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UNIVERSITY MED. CTR. OF SOUTHERN NEVADA v. SHALALA

May 13, 1998

UNIVERSITY MEDICAL CENTER OF SOUTHERN NEVADA, Plaintiff
v.
HONORABLE DONNA E. SHALALA, SECRETARY, DEPARTMENT OF HEALTH & HUMAN SERVICES, Defendant.



The opinion of the court was delivered by: GREEN

MEMORANDUM OPINION AND ORDER

 This action concerns defendant's administration of the Drug Pricing Program enacted as § 340B of the Public Health Service Act. 42 U.S.C. § 256b. Specifically, plaintiff University Medical Center of Southern Nevada ("UMC") alleges that defendant improperly excluded UMC from the list of entities eligible to receive drug discounts under the 340B program. Presently pending are plaintiff's Motion for Summary Judgment; defendant's Motion for Judgment on the Pleadings or, in the Alternative, for Summary Judgment; plaintiff's Motion to Supplement the Record and to Permit the Taking of Discovery; plaintiff's Motion to Strike Defendant's Statement of Material Facts; and plaintiff's Motion to Strike Defendant's Response to plaintiff's Statement of Material Facts in Dispute. Upon careful consideration of the entire record in this matter, the Court concludes that plaintiff lacks constitutional standing. Therefore, this action will be dismissed.

 BACKGROUND

 Statutory Setting

 Concerned about the drug prices charged to facilities treating low-income persons, in 1992 Congress amended the Public Health Services Act by adding § 340B entitled "Drug Pricing Agreements" (the "340B program"). *fn1" Under that section, the Secretary of the Department of Health and Human Services was instructed to enter into agreements with manufacturers of covered drugs so that the amount manufacturers charged "covered entities" for those drugs did not exceed a price calculated according to a specified formula. 42 U.S.C. § 256b(a)(1). To be eligible to purchase drugs from manufacturers under the Secretary's drug pricing agreements, a facility had to both qualify as a "covered entity," 42 U.S.C. § 256b(a)(4), and meet the list of other requirements found in § 340(a)(5). *fn2"

 Section 340B defined twelve different types of facilities that could qualify as covered entities. Id. § 256b(a)(4). One specific type of "covered entity" is at issue here: those hospitals providing health care services to low-income patients that "had a disproportionate share adjustment percentage . . . greater than 11.75 percent" (a "disproportionate share hospital"). Id. § 256b(a)(4)(L). *fn3" The "disproportionate share adjustment percentage" ("DSH") is a complex calculation involving the percentages of low-income Medicaid and non-Medicaid patients treated, the hospital's number of beds, and the hospital's location, see 42 U.S.C. § 1395ww(d)(5)(F); the precise details of the calculation are not at issue in this case.

 In addition, the statute specifically precluded "disproportionate share hospitals" from "obtaining covered outpatient drugs through a group purchasing organization or other group purchasing arrangement." Id. § 256b(a)(4)(L)(ii). In other words, a "disproportionate share hospital" could not participate in two drug price-reducing arrangements at the same time, but had to choose between the price negotiated under the 340B program and prices it could obtain as part of a group purchasing arrangement.

 Factual Background

 The following facts are not disputed. UMC's initial eligibility for the 340B program was based on its Fiscal Year 1991 cost report, which reflected a disproportionate share adjustment percentage ("DSH") of less than 11.75%. Therefore, because UMC's reported DSH did not meet the 11.75% threshold, UMC was not included on the initial list of covered entities. In 1992-93, UMC's 1991 cost report was audited. As a result of this audit, on August 30, 1993, the auditing organization issued a final Notice of Program Reimbursement based on the audited 1991 cost report showing that UMC's correct DSH was greater than 11.75%.

 Based on the results of the audit, in January 1994, UMC wrote to defendant's Office of Drug Pricing to explain that the hospital's DSH had initially been calculated incorrectly, but was now known to be greater than 11.75% and to request inclusion in the 340B program based on a DSH of greater than 11.75%. On April 1, 1994, UMC's auditor wrote to defendant's Health Care Financing Administration, stating that UMC's DSH for the 1991 fiscal year was greater than 11.75%.

 Prior to implementation of the 340B program, UMC had participated in group drug purchasing agreements. UMC continued to participate in these group purchasing agreements while its 1991 cost report was being audited and during the time that it wrote to defendant seeking inclusion on the "covered entity" list.

 On July 12, 1994, the Director of the Medicaid Bureau wrote to Congresswoman Barbara Vucanovich to report that effective July 1, 1994, UMC had been added to the list of entities eligible to participate in the 340B program. After July 1994, UMC continued to press defendant to include it on the covered entity list retroactive to December 1, 1992; defendant refused to do so. In March 1997, UMC filed this suit.

 DISCUSSION

 According to UMC, the entire focus of this case should be the fact that its disproportionate share adjustment percentage, recalculated after the audit, was greater than 11.75%. However, that narrow focus overlooks a clear statutory requirement that bars plaintiff from any relief. Because UMC participated in drug purchasing agreements, it was statutorily precluded from participation in the 340B program, 42 U.S.C. § 256b(a)(4)(L)(ii), and is entitled to no relief. ...


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