Court Opinion

ID: 9364661
Source: CourtListenerOpinion
Date Created: 2023-01-19 21:02:25.504741+00
Date Added: 2024-06-11T17:15:39.670488
License: Public Domain

Filed 1/19/23 PharmBlue Cal. v. Dept. of Health Care Services CA2/3

 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

 California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
 opinions not certified for publication or ordered published, except as specified by rule 8.1115(a). This
 opinion has not been certified for publication or ordered published for purposes of rule 8.1115(a).

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                        SECOND APPELLATE DISTRICT
                                     DIVISION THREE

 PHARMBLUE CALIFORNIA                                           B313600
 LLC,
                                                                Los Angeles County
      Plaintiff and Appellant,                                  Super. Ct. No.
                                                                20STCP02262
      v.

 DEPARTMENT OF HEALTH
 CARE SERVICES et al.,

      Defendants and Respondents.

      APPEAL from a judgment of the Superior Court of Los
Angeles County, James C. Chalfant, Judge. Affirmed.
      Athene Law, Long X. Do, Felicia Y. Sze, and Kyle R. Brierly
for Plaintiff and Appellant.
      Rob Bonta, Attorney General, Cheryl L. Feiner, Assistant
Attorney General, Gregory D. Brown, Bejan E. Atashkar, Neo
Khuu, and Emmanuelle S. Soichet, Deputy Attorneys General,
for Defendants and Respondents.
      Hanson Bridgett and Kathryn E. Doi for Amicus Curiae
Foothill Aids Project on behalf of Plaintiff and Appellant.
             _______________________________________
                       INTRODUCTION

       PharmBlue California LLC doing business as Arena
Pharmacy (PharmBlue) contracted with two healthcare clinics
that qualify as covered entities under the federal Medicaid
program to dispense to the clinics’ patients discounted drugs
purchased under section 340B of the Public Health Services Act
(340B Program) (42 U.S.C. § 256b). Under California law, a
covered entity must bill the State’s Medi-Cal program no more
than the actual acquisition cost of drugs purchased through the
340B Program. After acquiring discounted 340B drugs for the
clinics, PharmBlue billed Medi-Cal at the pharmacy’s usual and
customary rate for purchasing drugs, a rate that was higher than
the actual acquisition cost of the 340B drugs. The California
Department of Health Care Services (Department) later audited
PharmBlue’s billing practices, finding that PharmBlue was
reimbursed nearly $2.5 million more than the pharmacy was
entitled to receive for the 340B drugs.
       After losing an administrative appeal of the Department’s
audit adjustment reducing its reimbursement for 340B drugs,
PharmBlue filed a petition for writ of mandate in the trial court.
The court denied the petition and entered judgment in the
Department’s favor, concluding PharmBlue overbilled the Medi-
Cal program for its purchase of 340B drugs.
       PharmBlue appeals the court’s judgment, which we affirm.

                                2
                        BACKGROUND

1.    Statutory and Regulatory Background
      1.1.   Medicaid and 340B Program
       “The federal Medicaid program is a cooperative federal-
state assistance program designed to expand access to medical
care for low income persons.” (Family Health Centers of San
Diego v. State Dept. of Health Care Services (2021) 71
Cal.App.5th 88, 92 (Family Health Centers).) Under the Medicaid
program, “the federal government provides financial assistance to
states so that they may furnish medical care to qualified indigent
persons.” (Robert F. Kennedy Medical Center v. Belshé (1996) 13
Cal.4th 748, 751.)
       The 340B Program, which is tied to the Medicaid program,
“imposes ceilings on prices drug manufacturers may charge for
medications sold to specified health-care facilities” known as
“covered entities.” (Astra USA, Inc. v. Santa Clara County (2011)
563 U.S. 110, 113–114 (Astra); see also 42 U.S.C. § 256b.)
Covered entities include federally-funded “providers of safety net
services to the poor.” (Astra, at p. 113.)
       If a drug manufacturer is enrolled in the 340B Program, it
must offer drugs “for purchase at or below the applicable ceiling
price” to a covered entity “if such drug is made available to any
other purchaser at any price.” (42 U.S.C. § 256b(a).) The purpose
of the 340B Program is to “ ‘stretch scarce Federal resources as
far as possible, reaching more eligible patients and providing
more comprehensive services.’ ” (Pharm. Research & Mfrs. of Am.
v. United States HHS (D.D.C. 2015) 138 F.Supp.3d 31, 34.)
       The 340B Program is administered by the Health
Resources Services Administration (HRSA), a federal agency

                                3
within the Department of Health and Human Services. (Astra,
supra, 563 U.S. at p. 113.) The HRSA has issued a series of
guidelines interpreting the 340B Program. In 1996, the HRSA
issued guidelines allowing covered entities to contract with
outside pharmacies to receive shipments of 340B drugs, dispense
those drugs to the covered entities’ patients, and place orders to
refill the covered entities’ inventories of those drugs. (See Notice
Regarding Section 602 of the Veterans Health Care Act of 1992;
Contract Pharmacy Services, 61 C.F.R. 43549 (Aug. 23, 1996).) In
a published notice “inform[ing] interested parties of final
guidelines regarding contract pharmacy services,” the HRSA
explained that a pharmacy that contracts with a covered entity
under the 340B Program “act[s] as an agent of the covered entity,
in that it would not resell a prescription drug but rather
distribute the drug on behalf of the covered entity. This situation
is akin to a covered entity having its own pharmacy.” (Id.,
p. 43550.)
        In 2010, the HRSA issued additional guidelines defining a
covered entity’s relationship with an outside pharmacy under the
340B Program. (See Notice Regarding 340B Drug Pricing
Program—Contract Pharmacy Services, 75 C.F.R. 10272 (Mar. 5,
2010).) Specifically, the HRSA required a covered entity to “have
a written contract in place between itself and a specified
pharmacy.” (Id., p. 10277.) The agency also identified several
“essential elements to address in contract pharmacy
arrangements,” including requiring the covered entity to
“purchase the [340B Drug] [and] maintain title to the drug” and
to follow a “ ‘ship to, bill to’ procedure [where] the covered entity
purchases the drug[, and] the manufacturer/wholesaler [bills] the
covered entity for the drug that it purchased[] but ships the drug

                                  4
directly to the contract pharmacy.” (Ibid.) The HRSA also
provided suggested terms to be included in a contract between a
covered entity and an outside pharmacy, including one that
states: “ ‘The covered entity owns the covered drugs and arranges
to be billed directly for such drugs. … The covered entity will
make timely payments for such drugs delivered to the
pharmacy.” (Id., p. 10279.)
      1.2.   California’s Medi-Cal Program
       California participates in the Medicaid program through its
California Medical Assistance Program, or the “Medi-Cal”
program. (Family Health Centers, supra, 71 Cal.App.5th at p. 92;
Welf. & Inst. Code, § 14000 et seq.) The Department is tasked
with administering the Medi-Cal program “in compliance with
the state Medicaid plan and applicable federal and state
Medicaid laws and regulations.” (Family Health Centers, at p.
92.) Federal law requires California to reimburse health care
providers that participate in the Medi-Cal program for services
they provide to qualified patients. (Ibid.; 42 U.S.C. § 1396a(bb).)
       Business and Professions Code section 4126 permits
covered entities to contract with outside pharmacies to provide
services under the 340B Program. (Bus. & Prof. Code, § 4126,
subd. (a).) That statute requires contracts between covered
entities and outside pharmacies to comply with the HRSA’s
guidelines. (Ibid.) The statute also requires a contract pharmacy
to segregate 340B drugs that it receives on a covered entity’s
behalf from the “pharmacy’s other drug stock by either physical
or electronic means.” (Id., subd. (b).)

                                 5
      Welfare and Institutions Code1 section 14105.46 governs,
among other things, reimbursement for 340B drugs. Under that
statute, a covered entity must bill the Medi-Cal program “an
amount not to exceed the entity’s actual acquisition cost for [a
340B drug], as charged by the manufacturer at a price consistent
with Section 256b of Title 42 of the United States Code plus the
professional fee pursuant to Section 14105.45 or the dispensing
fee pursuant to Section 14132.01.” (§ 14105.46, subd. (d).)
      Section 14105.45 generally governs reimbursement for
prescription and non-prescription drugs purchased by
pharmacies. At all times relevant to this appeal, section 14105.45
allowed pharmacies to seek reimbursement from the Medi-Cal
program at the lowest of “[t]he estimated acquisition cost of the
drug plus a professional fee for dispensing” or “[t]he pharmacy’s
usual and customary charge as defined in section 14105.455.”
(See former § 14105.45, subds. (a)(7) & (b)(1); Stats. 2011, ch. 29
(A.B. 102), § 14, eff. June 29, 2011.) The version of section
14105.45 applicable here defined “estimated acquisition cost” as
the Department’s “best estimate of the price generally and
currently paid by providers for a drug product sold by a
particular manufacturer or principal labeler in a standard
package.” (Former § 14105.45, subd. (a)(4).) Section 14105.45
makes no reference to covered entities, 340B drugs, or the 340B
Program.

1All undesignated statutory references are to the Welfare and
Institutions Code.

                                  6
2.    PharmBlue contracts with two covered entities to
      dispense 340B drugs to the covered entities’ patients.
       PharmBlue is a licensed retail pharmacy. The Foothill
AIDS Project (Foothill) and the Sunburst Project (Sunburst) are
federally funded HIV/AIDS clinics that qualify as covered entities
under the 340B Program (collectively, Clinics).
       The Clinics contracted with PharmBlue to provide
pharmaceutical services under the 340B Program, such as
dispensing medications to, and managing the medication plans
for, the Clinics’ patients. Each contract between PharmBlue and
the Clinics includes similar terms, including a provision stating
that it “is the intent of the Parties that this relationship shall be
administered in accordance with applicable laws, regulation[s],
and agency guidance governing the 340B Program.”
       Under its contracts with the Clinics, PharmBlue was
required to obtain, on the Clinics’ behalf, 340B drugs at
discounted prices from various manufacturers.2 The
manufacturers would bill the Clinics for the purchase of the 340B
drugs, while shipping the drugs directly to PharmBlue. Although
PharmBlue paid the invoices and collected payments from
patients who received 340B drugs, the Clinics “remain[ed]
responsible for payment of manufacturer invoices.” The contracts
also required PharmBlue to segregate its inventory of 340B drugs
from the rest of its drugs and dispense 340B drugs only to
qualified patients holding prescriptions issued by the Clinics or a
prescriber affiliated with the Clinics. The Clinics retained title to

2PharmBlue does not dispute that but for its contracts with the
Clinics, it could not purchase discounted drugs through the 340B
Program.

                                  7
the 340B drugs even though PharmBlue purchased, stored, and
dispensed them.
      Under its arrangement with the Clinics, PharmBlue billed
the Medi-Cal program for purchasing and distributing the
Clinics’ 340B drugs. For each 340B drug billed to the Medi-Cal
program, PharmBlue charged its “usual and customary” rate, not
the actual acquisition cost of the drug. As a result, the
Department reimbursed PharmBlue at the maximum rate
authorized under section 14105.45, not the drugs’ actual
acquisition cost under section 14105.46.
      The Clinics retained PharmBlue’s gross reimbursement
from the Medi-Cal program, less the higher of 22 percent of the
total monthly gross receipts from PharmBlue’s distribution of
340B drugs or $10 each time PharmBlue dispensed 340B drugs.3
According to the contracts, the parties agreed PharmBlue’s
compensation was “consistent with fair market value in arms-
length transactions for Pharmacy Services.”
3.    The Audit and Administrative Challenge
       In September 2017, the Department audited PharmBlue’s
billing practices. The Department found that between May 2015
and March 2017, PharmBlue improperly billed Medi-Cal at its
“usual and customary” rate for purchasing 340B drugs for the
Clinics. PharmBlue, therefore, was reimbursed $2,438,813 more
than it was entitled to receive had it billed the Medi-Cal program
for the actual acquisition cost of the drugs as required by section
14105.46.

3At the administrative hearing in this case, PharmBlue’s vice-
president testified this arrangement benefitted the Clinics.

                                  8
       PharmBlue appealed the Department’s audit finding to an
administrative law judge (ALJ). After a formal hearing, the ALJ
denied PharmBlue’s appeal.
       The ALJ found PharmBlue could purchase 340B drugs only
because it contracted with the Clinics to purchase those drugs on
their behalf. Thus, although PharmBlue wasn’t a covered entity,
it stood in the shoes of the Clinics when it bought 340B drugs and
dispensed them to the Clinics’ patients. Additionally, considering
the HRSA’s guidelines, the ALJ concluded PharmBlue was acting
as the Clinics’ agent for all purposes of the 340B Program,
including billing the Medi-Cal program for purchasing and
dispensing the Clinics’ 340B drugs. Because PharmBlue stood in
the Clinics’ shoes and acted as their agent for all services related
to the 340B Program, it was required to bill the Medi-Cal
program at the actual acquisition cost of the 340B drugs under
section 14105.46, rather than at PharmBlue’s higher “usual and
customary” rate that it charges for purchasing drugs on its own
behalf. Thus, the ALJ concluded, PharmBlue overbilled the Medi-
Cal program for the 340B drugs it purchased and dispensed for
the Clinics.
4.     The Petition for Writ of Mandate
      In October 2019, PharmBlue filed a petition for writ of
mandate in the trial court,4 challenging the ALJ’s decision
denying PharmBlue’s appeal of the Department’s audit finding.
The court denied PharmBlue’s petition.

4The petition named the Department and Richard Figueroa, in his
capacity as the acting Director of the Department, as respondents. We
collectively refer to respondents as “the Department” throughout this
opinion.

                                  9
       First, the court found that under the terms of PharmBlue’s
contracts with the Clinics and the HRSA’s guidelines, PharmBlue
was the Clinics’ agent and never owned the 340B drugs at issue
in the Department’s audit. Instead, PharmBlue purchased,
stored, and dispensed those drugs on the Clinics’ behalf. Without
title to the 340B drugs, the court explained, PharmBlue “had no
legal basis to seek reimbursement from Medi-Cal except as the
[Clinics’] agent. Standing in the [Clinics’] shoes …, [PharmBlue]
is limited to their reimbursement”—i.e., the actual acquisition
cost of the 340B drugs, as required by section 14105.46.
       Second, the court rejected PharmBlue’s argument that
section 14105.45 governed Medi-Cal reimbursement for 340B
drugs purchased by contract pharmacies because only that
statute, and not section 14105.46, refers to pharmacies. Although
contract pharmacies are not named in section 14105.46, the court
explained that excluding such entities from the statute’s reach
would lead to absurd results. For instance, excluding contract
pharmacies from section 14105.46’s reimbursement cap would
create a loophole through which covered entities that contract
with outside pharmacies could obtain more Medi-Cal
reimbursement than covered entities using only their own
pharmacies.
       Finally, the court found the Department’s interpretation of
section 14105.46 as it applies to contract pharmacies was entitled
to deference for several reasons. First, the application of the
statutory scheme governing Medi-Cal reimbursement, including
section 14105.46, is “technical and complex in that it intersects
with and requires an understanding of a multitude of state and
federal programs and is entwined with issues of policy.” Second,
applying section 14105.46 involves “issues of fact concerning the

                               10
340B program and Medi-Cal reimbursement for which [the
Department] has expertise and technical knowledge.” And third,
the Department’s requirement that contract pharmacies bill the
Medi-Cal program at the actual acquisition cost of 340B drugs
“has been in place since at least December 2003, which predates
the enactment of section 14105.46 by several years.”
      After denying PharmBlue’s petition, the court entered
judgment in the Department’s favor.
      PharmBlue appeals.

                          DISCUSSION

1.    Standard of Review
       We review the denial of a petition for writ of administrative
mandate to determine whether the public agency committed a
prejudicial abuse of discretion. (Family Health Centers, supra, 71
Cal.App.5th at p. 96.) An agency abuses its discretion if it has not
proceeded in the manner required by law, its decision is not
supported by the findings, or its findings are not supported by the
evidence. (Ibid.)
       In evaluating the sufficiency of the agency’s findings, our
job is the same as that of the trial court. (Family Health Centers,
supra, 71 Cal.App.5th at pp. 96–97.) We review the entire
administrative record to determine whether the agency’s findings
are supported by substantial evidence. (Ibid.; Code Civ. Proc., §
1094.5.) The agency’s findings are entitled to a “ ‘strong
presumption’ ” of correctness, so we must resolve all conflicts in
favor of those findings. (Family Health Centers, at p. 97.) “If a
finding is supported by substantial evidence, we may not
disregard or overturn it merely because a contrary finding would
have been equally or more reasonable.” (Ibid.)

                                11
      Where an issue turns on the interpretation of a statute or a
regulation, it is a question of law that we review de novo.
(Redondo Beach Waterfront, LLC v. City of Redondo Beach (2020)
51 Cal.App.5th 982, 993.) Although an agency’s interpretation of
the laws it enforces may be entitled to deference, we are “the
ultimate arbiter of the interpretation of the law.” (Family Health
Centers, supra, 71 Cal.App.5th at p. 97.)
      Because PharmBlue challenges the administrative law
judge’s decision upholding the Department’s audit finding, it
bears the burden of showing a prejudicial abuse of discretion.
(Family Health Centers, supra, 71 Cal.App.5th at p. 97.)
2.    PharmBlue is subject to section 14105.46’s
      reimbursement cap for drugs purchased through the
      340B Program.
      The key issue in this appeal is whether section 14105.46,
subdivision (d)’s reimbursement cap for drugs purchased through
the 340B Program applies to PharmBlue. As we explain, the ALJ
correctly found PharmBlue is bound by section 14105.46.
      Our primary task when interpreting a statute is to
ascertain the Legislature’s intent so that we can give effect to the
law’s purpose. (John v. Superior Court (2016) 63 Cal.4th 91, 95.)
We start with the statute’s words, which are usually the most
reliable indicator of the legislative intent. (Id. at pp. 95–96.) The
words of the statute should be given their ordinary and usual
meaning and construed in their statutory context. (Thornburg v.
Superior Court (2006) 138 Cal.App.4th 43, 49 (Thornburg).) The
words should also be given the same meaning throughout the
code unless it’s clear the Legislature intended otherwise. (Ibid.)
      We are not constrained by the plain meaning of the
statute’s words, however, if a literal construction is contrary to

                                 12
the statute’s apparent purpose or would lead to absurd results
the Legislature could not have intended. (Busker v. Wabtec Corp.
(2021) 11 Cal.5th 1147, 1157 (Busker); Thornburg, supra, 138
Cal.App.4th at p. 49.) We should consider the statute’s objective
and context, the harms to be remedied by the statute, the history
surrounding the statute’s enactment, public policy, and
contemporaneous construction. (Thornburg, at p. 49.)
       Subdivision (d) of section 14105.46 provides that a “covered
entity shall bill an amount not to exceed the entity’s actual
acquisition cost for the drug, as charged by the manufacturer at a
price consistent with Section 256b of Title 42 of the United States
Code plus the professional fee pursuant to Section 14105.45 or
the dispensing fee pursuant to Section 14132.01.” Under section
14105.46, subdivision (a)(1), a “covered entity” is “a provider
defined as a covered entity in Section 256b of Title 42 of the
United States Code.” Neither section 14105.46 nor 42 U.S.C.
section 256b expressly refers to pharmacies.
       PharmBlue urges us to apply the plain language of section
14105.46. Since pharmacies are not mentioned in the statute,
PharmBlue insists it cannot be bound by the statute’s
reimbursement cap for drugs purchased through the 340B
Program. Instead, PharmBlue argues, all pharmacies, including
those that contract with covered entities under the 340B
Program, are subject to the reimbursement rules set forth in
section 14105.45, subdivision (b), which expressly apply to
pharmacies. (See § 14105.45, subd. (b)(1) [setting forth
reimbursement rules for “Medi-Cal pharmacy providers”].) We
reject PharmBlue’s literal reading of section 14105.46 because it
would defeat the statute’s purpose, lead to absurd results, and
defy principles of agency law.

                                13
      First, PharmBlue’s reading of section 14105.46 would
undermine the statute’s obvious purpose of limiting
reimbursement for the purchase of discounted drugs through the
340B Program to the drugs’ actual acquisition cost. That is, if
section 14105.46 does not apply to contract pharmacies, a covered
entity could circumvent the statute’s reimbursement cap by
contracting with an outside pharmacy to not only acquire, store,
and dispense the covered entity’s 340B drugs, but to also bill the
Medi-Cal program at the higher rates authorized by section
14105.45, rates that would not be available to the covered entity
had it billed Medi-Cal directly for its purchase of 340B drugs.
Like the Clinics did in this case, the covered entity could arrange
for the outside pharmacy to kick back the reimbursement the
pharmacy received from billing the Medi-Cal program at the
higher rates authorized by section 14105.45. Widespread use of
the billing and compensation arrangements like those employed
by PharmBlue and the Clinics could render section 14105.46’s
reimbursement cap toothless. (Manufacturers Life Ins. Co. v.
Superior Court (1995) 10 Cal.4th 257, 274 [“Well-established
canons of statutory construction preclude a construction which
renders a part of a statute meaningless or inoperative.”].)
      Second, PharmBlue’s interpretation of the statute would
lead to an absurd result the Legislature did not intend. As we
just explained, a covered entity contracting with an outside
pharmacy could be reimbursed at rates higher than the cap
imposed by section 14105.46. A covered entity using an in-house
pharmacy, however, would be limited to the lower billing rates
mandated by section 14105.46. In other words, a covered entity
using an outside pharmacy could receive more money from the
Medi-Cal program for purchasing the same drugs through the

                                14
340B Program than could a covered entity using an in-house
pharmacy. But, as Foothill acknowledges in its amicus brief, it is
more difficult and costly for a covered entity to establish and run
an in-house pharmacy than it is to contract with an outside
pharmacy. (See Sanofi-Aventis U.S., LLC v. United States HHS
(D.N.J. 2021) 570 F.Supp.3d 129, 196–197, fn. 53.) PharmBlue
cites no authority or evidence, and we are aware of none, that
indicates the Legislature intended to treat covered entities
contracting with outside pharmacies more favorably than covered
entities using in-house pharmacies. (Busker, supra, 11 Cal.5th at
p. 1157 [courts should avoid an absurd construction of a statute
that the Legislature could not have intended].)
       Third, applying agency principles, section 14105.46’s
reimbursement cap applies to PharmBlue. Civil Code section
2295 defines an agent as “one who represents another, called the
principal, in dealings with third persons.” The defining
characteristic of an agency relationship is the “delegation of
authority from the principal to the agent which permits the agent
to act ‘not only for, but in the place of, his principal’ in dealings
with third parties.” (Channel Lumber Co. v. Porter Simon (2000)
78 Cal.App.4th 1222, 1227 (Channel Lumber).) An agency
relationship may be formed through contract. (Hoffmann v.
Young (2022) 13 Cal.5th 1257, 1274.)
       Generally, an agent stands in the shoes of its principal and
cannot do any acts that the principal is not qualified to perform.
In other words, a principal “may not employ an agent to do that
which the principal cannot do personally.” (Channel Lumber,
supra, 78 Cal.App.4th at p. 1228.) Further, where an agent
voluntarily accepts the benefits of its transaction with the
principal, the agent consents to all the obligations arising from

                                 15
that transaction. (Thornburg, supra, 138 Cal.App.4th at p. 54; see
Civ. Code, § 1589.)
       Here, the terms of PharmBlue’s contracts with the Clinics
establish that the pharmacy was the Clinics’ agent and assumed
the Clinics’ duties under the 340B Program. Each contract
between PharmBlue and the Clinics includes a provision stating
that the parties intended their relationship to be governed by
“applicable laws, regulation[s], and agency guidance governing
the 340B Program.” Thus, PharmBlue and the Clinics expressly
incorporated the HRSA’s interpretive guidance on the 340B
Program into their contracts.
       The HRSA’s guidance clearly supports a finding that
PharmBlue acted as the Clinics’ agent under the 340B Program.
As we noted above, the HRSA defines contract pharmacies
participating in the 340B Program as the “agent[s]” or “inhouse
pharmac[ies]” of their associated covered entities. Other parts of
the HRSA’s guidelines are consistent with this characterization
of the relationship between contract pharmacies and their
associated covered entities. For instance, those guidelines
prohibit a contract pharmacy from obtaining title to any 340B
drugs it obtains on behalf of a covered entity. And a covered
entity must ultimately remain responsible for paying
manufacturers for 340B drugs, even when a contract pharmacy
acquires, stores, and dispenses the drugs on the covered entity’s
behalf.
       The other terms of PharmBlue’s contracts with the Clinics
also support a finding that PharmBlue acted as the Clinics’
agent. Under those contracts, PharmBlue was required to acquire
340B drugs “on behalf of” the Clinics and maintain inventory
levels sufficient to meet the demands of the Clinics’ patients.

                               16
PharmBlue also agreed to dispense 340B drugs and provide
various pharmaceutical services to the Clinics’ patients. The
Clinics also prohibited PharmBlue from distributing the 340B
drugs to anyone who wasn’t one of the Clinics’ patients or didn’t
hold a qualifying prescription from a prescriber associated with
the Clinics. And while the contracts provided that the Clinics
remained responsible for paying the manufacturer’s invoices,
PharmBlue agreed to pay those invoices on the Clinics’ behalf.
        Since PharmBlue was the Clinics’ agent under the 340B
Program, PharmBlue could not achieve through that program
what the Clinics could not. That is, the Clinics could not use
PharmBlue to avoid section 14105.46’s reimbursement cap for
drugs it purchased on the Clinics’ behalf. (Channel Lumber,
supra, 78 Cal.App.4th at p. 1228 [a principal may not employ “an
agent to do that which the principal cannot do personally”].)
        Alternatively, PharmBlue was bound by the Clinics’ billing
obligations under the 340B Program once it accepted the benefits
of its contract to act as the Clinics’ agent for purposes of that
program. Under the terms of their contracts, the Clinics
compensated PharmBlue for the services it provided under the
340B Program at what the parties agreed was a rate “consistent
with fair market value in arms-length transactions for Pharmacy
Services.” Thus, having benefitted from acting as the Clinics’
pharmacy under the 340B Program, PharmBlue cannot avoid the
Clinics’ obligation to bill the Medi-Cal program at the actual
acquisition cost of the 340B drugs that PharmBlue acquired and
dispensed on the Clinics’ behalf. (Civ. Code, § 1589; see also
Thornburg, supra, 138 Cal.App.4th at p. 53 [an agent is bound by
the principle’s statutory obligations where the agent: (1) assumes

                                17
the statutory duties imposed on the principal; and (2) acts for its
own benefit as well as for the benefit of its principal].)

                           DISPOSITION

      The judgment denying the petition for writ of mandate is
affirmed. The Department shall recover its costs on appeal.

    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                           LAVIN, J.
WE CONCUR:

       EDMON, P. J.

       NGUYEN, J.*

*Judge of the Los Angeles Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.

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