Opinion ID: 186194
Heading Depth: 2
Heading Rank: 1

Heading: The Statutory Formulary Provision

Text: 9 First, the appellants assert the Initiative's prior authorization requirement violates section 1396r-8(d)(4), which governs formularies. We conclude the Secretary's approval of the Initiative's prior authorization requirement rests on a permissible construction of the statute under Chevron. 10 The Medicaid rebate provisions, enacted in 1990, expressly authorize a state to subject to prior authorization any covered outpatient drug so long as the state provides response by telephone or other telecommunication device within 24 hours of a request for prior authorization and provides for the dispensing of at least 72-hour supply of a covered outpatient prescription drug in an emergency situation. 42 U.S.C. § 1396r-8(d)(1)(A), (5(A)-(B)). 6 In 1993 the Congress added the formulary provision which authorizes a state to create a drug formulary of covered drugs that is developed by a committee consisting of physicians, pharmacists, and other appropriate individuals appointed by the Governor of the State. Id. § 1396r-8(d)(4)(A). The provision further directs that each formulary must include[] the covered outpatient drugs of any manufacturer which has entered into and complies with a [rebate] agreement under [section 1396r-8(a)] and permits [a] covered outpatient drug [to] be excluded with respect to the treatment of a specific disease or condition for an identified population (if any) only if ... the excluded drug does not have a significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome of such treatment for such population over other drugs included in the formulary and there is a written explanation (available to the public) of the basis for the exclusion. 42 U.S.C. § 1396r-8(d)(4)(B)-(C). In addition, the state is required to permit[] coverage of a drug excluded from the formulary... pursuant to a prior authorization program that is consistent with [section 1396r-8(d)(5)]. Id. § 1396r-8(d)(4)(D). 11 The appellants contend that the Initiative's prior authorization requirement violates the formulary provision because it excludes the asterisked drugs 7 from the MPPL based on their price rather than their therapeutic value and because the Secretary has not provided the requisite written explanation for the exclusion. The Secretary does not dispute that the MPPL is a formulary, see Fed. Appellees' Br. at 28, but, relying on the Supreme Court's opinion in Walsh, asserts that the Initiative's prior authorization program was implemented pursuant to the general prior authorization authority conferred by section 1396r-8(d)(1)(A) and is expressly exempted from the formulary restrictions in section 1396r-8(d)(4)(B)-(C) by the final sentence of section 1396r-8(d)(4): A prior authorization program established under [section 1396r-8(d)(5)] is not a formulary subject to the requirements of [section 1396r-8(d)(4)]. 8 The appellants respond that the Secretary's construction permits a state to gut the restriction on formulary exclusion in section 1396r-8(d)(4)(C) by simply attaching the label prior authorization program to what is really a formulary drug exclusion. They point out that, under the Secretary's interpretation, the formulary provision serves no purpose because its end result — drug availability restricted by prior authorization — can be more easily achieved, that is, without running the gauntlet of subsection 396r-8(d)(4)(C), if a state simply invokes prior authorization authority up front under section (d)(1)(A). 12 Under the Chevron framework, [i]f ... `Congress has directly spoken to the precise question at issue,' we must give effect to Congress's `unambiguously expressed intent' but [i]f `the statute is silent or ambiguous with respect to the specific issue,' we ask whether the agency's position rests on a `permissible construction of the statute.' Beverly Health & Rehab. Servs. v. Nat'l Labor Relations Bd., 317 F.3d 316, 321 (D.C.Cir.2003) (quoting Chevron, 467 U.S. at 842-43, 104 S.Ct. at 2781-82) (additional quotations omitted). Applying this standard we conclude that the Secretary's position, at least as applied to the circumstances here, reflects a permissible construction of the statutory provisions under Chevron. 13 We acknowledge that there is tension, if not actual inconsistency, between the broad prior authorization power granted under subsection (d)(1)(A), buttressed by the final exempting sentence of subsection (d)(4), and the apparent intent of the formulary provision to broaden drug availability. The appellants are correct that under the Secretary's construction the formulary provision simply gives the states an alternate, and more cumbersome, means of subjecting drugs to prior authorization. Nonetheless, the tension is a necessary consequence of the language the Congress drafted. The Secretary's construction permits all of the language to be given its plain meaning, albeit with a somewhat anomalous result. The appellants' construction, on the other hand, would require a crabbed reading of subsection (d)(1)(A) and of the final sentence of subsection (d)(4) and yet would not produce a coherent statutory scheme. Given these choices — neither entirely satisfactory — we believe the Secretary reasonably chose an interpretation consistent with the literal meaning of the statutory language. We note the Eleventh Circuit approved the same construction in PhRMA v. Meadows, 304 F.3d 1197 (11th Cir.2002), cert. denied, 538 U.S. 1056, 123 S.Ct. 2213, 155 L.Ed.2d 1105 (2003). 9