction

19 pending appeal, under Fed. R. Civ. P. 8(a), the Court denies such a request for the same

20 reasons stated in the Court’s February 22, 2010 order denying the same request by

21

22

8 In the related m atter, Nat’l Assoc. of Chain Drug Stores, et al. v. Arnold

23 Schwarzenegger, et al., No. 09-7097 CAS (MANx), plaintiffs sought to enjoin the sam e 4% reduction in payments tied to AWP. TheUnited States Department of Justice (“DOJ”)

24 filed a Statement of Interest in that case arguing that these changes in the reimbursement

25 formula do not implicate § 30(A), and that in any event, the Secretary has no reason to believe that problem s with efficiency, econom y, quality of care, or access, exist in
26 California as a result of the reductions by First DataBank in previously overstated

27 published AWPs. See DOJ Statement of Interest (filed Dec. 21, 2009). The DOJ noted that to the contrary, “the widespread abus e of the AWP system has cost the federal
28 government, states, and third-party payors billions in inflated payments.” Id. at 4.

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Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 13 of 21 Page ID #:2915

1 plaintiffs in the related matter of Nat’l Assoc. of Chain Drug Stores, CV 09-7097 CAS

2 (MANx).

3

3. Claims Four and Nine

4

As previously discussed, in their fourth claim for relief, plaintiffs contend that the

5 UBL provision, codified at § 14105.455, substantively violates the quality of care and

6 equal access provisions of § 30(A) because many pharmacists will elect to not

7 participate in Medi-Cal, so as to prevent their being penalized by Medi-Cal for filling

8 third-party payer prescriptions for less than Medi-Cal pays. Reply at 12. Further, in

9 their ninth claim for relief, plaintiffs allege that the UBL statute violates the State Plan,

10 as well as 42 C.F.R. § 447.512, because these laws do not permit any methods or

11 standards for establishing a payment limitation other than a limitation of “charges to the

12 public.” Reply at 14; FAC at 45-48. According to plaintiffs, “charges to the public” has

13 always been interpreted by the Department so as to not refer to, or include, charges to

14 third-party payers. Id.

15

Defendant responds that the UBL statute merely codifies existing anti-

16 discriminatory billing and record-keeping requirements mandated by longstanding Medi-

17 Cal regulations, and affirmed by the California Court of Appeal in Physician and

18 Surgeons Laboratories, Inc. v. Dept. of Health Care Services, 6 Cal. App. 4th 968

19 (1992). Opp’n at 2, 11-12, 14 (citing Cal. Code Regs., tit. 22, §§ 51501(a) (2000);

20 51480 (1974); 51513(b)(1)(A) (2009); 51516 (1999); 51516.1 (2004)). Accordingly,

21 defendant argues that the cases challenging legislatively mandated rate changes do not

22 apply to this provision. Id. at 2, 10-12. However, even if the rate-setting cases applied,

23 defendant contends that the legislature relied upon responsible cost studies to determine

24 that Medi-Cal reimbursement after the proposed changes enacted by AB 5 comply with

25 § 30(A). Id. In support of this argument, defendant points to the fact that in 2007, the

26 Department contracted with the accounting firm Myers and Stauffer to perform a study

27 of pharmacy provider costs and reimbursements under the Medi-Cal program (“Myers

28 and Stauffer Study”). Id. at 5; Def.’s Req. For Judicial Notice (“RJN”), Ex. B.

13

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 14 of 21 Page ID #:2916

1

In Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, No. 09-55692, 2010 WL

2 737650, at *1 (9th Cir. Mar. 3, 2010) (unpublished), the Ninth Circuit had occasion to

3 consider whether the Director could rely on the Myers and Stauffer Study to demonstrate

4 that the legislature in 2008 studied the impact of the rate changes proposed by AB 1183,

5 on the statutory factors prior to setting rates, or in a manner that allowed those studies to

6 have a meaningful impact on rates before they were finalized. The Ninth Circuit

7 rejected the Director’s reliance because “while the Myers and Stauffer Study provides

8 detailed discussion of costs, it is bereft of any analysis of the remaining § 30(A)

9 factors.”9 2010 WL 737650, at *1 (citing Cal. Pharms. Ass’n, 596 F.3d at 1115, holding

10 that the State must consider costs and study the impact of the rate change on the

11 statutory factors). To the contrary, the Ninth Circuit noted that the Myers and Stauffer

12 Study recommends that the Department consider additional analysis in light of these

13 costs. Id. (quoting passages in the study in support).

14

In considering whether to enact the UBL provision, defendant contends that the

15 legislature considered that “private third-party payers have contractual agreements with

16 pharmacies to limit drug reimbursement, and these reimbursement rates are often lower

17 than the Medi-Cal reimbursement.”10 Opp’n at 5, 14-15; Def.’s RJN, Ex. D-1, D-10 at

18 968-69 (noting that the Myers and Stauffer Study found that Medi-Cal pharmacy

19 reimbursement covers 105% of providers’ costs). Defendant argues that the legislature

20 complied with the procedural requirements outlined in ILC II, 572 F.3d at 657, and

21

22

9 The Ninth Circuit also rejected the Director’s reliance because the Director could

23 point to only one sentence in the May 30, 2008 agenda released by the Assembly Budget

Subcommittee No. 1 on Health and Hum an Services that read: “Dec. 2007 Myers and 24 Stauffer study found that current Medi-Cal drug pricing averages around 5 percent over

25 cost.” The Ninth Circuit held t hat the one-sentence citation did not show adequate

26 consideration of the § 30(A) factors. 2010 WL 737650, at *1.

27

10 Further, the legislature noted that the purpose of § 14105.455 is “to ensure the

Medi-Cal Program is billed at a third-party payer rate, and not subsidizing pharmacies or

28 other payers.” Id.

14

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 15 of 21 Page ID #:2917

1 related cases, because it considered the Myers and Stauffer Study before enacting §

2 14015.55. Id. at 12-13. Furthermore, to the extent plaintiffs claim that the record

3 keeping requirements of the UBL will drive pharmacy providers out of business,

4 defendant argues that plaintiffs should not be excused from complying with existing law

5 that prohibits discriminatory billing practices because plaintiffs have delegated this duty

6 to a third party. Id. at 16-17 (citing § 14124.1 which requires every provider billing

7 Medi-Cal to “keep and maintain records of each service rendered, the date of service

8 rendered, and such additional information as the department make require”).

9

Plaintiffs reply that despite defendant’s assertion that the UBL provision merely

10 enacts existing law, the State Plan only provides an upper limit on payments to

11 pharmacies equal to “charges to the general public.” Reply at 2-6. Further, they

12 emphasize that based on the Director’s estimation, the UBL is estimated to result in a

13 savings to the State of $45 million, or more, annually. Id. at 4. Accordingly, plaintiffs

14 argue that it cannot be said that the UBL provision does not constitute a payment

15 reduction. Id.

16

As a threshold issue, the Court finds that the UBL provision created by AB5, and

17 codified at § 14105.455, constitutes an act of rate-setting, thus triggering the State’s

18 duties under § 30(A). Moreover, in so far as the UBL seeks to create a “lower”

19 reimbursement rate under § 14105.455(e), than previously existed, it is a provider cut.

20 Accordingly, even if it could be said that the legislature considered provider costs prior

21 to enacting § 14105.455, based on its review of the Myers and Stauffer Study, the Court

22 finds that the legislative history shows no indication, nor does defendant even argue, that

23 the legislature studied the impact of the UBL provision on the § 30(A) factors of

24 efficiency, economy, quality, and access to care. Moreover, although Medi-Cal

25 providers may be required under existing law to maintain records and to not bill the

26 Medi-Cal program more than they charge other purchasers, § 14105.455 enacted new

27 administrative requirements and a reimbursement rate based explicitly on the definition

28

15

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 16 of 21 Page ID #:2918

1 of “usual and customary charges” to third-party payers.11 See Cal. Welf. & Inst. Code §

2 14105.455(a), (d). To the extent this new provision forces pharmacy providers to

3 modify business practices, and thus increases provider costs, or otherwise to forgo

4 participating with Medi-Cal, as discussed infra section IV.B, the legislature is required to

5 consider the relevant § 30(A) factors prior to enacting such a provision. Accordingly,

6 the Court concludes that plaintiffs have demonstrated a likelihood of success on the

7 merits of their fourth claim given that it appears that the legislature did not procedurally

8 comply with the factors laid out in § 30(A), and thus it is fair to assume that the UBL

9 provision is unlikely to meet the substantive requirements of equal access and quality of

10 service. See Cal. Pharms. Ass’n, 596 F.3d at 1113, 1115.

11

Because the Court concludes that plaintiffs have demonstrated a likelihood of

12 success on their fourth claim based on a violation of § 30(A), the Court need not address

13 the merits of plaintiffs’ ninth claim, in the alternative, that the UBL provision also

14 violates the State Plan, as well as 42 C.F.R. § 447.512.

15

4. Claim Eight

16

As discussed previously, in their eighth claim for relief, plaintiffs allege that the

17 new MAIC reimbursement formula constitutes a substantive violation of § 30(A)

18 because it will cause pharmacy providers to stop dispensing generic drugs subject to the

19 MAIC cap given that the new formula will force them to dispense these drugs at a net

20 loss. Mot. at 18-22. Accordingly, they argue that Medi-Cal beneficiaries will be unable

21 to obtain their drug prescriptions subject to the MAIC formula. Id.

22

Defendant raises many of the same arguments in response to the challenge to the

23 MAIC formulas, as he did in the context of the UBL provision. First, he argues that the

24 rate setting cases do not apply because § 14105.45, as amended by AB 5, merely

25

26

11 Current regulation requires generally that “[n]otwithstanding any other provisions

27 of these regulations, no provider shall charge for any service or any article more than would have been charged for the same service or article to other purchasers of comparable
28 services or articles under comparable circumstances.” 22 C.C.R. § 51501(a).

16

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 17 of 21 Page ID #:2919

1 authorizes the Department to set MAICs and was made necessary because the existing

2 formula based on average manufacturers price was enjoined. Opp’n at 1, 4; Def.’s RJN,

3 Ex. D-3 at 832. In addition, defendant contends that prior to enacting the new MAIC

4 formula, the legislature considered the Myers and Stauffer study, and considered that “a

5 shift away from brand name drugs to generics with MAICs can be expected to

6 financially benefit pharmaceutical providers.” Id. at 4, 13-14. He argues moreover, that

7 § 14104.45 requires the Department to consider provider input and costs in the MAIC

8 setting process. Id. (citing Cal. Welf. & Inst. Code § 14105.45(b)(3)(E)-(F)).

9

Again, the Court finds that the new MAIC reimbursement formula enacted by AB

10 5, and codified at § 14105.45, constitutes an act of rate-setting, thus triggering the

11 State’s duties under § 30(A). For the same reasons discussed in the context of the UBL

12 provision, the Court finds that the legislature’s review of the Myers and Stauffer Study

13 of provider costs, is not sufficient to demonstrate that the legislature studied the impact

14 of the UBL provision on the § 30(A) factors of efficiency, economy, quality, and access

15 to care, prior to enacting AB 5. Finally, in so far as § 1401.45(b)(3)(E) requires the

16 Department to establish a process for providers to challenge a specific MAIC, or

17 subsection (F) requires it to consider providers’ costs in determining the “average

18 purchase price,” such provisions fail to demonstrate that the Department has the

19 discretion to alter reimbursement rates based on a study of their impact before the rates

20 are finalized. See Cal. Pharms. Ass’n, 596 F.3d at 1110-11 (rejecting the Director’s

21 argument that he has the discretion regarding rates under a similar provision). For these

22 reasons, the Court concludes that plaintiffs have demonstrated a likelihood of success on

23 the merits of their eighth claim given that it appears that the legislature did not

24 procedurally comply with the factors laid out in § 30(A), and thus it is fair to assume that

25 the amended MAIC reimbursement formula is unlikely to meet the substantive

26 requirements of equal access and quality of service. See Cal. Pharms. Ass’n, 596 F.3d at

27 1113, 1115.

28

17

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 18 of 21 Page ID #:2920

1

B. IRREPARABLE HARM

2

Plaintiffs contend that pharmacy providers and their patients are being irreparably

3 harmed by the reduction in reimbursements tied to AWP and the payment cuts enacted

4 by AB 5.12 Plaintiff argues that pharmacy providers will suffer pecuniary harm as a

5 result of the provider cuts, given that they will receive less reimbursement than they

6 would otherwise receive absent the markdown in AWP and the limitations in AB 5.

7 Specifically, plaintiffs assert that Richard D. Wilson, C.P.A., finds that the cumulative

8 effect of these three provider cuts is a reduction in payments by more than 5%, and thus

9 payment rates will not assure that sufficient providers enlist to provide equal access.

10 Mot. at 6-8; Wilson Decl. at 10, 11, 16.

11

In light of the Court’s finding that plaintiffs have not established a high likelihood

12 of succeeding on the merits of their claims challenging the reduction in payments tied to

13 the 4% markdown in AWP, the Court, while acutely cognizant of the potential adverse

14 consequences of these reductions, declines to address plaintiffs’ arguments that they

15 have shown irreparable harm and meet the other requirements for a preliminary

16 injunction. See Global Horizons, Inc. v. United States DOL, 510 F.3d 1054, 1058 (9th

17 Cir. 2007) (“Once a court determines a complete lack of probability on the success or

18 serious questions going to the merits, its analysis may end, and no further findings are

19 necessary.”)

20

As to the UBL provision, plaintiffs submit declarations of pharmacy providers

21 attesting that because of the way third-party payer claims are handled, it is impossible

22 for them to know the specific rates as they compare to Medi-Cal rates, and thus comply

23 with the new UBL provision. Mot. at 10 (citing Lofholm Decl. ¶ 13; Tran Decl. ¶ 19;

24 Shapiro Decl. ¶ 20 (“It is impossible for me to ascertain exactly what my usual and

25 customary rates to third party payers are because there are so many variables for each of

26

27

12 Defendant files numerous objections toplaintiffs’ evidence on the basis that many

of the statements made by the declarants are speculative and lack foundation. To the extent

28 the Court relies on the evidence, the Court overrules defendant’s objection.

18

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 19 of 21 Page ID #:2921

1 the tens of thousands of drug NDCs under many different third party plans.”)).

2 Accordingly, plaintiffs maintain that many pharmacies will be forced to quit the Medi-

3 Cal program, thus harming beneficiary equal access. Id. (citing, e.g., Lofholm Decl.

4 “[I]t does not matter if the pharmacy is a chain or independent, neither can comply [with

5 the UBL provision] and to lessen their exposure to recoupment, many will cease serving

6 Medi-Cal beneficiaries . . . .”).

7

With regard to the MAIC, plaintiffs submit declarations of pharmacy providers

8 that the new reimbursement formula will cause them to suffer a net loss on filling

9 prescriptions for drugs subject to the MAIC cap. For example, Sharon Steen declares

10 that “Medi-Cal, under the new MAIC formula, will reimburse my pharmacy for our

11 costs to acquire a generic drug no more than the average purchase price paid by

12 California retail pharmacies for a given MAICed generic drug transaction. This takes all

13 gross profit out of the acquisition side of the MAIC generic drug transaction. Then

14 because the $7.25 dispensing fee is much less than my overhead costs, per prescription,

15 my pharmacy will suffer a net loss on the total transaction for every MAIC generic drug

16 dispensed.” Plaintiffs assert that this will cause pharmacy providers to no longer

17 dispense such prescriptions. Armen Tatevossian declares, “[a]s for the reduction for the

18 MAIC calculations for generics, generics are the only thing that is helping keep my

19 pharmacy above water. If this is taken away from us as well, then there is no point in

20 keeping our door open.”

21

Defendant responds that the conclusions reached by plaintiffs’ expert Richard

22 Wilson are speculative and “reach far beyond his expertise or findings.” Opp’n at 19.

23 Further, he argues that plaintiffs cannot demonstrate they will suffer irreparable harm

24 because of the limitations enacted by AB 5 because provider reimbursement will still

25 exceed 100% of provider costs.13 Id. at 21. Specifically, as to the amended MAIC

26

27

13 In support of this argum ent, defendant relies on the theory that the Myers and

Stauffer Study found that pharmacy providers are reimbursed at least 105% of their costs

28

(continued...)

19

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 20 of 21 Page ID #:2922

1 formula, defendant argues that a .8% reimbursement reduction, as alleged by plaintiffs,

2 for multi-source drugs subject to the MAIC cap will still result in providers being

3 reimbursed 109.2% to 139.2% of costs. Id. at 22; Defs. RJN A ¶ 31. Finally, defendant

4 contends that plaintiffs’ alleged harm to their businesses or to Medi-Cal recipients is

5 speculative at best and thus does not constitute irreparable injury. Id. at 22.

6

The Court finds that plaintiffs have sufficiently demonstrated that there is a

7 likelihood certain pharmacy providers will suffer monetary losses as a result of the

8 limitations enacted by AB 5, and codified at § 14105.45 and § 14105.455. In addition,

9 beneficiary access will be harmed to the extent pharmacy providers will elect to not fill

10 Medi-Cal prescriptions as a result of these rate reductions. Finally, the Court concludes

11 that plaintiffs have shown irreparable harm if an injunction is not granted, given that

12 plaintiffs’ will be barred by the Eleventh Amendment from obtaining retroactive relief in

13 federal court. See Cal. Pharms., 563 F.3d at 851-52.

14

C. BALANCE OF HARDSHIPS AND PUBLIC INTEREST

15

While the Court is mindful of the enormous challenge faced by the State of

16 California in light of its fiscal crisis, the Ninth Circuit has held that “[s]tate budgetary

17 considerations do not . . . in social welfare cases, constitute a critical public interest that

18 would be injured by the grant of preliminary relief. In contrast, there is a robust public

19 interest in safeguarding access to health care for those eligible for Medicaid.” ILC II,

20 572 F.3d at 659. Further, the Ninth Circuit has determined that “it would not be

21 equitable or in the public's interest to allow the state to continue to violate the

22 requirements of federal law.” Cal. Pharms., 563 F.3d at 852-53. Given that the State

23 may decide to implement a rate change upon making a properly reasoned and supported

24 analysis, the Court finds that the balance of equities and the public interest weigh in

25

26

13(...continued)

27 by Medi-Cal. Opp’n at 21. Thus, defenda nt argues, even assuming the accuracy of plaintiffs’ allegations that § 14105.45 a nd § 14105.455 will result in a 2.5% reduction,
28 providers will still be reimbursed 102-103% of their aggregate costs. Id.

20

Case 2:09-cv-08200-CAS-MAN Document 67 Filed 05/05/10 Page 21 of 21 Page ID #:2923

1 favor of granting the injunctions as to the limitations enacted by AB 5, codified at §

2 14105.455 and § 14105.45.

3 V. CONCLUSION

4

In accordance with the foregoing, the Court GRANTS in part and DENIES in part

5 plaintiffs’ motion for preliminary injunction. The Court hereby orders respondent

6 Director, his agents, servants, employees, attorneys, and all those working in concert

7 with him to (1) refrain from enforcing the Upper Billing Limit codified at Cal. Welf. &

8 Inst. Code § 14105.455; and (2) to refrain from enforcing that portion of Cal. Welf. &

9 Inst. Code § 14105.45, as amended by AB 5, which provides a new MAIC

10 reimbursement formula.

11

12

IT IS SO ORDERED

13 14 Dated: May 5, 2010
15

________________________________ CHRISTINA A. SNYDER UNITED STATES DISTRICT JUDGE

16

17

18

19

20

21

22

23

24

25

26

27

28

21

 
 Case 2:09-cv-08200-CAS-MAN Document 89 Filed 07/06/10 Page 1 of 4 Page ID #:3089
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

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CATHERINE JEANG

NOT PRESENT

N/A

Deputy Clerk

Court Reporter 1Recorder

Tape No.

Attorneys Present for Plaintiffs:

,Attorneys Present for Defendants:

N/A

N/A

Proceedings:

(In Chambers:) PLAINTIFFS' MOTION FOR REHEARING AND TO ALTER, AMEND, MODIFY, AND RECONSIDER MAY 5,2010 ORDER RELATING TO THE SEVENTH CLAIM FOR RELIEF (filed 06/02110)

The Court finds this motion appropriate for decision without oral argument. Fed.

R. Civ. P. 78; Local Rule 7-15. Accordingly, the hearing date of July 12,2010, is hereby

vacated, and the matter is hereby taken under submission.

I. INTRODUCTION & BACKGROUND

The facts and pro<;edural history of this action are known to the parties and summarized in this Court's May 5, 2010 order granting in part and denying in part plaintiffs' motion for preliminary injunction. Specifically, in its May 5,2010 order, the Court found that plaintiffs demonstrated a likelihood of success on their fourth and eighth claims for relief challenging two Medi-Cal pharmacy provider cuts. Accordingly, the Court ordered respondent Director, his agents, servants, employees, attorneys, and all those working in concert with him to (l) refrain from enforcing the Upper Billing Limit codified at Cal. Welf. & Inst. Code § 14105.455; and (2) to refrain from enforcing that portion of Cal. Welf. & Inst. Code § 14105.45, as amended by AB 5, which provides a new MAIC reimbursement formula. However, as to the third Medi-Cal pharmacy provider cut, the Court concluded that plaintiffs had failed to make a sufficient showing that the state is liable for the alleged 4% reduction in reimbursements tied to "average wholesale price" ("AWP") that resulted from the settlement in New England Carpenters Health Benefits Fund v. First DataBank, Inc., 602 F. Supp. 2d 277 (D. Mass. 2009). Accordingly, the Court denied plaintiffs' fifth, sixth, and seventh claims for relief.

On June 2, 2010, plaintiffs filed the instant motion seeking to alter, amend, modify, and reconsider its May 5, 2010 order relating to plaintiffs' seventh claim for

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UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

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relief-namely, that the 4% reduction in reimbursements tied to the AWP constitutes a substantive violation of 42 U.S.C. § 1396a(a)(30)(A) ("§ 30(A)" of the Medicaid Act). On June 21, 2010, respondent filed his opposition. Plaintiffs filed their reply on June 28, 2010. After carefully considering the arguments set forth by both parties, the Court finds and concludes as follows.

II. LEGAL STANDARD

Under Rule 60(b), the court may grant reconsideration of a final judgment and any order based on: "(1) mistake, surprise, or excusable neglect; (2) newly discovered evidence; (3) fraud; (4) a void judgment; (5) a satisfied or discharged judgment; or (6) extraordinary circumstances which would justify relief." ACandS, Inc., 5 F.3d at 1263. A motion for reconsideration on any of these grounds must be brought within a reasonable time and no later than one year of entry ofjudgment or the order being challenged. See Fed. R. Civ. P. 60(c)(1). See also Local Rule 7-18.

III. DISCUSSION

Plaintiffs move the Court, pursuant to Fed. R. Civ. P. 52(b), 59(e), 60(b), and Local Rule 7-18, for a new hearing, and to alter, amend, modify and reconsider that part of the Court's May 5,2010 order denying plaintiffs' motion for preliminary injunction with respect to plaintiffs' seventh claim for relief. Mot. at 1. According to plaintiffs, such relief is necessary to prevent clear error and manifest injustice to the many MediCal beneficiaries who are patients of plaintiff pharmacies. Id. Plaintiffs contend that the Court failed to consider plaintiffs' uncontradicted evidence, in support of their seventh claim, that the 4% reduction in reimbursement for brand acquisition costs reduced total payment to pharmacies in respect to most brand drugs in the Medi-Cal program to so low a level that most or many pharmacies will cease filling brand prescriptions resulting in millions of recipients being denied access to brand name drugs, in violation of the "quality of care" and "equal access" provisions of § 30(A). Id. at 2. Further, plaintiffs argue that the Court erroneously ruled that the substantive requirements of § 30(A) "are not implicated" in "circumstances such as these where the State has not affirmatively acted to create a new, or modified 'method or procedure' for establishing reimbursement rates to Medi-Cal providers" and erroneous for the Court to rule that the Secretary of the U.S. Department of Health and Human Services (the "Secretary") "is better able to address the potential impact of the markdown of AWP." Id. at 3 (quoting May 5,2010 order at 11-12). Plaintiffs argue that it was contrary to law and the evidence, and a gross

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Case 2:09-cv-08200-CAS-MAN Document 89 Filed 07/06/10 Page 3 of 4 Page ID #:3091
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

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abuse of discretion, on the part of the Court; for the Court to defer to the Secretary and to accept the findings and conclusions of the United States Department of Justice ("DOJ,,).I Id. at 3-5, 7 (citing Rosado v. Wyman, 397 U.S. 397,420 (1970)). Plaintiffs emphasize that the DOJ agrees with plaintiffs that when a state's Medicaid provider payment rate has fallen out of compliance with § 30(A), that this is a substantive violation of § 30(A), irrespective of why the payment rate has become non-compliant. Id. at 6. Finally, plaintiffs argue that the Court misstated the facts by finding that the 4% markdown of reimbursement for 18,000 to 20,000 brand drug products was "occasioned by a private settlement" because only 1,400 of these drug products were marked down by First DataBank pursuant to the terms of the settlement. Id. at 8-9.

Respondent contends that plaintiffs' motion is an improper attempt to relitigate the AWP issue that has already been decided by this Court, on at least three occasions, and the Ninth Circuit Court of Appeals in Nat'l Assoc. of Chain Drug Stores. et al. v. Arnold Schwarzenegger. et al. No. 09-7097 CAS (MANx) ("NACDS"), and thus plaintiffs fail to meet their burden for relief under Fed. R. Civ. P. 52(b), 59(e), 60(b), and Local Rule 718. Opp'n at 1. Specifically, respondent argues that plaintiffs seek to use Rule 52(b) for the improper purpose of having the Court rehear facts that they have presented to the Court several times, and that, in any event, the Court's determination that the substantive obligations of § 30(A) were not even triggered by the AWP reductions moots each of plaintiffs' requests for amended facts concerning those § 30(A) obligations. Id. at 3-4. As for relief under Rule 59(e), respondent argues that plaintiffs do not allege any newly discovered evidence or change in controlling law, arid only allege errors in the Court's consideration of plaintiffs' seventh claim. Id. In this respect, respondent contends that plaintiffs offer no reason for the Court to reconsider or change its conclusion on its ruling that private AWP changes do not trigger the substantive or procedural obligations

1 On July 1, 2010, plaintiffs filed a request for the Court to take judicial notice of

the Statement of Interest filed by the DOJ in the related matter, Nat'l Assoc. of Chain

Drug Stores, et al. v. Arnold Schwarzenegger, et aI., No. 09-7097 CAS (MANx), which

is referred to in the Court's May 5, 2010 order at 12, n.8, in the instant matter. Under

Fed. R. Evid. 201, a court may take judicial notice of "matters of public record." Mack

v. South Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986). The Court GRANTS

plaintiffs' request for judicial notice to the extent that they request that the Court take

judicial notice that the document was filed with the Court. However, the Court does not

take judicial notice of the truth of the matters asserted therein.

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UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

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of section 30(A). Id. at 5-7. Given the rulings in NACDS and the instant case, respondent argues that plaintiffs have not asserted any basis for a Rule 60(b) motion. Id. at 7-8. Finally, respondent argues that Local Rule 7-18 precludes plaintiffs' motion because it states that "[n]o motion for reconsideration shall in any manner repeat any oral or written argument made in support of or in opposition to the original motion" and plaintiffs' entire motion restates evidence and argument that plaintiffs already presented in support of their TRO application and motion for preliminary injunction. Id. at 8.

In their reply, plaintiffs reiterate many oft4.e same arguments raised in their movmg papers.

Having reviewed and considered the arguments raised by plaintiff, the Court finds that plaintiffs have not met their burden to demonstrate that the Court should vacate its judgment denying plaintiffs' motion for preliminary injunction in respect to their seventh claim for relief. The Ninth Circuit in NACDS, held that regardless of the plaintiffs' likelihood of success on the merits of their claims challenging the reduction in AWPs, the plaintiffs are not entitled to preliminary injunction because the balance of equities and considerations of public interest weigh in favor of the State. See NACDS,
2010 WL 1506928, *1 (9th Cir. Apr. 15, 2010) ("The injunction that the appellants seek
would require California to recalibrate its established reimbursement formula to counteract the effect of the reduction in AWPs. This, in tum, would compel California to bear the administrative burdens associated with amending its state Medicaid plan. See C.F.R. §§ 430.12-20. The state should not be required to take on such burdens before the district court has finally resolved the merits of the appellants' claims."). In the instant case, plaintiffs effectively seek the same relief in their seventh claim.

Accordingly, the Court DENIES plaintiffs' motion to alter, amend, modify, and reconsider its May 5, 2010 order relating to plaintiffs' seventh claim for relief.

IT IS SO ORDERED.

CV-90 (06/04)

Initials of Preparer
CIVIL MINUTES - GENERAL

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(MANx),CLOSED,DISCOVERY,MANADR,RELATED-G

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA (Western Division - Los Angeles)
CIVIL DOCKET FOR CASE #: 2:09-cv-08200-CAS-MAN

California Pharmacists Association et al v. Jennifer Kent Assigned to: Judge Christina A. Snyder Referred to: Magistrate Judge Margaret A. Nagle Related Case: 2:08-cv-03315-CAS-MAN Case in other court: 9th CCA, 09-57065
9th CCA, 10-55883 9TH CCA, 10-55893 Cause: 28:2201 Constitutionality of State Statute(s)

Date Filed: 11/09/2009 Date Terminated: 06/01/2011 Jury Demand: None Nature of Suit: 950 Constitutional - State Statute Jurisdiction: Federal Question

Plaintiff California Pharmacists Association

represented by Lynn S Carman Medicaid Defense Fund 71 Marin Valley Drive Novato, CA 94949 415-312-9707 Fax: None Email: lynnscarman@hotmail.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Stanley L Friedman Law Ofﬁces of Stanley L Friedman 445 South Figueroa Street 27th Floor Los Angeles, CA 90071-1631 213-629-1500 Fax: 213-489-6899 Email: friedman@friedmanlaw.org LEAD ATTORNEY ATTORNEY TO BE NOTICED

Plaintiff
Gerald Shapiro, Pharm.D. doing business as Uptown Pharmacy & Gift Shoppe

Peter S Gregorovic Fredrickson Mazeika and Grant LLP 5720 Oberlin Drive San Diego, CA 92121 858-642-2002 Fax: 858-642-2001 Email: pgregorovic@fmglegal.com ATTORNEY TO BE NOTICED
represented by Lynn S Carman (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

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Plaintiff Sharon Steen doing business as Central Pharmacy
Plaintiff Tran Pharmacy, Inc. doing business as Tran Pharmacy

CM/ECF - California Central District
Stanley L Friedman (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Lynn S Carman (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
Stanley L Friedman (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Lynn S Carman (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
Stanley L Friedman (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

V. Defendant Jennifer Kent Director of the California Department of Health Care Services Substituted for David Maxwell-Jolly
https://ecf.cacd.uscourts.gov/cgi-bin/DktRpt.pl?111263840930891-L_1_0-1

represented by Charles J Antonen Ofﬁce of the California Attorney General 455 Golden Gate Avenue Suite 11000 San Francisco, CA 94102-7004 415-703-5443 Fax: 415-703-5843 Email: Charles.Antonen@doj.ca.gov LEAD ATTORNEY ATTORNEY TO BE NOTICED
Gregory Martin Cribbs CAAG - Ofﬁce of Attorney General of California 300 S Spring Street Ste 1702 Los Angeles, CA 90013 213-897-2446 Fax: 213-897-2805 Email: gregory.cribbs@doj.ca.gov TERMINATED: 06/28/2016 ATTORNEY TO BE NOTICED
Jennifer M Kim CAAG - Ofﬁce of CA Attorney General
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California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90012 213-897-2443 Fax: 213-897-2805 Email: jennifer.kim@doj.ca.gov TERMINATED: 06/28/2016
Leslie P McElroy CAAG - Ofﬁce of Attorney General California Department of Justice 300 South Spring Street Suite 9 N Los Angeles, CA 90013-1230 213-897-2000 Email: Leslie.McElroy@doj.ca.gov TERMINATED: 06/28/2016
Michele Li Wong CAAG - Ofﬁce of the Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013 213-897-2449 Fax: 213-897-2805 Email: michele.wong@doj.ca.gov TERMINATED: 04/18/2012
S. Andrew Dhadwal CAAG - Attorney General Ofﬁce California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013 213-897-2463 Email: andrewd@lmwslaw.com TERMINATED: 04/18/2012
Susan Marie Carson CAAG - Ofﬁce of the Attorney General California Department of Justice 455 Golden Gate Avenue Suite 11000 San Francisco, CA 94102 415-703-5580 Fax: 415-703-5480 Email: Susan.Carson@doj.ca.gov ATTORNEY TO BE NOTICED

Date Filed 11/09/2009

# Docket Text
1 COMPLAINT against Defendant David Maxwell-Jolly.(Filing fee $ 350 PAID), ﬁled by plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen.(car) (Additional attachment(s) added on 11/12/2009: # 1 Notice of Assignment, # 2 Summons, # 3 Civil Cover Sheet) (ds). (Entered: 11/10/2009)

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20 DAY Summons Issued re Complaint - (Discovery) 1 as to Defendant David MaxwellJolly. (car) (Entered: 11/10/2009)

11/09/2009

2 CERTIFICATION AND NOTICE of Interested Parties ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen (car) (ds). (Entered: 11/10/2009)

11/09/2009

3 NOTICE TO PARTIES OF ADR PILOT PROGRAM ﬁled.(car) (Entered: 11/10/2009)

11/17/2009

4 NOTICE TO COUNSEL by Judge Christina A. Snyder: This case has been assigned to the calendar of Judge Christina A. Snyder. This Notice to Counsel shall be to all parties appearing in propria persona, and for purposes of this notice, the term counsel shall include any person appearing in pro per. See document for further details. (jre) (Entered: 11/18/2009)

11/23/2009

5 ORDER RE TRANSFER PURSUANT TO Local Rule 83-1.3.1 and General Order 08.05 -Related Case- ﬁled. Related Case No: CV08-03315 CAS (MANx). Case referred from Magistrate Judge Ralph Zarefsky to Magistrate Judge Margaret A. Nagle for Discovery. The case number will now read as follows: CV09-08200 CAS (MANx). Signed by Magistrate Judge Margaret A. Nagle. (at) (Entered: 11/23/2009)

12/05/2009

6 AMENDED DOCUMENT ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. FIRST AMENDED COMPLAINT FOR INJUNCTIVE AND DEDCLARATORY RELIEF (Carman, Lynn) (Entered: 12/05/2009)

12/07/2009

7 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents. The following error(s) was found: Pursuant to General Order 08-02, initiating documents (including amended complaints) should be manually ﬁled and a conformed, ﬁled stamped copy should be emailed in PDF format to CivilIntakeCourtDocs-LA@cacd.uscourts.gov RE: First Amended Complaint ﬁled 12/5/2009 6 . In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. (gk) (Entered: 12/07/2009)

12/07/2009

8 NOTICE OF MOTION AND MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. Motion set for hearing on 12/28/2009 at 10:00 AM before Judge Christina A. Snyder. (Carman, Lynn) (Entered: 12/07/2009)

12/08/2009

9 DECLARATION of RICHARD D. WILSON, C.P.A. IN SUPPORT MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 EX A - D WIL;SON DECLARATION) (Carman, Lynn) (Entered: 12/08/2009)

12/08/2009

10 DECLARATION of C.P.A. RICHARD D. WILSON IN SUPPORT MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 EXHIBITS B - F, WILSON SUPPLEMENTARY DECLARATION, # 2 EXHIBITS G - H, WILSON SUPPLEMENTR DECLARATION, # 3 EXHIBITS I - K, WILSON SUPPLEMENTARY DECLARATION)(Carman, Lynn) (Entered: 12/08/2009)

12/08/2009

11 DECLARATION of ODETTE LEONELLI, PHARM.D.; SHARON STEEN; GERALD SHAPIRO, PHARM.D.; THU-HANG TRAN, PHARM.D.; PAUL LOFHOLM, PHARM.D.;LYNN ROLSTON o IN SUPPORT OF MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy,

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12/08/2009
12/08/2009 12/08/2009 12/08/2009 12/08/2009 12/08/2009 12/08/2009 12/08/2009 12/09/2009

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Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 SHARON STEEN DECLARATION, # 2 GERALD SHAPIRO, PHARM.D., DECLARATION, # 3 THU-HANG TRAN, PHARM.D., DECLARATION, # 4 PAUL LOFHOLM, PHARM.D., DECLARATION, # 5 LYNN ROLSTON DECLARATION, # 6 SCHEDULE OF DECLARATIONS, (PART ONE), # 7 SCHEDULE OF DECLARATIONS, (PART TWO))(Carman, Lynn) (Entered: 12/08/2009)
12 REQUEST FOR JUDICIAL NOTICE re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 REQUEST FOR FIRST DATABANK DOCUMENTS AND OTHER COURT DOCUMENTS ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 EXHIBITS A, B, C, D, E, F, G, H, I, J,, # 2 EXHIBIT B, # 3 LIST OF 8,000 NDCs, # 4 EXHIBIT C, # 5 MARCH 17, 2009 ORDER APPROVING SETTLEMENT, # 6 EXHIBIT D, # 7 CALOPTIMA ACTION OCT. 1, 2009, # 8 EXHIBIT E, # 9 1ST CIRCUIT OPINION, # 10 EXHIBIT F, # 11 D. COL. DECISION ON AMP, # 12 EXHIBIT G - D. COL. DECISION 6/23/09)(Carman, Lynn) (Entered: 12/08/2009)
13 REQUEST FOR JUDICIAL NOTICE re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 FURTHER REQUEST FOR JUDICIAL NOTICE ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 EXHIBITS A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R)(Carman, Lynn) (Entered: 12/08/2009)
14 NOTICE OF LODGING ﬁled SUMMARIES OF PHARMACY DECLARATIONS re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 (Carman, Lynn) (Entered: 12/08/2009)
15 NOTICE OF LODGING ﬁled (PROPOSED) Order re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 (Carman, Lynn) (Entered: 12/08/2009)
16 DECLARATION of JOHYN CRONIN IN SUPPORT MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Carman, Lynn) (Entered: 12/08/2009)
17 REQUEST FOR JUDICIAL NOTICE re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 EXHIBITS A - B, # 2 EXHIBITS C - J, # 3 EXHIBITS K - N, # 4 EXhHIBITS O - P, # 5 EXHIBITS Q - R, # 6 EXHIBITS Q - R, # 7 EXHIBITS S - V, # 8 EXHIBITS W - Y)(Carman, Lynn) (Entered: 12/08/2009)
18 DECLARATION of SUPPLEMENTARY SCHEDULE OF DECLARATIONS IN SUPPORT MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 FURTHER DECLARATIONS)(Carman, Lynn) (Entered: 12/08/2009)
19 NOTICE OF PROOF OF SERVICE OF SUMMONS, FIIRST AMENDED COMPLAINT, AND MOTION DOCUMENTS FOR DECEMBER 28, 2009 MOTIONS ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Carman, Lynn) (Entered: 12/08/2009)
20 NOTICE of Change of Attorney Information for attorney S. Andrew Dhadwal counsel for

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Defendant David Maxwell-Jolly. Adding S. Andrew Dhadwal as attorney as counsel of record for David Maxwell-Jolly, Director of CA Dept. of Health Care Services for the reason indicated in the G-06 Notice. Filed by Defendant David Maxwell-Jolly (Dhadwal, S. Andrew) (Entered: 12/09/2009)
21 NOTICE OF CHANGE OF ATTORNEY INFORMATION ﬁled by Defendant David Maxwell-Jolly (Kim, Jennifer) (Entered: 12/10/2009)
22 APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Carman, Lynn) (Entered: 12/10/2009)
23 First EXPARTE APPLICATION for Extension of Time to File Opposition to Motions for Preliminary Injunction and Temporary Restraining Order, First EX PARTE APPLICATION to Continue Hearing from December 28, 2009 to February 1, 2010 ﬁled by Respondent David Maxwell-Jolly. (Attachments: # 1 Declaration Declaration of Andrew Dhadwal, # 2 Supplement Points and Authorities in Support of Application, # 3 Proposed Order Notice of Lodging of Proposed Order, # 4 Proposed Order Proposed Order)(Dhadwal, S. Andrew) (Entered: 12/10/2009)
24 NOTICE OF ERRATA ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. correcting APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM 22 CORRECTION OF CAPTION OF NOTICE OF APPLICATDION FOR TEMPORARY RESTRAINING ORDER (Carman, Lynn) (Entered: 12/10/2009)
25 NOTICE OF LODGING ﬁled OF (PROPOSED) TRO ORDER re APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM 22 (Carman, Lynn) (Entered: 12/10/2009)
26 NOTICE PROPOSED TRO ORDER ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Carman, Lynn) (Entered: 12/10/2009)
27 DECLARATION of STANLEY L. FRIEDMAN re APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM 22 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Carman, Lynn) (Entered: 12/11/2009)
28 Opposition Opposition re: First EXPARTE APPLICATION for Extension of Time to File Opposition to Motions for Preliminary Injunction and Temporary Restraining OrderFirst EX PARTE APPLICATION to Continue Hearing from December 28, 2009 to February 1, 2010 23 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Friedman, Stanley) (Entered: 12/11/2009)
29 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents. The following error(s) was found: Incorrect event selected. Correct event to be used is Notice - Change of Attorney Information. Miscellaneous Document event utilized in docketing this ﬁling. A copy of this document has been forwarded to the Attorney Admissions Clerk RE: Notice of Change of Attorney Information (G-06) ﬁled 12/10/2009 21 . In response

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to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. (gk) (Entered: 12/11/2009)

12/14/2009

30 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: On 12/10/2009, Plaintiffs ﬁled an Application for a Temporary Restraining Order 22 . On 12/10/2009, defendant ﬁled an Ex Parte Application for an Order Extending His Time to Respond to Plaintiffs' Motion for Preliminary Injunction and to Oppose Plaintiffs' TRO Request, and for a Continuance of Both of the Hearings 23 . The Court hereby continues the hearing on plaintiffs' TRO 22 to 12/28/2009 at 10:00 AM. Defendant shall ﬁle its opposition no later than 12/18/2009. Plaintiffs shall ﬁle a reply no later than 12/23/2009. The Court vacates the hearing on plaintiffs' Motion for Preliminary Injunction 8 currently noticed for 12/28/2009. The Court will schedule a new hearing date and set a brieﬁng schedule at the hearing on plaintiffs' TRO Application on 12/28/2009. Court Reporter: Not Present. (gk) (Entered: 12/14/2009)

12/18/2009

31 NOTICE of Change of Attorney Information for attorney Jennifer M Kim counsel for Defendant David Maxwell-Jolly. Adding MICHELE L. WONG as attorney as counsel of record for DEFENDANTS DAVID MAXWELL-JOLLY, DIRECTOR OF DEPARTMENT OF HEALTH CARE SERVICES OF THE STATE OF CALIFORNIA for the reason indicated in the G-06 Notice. Filed by DEFENDANT DAVID MAXWELL-JOLLY, DIR OF CA DEPT OF HEALTH CARE SERVICES (Kim, Jennifer) (Entered: 12/18/2009)

12/18/2009

32 OPPOSITION to APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM 22 ﬁled by Defendant David Maxwell-Jolly. (Attachments: # 1 Declaration of Kevin Gorospe, # 2 Declaration of Stuart Busby)(Dhadwal, S. Andrew) (Entered: 12/18/2009)

12/18/2009

33 REQUEST FOR JUDICIAL NOTICE re APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM 22 In Support of Respondent's Opposition to Application for TRO ﬁled by Respondent David Maxwell-Jolly. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F)(Dhadwal, S. Andrew) (Entered: 12/18/2009)

12/23/2009

34 REPLY IN SUPPORT OF MOTIONS APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM 22 , MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Defendant David Maxwell-Jolly. (Attachments: # 1 EXHIBIT A, # 2 EXHIBIT B, # 3 SCHAFENMEYER REPLY DECLARATION, # 4 EXHIBITS C, D, E, F)(Carman, Lynn) (Entered: 12/23/2009)

12/23/2009

35 DECLARATION of GERALD SHAPIRO, PHARM.D. IN SUPPORT OF APPLICATION for Temporary Restraining Order as to 4% REDUCTION IN REIMBURSEMENT TO PHARMACIES FOR THEIR COST TO ACQUIRE BRAND DRUG NDCS IN THE MEDI-CAL PROGRAM 22 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Friedman, Stanley) (Entered: 12/23/2009)

12/28/2009

36 DECLARATION of LYNN S. CARMAN IN RESPECT TO ERRATA IN EXHIBITS B, D, E, F, I, J, AND K OF SUPPLEMENTAL DECLARATION OF RICHARD D. WILSON, C.P.A., IN SUPPORT OF PRELIMINARY INJUNCTIONS; TOGETHER WITH CORRECTED COPIES OF EXHIBITS B, D, E, F, I, J, AND K MOTION for

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Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Friedman, Stanley) (Entered: 12/28/2009)

12/28/2009

37 MINUTES OF Motion Hearing held before Judge Christina A. Snyder: In accordance with the foregoing, the Court DENIES 22 plaintiff's Application for temporaty restraining order. Court Reporter: Laura Elias. (cbr) (Entered: 12/29/2009)

12/28/2009

38 MINUTES OF IN CHAMBERS ORDER held before Judge Christina A. Snyder: At the hearing on Plaintiffs Application for a Temporary Restraining Order on 12/28/09, the Court ordered the hearing date on Plaintiffs Motion for Preliminary Injunction 8 be continued to FEBRUARY 22, 2010 at 10:00 A.M. and established the following brieﬁng schedule: Defendants Opposition: 02/01/2010Plaintiffs Reply: 02/08/2010. (lc) (Entered: 12/30/2009)

12/30/2009

39 NOTICE OF APPEAL to the 9th CCA ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. Appeal of Order on Application for TRO, Motion Hearing 37 . (Filing fee $455, receipt number 09730000000006340488.) (Friedman, Stanley) (Entered: 12/30/2009)

01/04/2010

40 NOTIFICATION by Circuit Court of Appellate Docket Number 09-57065, 9th CCA regarding Notice of Appeal to 9th Circuit Court of Appeals, 39 as to Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (cbr) (Entered: 01/04/2010)

01/04/2010

41 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents. The following error(s) was found: Exhibit B - attachment number 2 to main document is blank RE: Reply (Motion related), Reply (Motion related), Reply (Motion related) 34 . In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. (vh) (Entered: 01/04/2010)

01/11/2010

42 ANSWER to Complaint - (Discovery), Complaint - (Discovery) 1 Answer to First Amended Complaint for Injunctive and Declaratory Relief [USDC Document 6] ﬁled by Respondent David Maxwell-Jolly.(Dhadwal, S. Andrew) (Entered: 01/11/2010)

01/12/2010

43 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents. The following error(s) was found: No Certiﬁcation of Interested Parties, Local Rule 7.1-1 RE: Answer to First Amended Complaint ﬁled 1/11/2010 42 . In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. (gk) (Entered: 01/12/2010)

01/12/2010

44 MINUTES OF IN CHAMBERS ORDER by Judge Christina A. Snyder: This matter is set for a Scheduling Conference on APRIL 19, 2010, at 11:00 a.m. The Scheduling Conference will be held pursuant to F.R.Civ.P 16(b). If this case has been assigned to the ADR Pilot Program, counsel shall concurrently ﬁle the ADR Questionnaire. Judge Snyder is located at 312 N. Spring Street Courthouse, in Courtroom 5, on the second ﬂoor. See order for details. (jre) (Entered: 01/13/2010)

01/13/2010

45 DEFENDANT'S CERTIFICATE OF INTERESTED PARTIES ﬁled by Defendant David Maxwell-Jolly re: Answer to Complaint (Discovery) 42 (Dhadwal, S. Andrew) (Entered: 01/13/2010)

01/15/2010

46 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents. The following error(s) was found: Incorrect event selected. Correct event to be used is Certiﬁcate/Notice of Interested Parties. Miscellaneous Document event utilized in docketing this ﬁling RE: Defendant's Certiﬁcate of Interested Parties ﬁled 1/13/2010 45 . In response to this notice the court may order (1) an amended or correct document to be

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ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. (gk) (Entered: 01/15/2010)
47 ORDER from 9th CCA ﬁled re: Notice of Appeal to 9th Circuit Court of Appeals, 39 ﬁled by Tran Pharmacy, Inc., Sharon Steen, Gerald Shapiro, Pharm.D., California Pharmacists Association, CCA # 09-57065. Appellants' motion for voluntary dismissal of this appeal is granted. This appeal is dismissed. See Fed. R. App. P. 42(b). This order served on the district court shall act as and for the mandate of this court. Mandate received in this district on 1/21/2010. (lr) (Entered: 01/22/2010)
48 NOTICE OF ADDITIONAL DECLARATIONS, WITH DECLARATIONS, FOR FEBRUARY 22, 2010 HEARING re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 SHARON STEEN DECLARATION, # 2 THU-HANG TRAN DECLARATION, # 3 LIATAUD DECLARATION, # 4 LIATAUD SIGNATURE, # 5 ERENBERG DECLARATION, # 6 ERENBERG SIGNATURE, # 7 BOONAM SHIN DECLARATION, # 8 GRAMLICH DECLARATION, # 9 GRAMLICH SIGNATURE, # 10 SHAPIRO DECLARATION, # 11 SHAPIRO SIGNATURE)(Carman, Lynn) (Entered: 01/25/2010)
49 DECLARATION of DECLARATIONS OF KHANH-LONG THAI, AMIT KAVKAR, ALINE BOGNACKI, REGGIE SINGH, DON MacKELLAR, RONALD JENNISON, JEFF ESCALLIER, GEORGE BIJOU, AND LAWRENCE HOWEN IN SUPPORT OF PRELIMINARY INJUNCTIJON MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 HOWEN DECLARATION SIGNATURE, # 2 BIJOU DECLARATION, # 3 BIJOU SIGNATURE, # 4 ARNOLD FONG DECLARATION, # 5 FONG SIGNATURE, # 6 SAE KIM DECLARATION, # 7 ESCALLIER DECLARATION, # 8 ESCALLIER SIGNATURE, # 9 RONALDE JENNISON DECLARATION, # 10 JENNISON SIGNATURE, # 11 MacKELLAR DECLARATION, # 12 MacKELLAR SIGNATURE, # 13 REGGIE SINGH DECLARATION, # 14 REGGIE SINGH SIGNAGURE, # 15 ALINE BOGNACKI DECLARATION, # 16 BOGNACKI SIGNATURE, # 17 AMIT KAVKAR DECLARATION, # 18 AMIT KAVKAR SIGNATURE, # 19 KHANH-LONG THAI DECLARATION, # 20 THAI SIGNATURE)(Carman, Lynn) (Entered: 01/26/2010)
50 DECLARATION of PHILIP GERROE; PAUL W. LOFHOLM, Pharm.D. IN SUPPORT OF PRELIMINARY INUUNCTION MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 FOR HEARING FEB. 22, 2010 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 GERROE SIGNATURE, # 2 PAUL LOFHOLM DECLARATION, # 3 LOFHIOLM SIGNATURE)(Carman, Lynn) (Entered: 01/26/2010)
51 NOTICE OF FILING OF SHAPIRO DECLARATION SIGNATURE PAGE ﬁled by PLAINTIFFS Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. FOR SHAPIRO SUPPLEMENTARY DECLARATION FILED JANUARY 25, 2010 (Attachments: # 1 EXHIBIT A - SHAPIRO SIGNATURE PAGE, FOR SUPPLEMENTAL SHAPIRO DECLARATION FILED JANUARY 25, 2010) (Carman, Lynn) (Entered: 01/26/2010)
52 DECLARATION MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 HOWEN DECLARATION ﬁled by Plaintiffs Tran Pharmacy, Inc.,

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California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 HOWEN SIGNATURE)(Carman, Lynn) (Entered: 01/26/2010)
53 RESPONDENT'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PETITIONERS' MOTION FOR PRELIMINARY INJUNCTION IN OPPOSITION re: MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Defendant David Maxwell-Jolly. (Dhadwal, S. Andrew) (Entered: 02/01/2010)
54 RESPONDENT'S OBJECTIONS TO PETITIONERS' EVIDENCE IN OPPOSITION re: MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Defendant David Maxwell-Jolly. (Wong, Michele) (Entered: 02/01/2010)
55 REQUEST FOR JUDICIAL NOTICE re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 WITH EXHIBITS ﬁled by Respondent David Maxwell-Jolly. (Attachments: # 1 Exhibit A-1 to A-5, # 2 Exhibit A-6 to A-7, # 3 Exhibit A-8 to A-9, # 4 Exhibit A-10 (Part 1 of 2), # 5 Exhibit A-10 (Part 2 of 2), # 6 Exhibit A-11 to A-18, # 7 Exhibit A-19 (Part 1 of 2), # 8 Exhibit A-19 (part 2 of 2), # 9 Exhibit A-20 to A-21, # 10 Exhibit A-22 (Part 1 of 3), # 11 Exhibit A-22 (Part 2 of 3), # 12 Exhibit A-22 (Part 3 of 3), # 13 Exhibit A-23 to A-26, # 14 Exhibit A-27 to A-29, # 15 Exhibit A-30 to A-34, # 16 Exhibit A-35 to A-39, # 17 Exhibit A-40 to A-42, # 18 Exhibit C (Part 1 of 3), # 19 Exhibit C (Part 2 of 3), # 20 Exhibit C (Part 3 of 3), # 21 Exhibit C, # 22 Exhibit D-1 to D-3, # 23 Exhibit D-4 to D-6, # 24 Exhibit D-7 to D-8, # 25 Exhibit D-9, # 26 Exhibit D-10 (Part 1 of 2), # 27 Exhibit D-10 (Part 2 of 2), # 28 Exhibit D-11 to D-14, # 29 Exhibit E)(Wong, Michele) (Entered: 02/01/2010)
56 REPLY SUPPORT OF MOTION MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 ﬁled by Plaintiffs Tran Pharmacy, Inc., California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen. (Attachments: # 1 EXHIBIT A)(Carman, Lynn) (Entered: 02/08/2010)
57 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents. The following error(s) was found: Memorandum/brief exceeding 10 pages shall contain table of contents, Local Rule 11-8 RE: Plaintiffs' Reply in Support of Preliminary Injunctions and Rule 8, F.R.A.P. Request for Preliminary Injunction Pending Appeal, If Any Preliminary Injunction Motions are Denied ﬁled 2/8/2010 56 . In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. (gk) (Entered: 02/10/2010)
58 REQUEST FOR JUDICIAL NOTICE re MOTION for Preliminary Injunction re: ENJOINING 3 PROVIDER PAYMENT CUTS 8 Respondent's Supplemental Request for Judicial Notice of 2/10/10 decision ﬁled by Respondent David Maxwell-Jolly. (Attachments: # 1 Exhibit A)(Dhadwal, S. Andrew) (Entered: 02/12/2010)
59 NOTICE Plaintiffs' Objection to Respondent's Supplemental Request for Judical Notice in Support of Opposition to Motion for Preliminay Injunction ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Friedman, Stanley) (Entered: 02/22/2010)
60 MINUTES of Motion Hearing held before Judge Christina A. Snyder: Proceedings: Hearing on Plaintiff's Motion for Preliminary Injunction 8 . The Court advises counsel that no tentative ruling is available and invites counsel to present their respective arguments. The Court Orders the above-referenced motion be taken under submission and that a written order will follow. Court Reporter: Laura Elias. (mg) (Entered: 03/03/2010)
61 NOTICE Plaintiffs' Request for Judicial Notice Filed Pursuant to Federal Rule of

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Evidence 201 ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Friedman, Stanley) (Entered: 03/04/2010)
62 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Plaintiffs' Request for Judicial Notice Notice Filed Pursuant to Federal Rule of Evidence 201 ﬁled 3/4/2010 61 . The following error(s) was found: Incorrect event selected. The correct event is: Requests - For Judicial Notice. Notice (other) event utilized in docketing this ﬁling. In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (gk) (Entered: 03/09/2010)
63 STIPULATION to Continue The Scheduling Conference from April 19, 2010 to July 12, 2010 ﬁled by Respondent David Maxwell-Jolly. (Attachments: # 1 Proposed Order To Take Scheduling Conference Off Calendar Or, In The Alternative, Continue the Scheduling Conference)(Dhadwal, S. Andrew) (Entered: 04/12/2010)
64 ORDER by Judge Christina A. Snyder granting Stipulation to Continue 63 Scheduling Conference to 7/12/2010 at 11:00 AM. (pp) (Entered: 04/13/2010)
65 NOTICE PLAINTIFFS' OBJECTION TO DELAY IN RULING, AND NOTICE OF INTENT TO FILE PETITION FOR MANDAMUS AND/OR PRELIMINARY INJUNCTION APPEAL ﬁled by PLAINTIFFS California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Attachments: # 1 EXHIBITS A, B, C, D)(Carman, Lynn) (Entered: 04/30/2010)
66 NOTICE PLAINTIFFS' OBJECTIONS TO FALE REPRESENTATIONS ﬁled by PLAINTIFFS California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Attachments: # 1 EXHIBIT A)(Carman, Lynn) (Entered: 04/30/2010)
67 ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION by Judge Christina A. Snyder: The Court GRANTS in part and DENIES in part Plaintiffs' Motion for Preliminary Injunction 8 . The Court hereby orders respondent Director, his agents, servants, employees, attorneys, and all those working in concert with him to (1) refrain from enforcing the Upper Billing Limit codiﬁed at Cal. Welf. & Inst. Code Section 14105.455; and (2) to refrain from enforcing that portion of Cal. Welf. & Inst. Code Section 14105.45, as amended by AB 5, which provides a new maximum ingredient cost ("MAIC"). (gk) (Entered: 05/05/2010)
68 NOTICE OF MOTION AND MOTION to Strike Petitioners' Objections (docket 65 & docket 66) Notice (Other), Notice (Other) 65 , Notice (Other) 66 ﬁled by Respondent David Maxwell-Jolly. Motion set for hearing on 6/7/2010 at 10:00 AM before Judge Christina A. Snyder. (Dhadwal, S. Andrew) (Entered: 05/07/2010)
69 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents re: Objection and Motion to Strike Petitioners' Objections. The following error was found: Proposed order not submitted pursuant to Local Rule 52-4.1. In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (pp) (Entered: 05/11/2010)
70 NOTICE OF LODGING ﬁled of Proposed Order re MOTION to Strike Petitioners' Objections (docket 65 & docket 66) Notice (Other), Notice (Other) 65 , Notice (Other) 66 MOTION to Strike Petitioners' Objections (docket 65 & docket 66) Notice (Other), Notice (Other) 65 , Notice (Other) 66 68 (Attachments: # 1 Proposed Order GRANTING

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RESPONDENTS MOTION TO STRIKE PETITIONERS OBJECTIONS, DOCKET NUMBERS 65 AND 66)(Dhadwal, S. Andrew) (Entered: 05/12/2010)

05/17/2010

71 OPPOSITION TO MOTION OF DEFENDANT OPPOSITION TO re: MOTION to Strike Petitioners' Objections (docket 65 & docket 66) Notice (Other), Notice (Other) 65 , Notice (Other) 66 MOTION to Strike Petitioners' Objections (docket 65 & docket 66) Notice (Other), Notice (Other) 65 , Notice (Other) 66 68 ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Carman, Lynn) (Entered: 05/17/2010)

05/27/2010

72 MINUTE ORDER (In Chambers) by Judge Christina A. Snyder. RESPONDENTS OBJECTION TO AND MOTION TO STRIKE PETITIONERS OBJECTIONS (ﬁled 05/07/10). The Court ﬁnds this motion appropriate for decision without oral argument. Fed. R. Civ. P. 78; Local Rule 7-15. Accordingly, the hearing date of 6/7/10, is hereby vacated, and the matter is hereby taken under submission. On 5/5/10, the Court granted in part and denied in part plaintiffs motion for preliminary injunction. Defendants motion to strike plaintiffs objections [65 & 66] regarding the then-pending motion, is thus moot. Accordingly, the Court DENIES the motion. (pp) (Entered: 05/27/2010)

06/02/2010

73 NOTICE OF MOTION AND MOTION for Reconsideration ﬁled by PLAINTIFFS California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. Motion set for hearing on 7/12/2010 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Exhibit (PROPOSED) ORDER)(Carman, Lynn) (Entered: 06/02/2010)

06/03/2010

74 NOTICE OF APPEAL to the 9th CCA ﬁled by Respondent David Maxwell-Jolly. Appeal of Order on Motion for Preliminary Injunction,, 67 . (Filing Fee WAIVED.) (Dhadwal, S. Andrew) (Entered: 06/03/2010)

06/03/2010

75 Civil Appeals Docketing Statement received from Respondent David Maxwell-Jolly forwarded to 9th CCA. RE: Notice of Appeal to 9th Circuit Court of Appeals 74 (Dhadwal, S. Andrew) (Entered: 06/03/2010)

06/03/2010

76 REPRESENTATION STATEMENT re Notice of Appeal to 9th Circuit Court of Appeals 74 . (Dhadwal, S. Andrew) (Entered: 06/03/2010)

06/03/2010

77 NOTIFICATION by Circuit Court of Appellate Docket Number 10-55883, 9th CCA regarding Notice of Appeal to 9th Circuit Court of Appeals 74 as to Respondent David Maxwell-Jolly. (car) (Entered: 06/03/2010)

06/03/2010

78 MINUTES IN CHAMBERS by Judge Christina A. Snyder: On the Court's own motion, the Court advances the 7/12/2010 Scheduling Conference from 11:00 AM., to 10:00 AM., to be heard simultaneously with plaintiffs' motion. (jp) (Entered: 06/04/2010)

06/04/2010

79 NOTICE OF APPEAL to the 9th CCA ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. Appeal of Order on Motion for Preliminary Injunction,, 67 . (Filing fee $455, receipt number 09737048294.) (Friedman, Stanley) (Entered: 06/04/2010)

06/07/2010

80 NOTIFICATION by Circuit Court of Appellate Docket Number 10-55893, 9TH CCA regarding Notice of Appeal to 9th Circuit Court of Appeals, 79 as to Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc. (car) (Entered: 06/07/2010)

06/08/2010

81 APPEAL FEE PAID: re Notice of Appeal to 9th Circuit Court of Appeals 74 as to Defendant David Maxwell-Jolly; Receipt Number: 139764 in the amount of $455. (car) (Entered: 06/09/2010)

06/10/2010 82 ORDER from 9th CCA ﬁled re: Notice of Appeal to 9th Circuit Court of Appeals, 79

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ﬁled by Tran Pharmacy, Inc., Sharon Steen, Gerald Shapiro, Pharm.D., California Pharmacists Association, Notice of Appeal to 9th Circuit Court of Appeals 74 ﬁled by David Maxwell-Jolly, CCA # 10-55883 and 10-55893. These appeals are consolidated for purposes of disposition. Order received in this district on 6/10/2010. (dmap) (Entered: 06/15/2010)

06/21/2010

83 OPPOSITION Respondent's Opposition to Motion re: MOTION for Reconsideration 73 ﬁled by Defendant David Maxwell-Jolly. (Dhadwal, S. Andrew) (Entered: 06/21/2010)

06/22/2010

84 STIPULATION to Continue To Take Scheduling Conference Off Calendar or, in the Alternative, Continue the Scheduling Conference from July 12, 2010 to October 4, 2010 ﬁled by Defendant David Maxwell-Jolly. (Attachments: # 1 Proposed Order To Take Scheduling Conference Off Calendar or, in the Alternative, Continue the Scheduling Conference)(Wong, Michele) (Entered: 06/22/2010)

06/24/2010

85 ORDER by Judge Christina A. Snyder: Upon the Stipulation of the parties 84 , the Scheduling Conference currently set for July 12, 2010, is taken off calendar. In the alternative, upon the stipulation of the parties and good cause appearing, the Scheduling Conference is continued to 10/4/2010 at 11:00 AM before Judge Christina A. Snyder. (mg) (Entered: 06/24/2010)

06/28/2010

86 REPLY MOTION for Reconsideration 73 ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Friedman, Stanley) (Entered: 06/28/2010)

07/01/2010

87 REQUEST FOR JUDICIAL NOTICE re MOTION for Reconsideration 73 ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Friedman, Stanley) (Entered: 07/01/2010)

07/01/2010

88 REQUEST FOR JUDICIAL NOTICE re MOTION for Reconsideration 73 (CORRECTED) ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Friedman, Stanley) (Entered: 07/01/2010)

07/06/2010

89 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: The Court DENIES Plaintiffs' Motion for Rehearing and to Alter, Amend, Modify, and Reconsider 5/5/2010 Order Relating to the Seventh Claim for Relief 73 . Court Reporter: Not Present. (gk) (Entered: 07/07/2010)

07/12/2010

90 NOTICE ADDRESS CHANGE, ATTORNEY LYNN S. CARMAN ﬁled by PLAINTIFFS California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Carman, Lynn) (Entered: 07/12/2010)

07/12/2010

91 NOTICE PLAINTIFFS' FIRST AMENDED NOTICE OF APPEAL ﬁled by PLAINTIFFS California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Carman, Lynn) (Entered: 07/12/2010)

07/12/2010

92 NOTICE ﬁled by Respondent-Appellant David Maxwell-Jolly. Respondent-Appellant's First Amended Notice of Preliminary Injunction Appeal (Dhadwal, S. Andrew) (Entered: 07/12/2010)

07/12/2010

94 AMENDED NOTICE OF APPEAL to 9th CIRCUIT ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. Amending Notice of Appeal to 9th Circuit Court of Appeals, 79 Filed On: 6/04/2010; Entered On: 6/04/2010; (lr) (Entered: 07/15/2010)

07/12/2010

95 RESPONDENT - APPELLANT'S FIRST AMENDED NOTICE OF APPEAL PRELIMINARY INJUNCTION APPEAL to 9th CIRCUIT ﬁled by Defendant David Maxwell-Jolly. Amending Notice of Appeal to 9th Circuit Court of Appeals, 74 Filed On: 6/03/2010; Entered On: 6/03/2010; (lr) (Entered: 07/16/2010)

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101 ORDER from 9th CCA ﬁled re: Notice of Appeal to 9th Circuit Court of Appeals, 79 ﬁled by Tran Pharmacy, Inc., Sharon Steen, Gerald Shapiro, Pharm.D., California Pharmacists Association, Notice of Appeal to 9th Circuit Court of Appeals 74 ﬁled by David Maxwell-Jolly, CCA # 10-55883, 10-55893. These consolidated cross-appeals are preliminary injunction appeals. Accordingly, Ninth Circuit Rule 3-3 shall apply. The response to this court's June 7 and June 8, 2010 orders reﬂect that the district court has denied the post-judgment motion and that amended notices of appeal have been ﬁled to include the order denying the post-judgment motion. Accordingly, the notices of appeal so amended and brieﬁng resume. If they have not already done so, within 7 calendar days after the ﬁling date of this order, the parties shall make arrangement to obtain from the court reporter an ofﬁcial transcript of proceedings in the district court that will be included in the record on appeal. The following brieﬁng schedule governs these crossappeals: appellant's principal brief is due August 9, 2010; appellee's principal/response brief is due September 7, 2010 or 28 days after service of the principal brief, whichever is earlier; appellant's response/reply brief is due within 14 days after service of the answering brief; and appellee's optional reply brief is due within 14 days after service of the response/reply brief. See 9th Cir. R. 3-3(b). If appellant fails to ﬁle timely the principal brief, this appeal will be dismissed automatically by the Clerk for failure to prosecute. See 9th Cir. R. 42-1. Appellant's request for assignment to the panel in appeal no. 09-57051 will be addressed by separate order. Order received in this district on 8/16/2010. (lr) (Entered: 08/18/2010)
93 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Notice (Other) 90 . The following error(s) was found: Incorrect event selected. The correct event is: Change of Attorney Information (G-06). Other error(s) with document(s): Account information (new address) was not updated in the ECF system. Your account information must be updated immediately by going to Utilities - Maintain Your Address or Maintain Your E-mail Address. In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (vh) (Entered: 07/15/2010)
96 NOTICE OF CLERICAL ERROR: Due to clerical error The attorney used incorrect event code Notice(Other) for Plaintiffs' First Amended Notice of Appeal, item control number 91. Counsel's ofﬁce has been notiﬁed to used the correct event Appeals, Amended Appeal to 9th Circuit Court of Appeals. The Plaintiffs' First Amended Notice of Appeal has been re docketed, item control number 94. Re: Notice (Other) 91 (lr) (Entered: 07/16/2010)
97 NOTICE OF CLERICAL ERROR: Due to clerical error The attorney used incorrect event code Notice (Other) for Respondent - Appellant's First Amended Notice of Preliminary Injunction Appeal, item control number 92. Counsel's ofﬁce has been notiﬁed to used the correct event Appeals, Amended Appeal to 9th Circuit Court of Appeals. The Respondent - Appellant's First Amended Notice of Preliminary Injunction Appeal, has been re docketed, item control number 95. Re: Notice (Other) 92 (lr) (Entered: 07/16/2010)
98 NOTICE OF ERRATA ﬁled by Defendant David Maxwell-Jolly. correcting Notice of Clerical Error (G-11), Notice of Clerical Error (G-11), Notice of Clerical Error (G-11) 97 , Notice (Other) 92 , Amended Appeal to 9th Circuit Court of Appeals, 95 (Attachments: # 1 Respondent's Appellant's First Amended Notice of Prelim Inj. Appeal.pdf)(Dhadwal, S. Andrew) (Entered: 07/16/2010)
99 TRANSCRIPT DESIGNATION AND ORDERING FORM For Dates: 02/22/2010; Court Reporter: Laura Elias; Court of Appeals Case Number: 10-55883; 10-55893; Re: 74

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(Dhadwal, S. Andrew) (Entered: 07/19/2010)

07/30/2010

100 SECOND AMENDED NOTICE OF APPEAL AMENDED NOTICE OF APPEAL to 9th CIRCUIT ﬁled by PLAINTIFFS California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. Filed On: MAY 5, 2010 AND JULY 6, 2010; Entered On: MAY 5, 2010 AND JU.Y 7, 2010; (Carman, Lynn) (Entered: 07/30/2010)

08/03/2010

102 ORDER from 9th CCA ﬁled re: Notice of Appeal to 9th Circuit Court of Appeals, 79 ﬁled by Tran Pharmacy, Inc., Sharon Steen, Gerald Shapiro, Pharm.D., California Pharmacists Association, Notice of Appeal to 9th Circuit Court of Appeals 74 ﬁled by David Maxwell-Jolly, CCA # 10-55883, 10-55893. Appellee's motion for a continued stay of appellate proceedings is granted in light of the pending petitions for certiorari in Independent Living Center of Southern California, Inc. v. Shewry, U.S. Sup. Ct. Case No. 09-958, and Maxwell-Jolly v. California Pharmacists Ass'n, U.S. Sup. Ct. Case No. 09115. Within 90 days from the date of this order, or upon resolution of the petitions for certiorari, whichever is sooner, appellee shall ﬁle a status report or a motion for appropriate relief. Brieﬁng is stayed until further order of this court. Order received in this district on 8/18/2010. (lr) (Entered: 08/18/2010)

08/18/2010

103 ORDER from 9th CCA ﬁled re: Notice of Appeal to 9th Circuit Court of Appeals, 79 ﬁled by Tran Pharmacy, Inc., Sharon Steen, Gerald Shapiro, Pharm.D., California Pharmacists Association, Notice of Appeal to 9th Circuit Court of Appeals 74 ﬁled by David Maxwell-Jolly, CCA # 10-55883, 10-55893. These consolidated cross-appeals are preliminary injunction appeals. Appellees' petition for rehearing en banc is construed as a motion for reconsideration of the court's 8/3/10 order staying appellate proceedings. So construed, the motion is denied. Appellees' motion to assign appellants' motion to stay appellate proceedings to the panel that decided Indep. Living Ctr. of S. Cal., Inc. v. Shewry, case Nos. 08-56422 and 08-56554, and Maxwell-Jolly v. California Pharmacists Ass'n, case No. 09-55532 (collectively, "the Independent Living Center cases"), is denied as moot because the motion has already been decided under the authority delegated under 9th Cir. R. 27-7. See General Orders, Appendix A(11). Appellees' motion to assign the merits decision in these consolidated appeals to the panel that decided the Independent Living Center cases has been referred to the panel for resolution. Appellants' motion to consolidate these aqppeals and the parties' joint motion to extend time to ﬁle the opening brief are denied as moot. Appellees are advised that they remain obligated to comly with the court's August 3, 2010 order. Order received in this district on 8/18/10. (car) (Entered: 08/18/2010)

09/09/2010

104 NOTICE OF MOTION AND MOTION to Stay Case pending Petitions for Certiorari ﬁled by Defendant David Maxwell-Jolly. Motion set for hearing on 10/18/2010 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Memorandum of Points and Authorities in Support of Defendant's Motion for Stay, # 2 Declaration of Deputy Attorney General Andrew Dhadwal in Support of Motion for Stay, # 3 Exhibit A, # 4 Exhibit B, # 5 Exhibit C, # 6 Exhibit D, # 7 Exhibit E, # 8 Exhibit F, # 9 Proposed Order Granting Defendant's Motion for Stay)(Dhadwal, S. Andrew) (Entered: 09/09/2010)

09/09/2010

105 EX PARTE APPLICATION to Stay Case pending Petitions for Certiorari or in the Alternative, for an Order Shortening Time to Hear Defendant's Motion for Stay ﬁled by Defendant David Maxwell-Jolly. (Attachments: # 1 Memorandum of Points and Authorities in Support of Defendant's Ex Parte Application for Stay, or in the Alternative, For an Order Shortening Time to Hear Defendant's Motion for Stay, # 2 Declaration of Deputy Attorney General Andrew Dhadwal in Support of Ex Parte Application for Stay, or in the Alternative, for an Order Shortening Time to Hear Defendant's Motion for Stay, # 3 Exhibit A, # 4 Exhibit B, # 5 Exhibit C, # 6 Exhibit D, # 7 Exhibit E, # 8 Exhibit F, # 9 Proposed Order Granting Defendant's Ex Parte Application for Stay, or in the

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CM/ECF - California Central District
Alternative, for an Order Shortening Time on Defendant's Motion for Stay)(Dhadwal, S. Andrew) (Entered: 09/09/2010)
106 OPPOSITION TO MOTION AND EX PARTE APPLICATION FOR STAY OPPOSITION re: MOTION to Stay Case pending Petitions for Certiorari 104 , EX PARTE APPLICATION to Stay Case pending Petitions for Certiorari or in the Alternative, for an Order Shortening Time to Hear Defendant's Motion for Stay 105 ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Carman, Lynn) (Entered: 09/13/2010)
107 STIPULATION to Continue Scheduling Conference from October 4, 2010 to January 10, 2011 ﬁled by Defendant David Maxwell-Jolly. (Attachments: # 1 Proposed Order to Take Scheduling Conference Off Calendar or, in the Alternative, Continue the Scheduling Conference)(Dhadwal, S. Andrew) (Entered: 09/17/2010)
108 ORDER by Judge Christina A. Snyder: Defendant's ex parte application to stay proceedings is granted in light of the pending petitions for certiorari in Independent Living Center of Southern California, Inc.v. Shewry, U.S.Sup.Ct. Case No. 09-958, and Maxwell-Jolly v. California Pharmacists Ass'n, U.S.Sup. Ct. Case No. 09-115. Within 90 days from the date of this order, or upon resolution of the petitions for certiorari, whichever is sooner, the parties shall ﬁle a status report or a motion for appropriate reliefgranting 104 Motion to Stay Case ; granting 105 Ex Parte Application to Stay Case (bp) (Entered: 09/20/2010)
109 ORDER TO TAKE SCHEDULING CONFERENCE OFF CALENDAR OR, IN THE ALTERNATIVE, CONTINUE THE SCHEDULING CONFERENCE by Judge Christina A. Snyder: Upon Stipulation 107 , the Scheduling Conference is continued to 1/10/2011 11:00 AM before Judge Christina A. Snyder. (gk) (Entered: 09/21/2010)
110 STATUS REPORT Pursuant to the Court's September 20, 2010 Order ﬁled by Defendant David Maxwell-Jolly. (Wong, Michele) (Entered: 12/16/2010)
111 MINUTE IN CHAMBERS by Judge Christina A. Snyder: IT IS ORDERED that counsel shall ﬁle a Joint Status Report within 90 days and every quarter thereafter or upon disposition of the petitions for certiorari, whichever occurs ﬁrst. This Court retains full jurisdiction over this action and this Order shall not prejudice any party to this action. All dates in this action are hereby VACATED. (jp) (Entered: 12/17/2010)
112 STATUS REPORT OF PLAINTIFFS ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Friedman, Stanley) (Entered: 02/04/2011)
113 STATUS REPORT re: Petitions for Certiorari ﬁled by Defendant David Maxwell-Jolly. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Declaration Certiﬁcate of Service) (Dhadwal, S. Andrew) (Entered: 02/04/2011)
114 MINUTE ORDER IN CHAMBERS by Judge Christina A. Snyder: This action is hereby removed from this Courts active caseload until further application by the parties or order of this Court. Counsel shall ﬁle a joint report detailing thestatus of the case within 30 days and every quarter thereafter until the action has been reactivated on this Courts active caseload or a stipulation for dismissal is ﬁled. SEE ORDER. (Made JS-6. Case Terminated.) (im) (Entered: 06/03/2011)
115 STATUS REPORT ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc., Defendant David Maxwell-Jolly. (Wong, Michele) (Entered: 07/12/2011)
116 STATUS REPORT JOINT STATUS REPORT PURSUANT TO THE COURT'S MINUTE

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ORDER DATED JUNE 1, 2011 ﬁled by Defendant David Maxwell-Jolly. (Wong, Michele) (Entered: 10/06/2011)

04/09/2012

117 TRANSCRIPT ORDER for date of proceedings 2/22/2010 to 2/22/2012 as to Defendant David Maxwell-Jolly Court Reporter Laura Elias. Court will contact Leslie P. McElroy at Leslie.McElroy@doj.ca.gov with any questions regarding this order. Transcript portion requested: Other: 2/22/2010. Category: Expedited. Transcript preparation will not begin until payment has been satisﬁed with the court reporter/recorder. (Kim, Jennifer) (Entered: 04/09/2012)

04/17/2012

118 Substitution of Attorney ﬁled by Plaintiff California Pharmacists Association (Gregorovic, Peter) (Entered: 04/17/2012)

04/18/2012

119 NOTICE of Change of Attorney Information for attorney Leslie P McElroy counsel for Defendant David Maxwell-Jolly. Adding Leslie P. McElroy as attorney as counsel of record for Toby Douglas for the reason indicated in the G-06 Notice. Filed by Defendant Toby Douglas (McElroy, Leslie) (Entered: 04/18/2012)

04/18/2012

120 NOTICE of Change of Attorney Information for attorney S. Andrew Dhadwal counsel for Defendant David Maxwell-Jolly.Andrew Dhadwal is no longer attorney of record for the aforementioned party in this case for the reason indicated in the G-06 Notice. Filed by Defendant Toby Douglas (Dhadwal, S. Andrew) (Entered: 04/18/2012)

04/18/2012

121 NOTICE of Change of Attorney Information for attorney Michele Li Wong counsel for Defendant David Maxwell-Jolly.Michele L. Wong is no longer attorney of record for the aforementioned party in this case for the reason indicated in the G-06 Notice. Filed by Defendant Toby Douglas (Wong, Michele) (Entered: 04/18/2012)

04/18/2012

122 NOTICE of Change of Attorney Information for attorney Gregory Martin Cribbs counsel for Defendant David Maxwell-Jolly. Adding GREGORY M. CRIBBS as attorney as counsel of record for TOBY DOUGLAS for the reason indicated in the G-06 Notice. Filed by Defendant Toby Douglas (Cribbs, Gregory) (Entered: 04/18/2012)

04/23/2012

123 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Consent Order Granting Substitution of Attorney (Form AO 154) ﬁled 4/17/2012 118 . The following error(s) was found: Miscellaneous Document event utilized for docketing this ﬁling. This document tendered for the judge's approval should have been submitted as a separate PDF attachment to a Notice of Lodging. In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (gk) (Entered: 04/24/2012)

07/12/2012 124 Change of address ﬁled by Plaintiffs California Pharmacists Association, Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc. (Carman, Lynn) (Entered: 07/12/2012)

07/12/2012

125 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Miscellaneous Document 124 . The following error(s) was found: Incorrect event selected. The correct event is: Notice of change of attorney information. In response to this notice the court may order (1) an amended or correct document to be ﬁled (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (ak) (Entered: 07/25/2012)

11/05/2013

126 MINUTES (IN CHAMBERS) STAY OF PROCEEDINGS by Judge Christina A. Snyder: By order dated 7/8/2013, the Court directed the parties in these matters to submit a joint status report. Dkt. #242, in case no. 2:11-CV-09688-CAS(MANx). The joint status report was ﬁled on 7/23/2013. Dkt. #243, in case no. 2:11-CV-09688-CAS(MANx). The Court has reviewed the parties' positions set forth therein, as well as the issues presented by the

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CM/ECF - California Central District
petition for writ of certiorari now pending in the United States Supreme Court, see Supreme Court Docket No. 13-253. Based on the foregoing, the Court ﬁnds that there is good cause to stay the proceedings or, if applicable, to continue the existing stay of the proceedings in the above-entitled cases, pending notiﬁcation from this Court. The parties are directed to ﬁle a joint status report with this Court within 14 days after the Supreme Court has taken any action with respect to the above-referenced petition for writ of certiorari. Court Reporter: Not Present. (gk) (Entered: 11/06/2013)
127 NOTICE OF TERMINATION OF ASSCIATION OF STANLEY L. FRIEDMAN AS AN ATTORNEY FOR PLAINTIFFS GERALD SHAPIRO; TRAN PHARMACY, INC.; AND SHARON STEEN ﬁled by PLAINTIFF Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. (Carman, Lynn) (Entered: 11/05/2015)
128 NOTICE OF ERRATA ﬁled by Plaintiffs Gerald Shapiro, Pharm.D., Sharon Steen, Tran Pharmacy, Inc.. correcting Notice (Other) 127 (Friedman, Stanley) (Entered: 11/05/2015)
129 NOTICE OF CHANGE IN DESIGNATION OF COUNSEL FOR SERVICE ﬁled by DEFENDANT David Maxwell-Jolly. (Antonen, Charles) (Entered: 06/28/2016)
130 NOTICE OF SUBSTITUTION OF DEFENDANT ﬁled by DEFENDANT David Maxwell-Jolly. (Antonen, Charles) (Entered: 06/28/2016)
131 REQUEST to Dismiss Case JOINT REQUEST FOR DISMISSAL WITH PREJUDICE ﬁled by DEFENDANT Jennifer Kent. (Antonen, Charles) (Entered: 07/01/2016)
132 ORDER from Ninth Circuit Court of Appeals ﬁled re: Notice of Appeal to 9th Circuit Court of Appeals, 79 ﬁled by Tran Pharmacy, Inc., Sharon Steen, Gerald Shapiro, Pharm.D., California Pharmacists Association, Notice of Appeal to 9th Circuit Court of Appeals 74 ﬁled by Jennifer Kent. CCA # 10-55883, and 10-55893. Pursuant to the parties' stipulation (Docket Entry 86), these appeals are voluntarily dismissed. Fed. R. App. P. 42(b). The parties shall bear their own costs and fees on appeal. A copy of this order shall serve as and for the mandate of this court. (mat) (Entered: 07/01/2016)
133 MINUTES (IN CHAMBERS)-JOINT REQUEST FOR DISMISSAL WITH PREJUDICE by Judge Christina A. Snyder. The Court is in receipt of the abovereferenced Joint Request for Dismissal with Prejudice 131 ﬁled July 1, 2016. The Court hereby grants the Joint Request for Dismissal with Prejudice forthwith. Each party to bear its own attorneys' fees and costs. (iv) (Entered: 07/05/2016)

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