The National Association of Chain Drug Stores and the National Community Pharmacists Association filed this lawsuit in the U.S. District Court for the Central District of California on September 30, 2009. The suit was filed against California's Governor and the Secretary and Director of the Department of Healthcare Services, in their official capacities. The suit was one of several suits primarily filed in response to a series of California legislative acts that reduced the amount the State's Medicaid fee-for-service and medical product reimbursement rates. This legislation was passed without prior approval from the United States Department of Health and Human Services' Centers for Medicare & Medicaid Services ("CMS"), which the plaintiffs in these suits argued was contrary to federal and state law. The California Legislature had failed to study the potential effects of the rate reductions on the level of access to and quality of care available to Medi-Cal recipients, contrary to the requirements of § 1902(a)(30)(A) of the Social Security Act. For more information, see related cases, especially Douglas v. Independent Living Center (Clearinghouse code PB-CA-16) and Dominguez v. Schwarzenegger (PB-CA-16).
The Plaintiffs in this suit specifically sought to enjoin the State from implementing what amounted to a 4% cut in the Medicaid reimbursement rate paid to pharmacies for prescription drugs, and declarations that its efforts to do so were unlawful. Unlike the rate reductions in most of the related cases, the reduction here was not the direct outcome of legislation, but resulted from changes to the Average Wholesale Prices (AWPs) for several thousand pharmaceuticals, as determined by data from First DataBank, Inc. California based its formula for calculating prescription drug reimbursement rates on these AWPs. A lawsuits filed against First DataBank alleging the company had set AWPs at artificially high levels had resulted in a consent decree wherein the company agreed to reduce the AWPs for more than 2000 drugs by five percent. New England Carpenters Health Benefits Fund et al v. First Databank, Inc., 582 F.3d 30 (1st. Cir. 2009). The Plaintiffs in the instant case alleged that First DataBank also reduced its AWPs for an additional 18,000 drugs.
The Plaintiffs argued that California accepted the reduced reimbursement rates that resulted from the lowering of the AWPs without first considering the affects this would have on the "efficiency, economy, and quality of care," provided to Medicaid recipients as required by § 30(A). In addition, the Plaintiffs alleged that these rate reductions violated state law because the State failed to consult with interested parties regarding the effects of the reduced reimbursement rates; that the State violated federal law lowering the reimbursement rates to a level lower than the State's own estimates of pharmacies' actual acquisition costs; and that the cuts violated state law because they would reduce the quality of care delivered to the State's Medicaid recipients.
On October 2, 2009, the Plaintiffs filed an amended complaint which did not substantially change their allegations. On October 20, 2009, the suit was officially related to the case Douglas v. Independent Living Center and transferred to Judge Christina A. Snyder, who was the presiding over that case and many of the related cases.
On November 2, 2009, the Plaintiffs filed a motion for a preliminary injunction, which, on December 22, 2009, Judge Snyder denied, finding that the Plaintiffs' case did not have a high likelihood of succeeding on its merits because California's acceptance of the lowered AWPs did not constitute an affirmative act that created a new "'method or procedure' for establishing reimbursement rates." National Association of Chain Drug Stores v. Schwarzenegger, 678 F.Supp.2d 995 (C.D. Cal. 2009). On the same day, she denied the Defendants' motion to dismiss the suit.
The Plaintiffs appealed this denial to the Nine Circuit Court of Appeals. While this appeal was pending, the Plaintiffs filed a motion for a preliminary injunction preventing the implementation of the rate reductions during the period before the Appellate Court issued a ruling. Judge Snyder denied this motion on February 22, 2010. On April 13, 2010, Judge Snyder stayed the case pending the outcome of the appeal.
On April 15, 2010, the Ninth Circuit Court of Appeals affirmed the District Court's denial of the preliminary injunction. National Association of Chain Drug Stores v. Schwarzenegger, 376 Fed.Appx. 674 (9th Cir. 2010).
On May 5, the parties filed a joint stipulation requesting the case be dismissed without prejudice. Judge Snyder dismissed the case the following day.
It is unclear from the record whether this dismissal occurred because of a private settlement between the parties or some other event that resolved the rate reduction issue, or if the Plaintiffs withdrew from the suit because success appeared unlikely after the Appellate Court decision.Alex Colbert-Taylor - 07/24/2013