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Long Term Care Pharmacy Alliance v. Leavitt

January 11, 2008


The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge


This case arises from the implementation of the recently enacted Medicare Part D prescription drug program under the Medicare Prescription Drug Improvement and Modernization Act of 2003 ("MMA"). Pub. L. No. 108-173, 117 Stat. 2066 (2003). The plaintiff organizations, which represent long term care pharmacies and pharmacists, have sued the Department of Health and Human Services ("HHS"), its Secretary, Michael O. Leavitt, and the Centers for Medicare and Medicaid Services ("CMS"), which oversees this program. Plaintiffs allege that CMS has failed to provide accurate and timely information regarding the eligibility of Medicare and Medicaid beneficiaries as required by the MMA, and that the erroneous data that CMS provides has caused the prescription drug plans with whom plaintiffs' members have a contractual relationship to erroneously withhold full reimbursement for the co-payments for prescription drugs that are dispensed to indigent nursing home residents by the plaintiffs' members. Defendants have moved to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) on standing and sovereign immunity grounds and for failure to state a claim upon which relief may be granted. For the reasons set forth herein, the Court concludes that plaintiffs lack standing to bring their claims, and it will therefore grant defendants' motion.


In December 2003, Congress enacted the MMA, which provides prescription drug coverage to Medicare beneficiaries. (Am. Compl. ¶ 16.) The benefit became effective on January 1, 2006. (Id.) Various private prescription drug plans ("PDPs") have contracts with CMS to administer the prescription drug program, commonly referred to as Medicare Part D. (Id. ¶ 24.) The PDPs, in turn, have contracts with the many pharmacies that provide the drugs. (Id. ¶ 25.) After a pharmacy dispenses drugs to a beneficiary, it bills the PDP for reimbursement pursuant to contract. (Id. ¶ 28.) Typically the pharmacy collects any co-payment that may be due from the beneficiary under the Medicare Part D plan, and the PDP reimburses the pharmacy an agreed-upon amount for the medication, less any co-payment collected from the beneficiary. (Id.) Although no individual contracts between the PDPs and the pharmacies have been provided, it is undisputed that these contracts set forth the terms of this reimbursement process. (See id. ¶¶ 25-28.)

The plaintiff organizations represent long term care ("LTC") pharmacies and pharmacists. (Id. ¶ 14.) These pharmacies do not dispense prescription drugs on a retail basis but provide them to individuals who reside in long term care facilities, such as nursing homes.*fn1 (Id.) At issue in this case is the LTC pharmacies' provision of prescription drugs to a subset of Medicare beneficiaries, commonly known as "institutionalized dual eligibles," who are covered by both Medicare and Medicaid. (Id. ¶ 18.) These "institutionalized dual eligibles" are defined in the MMA as dual eligibles who are "inpatient[s] in a medical institution or nursing facility for which payment is made under Medicaid throughout a month," and they are not required to make any co-payments for covered medications obtained through their PDPs. 42 C.F.R. §§ 423.772, 423.782(a)(2)(ii). (See Am. Compl. ¶¶ 20, 22.)

The LTC pharmacies therefore do not collect any co-payment for prescriptions dispensed to those patients that they identify as institutionalized dual eligibles. (Id. ¶ 28.) Instead, plaintiffs claim that per their contracts with the LTC facilities, LTC pharmacies "provide all medically necessary prescription drugs, without regard to which patient is liable for payment, in order to enable the long-term care facilities to fulfill their federal statutory obligations to their residents to provide medications." (Id. ¶ 27.) According to the declarations of plaintiffs' witnesses, the LTC pharmacies determine which patients qualify as institutionalized dual eligibles in the first instance based on patient censuses from each LTC facility to which they provide drugs. (Rutkowski Decl. ¶ 7; Amorosi Decl. ¶ 5.) Because these patients reside in a nursing home, the declarants state, they are "necessarily 'institutionalized,' as that term is defined by CMS," and if the census identifies an institutionalized patient as "Medicaid eligible," the LTC pharmacy has "no reason" to charge that individual a co-payment, because the pharmacy is at that point "almost virtually certain" that the individual is an "institutionalized full benefit dual eligible" from whom no co-payment is due. (Rutkowski Decl. ¶¶ 7-9; see also Amorosi Decl. ¶¶ 5-8.) The LTC pharmacies then seek reimbursement from the PDPs for the full amount of the medications it provided to the patients it identified as institutionalized dual eligibles. (Am. Compl. ¶ 28.)

Per the MMA, the Secretary of HHS is charged with establishing a process for providing the PDPs with eligibility data regarding all covered individuals and the amount of cost-sharing that each individual owes. Specifically, the statute states that the Secretary "shall provide a process whereby . . . (A) the Secretary provides for a notification of the PDP sponsor . . . that the individual is eligible for a subsidy and the amount of the subsidy . . . , [and] (B) the sponsor or organization involved reduces the premiums or cost-sharing otherwise imposed by the amount of the applicable subsidy and submits to the Secretary information on the amount of such reduction." 42 U.S.C. § 1395w-114(c)(1). (Am. Compl. ¶ 29.) The MMA implementing regulations further provide that CMS is to "notif[y] the Part D sponsor offering the Part D plan, in which a subsidy eligible individual is enrolled, of the individual's eligibility for a subsidy under this section and the amount of the subsidy." 42 C.F.R. § 423.800(a). (Am. Compl. ¶ 30.) The PDPs in turn use the eligibility data they receive from CMS to determine the appropriate amount of reimbursement to be paid to the pharmacies. (Am. Compl. ¶ 31.) For example, if the CMS data indicate that a particular beneficiary does not owe any co-payment, the PDP would reimburse the pharmacy for the full amount of the prescription, without deducting any co-payment amount. (See Pls.' Opp'n at 6.) The PDPs are then reimbursed in turn by CMS for these prescriptions consistent with CMS's eligibility data. 42 U.S.C. § 1395w-114(c)(1)(C). (See Defs.' Mot. at 7.)

The Medicare Part D program was instituted in 2006, involving some six million beneficiaries, and, not surprisingly, the roll out of such a large and novel program was not without operational problems. (See Defs.' Supp. Reply at 8.) For instance, as plaintiffs allege, certain PDPs have often refused to reimburse the LTC pharmacies for the full cost of the prescriptions they dispense to institutionalized dual eligibles because the information from CMS sometimes erroneously fails to recognize these beneficiaries as institutionalized dual eligibles. (Am. Compl. ¶¶ 33, 40, 41.) According to plaintiffs, there has been and continues to be a "significant lag time" between a beneficiary's enrollment, CMS's collection of the data, and CMS's provision of the data to the PDPs, and in "many instances," CMS has provided eligibility data on specific beneficiaries to PDPs "several months" after the LTC pharmacies have dispensed medications to those beneficiaries and submitted reimbursement claims to the PDPs. (Id. ¶ 32.) In addition, plaintiffs claim that "for an estimated 15% of persons known to LTC Pharmacies to be institutionalized dual eligibles, the data currently provided by CMS to PDPs still fail to reflect the fact that those beneficiaries are institutionalized and/or eligible under both the Medicare and Medicaid programs." (Id. ¶ 33.) As a result of this untimely and erroneous data from CMS, plaintiffs claim that "[t]hese failures have created and perpetuate a systemic data-based impediment to the proper functioning of the Part D program" (id. ¶ 3), because the PDPs improperly assess co-payments to dual eligible beneficiaries, and therefore wrongfully withhold the corresponding reimbursement amounts "indisputably owed" to the LTC pharmacies for these prescriptions. (Id. ¶ 40.) The LTC pharmacies have thereby "been deprived of reimbursements owed to them and forced to carry tens of millions of dollars of cost-sharing debt on behalf of misclassified institutionalized dual eligibles." (Id. ¶ 50.)

Defendants explain that there is an "inherent" lag time of at least one to seven weeks in the process by which CMS compiles data regarding which beneficiaries qualify as institutionalized dual eligibles because CMS relies on information it receives from states to identify these individuals. (Defs.' Supp. Reply at 6-7.) This is because an institutionalized full-benefit dual eligible is defined as someone who has Medicare Part D coverage for an entire month, who has been "determined eligible by the State" for full Medicaid benefits for the same month, and who has been an inpatient in a medical institution, with the stay paid for by Medicaid, throughout the entire month. 42 U.S.C. §§ 1396u-5(c)(6), 1369u-5(a)(2); see also 42 C.F.R. §§ 423.902, 423.904(d)(4). According to defendants, the states transmit eligibility information to CMS once per month via electronic files. (Defs.' Supp. Reply at 7.) CMS then checks the information it receives from the states against its own database, sets each individual's co-payment level accordingly, and transmits this data to the PDPs. (Id.) Because the data accurately reflecting a beneficiary's status may not be available until after prescriptions have been dispensed to these individuals, CMS reimburses the PDPs through estimated interim payments based on the "actuarial value of the subsidies," and it later makes retroactive adjustments to "reconcile[] the amount it has paid PDP sponsors for cost-sharing through interim payments and the costs PDP sponsors claim they have actually incurred." (Defs.' Mot. at 7-8.) See 42 U.S.C. § 1395w-114(c)(2); 42 C.F.R. § 423.343(d). After they receive updated data regarding cost-sharing eligibility, the PDPs are required to "reimburse subsidy eligible individuals, and organizations paying cost-sharing on behalf of such individuals, any excess premiums and cost-sharing paid by such individual or organization after the effective date of the individual's eligibility for a subsidy." 42 C.F.R. § 423.800(c). However, CMS guidances have clarified that this regulation does not require the PDPs to reimburse a beneficiary where an LTC pharmacy did not actually collect a co-payment from that individual. (Defs.' Supp. Reply at 8; Ex. C to Defs.' Supp. Reply at L000171.)

Apparently recognizing that the transfer of six million beneficiaries into the new Medicare Part D program at the beginning of 2006 would entail data inaccuracies attributable both to the system's inherent lag time and the problems associated with starting a program of this magnitude, CMS instituted measures aimed at alleviating the reimbursement problems that could be caused by delayed or incorrect eligibility data. (Defs.' Supp. Reply at 8.) Specifically, under CMS's "Best Available Evidence" ("BAE") policy, when a PDP sponsor has evidence that a beneficiary's cost-sharing level is not accurately reflected in the data, CMS requires the PDPs to update their records "to reflect the true cost sharing status" of that beneficiary. (Id. at 10; Ex. F to Defs.' Supp. Reply at L000173.) In 2006, CMS required the PDPs to keep records of the corrections it made to the cost sharing status of the beneficiaries, but it did not limit the type of evidence that the PDPs could rely on to substantiate these corrections, and it did not require the PDPs to provide any supporting documentation to CMS. (Defs.' Supp. Reply at 10.) Beginning in 2007, however, CMS required the PDPs to verify a correction to a beneficiaries' cost sharing status based on specific types of acceptable documentation, and it instituted a process by which the PDPs could submit "correction requests" to CMS, based on the acceptable documentation, to correct the beneficiaries' eligibility status in CMS's data systems. (Id. at 11.)

In their initial attempt to seek reimbursement for the co-payments that they claim were erroneously withheld, plaintiffs originally brought suit against only one PDP -- United Health Group, which is one of the nation's largest. See LTCPA v. United Health Group, Civ. No. 06-1221, (D.D.C. filed July 6, 2006). This Court dismissed that suit, concluding that the plaintiff organizations lacked representational standing to sue on behalf of the individual pharmacies in what, in effect, amounted to a claim for money damages that required the participation of the individual pharmacies. See LTCPA v. United Health Group, Civ. No. 06-1221, 2007 WL 2172793, at * 8 (D.D.C. July 30, 2007). Plaintiffs suggest that it is too cumbersome and expensive for their member pharmacies to seek reimbursement through individual contract actions against the PDPs (Am. Compl. ¶ 51), though at least one such action is apparently ongoing. See Omnicare, Inc. v. Blue Cross Blue Shield of Mich., Civ. No. 07-12346 (E.D. Mich. filed May 31, 2007).

After having failed in their efforts to recover money on behalf of their members against one PDP and having apparently concluded that individual contract actions against PDPs will not be cost effective, plaintiffs have adopted a new approach in their attempt to resolve their reimbursement problems by suing the agency responsible for administering the Medicare Part D program. In Count I, plaintiffs seek relief under § 706(1) of the Administrative Procedures Act ("APA"), 5 U.S.C. § 706(1), which provides that a reviewing court shall "compel agency action unlawfully withheld or unreasonably delayed." Plaintiffs argue that CMS has a statutory duty under the MMA to "provide complete, updated and accurate eligibility data to PDPs in a timely fashion," and that CMS's failure to fulfill its duty has caused the PDPs to improperly assess co-payments to institutionalized dual eligibles and has thereby deprived the LTC pharmacies of reimbursement amounts that they are "indisputably" owed. (Am. Compl. ¶¶ 40, 41, 49, 50.) Plaintiffs also claim in Count II that CMS's "procedural inadequacies and attendant failure[]" to timely provide complete and accurate eligibility data to the PDPs have wrongfully deprived the LTC pharmacies of their property interest in complete reimbursement for prescription drugs dispensed to institutionalized dual eligibles in violation of their members' right to due process under the Fifth Amendment. (Id. ¶ 55.) Though plaintiffs allege that their members have been injured since the inception of the Medicare Part D program because they have been "forced to carry tens of millions of dollars of cost-sharing debt on behalf of misclassified institutionalized dual eligibles" (id. ¶ 50), they do not seek money damages in this lawsuit. Instead, plaintiffs request only prospective equitable relief consisting of (1) a declaratory judgment stating that relief under the APA is warranted because defendants have failed to timely provide complete and accurate eligibility data, and that this failure has also violated plaintiffs' members' due process rights; and (2) a writ of mandamus compelling defendants to "[p]rovide complete, updated and accurate eligibility data to PDPs within a time to be defined by the Court." (Id. at 14-15.)

In response, defendants have moved to dismiss for a variety of reasons, arguing that: (1) plaintiffs lack standing under Article III of the Constitution because defendants' actions did not cause the LTC pharmacies' injuries and the relief requested cannot redress those injuries (Defs.' Mot. at 22-29); (2) plaintiffs fail to meet prudential standing requirements because their grievance does not fall within the zone of interests protected by the MMA (id. at 30); (3) the United States has not waived sovereign immunity for this suit under the APA because plaintiffs' members have adequate alternative remedies available to them (i.e., individual contract actions against the PDPs) (id. at 17); (4) plaintiffs fail to state a claim under the APA because the conduct that they challenge is not subject to judicial review and the actions that they seek to compel are not legally required (id. at 34-36); and (5) plaintiffs' Fifth Amendment claim is without merit because the government -- as opposed to the PDPs -- has not deprived plaintiffs' members of any property interest without due process of law. (Id. at 39.)

For the reasons explained below, the Court concludes that plaintiffs lack constitutional standing and that their claim is not cognizable under the APA. The Court will therefore dismiss plaintiffs' complaint under Rule ...

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