United States District Court, District of Columbia
February 25, 2002
PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, PLAINTIFF,
TOMMY G. THOMPSON ET AL., DEFENDANTS, AND KEVIN W. CONCANNON, INTERVENOR-DEFENDANT.
The opinion of the court was delivered by: Ricardo M. Urbina, United States District Judge.
M E M O R A N D U M O P I N I O N
GRANTING THE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT;
GRANTING THE INTERVENOR-DEFENDANT'S MOTION FOR SUMMARY JUDGMENT;
DENYING THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
This case concerns one state's use of a manufacturer-rebate scheme to
act as a solution for the lack of a prescription drug benefit program for
low-income citizens. By bringing the present action, Pharmaceutical
Research and Manufacturers of America ("the plaintiff") challenges the
approval of the State of Maine's Medicaid demonstration project by the
Centers for Medicare and Medicaid Services ("CMS"), under the U.S.
Department of Health and
Human Services ("HHS"). As such, the target
defendants in the case are the HHS Secretary and the CMS Administrator
(collectively, "the defendants"). The plaintiff alleges violations of
Title XIX of the Social Security Act ("the SSA"), as amended
42 U.S.C. § 1396 et seq., and the Administrative Procedure Act, ("the
APA") as amended 5 U.S.C. § 701 et seq. Before the court are the
parties' cross-motions for summary judgment. After consideration of the
parties' submissions and the relevant law, the court grants the
defendants' motion for summary judgment and denies the plaintiff's motion
for summary judgment. In addition, the court grants the
intervenor-defendant's motion for summary judgment.
A. Factual Background
The plaintiff challenges the State of Maine's Medicaid demonstration
project, known as the Healthy Maine Prescription ("HMP"), which the HHS
Secretary approved on January 18, 2001. See Defs.' Mot. for Summ. J. at
7. Maine put the HMP into effect on June 1, 2001, intending "to do
something about the lack of a prescription drug benefit for its
low-income citizens" by expanding "Medicaid eligibility for prescription
drugs to all individuals with household income up to 300 percent of the
Federal Poverty Level." Administrative Record ("Admin. R.") at 5.
Defendant Tommy G. Thompson, the HHS Secretary, is charged with the
responsibility to implement the provisions of Title XIX of the SSA, as
amended 42 U.S.C. § 1396 et seq. (the "Medicaid statute"). See
Compl. ¶ 13. The HHS Secretary administers the Medicaid program
through CMS, a component of HHS. See id. The Secretary is sued in his
official capacity only. See id.
The plaintiff challenges the January 18, 2001 decision by the HHS
Secretary approving a Medicaid demonstration to be conducted by Maine and
allowing Maine to pursue the HMP. See Compl. ¶ 2. The Secretary's
"reason for approving the project was `not to restrict Maine's ability to
invest state funds in the health of its citizens,' but to achieve
`expanded access to medically necessary drugs' by making them `more
affordable to primarily low-income Maine residents who are not eligible
for Medicaid.'" See Defs.' Mot. for Summ. J. at 17 (quoting Admin. R. at
The HMP uses a manufacturer-rebate mechanism set forth in
42 U.S.C. § 1396r-8. See Compl. ¶¶ 24-25. Under the HMP, Maine
collects rebates from manufacturers quarterly and deposits the rebates
into a revolving fund. See Compl. ¶ 26. Providers charge the HMP
beneficiaries prices for prescriptions that equal the Medicaid price for
a prescription, (i.e., the price that Maine has agreed to pay pharmacies
for prescriptions filled under Medicaid) minus a fixed percentage subsidy
of 18 percent. See Compl. ¶ 38. Specifically, beneficiaries
receive a 14-percent reduction off the available prescription price,
calculated by reducing the manufacturers' rebate of 18 percent by the
four percent Maine estimates it would cost on a per-prescription basis to
administer the HMP. See Admin. R. at 176-177.
Under the rebate program described in 42 U.S.C. § 1396r-8(a)(1),
for a state to receive federal funds to pay for any manufacturer's
drugs, the manufacturer must enter into an agreement with the HHS
Secretary to pay a rebate to every state on all of its covered outpatient
drugs paid for by Medicaid. See Compl. ¶ 24. The plaintiff
contends this program violates the SSA because it costs Maine nothing,
but requires drug companies to cover 15 to 18 percent of the cost of
covered prescription drugs. See Compl. ¶¶ 39-41, 45-46, 73. The
plaintiff claims this feature violates the statutory requirement that a
plan include some "payment under a state plan" of the cost of
"medical assistance." See 42 U.S.C. § 1396r-8, (a); Compl. ¶¶
4, 44-54. In addition, the plaintiff avers the defendants fail to
satisfy the requirement in 42 U.S.C. § 1396o, which provides that
states not charge Medicaid beneficiaries more than a "nominal"
co-payment. See Compl. ¶¶ 4, 44-54; Mem. of Law in Supp. of Pl.'s
Mot. for Summ. J. at 5, 26-28. The plaintiff argues that HMP
beneficiaries are paying more than 80 percent of the cost of each
prescription they fill. See id. Thus, the plaintiff concludes that such
copayments imposed by Maine clearly exceed the "nominal" limit set forth
in 42 U.S.C. § 1396o. See id.
To support these arguments, the plaintiff relies on a recent D.C.
Circuit decision that addresses a similar program instituted by the State
of Vermont. See Pharm. Research and Mfrs. of America v. Thompson
("PhRMA"), 251 F.3d 219 (D.C. Cir. 2001); Compl. ¶¶ 1, 5; Mem. of Law
in Supp. of Pl.'s Mot. for Summ. J. at 1-5, 8, 13-19, 21, 23-25, 28.
In PhRMA, the plaintiff states that the D.C. Circuit struck down a plan
"essentially identical" to the Maine HMP, known as the Vermont Pharmacy
Discount Program ("PDP"). See Compl. ¶¶ 1, 5. The D.C. Circuit held
that the purchases of drugs under the portion of the project designed to
be equal to the anticipated manufacturer rebate could not be deemed
purchases for which a "payment" was made by Vermont, as that term is
defined under 42 U.S.C. § 1396r-8(b)(1)(A) because "payments are
fully reimbursed by manufacturer rebates" and therefore "the rebates
produce no savings for the Medicaid program." See Defs.' Mot. for Summ.
J. at 10 (quoting PhRMA, 251 F.3d at 225).
Shortly after the D.C. Circuit issued its PhRMA decision, Maine
initiated a policy in which the State makes a contribution of two percent
toward the cost of HMP beneficiaries' prescriptions using "State-only"
money (i.e., money for which no federal-matching funds are paid). See
Mem. of Law in Supp. of Pl.'s Mot. for Summ. J. at 13. The plaintiff
argues that the Maine HMP is indistinguishable from the Vermont PDP and
CMS lacks the authority to approve the HMP, thereby violating Section
1927 of the SSA (42 U.S.C. § 1396r-8). See Compl. ¶¶ 4-5,
60-66. Consequently, the plaintiff urges this court to rule that the
defendants' approval of the program violates the APA,
5 U.S.C. § 706(2)(A), (C). Compl. ¶¶ 7, 59, 64, 74, B.
Specifically, the plaintiff requests a declaration, pursuant to
28 U.S.C. § 2201, that CMS approval of the HMP violates Sections
1927, 1901 (as defined in section 1905(a)), 1916(b), and 1115 of the
SSA, and, along those same lines, that CMS approval, or any like approval
in the future, is unlawful under the APA. See Compl. ¶ B.
Additionally, the plaintiff seeks "preliminary and permanent injunctive
relief enjoining the Secretary of HHS from granting approval of a
Medicaid demonstration program in Maine or any other state that contains
any or all of the features of the Maine HMP, including: (1) purporting
to require rebates from prescription drug manufacturers even though no
payments are made by the state under that state's plan; (2) failing to
provide `medical assistance' under the SSA, and; (3) requiring copayments
by Medicaid beneficiaries that exceed the `nominal' limit allowed under
Medicaid." Compl. ¶ C.
1. The Medicaid Program
The federal government enacted the Medicaid program in 1965 as a
cooperative undertaking between the federal and state governments to help
the states provide medical care to low-income individuals. See Compl.
¶ 17. Medicaid provides services pursuant to plans developed by the
states and approved by the HHS Secretary. See
42 U.S.C. § 1396a(a)-(b);
Compl. ¶ 17. States pay doctors,
hospitals, pharmacies, and other providers of medical goods and services
according to established rates. See 42 U.S.C. § 1396b(a)(1),
1903(a)(1); Compl. ¶ 22. The federal government then pays each
state a statutorily established share of "the total amount expended . . .
as medical assistance under the State plan . . . ." See
42 U.S.C. § 1396b(a)(1); Compl. ¶ 22. This federal-to-state
payment is known as federal financial participation. See Compl. ¶
20. The Medicaid statute prohibits state governments from charging the
beneficiaries more than a "nominal" copayment for prescription drugs and
other benefits. See 42 U.S.C. § 1396o(a)(3), (b)(3); Compl. ¶
23. The plaintiff claims that current Medicaid prescription drug sales
nationwide total about 20 billion dollars per year. Compl. ¶ 28.
About 10 percent of all prescription drugs in the United States are
purchased by Medicaid recipients. See Defs.' Mot. for Summ. J. at 5.
2. Medicaid Prescription Drug Rebate Agreements
Pharmaceutical manufacturers participating in Medicaid programs rebate
to the states a portion of the price of drugs purchased for Medicaid
purposes. See 42 U.S.C. § 1396r-8(a)(1); Compl. ¶¶ 24-25.
Manufacturers do this because the Medicaid statute,
42 U.S.C. § 1396a-u, permits the federal government to
reimburse states only for drugs purchased from manufacturers who have
agreed to pay statutorily specified rebates to those states. See
42 U.S.C. § 1396r-8(a)(1); Compl. ¶¶ 24-26, 28.
Thus, pharmaceutical manufacturers that want their drugs available to
Medicaid beneficiaries under the Medicaid program must enter into agreements
with the HHS Secretary to provide rebates to states in order to reduce the
cost of prescription drug coverage. See 42 U.S.C. § 1396r-8(a)(1);
Compl. ¶ 25. Specific rebate amounts are based on state reports on the
utilization of each manufacturer's covered outpatient drugs by Medicaid
beneficiaries in the state. See 56 Fed. Reg. 7049, Section II(a); Compl.
¶ 26. In language central to this case, Section 1396r-8 provides that
rebate agreements shall require manufacturers to pay rebates on drugs for
which "payment was made under the State plan." See
42 U.S.C. § 1396r-8(b)(1)(A); Compl. ¶¶ 4, 44-45.
3. Waivers and Medicaid "Pilot" or "Demonstration" Projects
The relevant Medicaid statute authorizes HHS to approve experimental
"pilot" or "demonstration" projects that the HHS Secretary determines are
"likely to assist in promoting the objectives of [Medicaid]."
42 U.S.C. § 1315(a); see Compl. ¶¶ 31-33; Defs.' Mot. for Summ.
J. at 3-4. The SSA authorizes the Secretary to waive certain Medicaid
requirements for such demonstration projects. See id. With respect to
such projects, the Secretary is empowered to take two separate actions.
See Defs.' Mot. for Summ. J. at 3-4. First, the Secretary may waive
compliance with certain Medicaid provisions to the extent and for the
period that the Secretary finds necessary to facilitate the project. See
42 U.S.C. § 1315(a)(1); Defs.' Mot. for Summ. J. at 4. Second, the
Secretary may designate that state expenditures, "which would not
otherwise be included as expenditures" under the state plan, "shall, to
the extent and for the period prescribed by the Secretary, be regarded as
expenditures under the state plan." 42 U.S.C. § 1315(a)(2); see also
Defs.' Mot. for Summ. J. at 4. In this case, the Secretary's approval
letter states that all "expenditures for extending pharmacy-only
benefits" under the HMP "shall be regarded as expenditures under the
State's [Medicaid] plan," subject to the condition that the State will be
eligible for federal financial participation only to the extent that
those expenditures do not exceed average rebate amounts (as reconciled on
a quarterly basis). See Admin. R. at 29, 41.
According to the defendants, expenditures that generate federal
financial participation and "State only" expenditures that do not
generate federal financial participation are therefore both "regarded" as
being made "under the State plan," for purposes of determining whether a
rebate obligation attaches under 42 U.S.C. § 1396r-8(b)(1)(A). See
42 U.S.C. § 1315(a)(2); Defs.' Mot. for Summ. J. at 16. The SSA,
however, does not authorize the Secretary to waive any requirements of
Section 1396r-8's rebate provision or the requirement that Medicaid
beneficiaries contribute no more than a "nominal" amount to the cost of
medical benefits they receive. See 42 U.S.C. § 1315(a)(1); Compl.
¶¶ 33, 48, 63. Moreover, CMS regulations require a state to show
that any pilot project will be "budget neutral," i.e., that the federal
government's costs over the life of the project will not exceed the
contribution the federal government would make to the state under the
state Medicaid plan in the absence of the waiver. See Demonstration
Proposals Pursuant to § 1115(a) of the Social Security Act, 59 Fed.
Reg. 49,249, 49,250 (Sept. 27, 1994); Compl. ¶ 34.
In contrast, the defendants argue "it was not necessary for the
copayment statute to be `waived' to facilitate the HMP, because the
copayment statute is not applicable to persons who are not eligible for
Medicaid to begin with." Defs.' Mot. for Summ. J. at 25. The defendants
aver that "HMP participants may receive Medicaid-like benefits, but they
do not become eligible for Medicaid by enrolling in the demonstration
4. Maine's Demonstration Project: The Healthy Maine Prescription ("HMP")
On January 5, 2001, Maine officials sought a waiver from CMS allowing
Maine to expand Medicaid eligibility for prescription drugs through a
demonstration project. See Compl. ¶ 35. Maine's proposed project
is designed to help an estimated 225,000 people with low incomes, who are
not otherwise eligible for Medicaid, to obtain Medicaid pharmacy
benefits. See id. More than 60,000 people are currently enrolled in the
HMP. See Int.-Defs.' Mot. for Summ. J. at 7. The Maine DHS expects
total enrollment to reach 200,000 to 225,000 by the time the
demonstration project ends in 2006. See id. Maine envisioned that the
"project would also provide important information on health status and
utilization patterns of beneficiaries, as well as contribute to State
public policy and planning." Mem. of Law in Supp. of Defs.' Mot. for
Summ. J. at 7. In a letter dated January 18, 2001, the Secretary
approved the waiver ("the waiver letter") and determined that the
demonstration project was "likely to assist in promoting the objectives
of the Medicaid program." See id. at 8; Mem. of Law in Supp. of Pl.'s
Mot. for Summ. J. at 10. As a condition for approving the waiver, the
waiver letter requires the Maine DHS to submit an "operational protocol"
to the Secretary, and requires it to be the "single source for the policy
and operating procedures" for the program. See Admin. R. at 28-47; Mem.
of Law in Supp. of Pl.'s Mot. for Summ. J. at 11; Defs.' Mot. for Summ.
J. at 9. The waiver letter states that the Secretary would regard all
"expenditures for extending pharmacy-only supplemental benefits" to this
new population as "expenditures under the State's Medicaid plan." See
Admin. R. at 28-29.
The HMP consists of two parts. See Defs.' Mot. for Summ. J. at 8. The
first part is called the "Drugs for the Elderly" ("DEL") component. See
id. This aspect of the project provides a prescription-drug benefit for
elderly and disabled persons whose household income does not exceed 185
percent of the Federal Poverty Level ("FPL"). See id.; Admin. R. at 7-8.
The State pays 80 percent of the cost for "generic drugs, drugs related
to certain conditions, and catastrophic expenditures" that exceed
$1,000.00 per year. See Defs.' Mot. for Summ. J. at 8. The defendants
contend that the Secretary regards State subsidies as expenditures made
under the Medicaid State plan, thereby making the drug purchases subject
to manufacturer rebates. See Admin. R. at 28-29; Defs.' Mot. for Summ.
J. at 8. Under the "Special Terms and Conditions" of the project, the
Secretary is responsible for paying federal financial participation to
the State on DEL payments, but only up to the average percentage of
manufacturer rebates. See Admin. R. at 41; Defs.' Mot. for Summ. J. at
8. The remainder of the payment qualifies as a "State-only expense that
is not subject to federal financial participation." See Defs.' Mot. for
Summ. J. at 8.
The second part of the HMP has no specific name, but Maine refers to it
as the "non-DEL" component. Defs.' Mot. for Summ. J. at 8. It covers
all non-DEL drugs purchased by people with incomes below 300 percent of
the Federal Poverty Level. See id. Just like the DEL component, the
Secretary has agreed to regard all payments to pharmacists made by the
State for non-DEL drugs as expenditures under the State plan, making the
drug purchases subject to manufacturer rebates. See id.; Admin. R. at
28. The Secretary agreed to pay federal financial participation on State
expenditures, but once again only up to the average rebate percentage.
See Defs.' Mot. for Summ. J. at 8-9; Admin. R. at 41. State payments
that exceed the rebates are a "State-only" expense. See id. According
to the defendants, Maine is free to pay whatever subsidies it wants, so
long as the "amount for which federal financial participation is claimed
is limited to the rebate amount." See Defs.' Mot. for Summ. J. at 9.
The HMP went into effect on June 1, 2001. See id. at 10. On June 8,
2001, the D.C. Circuit handed down its decision in the PhRMA case. See
PhRMA, 251 F.3d at 219. As stated earlier, the case involved a Vermont
demonstration project designed to make prescription drugs more affordable
to elderly and low-income people who are not eligible for Medicaid. See
PhRMA, 251 F.3d at 219; Defs.' Mot. for Summ. J. at 10. In one portion
of the prescription drug initiative, the State of Vermont paid 50 percent
of the price of certain drugs purchased by project participants. See
id. The other portion of the prescription drug initiative was a subsidy
that Vermont tied to the anticipated average manufacturers' rebate. See
PhRMA, 251 F.3d at 219; Mem. of Law in Supp. of Pl.'s Mot. for Summ. J at
3. The D.C. Circuit struck down this portion of the prescription drug
initiative, holding that "because Vermont's PDP payments are fully
reimbursed by manufacturer rebates, and because the rebates produce no
savings for the Medicaid program, the State's payments to pharmacies are
not `payments' within the meaning of the statute"
(42 U.S.C. § 1396r-8(b)(1)(A)). PhRMA, 251 F.3d at 225; see also
Mem. of Law in Supp. of Pl.'s Mot. for Summ. J at 3; Defs.' Mot. for
Summ. J. at 10.
On July 3, 2001, in response to the D.C. Circuit's decision in the
PhRMA case, Maine changed its non-DEL portion of the HMP by increasing
non-DEL payments to pharmacists by two percent or about one dollar per
drug purchase.*fn1 See Defs.' Mot.
for Summ. J. at 11. According to the
defendants, "this additional payment required no approval by the
Secretary because the State did not intend to seek federal financial
participation for it." Id. The State did, however, "inform the Secretary
of the increase in non-DEL payments, and the Secretary has not objected."
5. The Challenged Expansion of the Non-DEL Portion of the HMP
The plaintiff challenges CMS's approval of Maine's decision to
implement a two-percent increase from the use of "State only" funds.*fn2
See Pl.'s Mot. for Summ. J. at 4. The plaintiff contends the change was
made "without any official federal or state action and . . . there is not
a single document that requires Maine to make the two percent payments."
Mem. in Supp. of Pl.'s Mot. for Summ. J. at 13. Also, the plaintiff
claims that the HMP does not include any payments by Maine for
prescription drugs.*fn3 In doing so, the plaintiff claims that "Maine is
not making any such payments because the new payments are . . . funded by
the administrative cost savings Maine achieved when it integrated the DEL
into the HMP." Id. at 18. Thus, the plaintiff argues that Maine is
still not making the "net expenditure of funds" required to trigger
manufacturer rebates.*fn4 See id. (quoting PhRMA, 251 F.3d at 225). The
defendants argue that the additional two-percent payment requires no
approval from the Secretary since only "major changes in policy or
operating procedures" must be "submitted for review" by the Secretary.*fn5
See Defs.' Stat. of Mat. Facts at 4.
B. Procedural History
The plaintiff filed a complaint for declaratory, injunctive, and other
relief on June 29, 2001. Since the filing of the complaint, Kevin W.
Concannon, Commissioner of the Maine Department of Human Services, filed
a motion on July 23, 2001 to intervene in the case as an
intervenor-defendant. The court granted this motion because
Maine's strong interest in providing affordable prescription drugs to its
low-and-moderate-income citizens gives rise to a strong interest in
defending the HMP. See Order dated September 27, 2001. On August 28,
2001, the defendants filed the administrative record and an answer to the
plaintiff's complaint. On October 22, 2001, the plaintiff filed a motion
for summary judgment and a joint status report on October 25, 2001. On
November 5, 2001, the defendants filed a motion for summary judgment
and, on the same day, the intervenor-defendant filed a motion for summary
judgment. On November 13, 2001, the plaintiff filed a memorandum in
support of its motion for summary judgment. On December 5, 2001, the
parties filed a joint status report. These cross motions for summary
judgment are now ripe for resolution.*fn6 For the reasons that follow,
the court grants the defendants' and intervenor-defendant's motions for
summary judgment and correspondingly denies the plaintiff's motion for
A. Legal Standards
1. Legal Standard for a Motion for Summary Judgment
Summary judgment is appropriate when "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); Diamond v. Atwood, 43 F.3d 1538, 1540
(D.C. Cir. 1995). To determine which facts are "material," a court must
look to the substantive law on which each claim rests. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" is one
whose resolution could establish an element of a claim or defense and,
therefore, affect the outcome of the action. See Celotex, 477 U.S. at
322; Anderson, 477 U.S. at 248.
In ruling on a motion for summary judgment, the court must draw all
justifiable inferences in the nonmoving party's favor and accept the
nonmoving party's evidence as true. See Anderson, 477 U.S. at 255. A
nonmoving party, however, must establish more than "the mere existence of
a scintilla of evidence" in support of its position. See id. at 252. To
prevail on a motion for summary judgment, the moving party must show that
the nonmoving party "fail[ed] to make a showing sufficient to establish
the existence of an element essential to that party's case, and on which
that party will bear the burden of proof at trial." See Celotex, 477
U.S. at 322. By pointing to the absence of evidence proffered by the
nonmoving party, a moving party may succeed on summary judgment. See
In addition, the nonmoving party may not rely solely on allegations or
conclusory statements. See Greene v. Dalton, 164 F.3d 671, 675 (D.C.
Cir. 1999); Harding v. Gray, 9 F.3d 150, 154 (D.C. Cir. 1993). Rather,
the nonmoving party must present specific facts that would enable a
reasonable jury to find in its favor. See Greene, 164 F.3d at 675. If
the evidence "is merely colorable, or is not significantly probative,
summary judgment may be granted." Anderson, 477 U.S. at 249-50 (internal
2. Legal Standard for Standing
Article III of the Constitution limits United States courts to "cases"
or "controversies." See U.S. CONST. ART. III, § 2, cl. 1. Article
III's prerequisites reflect the "common understanding of what it takes to
make a justiciable case." Steel Co. v. Citizens for a Better Env't,
523 U.S. 83, 102 (1998). Consequently, in order for this court to have
jurisdiction over a case, each plaintiff must have standing to bring
their claim. See Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992).
An individual must satisfy a three-prong test in order to establish
standing. See id. First, the individual must have suffered some injury
in fact — an invasion of a legally protected interest that is
concrete and particularized and actual or imminent. See id. at 560;
M.D. Pharmaceutical Inc. v. Drug Enforcement Admin., 133 F.3d 8, 11
(D.C. Cir. 1998) (concluding that current manufacturer had standing to
seek review of actions taken by the DEA). In some cases, a plaintiff may
be injured when the "discriminatory classification prevent[s] the
plaintiff from competing on an equal footing." Northeastern Fla.
Chapter, Associated Gen. Contractors of America v. Jacksonville,
508 U.S. 656, 667 (1993) (holding that when the government erects a
barrier, in order to establish standing, a group seeking to challenge the
barrier need not allege they would have attained the benefit but for the
Second, the injury must be fairly traceable to the governmental conduct
alleged. See Warth v. Seldin, 422 U.S. 490, 504 (1975) (finding lack of
standing where city residents failed to show a causal relationship
between town's zoning practices and alleged injury); National Maritime
Union v. Commander, Military Sealift Command, 824 F.2d 1228 (D.C. Cir.
1987) (holding that the plaintiff failed the second and third prongs of
standing). A plaintiff will not have standing if this court must accept
a speculative inference or assumption to link the alleged injury to the
challenged action. See id.; Andrx Pharm., Inc. v. Bovail Corp. Int'l,
256 F.3d 799, 815 (D.C. Cir. 2001) (declaring that the potential
manufacturer's damages were not too speculative assuming it could claim
its intent and preparedness to enter the market); Advanced Mgmt. Tech.
v. FAA, 211 F.3d 633, 637 (D.C. Cir. 2000) (holding that a contractor
lacked standing on the theory of reputational injury).
Third, the plaintiff must prove that the alleged injury is likely to be
redressed by a favorable decision of this court. See Lujan, 504 U.S. at
561 (1992); Tozzi v. U.S. Dep't of Health and Human Servs., 271 F.3d 301
(D.C. Cir. 2001) (recognizing that upgrade classification change from
"reasonably anticipated" to "known" carcinogen caused some economic
injury that could be redressed by reversing the classification).
An organization has standing only if it meets a separate three-prong
test. See Truckers United for Safety v. Mead, 251 F.3d 183 (D.C. Cir.
2001) (holding that a motor carriers' association has standing to sue on
behalf of its members for Department of Transportation's alleged abuses
of agency authority). Such standing exists where the organization's
members (1) would have standing to sue in their own right, (2) the
interests that the organization seeks to protect are germane to its
purposes, and finally, (3) neither the claims asserted nor the relief
requested requires the participation of each of the organization's
individual members. See id.; Friends of the Earth, Inc. v. Laidlaw
Envtl. Servs. (TOC), Inc., 528 U.S. 167,
181 (2000); Hunt v. Wash. State
Apple Comm'n, 432 U.S. 333, 342-43 (1977) (agreeing with the district
court's determination that a commission has standing to assert the claims
of apple growers and dealers in its representational capacity); Fund
Democracy, LLC v. SEC, ___ F.3d. ___, No. 01-1367, 2002 WL 125761 at *2,
2002 U.S. App. LEXIS 1550 at *4 (D.C. Cir. 2002) (applying test from
Laidlaw and determining no standing exists where a company has failed to
show individuals would have standing to sue in their own right).
B. The Plaintiff Does Not Have Standing to Challenge
the HMP Beneficiaries' Copayment
As stated before, the Medicaid statute imposes limits on copayments or
other cost-sharing charges that states may impose on "individuals . . .
who are eligible under the [state Medicaid] plan." See
42 U.S.C. § 1396o(b)(3). Such "deduction, cost sharing or similar
charges imposed under the plan" must be "nominal in amount." Id. HHS
has promulgated regulations defining what constitutes the "nominal"
copayments that may be required of individuals purchasing prescription
drugs. For instance, where the state payment for a drug is $10.00 or
less, the copayment may not exceed 50 cents; where the state payment is
more than $50.00, the copayment may not exceed $3.00. See
42 C.F.R. § 447.54(a)(3); 42 U.S.C. § 1396r-8(b)(1)(A).
In the plaintiff's view, the HMP violates these statutory and
regulatory limitations because it requires beneficiaries to pay more than
85 percent of a drug's Medicaid price, far beyond any reasonable
conception of a "nominal" copayment. See Compl. ¶¶ 14, 17-18; Pl.'s
Mot. for Summ. J. at 26-28 (discussing regulatory and dictionary
definitions of "nominal"). The plaintiff asserts that the Secretary's
approval of the Maine HMP exceeds the Secretary's statutory authority in
violation of the APA. See Compl. ¶¶ 7, 59. Additionally, the
plaintiff argues that the Secretary abused his discretion in approving
"nominal" copayments that exceed the Secretary's own regulatory
definition of what constitutes a "nominal" copayment. See
5 U.S.C. § 706(2)(A), (C); Compl. ¶¶ 4-5, 23, 55-58; Pl.'s Mot.
for Summ. J. at 28. Specifically, the plaintiff claims that it was an
abuse of discretion for the Secretary to approve the HMP because it
includes unlawfully high copayments. See Pl.'s Mot. for Summ. J. at 28
(quoting Union of Concerned Scientists v. Nuclear Regulatory Comm'n,
711 F.2d 370, 381 (D.C. Cir. 1983) (holding that "[w]hen an agency's
interpretation of its own rules flies in the face of the language of the
rules themselves, it is owed no deference.").
In this case, the defendants argue that the copayment provision of
42 U.S.C. § 1396o applies only to Medicaid recipients and not to the
expansion population of the HMP beneficiaries. See Defs.' Mot. for
Summ. J. at 21. Thus, the defendants conclude that there are no
statutory restrictions on copayments for non-Medicaid participants in the
subject demonstration project. Id. Assuming arguendo that there were
statutory restrictions on copayments for non-Medicaid participants in the
demonstration project, the plaintiff would fail to satisfy the first
prong required to assert organizational standing because the plaintiff's
members do not "have standing to sue in their own right." See Friends of
the Earth, 528 U.S. at 181. Here, no legally cognizable relationship
exists between the plaintiff's individual members and the HMP
Applying the second prong of the organizational standing analysis, the
plaintiff also fails to assert that "the interests their organization
seeks to protect are germane to its purposes." See id. Nowhere in the
record do the plaintiffs claim that the
HMP beneficiary copayments they
seek to protect are related to the purpose of their organization. As the
defendants aver, the copayment provision in 42 U.S.C. § 1396o is
"designed to protect Medicaid beneficiaries and regulate states . . . it
has nothing to do with the business of drug manufacturers." Def.'s Mot.
for Summ. J. at 22. The court agrees with the defendants' argument and
concludes that the plaintiff fails to satisfy the second prong of the
standing requirement. See Friends of the Earth, 528 U.S. at 181.
Additionally, the court determines that the plaintiff fails to satisfy
the third prong of the organizational standing requirement. To satisfy
the third prong, the plaintiff must show that "neither the claims
asserted nor the relief requested requires the participation of each of
the organization's individual members." Id. Regardless of whether the
plaintiff or the individual members of the plaintiff's organization assert
claims that the "nominal" copayment requirement of 42 U.S.C. § 1396o
is unlawful, standing does not exist because the plaintiff and its
individual members are not among the parties protected by the provision.
See id. Thus, the court concludes that the plaintiff lacks standing to
challenge the "nominal" copayment requirement of 42 U.S.C. § 1396o
because none of the individual members of the plaintiff's organization
are among the parties to be protected by the "nominal" copayment
provision. See id.
In addition to asserting it has standing to challenge the "nominal"
copayment requirement of 42 U.S.C. § 1396o(b)(3), the plaintiff also
alleges that it has standing to challenge all other violations of the
SSA. See Pls.' Mot. for Summ. J. at 26-29. The plaintiff, however,
fails to state why any grounds for standing exist to challenge "all other
violations" of the SSA. See id. The plaintiff does state that "numerous
cases have permitted industry associations to challenge administrative
actions that were not directed primarily at their interests, but which
injured them." Id. at 29. Although the plaintiff cites several cases to
that effect, the plaintiff fails to show this court why it has standing
to challenge administrative actions that are not directed primarily at
its interests. This failure defeats the plaintiff's assertion.
All the parties recognize that this court previously decided this
question vis-a-vis the plaintiff's standing to challenge Vermont's PDP
copayment structure in Pharmaceutical Research and Mfrs. of America v.
United States, 135 F. Supp.2d 1, 10 (D.D.C. 2001). See Pl.'s Mot. for
Summ. J. at 5; Defs.' Mot. for Summ. J. at 25; Int.-Def.'s Mot. for
Summ. J. at 24. In that case, this court held that the plaintiff lacked
standing to pursue the "nominal" copayment claims. See id.
Additionally, the plaintiff and the defendants acknowledge that the D.C.
Circuit did not address the issue of standing with regard to the
"nominal" copayment claims. See generally PhRMA, 251 F.3d 219; Pl.'s
Mot. for Summ. J. at 5; Defs.' Mot. for Summ. J. at 25. Here, the
situation is unchanged. Further, this court's conclusion that the
plaintiff has standing to challenge other aspects of the HMP on behalf of
its members does not give it standing to contest the copayments that are
the exclusive responsibility of Maine's HMP beneficiaries because
"standing must be demonstrated separately for each form of relief
sought." See Friends of the Earth, 528 U.S. at 185. The plaintiff does
not allege that it represents the HMP beneficiaries. Nor does the
plaintiff allege that it has any relationship with the HMP beneficiaries
authorizing the plaintiff to advance their putative interests in this
matter. Thus, the court grants the defendants' and
intervenor-defendant's motions for summary judgment with respect to the
HMP beneficiaries' copayment challenge because
no standing exists. In doing so, the court denies the plaintiff's motion
for summary judgment on this point.
C. The Plaintiff Has Standing to Contest the HMP on
Behalf of its Members
The plaintiff is a trade association that represents American
biotechnology and pharmaceutical companies. See Compl. ¶¶ 8-11. The
plaintiff represented its members' interests during HHS's consideration
and approval of Maine's prescription-drug pilot project under
42 U.S.C. § 1315. See Bantham Decl. ¶ 6. Most of the
plaintiff's members have entered into Medicaid prescription-drug rebate
agreements with HHS, including, for example, American Home Products and
its Wyeth-Ayerst Laboratories Division, Novartis Pharmaceuticals
Corporation, and Pfizer Inc. See Bantham Decl. ¶ 9; Alvernini
Decl. ¶ 3; McEnroe Decl. ¶ 3; Oxner Decl. ¶ 3. On a
quarterly basis, each of these companies pay rebates directly to each
state based on the number of units of its drugs that have been dispensed
under the subject state's Medicaid program. See 56 Fed. Reg. 7049,
Section II(a), (b); Compl. ¶ 40. If these companies violate the
rebate agreements by refusing to pay rebates mandated under a state's
Medicaid program, the defendants have the authority to terminate their
participation in Medicaid drug programs nationwide. See Demonstration
Proposals Pursuant to § 1115(a) of the SSA, 59 Fed. Reg. 49,249,
49,250 (Sept. 27, 1994); Waiver Letter, "Special Terms and Conditions" at
14; Compl. ¶ 28. CMS permits Maine to suspend or modify payments
under the HMP if manufacturers do not pay rebates in a timely manner to
the State. See id. Thus, the court concurs with the plaintiff's view
that it has standing to assert the legal rights of its members in this
controversy. Indeed, "[i]t has long been settled that even in the
absence of injury to itself, an association may have standing solely as
the representative of its members." United Auto., Aerospace and Agric.
Implement Workers of Am. v. Brock, 477 U.S. 274, 280 (1986) (citations
omitted); see also United States v. Students Challenging Regulatory
Agency Procedures, 412 U.S. 669, 688-89 (1973) (recognizing standing for
an environmental group based on the adverse effect of an International
Commerce Commission decision on its members). Along this same line of
reasoning, the plaintiff has sufficiently "alleged facts that demonstrate
that the actions of the defendants threaten to harm the cognizable
interests of" its member companies. See National Wildlife Fed'n v.
Burford, 835 F.2d 305, 314 (D.C. Cir. 1987). Specifically, the parties
agree that about 225,000 individuals will be eligible to participate in
the HMP. See Compl. ¶ 35; Int.-Defs.' Mot. for Summ. J. at 7. As
stated before, an association has standing to bring suit on behalf of its
members when: (1) its members would otherwise have standing to sue in
their own right; (2) the interests it seeks to protect are germane to the
organization's purpose, and; (3) neither the claim asserted nor the
relief requested requires the participation of individual members in the
lawsuit. See Friends of the Earth, 528 U.S. at 181.
In this case, the plaintiff satisfies all three of the aforementioned
requirements. Each of the plaintiff's members will be affected by the
HMP, thus providing each pharmaceutical company with standing to sue in
their own right. See id. The plaintiff's members that participate in
Medicaid and have drug rebate agreements with HHS will be forced to
select between two potentially costly options. Compl. ¶¶ 28-29. If
the manufacturers make the rebate payments and the HMP is ultimately
invalidated, Maine's sovereign immunity may prevent the manufacturers
the rebates.*fn7 See Compl. ¶ 28. Additionally, if
the manufacturers refuse to make the rebate payments and the court later
determines that the HMP is lawful, HHS could terminate the manufacturers'
rebate agreements and their eligibility to participate in all 50 states'
Medicaid prescription-drug programs. See Compl. ¶ 28-29; Pl.'s
Mot. for Summ. J. at 25-26. As such, the court agrees that each of the
above scenarios are well defined interests pertaining to each member of
the plaintiff's association and "germane to the organization's purpose."
See Friends of the Earth, 528 U.S. at 181. Furthermore, each member of
the organization asserts identical claims and requests the same relief.
See id. For these reasons, the court concludes that the plaintiff has
standing to raise its non-copayment objections to the Maine HMP on behalf
of its affected members. The court now turns to the outcome of these
D. The HMP is Not Unlawful Because It Does Not Lack the Requisite
Payment Under the State Plan Pursuant to 42 U.S.C. § 1396r-8.
The plaintiff moves the court for summary judgment, asking the court to
invalidate the HMP because Maine's two-percent payment is not a "payment
. . . made under the State plan" necessary to trigger manufacturer
rebates under 42 U.S.C. § 1396r-8(b)(1)(A). The plaintiff argues
that the HMP is "indistinguishable" from the Vermont PDP "in the critical
respect that it does not include any payments by the State of Maine for
prescription drugs." See Mem. in Supp. of Pl.'s Mot. for Summ. J. at 15.
The plaintiff contends that Maine's act of combining the HMP with the DEL
program "eliminates the administrative costs of the DEL, which are
approximately the same amount as the total amount of the two percent HMP
payment." Pl.'s Mot. for Summ. J. 5, 21-22. The plaintiff argues that
"under the HMP, those administrative costs are accounted for through a
reduction in DEL beneficiaries' discounts." Id. Specifically, the
plaintiff contends that "of the 18 percent manufacturers' rebates,
beneficiaries receive a 14 percent discount while Maine uses the four
percent to cover the State's anticipated administrative costs, and no
longer pays the DEL administrative costs the State covered prior to the
HMP." Id. Thus, the plaintiff claims that "there is no net expenditure
under the Maine HMP." See id. The defendants argue to the contrary,
stating the following:
When Maine integrated the DEL into the HMP, the
administration of the DEL benefit was assumed by the
HMP program. This means that the cost of
administering the DEL component of the HMP is now
shared by the federal government under the
demonstration project agreement. [The plaintiff's]
argument however, ignores the fact that 66.58
percent of the DEL rebates that Maine formerly
retained must now be shared with the federal
government. As a result, any gross administrative
costs that are "saved" by integrating the DEL into
the [HMP] are more than offset by a net reduction of
66.58 in rebate revenue for DEL prescriptions.
See Nolan Decl. ¶ 5. Additionally, the defendants argue that
integrating the DEL into the HMP increased the net cost of the DEL
component because DEL beneficiaries now qualify for the 80 percent
subsidy on many more drugs than were previously available under the "old"
DEL program. See Gessow Decl. ¶ 13.
While Maine states that it has appropriated funds for the HMP, the
plaintiff is not convinced. See Int.-Def.'s Mem. in Supp. of Mot. for
Summ. J. at 11. The plaintiff fails, however, to allege any facts that
demonstrate that Maine's elimination of the administrative costs of the
DEL is equivalent to the two-percent payment. The plaintiff seeks to
invalidate the entire HMP by concluding that Maine has not committed a
"net expenditure of funds" due to savings in administrative costs.*fn8
See Pl.'s Mot. for Summ. J. at 18 (quoting PhRMA, 251 F.3d at 225).
Maine's two-percent payment, however, appears to fit within the meaning
of "payment" according to the D.C. Circuit's decision in the PhRMA case.
See 251 F.3d at 225-26. Indeed, the D.C. Circuit stated that "[p]roperly
understood, `payment' here means only payments with state or federal
funds appropriated for Medicaid expenditures; absent such payments,
pharmaceutical rebates would not contribute to reducing the cost of the
taxpayer-funded Medicaid program, and the legislative history makes quite
clear that Congress' purpose in requiring rebates was to do just that."
Id. The plaintiff fails to provide the court with a figure that would
constitute an appropriate "payment" under the SSA. For example, deduced
from the plaintiff's reasoning, this court is unsure as to whether or not
a 2.1 percent payment, or for that matter a 2.2 percent payment, would
qualify as an adequate "payment" under 42 U.S.C. § 1396r-8(b)(1)(A).
To address the question of whether Maine's two-percent "payment" is
derived from funds appropriated for Medicaid expenditures, the court
relies on the facts of this case. The intervenor-defendant states that
"rebates under Maine's HMP are expected to amount to $5,451,494.00
annually (Gessow Decl. ¶ 11), whereas total state-only
appropriations amount to $19,750,292.00 annually." Int.-Def.'s. Mot. for
Summ. J. at 11. Additionally, the defendants argue that "the two percent
increase in non-DEL payments cost[s] the [S]tate between $500,000.00 and
$1 million dollars per year." Defs.' Stat. of Mat. Facts at ¶ 12.
Thus, applying the reasoning of the D.C. Circuit in the PhRMA case to the
facts of the case at bar, the court determines the "payment" requirement
is satisfied since "only payments with state or federal funds
appropriated for Medicaid expenditures" will suffice. PhRMA 251 F.3d at
225. Having determined Maine's two-percent payment to be a "payment"
under 42 U.S.C. § 1396r-8(b)(1)(A), this court also determines that
Maine's two-percent "payment," which triggers the rebate requirement from
pharmaceutical manufacturers, "redu[ces] the cost of the taxpayer funded
Medicaid program." PhRMA 251 F.3d at 225. As stated in the PhRMA
opinion, "`payment' excludes situations where no government funds are
spent." PhRMA, 251 F.3d at 225. Here, the parties present the court with
concrete facts that Maine appropriated funds for the HMP to satisfy the
"payment" requirement. Int.-Def.'s Mem. in Supp. of Mot. for Summ. J. at
11. Moreover, since Maine's two-percent payments are in addition to and
separate from the 18-percent subsidy provided by the manufacturer
rebates, the court also concludes that Maine's HMP funds are not from
"fully reimbursed manufacturer rebates." See PhRMA, 251 F.3d at 225;
Int.-Def.'s Mot. for Summ. J. at 9.
E. The HHS Secretary Has the Authority to Approve Maine's
Two-Percent Payment as an Appropriate Medicaid Expenditure
Finally, the court turns to the question of whether the HHS Secretary
may approve Maine's two-percent payment as Medicaid expenditures (i.e.,
"payments made under the State plan" pursuant to
42 U.S.C. § 1396r-8(b)(1)(A)). As the D.C. Circuit held in PhRMA,
"[W]hen Congress said `payment,' it meant payment with funds appropriated
for Medicaid purposes." PhRMA, 251 F.3d at 225. In determining whether
the HHS Secretary correctly exercised his authority in determining that
Maine's two-percent payment is a "payment" under the State's Medicaid
plan, the court once again considers the reasoning of the D.C. Circuit's
decision in PhRMA and applies that reasoning herein. The defendants
contend that Maine's two-percent payment is a "non-conforming" payment
because the DEL payments are not "made under the State plan" as required
by 42 U.S.C. § 1396r-8. See Pl.'s Mot. for Summ. J. at 17; Defs.'
Mot. for Summ. J. at 15-16. Thus, the defendants argue that it is "by
virtue of the Secretary's exercise of demonstration project authority
that these otherwise non-conforming payments are `regarded' as payments
`made under the State plan' to `the extent and for the period prescribed
by the Secretary.'" 42 U.S.C. § 1315(a)(2); Defs.' Mot. for Summ. J.
at 15. As mentioned earlier, the plaintiff and the defendants disagree
on the issue of whether these "non-conforming" payments can be considered
"payments" under the SSA. As the waiver letter states, "all expenditures
for extending pharmacy-only benefits" under the HMP "shall be regarded as
expenditures under the State's [Medicaid] plan . . . subject to the
condition that the State will be eligible for federal financial
participation only to the extent that those expenditures do not exceed
average rebate amounts (as reconciled on a quarterly basis)." See
Admin. R. at 29, 41; Defs.' Mot. for Summ. J. at 15; Pl.'s Mot. for
Summ. J. at 18-19. The plaintiff contends, however, that the Secretary
lacked the authority to impose a rebate requirement on drug purchases
that were not made with State and federal funds under the Medicaid
program. See Pl.'s Mot. for Summ. J. at 25. To resolve this difference,
the court utilizes the D.C. Circuit's reasoning in PhRMA to determine the
degree of deference the court must give to the Secretary's decision
regarding the two-percent payments as "expenditures under the State's
[Medicaid] plan" in the waiver letter. See 42 U.S.C. § 1315(a)(2).
In addressing the question of statutory interpretation, the D.C.
Circuit proceeded in accordance with Chevron U.S.A., Inc. v. Natural
Res. Defense Council, Inc., 467 U.S. 837, 842 (1984), by first inquiring
"whether Congress has directly spoken to the precise question at issue."
See Chevron at 842; PhRMA, 251 F.3d at 224. If Congress has directly
spoken on the issue, "that is the end of the matter; for the court, as
well as the agency, must give effect to the unambiguously expressed
intent of Congress." Id. The D.C. Circuit, however, also recognized
that "not all agency interpretations of statutes warrant Chevron
deference." PhRMA, 251 F.3d at 224 (quoting Christensen v. Harris
County, 529 U.S. 576, 587 (2000)). To wit, in addressing this issue, the
Supreme Court held in Christensen that "[i]nterpretations such as those
in opinion letters — like interpretations contained in policy
statements, agency manuals, and enforcement guidelines, all of which lack
the force of law — do not warrant Chevron-style deference."
Christensen, 529 U.S. at 587. Although the D.C. Circuit interpreted
"payment" as excluding situations where
no government funds are spent, it
did not address the "degree of deference needed in deciding whether or
not HHS's approval of the Vermont PDP would be entitled to Chevron
deference," since it found that "Congress had directly spoken to the
precise question at issue" and concluded that "payment does not include
expenditures that are fully reimbursed by manufacturer rebates." PhRMA,
251 F.3d at 225. In the instant case, however, the facts vary. Maine has
spent government funds by its election to increase its "payment" by two
percent under the HMP demonstration project. See Defs.' Mot. for Summ.
J. at 10-11. As such, this case presents the court with a question that
the D.C. Circuit was not called to answer, that is, whether HHS's
approval of the HMP is entitled to heightened deference under Chevron, or
the less deferential standard under Christensen.
In applying the principles of Chevron and Christensen to the given
facts, the court determines that the Secretary's decision to approve the
HMP expressed in the waiver letter is entitled to the heightened Chevron
deference because Congress, pursuant to 42 U.S.C. § 1315(a)(2)(A),
has directly and unambiguously spoken to the question of whether Maine's
two-percent payment constitutes a "payment under the State plan," and has
thereby expressly granted the HHS Secretary the authority to approve such
Medicaid demonstration projects. See Chevron at 842; PhRMA, 251 F.3d at
224. Along this same line of reasoning, the Secretary's cause for
approving the HMP was "not to restrict Maine's ability to invest [S]tate
funds in the health of its citizens, but to achieve `expanded access to
medically necessary drugs' by making them `more affordable to primarily
low-income Maine residents who are not eligible for Medicaid." Pl.'s
Mot. for Summ. J. at 17; Admin. R. at 28.
Nevertheless, the plaintiff contends that CMS's approval of Maine's
two-percent payment does not warrant deference. Pl.'s Mot. for Summ. J.
at 19. In advancing this argument, the plaintiff relies on the Supreme
Court's ruling in Christensen regarding agency interpretations of
statutes. See Pl.'s Mot. for Summ. J. at 20. In contrast to Chevron,
the court notes that interpretations contained in formats such as opinion
letters are `entitled to respect' under the Supreme Court's decision in
Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), "but only to the
extent that those interpretations have the power to persuade." See
Christensen, 529 U.S. at 587. Assuming arguendo that the court views the
Secretary's interpretation of 42 U.S.C. § 1315(a)(2) as persuasive,
the court's analysis would end, therefore deferring judgment to the
defendants' approval of the HMP. See id.; Skidmore, 323 U.S. at 140.
Likewise, even if the court does not view the Secretary's
interpretation of the statute as "persuasive," the court may rely on the
Supreme Court's Auer standard in deferring judgment to the Secretary's
interpretation. See Auer v. Robbins, 519 U.S. 452 (1997). In Auer, the
Court held that an agency's interpretation of its own regulations is
entitled to deference. See id. at 461. Auer deference, however, "is only
warranted when the language of the regulation is ambiguous."
Christensen, 529 U.S. at 588. In a more recent decision, the Court
considered the limits of Chevron deference owed to administrative
practice in applying a statute and held "that an administrative
implementation of a particular statutory provision qualifies for Chevron
deference when it appears that Congress delegated authority to the agency
generally to make rules carrying the force of the law, and that the
agency interpretation claiming deference was promulgated in the exercise
of that authority." United States v. Mead Corp., 121 S.Ct. 2164, 2171
(2001). The Court reaffirmed the principal that formal agency
regulations that apply to all cases and have the force of law, like the
one presented in the case at bar, are entitled to Chevron deference. See
id. at 2171-73 (assuming "generally that Congress contemplates
administrative action with the effect of law when it provides for a
relatively formal administrative procedure tending to foster the fairness
and deliberation that should underlie a pronouncement of such force").
Chevron deference, however, would not be extended to agency
classification rulings that do not carry the force of law and do not
apply beyond the specific case. See id. This is consistent with the
policy that "`[t]he well reasoned views of the agencies implementing a
statute `constitute a body of experience and informed judgment to which
courts and litigants may properly resort for guidance `. . .'" Id. at
2171 (quoting Bragdon v. Abbott, 524 U.S. 624, 642 (1998) (quoting
Skidmore, 323 U.S. at 139-40)). To wit, the Court has "long recognized
that considerable weight should be accorded to an executive department's
construction of a statutory scheme it is entrusted to administer . . ."
Id. (quoting Chevron, 467 U.S. at 844 (footnote omitted)).
Here, there is no reason to consider the statute in question ambiguous
because Congress expressly authorizes the Secretary under
42 U.S.C. § 1315(a)(2) to treat payments made in demonstration
projects (such as Maine's HMP) as if they are Medicaid expenditures "under
the State plan" to the extent that such payments are made "for extending
pharmacy-only benefits to adults with income at or below 300 percent of
the federal poverty level as part of the Pharmacy Discount Program
demonstration." 42 U.S.C. § 1315(a)(2); Int.-Def.'s Mem. in Supp. of
Mot. for Summ. J. at 9; Admin R. at 29. It is therefore clear to this
court that Medicaid treats payments made in demonstration projects as
though they were expenditures under the State plan "to the extent . . .
prescribed by the Secretary." 42 U.S.C. § 1315(a)(2); Int.-Def.'s
Mem. in Supp. of Mot. for Summ. J. at 9. As such, the court affords
Chevron deference to the agency's formal decision applied to this case,
thus, ending this line of inquiry by the court.
In sum, this court would abrogate Congress' intent underlying the
Medicaid statute and the D.C. Circuit's decision in PhRMA by failing to
recognize Maine's two-percent payment as a "payment" under the SSA. See
42 U.S.C. § 1396r-8(b)(1)(A); PhRMA 251 F.3d at 224-225. In this
vein, the court concludes that no genuine issue of material fact exists
as to the legality of the HMP and the court, therefore, denies the
plaintiff's motion for summary judgment. See FED. R. CIV. P. 56(c);
Celotex Corp., 477 U.S. at 322; Diamond, 43 F.3d at 1540. Accordingly,
the court grants summary judgment to the defendants and the
For all of the foregoing reasons, the court grants the defendants' and
the intervenor-defendant's motions for summary judgment, and denies the
plaintiff's motion for summary judgment. An order directing the parties
in a manner consistent with this Memorandum Opinion is separately and
contemporaneously issued this ___ day of February 2002.
O R D E R
GRANTING THE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT;
GRANTING THE INTERVENOR-DEFENDANT'S MOTION FOR SUMMARY JUDGMENT;
DENYING THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
For the reasons stated in the court's Memorandum Opinion separately and
contemporaneously issued, it is this ___ day of February 2002,
ORDERED that the defendants' motion for summary judgment is GRANTED;
and it is
FURTHER ORDERED that the intervenor-defendant's motion for summary
judgment is GRANTED; and it is
ORDERED that the plaintiff's motion for summary judgment is DENIED.