Source: http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19910917_0000396.SNY.htm/qx
Timestamp: 2017-05-23 12:26:00
Document Index: 57268644

Matched Legal Cases: ['§ 1396', '§ 1396', '§ 1316', '§ 1316', '§ 430', '§ 1396', '§ 250', '§ 447']

| PHARMACEUTICAL SOC. v. CUOMO
PHARMACEUTICAL SOC. v. CUOMO
PHARMACEUTICAL SOCIETY OF THE STATE OF NEW YORK, INC., STILL'S PHARMACY, INC., RIIS-WALD PHARMACY, INC., AND M.F.K. DRUG CO., INC., PLAINTIFFS,v.MARIO CUOMO, GOVERNOR OF THE STATE OF NEW YORK, AND CESAR A. PERALES, COMMISSIONER, NEW YORK STATE DEPARTMENT OF SOCIAL SERVICES, DEFENDANTS.
Plaintiff, the Pharmaceutical Society of the State of New
York, Inc., Still's Pharmacy, Inc., Riis-Wald Pharmacy, Inc.,
and M.F.D. Drug Co., Inc. (collectively, the "Pharmaceutical
Society") commenced this action in 1976 against defendants
Governor of the State of New York, and the Commissioner of New
York State's Department of Social Services ("DSS")
(collectively "the State"), challenging New York State's
promulgation of regulations implementing a new Medicaid
pharmacy reimbursement methodology. All parties to the action
entered into a Settlement Agreement on July 5, 1978. This
post-settlement action continues from a dispute as to whether
the new methodology violated federal Medicaid reimbursement
regulations promulgated by the United States Department of
Health and Human Services ("HHS") and administered by the
Health Care Financing Administration ("HCFA"). The following
outlines a more detailed history of the post-settlement action.
On July 5, 1978, as part of a comprehensive settlement
agreement ("Settlement Order"), the parties Stipulated ("the
Stipulation") to a new methodology for drug reimbursements to
pharmacies in New York State. The stipulation was so ordered by
the court. In 1987, the State defendants unilaterally departed
from the methodology outlined in the Stipulation, claiming that
Federal law mandated the departure. Specifically, the federal
government revised its pharmacy reimbursement regulations to
implement aggregate upper limits ("AUL")*fn1 on medicaid
reimbursements for certain defined medications. This meant that
the State (and pharmacies) would be subject to a cap or ceiling
on reimbursements. Additionally, federal subsidy could be
severed were the State to formulate reimbursement calculations
in excess that of the 1987 cap.
Subsequently, the State attempted by administrative
regulation, to circumvent the reimbursement methodology
required by the Stipulation. In response, the Pharmaceutical
Society moved to compel compliance with the terms of the
Stipulation. On February 28, 1988, I issued an injunction on
behalf of Pharmaceutical Society, enjoining the State from
implementing new methodologies not provided for by the terms of
the Stipulation. Additionally, I found that new federal
regulations merely established a reimbursement "cap," which the
State could not exceed, and accordingly directed the State to
abide by the terms of the Settlement Order.
The Second Circuit affirmed the injunction on September 2,
1988, stating that the
Settlement Order required the State to consult with a pharmacy
advisory committee ("PAC")*fn2 before implementing new
regulations pursuant to the AUL method. However, the Circuit
court did not preclude the State from formally moving to modify
the Settlement Order. Familiarity with background and
procedures to that date is assumed. For further explanation of
the background in this case, see Pharmaceutical Soc. of New
York, Inc. v. Cuomo, 856 F.2d 497 (2d Cir. 1988).
Pharmaceutical Society then moved pursuant to Fed.R.Civ.P. 70
for contempt relief against the State due to its continued
failure to comply with the Stipulation. At a hearing held
before me on September 19, 1989, the State was found to be in
contempt of the Stipulation and 1988 injunction. I further
ordered expedited discovery and that the governor be produced
in order to determine which State officials were responsible
for the contempt. As a result of my finding that it was in
violation of the 1988 injunction, the State returned to the use
of the reimbursement methodology mandated by the terms of the
Stipulation. The State further agreed to make retroactive
reimbursement to pharmacists in order to cure any violation of
the injunction up until the hearing date. Subsequently, the
State moved pursuant to Fed.R.Civ.P. 60(b), and 70 to modify
the Stipulation in order to permit them to implement an upper
limits or AUL methodology for multiple source drugs,*fn3 and
to dissolve the 1988 injunction.
Pharmaceutical Society cross-moved pursuant to Fed.R.Civ.P.
60(b) for modification of certain provisions in the
Stipulation. In addition, Pharmaceutical Society seeks
attorney's fees and sanctions pursuant to Fed.R.Civ.P. 11.
On January 31, 1991, the Pharmaceutical Society again moved
to enforce particular provisions of the Stipulation which it
perceived the State as violating. On February 11, 1991, the
State filed a motion pursuant to Fed.R.Civ.P. 19 for joinder of
the Secretary of Health and Human Services ("HHS") and the
Administrator of the Health Care Financing Administration
("HCFA") as indispensable parties to this litigation. In
response to the motion for joinder, HHS asserted that it did
not wish to be joined, but requested leave of court to submit
an amicus curiae memorandum. I granted such leave, and HHS
submitted its amicus memorandum on April 26, 1991.
The Medicaid program established by Title XIX of the Social
Security Act is a cooperative federal-state program which was
developed in order to furnish medical assistance to eligible
low-income individuals. 42 U.S.C. § 1396 et seq. The program is
jointly financed by the federal and state governments and is
administered by the states. If a State chooses to participate
in the federally created Medicaid program, it is enabled to
include expenditures for prescription drugs among costs
reimbursable by the federal government.
42 U.S.C. § 1396a(10)(A), 1396a(12). The federal share of Medicaid is known
as federal financial participation ("FFP") and is only
available if the Medicaid plan of a participating state has
been approved by the HHS Secretary. Id.
A state can revise its state plan by submitting a proposed
amendment for the Secretary's consideration.
42 U.S.C. § 1316(a)(2) and (3). While the Medicaid program is voluntary,
states choosing to participate must submit a "state plan" that
fulfills the requirements imposed by the Medicaid statute.
Furthermore, the state plan must be approved by the HHS
secretary. 42 U.S.C. § 1316(a)(1), 42 C.F.R. § 430.15. Thus,
although states have considerable discretion to design and
operate their individual programs, they must maintain
their plans in compliance with federal requirements in order to
insure federal funding. State of Louisiana v. HHS,
905 F.2d 877, 878 (5th Cir. 1990). Upon approval of the state plan, the
state becomes entitled to its FFP reimbursement, a portion of
which constitutes remuneration to pharmacies and other direct
providers of services to Medicaid recipients. 42 U.S.C. § 1396b(a).
Detailed regulations exist for determining whether a state's
plan complies with federal law and whether certain federal
funding should be disallowed in the event of noncompliance. I
am informed that in 1969, regulations were first promulgated
governing the maximum expenditure for prescription drugs which
a state may claim for the purpose of receiving certain
participatory funding by the federal government. The upper
limit was set as the lower of either (1) the cost of the drug
to the pharmacist as defined by the state, plus a dispensing
fee; or (2) the pharmacists' reasonable customary charges.
45 C.F.R. § 250.30(b)(2) (1970)
In 1976, the Secretary amended these regulations, which were
in effect until 1986. The amended regulations recognized a
distinction between drugs which are commonly dispensed through
"multiple sources" or are available in generic form, and drugs
which are described as "all others." For "all other drugs,"
reimbursement was predicated solely upon the estimated
acquisition cost ("EAC"). 42 C.F.R. § 447.332(c)(1) (1986). EAC
was defined by the Secretary as the participating state's best
estimate of what price providers generally pay for a drug. On
the other hand, reimbursement for multiple source drugs ...