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Voting 6-5, an en banc panel of the 3rd U.S. Circuit Court of Appeals has upheld the dismissal of a class action suit brought by Pennsylvania pharmacists to challenge the slashing of reimbursement rates by HMOs serving Medicaid patients under the state’s HealthChoices program. In Pennsylvania Pharmacists Association v. Houston, the court held that since pharmacists are Medicaid “providers,” they do not have standing to challenge a state’s reimbursement rates in a civil rights action brought under � 30(A) of the Medicaid Act. In so ruling, the 3rd Circuit rejected the views of the 1st, 7th and 8th Circuits, which have all held that providers may pursue a � 30(A) action under � 1983. Instead, the court said it agreed with the “more thorough” analysis offered by the 5th Circuit in Evergreen Presbyterian Ministries Inc. v. Hood. Writing for the 3rd Circuit majority, Judge Samuel A. Alito found that the wording of � 30(A) shows that it was clearly designed only to benefit Medicaid recipients. And while the law may also benefit pharmacists, they cannot sue under � 1983 to enforce it, Alito found. But five judges dissented, led by Chief 3rd Circuit Judge Edward R. Becker, who argued that � 30(A) cannot be distinguished from the Boren Amendment, which is expressly intended to benefit providers. In a separate dissent, Judge Marjorie O. Rendell said she joined Becker but also believes the language of � 30(A) includes language that shows it was designed to benefit both Medicaid recipients and providers. Attorneys Gregory L. Liacouras, Leslie H. Smith and Joseph W. Marshall III of Philadelphia’s Liacouras & Smith filed the suit on behalf of the Pennsylvania Pharmacists Association, a nonprofit corporation representing more than 440 independent pharmacies and more than 1,000 pharmacists they employ. Sixteen individual pharmacies also were named as plaintiffs. In the suit, the plaintiffs alleged that the Pennsylvania Department of Public Welfare violated federal law when it created the HealthChoices program. The suit demanded that DPW be ordered to require the four participating HMOs to start reimbursing pharmacies at the same rates as fee-for-service programs. HealthChoices operates in a five-county region in Southeastern Pennsylvania. It began in 1997 after DPW secured a waiver from the U.S. Department of Health and Human Services that cleared the way to implement a Medicaid managed-care program. The department contracted with four HMOs — Keystone Mercy Health Plan, Health Partners, Healthcare Management Alternatives Inc. and Oxford Health Plans — which in turn subcontracted with pharmacy benefits managers to administer the outpatient pharmacy benefit. The pharmacy benefits managers in turn contracted directly with participating pharmacies to provide outpatient pharmacy services. But PPA and its members contended that the pharmacy benefits managers, without oversight from DPW, have systematically decreased the outpatient pharmacy benefit rates to unreasonably low levels and that DPW’s method of implementing the HealthChoices program to permit this result violated its waiver. Specifically, the suit alleged that the outpatient pharmacy rates are set below the cost of acquisition and the cost of dispensing drugs — a situation that PPA said is “inconsistent with efficiency, economy and quality of care” and has decreased the access that Medicaid patients have to retail pharmacies under HealthChoices, in violation of the Social Security Act. U.S. District Judge Ronald L. Buckwalter of the Eastern District of Pennsylvania dismissed the suit after finding that PPA failed to prove that DPW had acted in an “arbitrary and capricious” manner. Now the 3rd Circuit has affirmed Buckwalter on different grounds. Alito’s majority opinion was joined by Judges Richard L. Nygaard, Jane R. Roth, Maryanne Trump Barry, Thomas L. Ambro and Julio M. Fuentes. Becker’s dissent was joined by Judges Carol Los Mansmann, Anthony J. Scirica, Theodore A. McKee and Rendell. Alito found that the “threshold” question in the case was whether Medicaid providers, as opposed to Medicaid recipients, may assert a � 30(A) claim in a civil rights suit brought under � 1983. Section 1983, Alito said, creates a cause of action against any state actor who violates “rights, privileges or immunities secured by the Constitution and laws” of the United States. As a result, Alito said, a � 1983 plaintiff “must assert the violation of a federal right,” not merely a violation of federal law. In deciding whether a statute creates an “enforceable right, privilege or immunity,” Alito said, courts must follow the guidance of the U.S. Supreme Court’s 1990 decision in Wilder v. Virginia Hospital Association and the 1997 decision in Blessing v. Freestone. In Wilder, Alito said, the justices held that the statute must have been “intended to benefit the putative plaintiff.” The Blessing Court added to that requirement, Alito found, by holding that the right allegedly protected by the statute must not be so “vague and amorphous” that its enforcement would strain judicial competence. And Blessing also held that the statute must unambiguously impose a binding obligation on the states so that the provision giving rise to the asserted right must be couched in “mandatory, rather than precatory, terms,” Alito said. Alito’s opinion focuses almost entirely on the first requirement and holds that when Congress enacted � 30(A), it did not intend that the law benefit providers. “It is important to keep in mind that the question whether a statute is intended to benefit particular plaintiffs is quite different from the question whether the statute in fact benefits those plaintiffs or even whether Congress knew that the statute would benefit those plaintiffs,” Alito wrote. Although � 30(A) may benefit pharmacies in some states — and Congress may even have realized that fact when it enacted the law — Alito found that the court’s analysis should be limited to a plain reading of the statute and should not recognize the law’s “ripple effects.” “It would be outlandish to argue that the Wilder/Blessing intended-to-benefit requirement permits all of these businesses and individuals to assert Section 30(A) claims in federal court,” Alito wrote. The language of the statute, Alito said, requires states to provide “quality of care” and adequate access. “These directives are drafted with an unmistakable focus on Medicaid beneficiaries, not providers. They are phrased in terms benefiting Medicaid recipients, and these are the persons that Congress intended to benefit,” Alito wrote. “If Congress had wanted to look after pharmacies, it would hardly have framed Section 30(A) in the terms it chose.” BECKER’S DISSENT In his lengthy dissent, Judge Becker said he agreed that the court’s focus should be on whether � 30(A) is intended to benefit the provider plaintiffs. But Becker criticized the majority for the way it distinguished Wilder, in which the Supreme Court held that the Boren Amendment was intended to benefit providers. The majority’s reasoning, Becker said, was that the Boren Amendment and Section 30(A) “contrast sharply.” Becker disagreed, saying he believes the two statutes “confer nearly identical rights on providers.” “Hence this case is squarely controlled by Wilder, which compels the conclusion that health care providers may sue under Section 1983 to enforce their rights under Section 30(A),” he said. The majority, Becker said, focused on textual differences between the Boren Amendment and � 30(A), and specifically the Boren Amendment’s reference to provider costs in its definition of reimbursement rates that is absent from � 30(A). “The rationale of Wilder, however, renders this difference immaterial, since Wilder nowhere relied on the Boren Amendment’s reference to provider costs in concluding that providers were intended beneficiaries of that statute,” Becker wrote. “Rather, Wilder clearly explained that the reason providers were intended beneficiaries of the Boren Amendment is that the provision by its express terms required states to establish a scheme for provider reimbursement. Similarly, Section 30(A) expressly requires states to establish a system for reimbursing providers for services rendered.” Rejecting Alito’s view that � 30(A)’s wording shows that it was intended to benefit only recipients, Becker wrote: “I agree, but a statute can have more than one class of intended beneficiaries, and, hence, the mere fact that Congress intended Section 30(A) to benefit Medicaid recipients has no bearing on whether Congress also intended Section 30(A) to benefit Medicaid providers.” Becker criticized Alito’s analysis for lacking the context of “the dynamic of the real world of health care.” Alito’s opinion, Becker said, was “commendably terse” but “short on realpolitik.” Becker set out to “supply that broader context, which implicates the relationship between provider costs and the availability of services to Medicaid recipients.” The background of the case, Becker said, was the recent change in the Medicaid system in the five-county Philadelphia area from fee-for-service to managed care. “The plaintiffs have adduced evidence designed to demonstrate that the HMOs, in administering Medicaid, have squeezed the pharmacies and reduced provider reimbursement rates to levels that, according to the plaintiffs, are below any reasonable measure of the cost of providing care and services,” Becker wrote. “As a practical matter, if the HMOs set provider reimbursement rates too low, providers will simply refuse to render services to Medicaid recipients, and recipients will go without adequate access.” Becker noted that 50 percent of the pharmacies that participated in Medicaid in the five-county area have dropped out since 1997. “The plaintiffs also produced evidence that no pharmacy within 15 contiguous ZIP codes in Bucks and Montgomery counties participates in Medicaid and that among those pharmacies in the five-county area that continue to participate in Medicaid, quality of care has suffered as a result of inadequate reimbursement rates,” Becker wrote. As a result, Becker concluded that the plaintiffs had demonstrated “a nexus between the interests of providers and the interests of recipients, which is recognized by the express terms of Section 30(A).” And since Medicaid recipients are generally financially strapped, and since providers have better access to information on the relationship between reimbursement rates and provider participation in Medicaid, Becker found that health care providers “may be better able to enforce recipients’ and providers’ shared interest in assuring that provider reimbursement rates comply with the mandates of Section 30(A).” The Department of Public Welfare was represented by attorneys Joseph McHale and Kimberley A. Hendrix of Philadelphia-based Stradley Ronon Stevens & Young, along with DPW in-house attorney John A. Kane.

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