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U.S. Supreme Court Says Injunction Blocking Maine Rx Program Not Warranted


HLD, v. 31, n. 7 (July 2003)

U.S. Supreme Court Says Injunction Blocking Maine Rx Program Not Warranted

In a 6-3 ruling issued May 19, the Supreme Court affirmed a First Circuit ruling lifting a preliminary injunction blocking the controversial Maine Rx Program in a lawsuit filed by the Pharmaceutical Research and Manufacturers of America (PhRMA). The Maine Rx Program, enacted in 2000, is primarily designed to offer discounted prescription drugs to state residents who are uninsured, although its coverage is open to all state residents. To fund the program, Maine would use its bulk purchasing power to negotiate rebates from drug manufacturers. These rebates would be added to a fund used to reimburse pharmacies that offer discounted drugs. Manufacturers refusing to participate in the program would be subject to a "prior authorization" procedure for their Medicaid sales.

According to the Court, PhRMA failed to show a probability of success on the merits of its claims that the program, which has never been implemented, violated the Commerce Clause and was pre-empted by the federal Medicaid Act. While holding that the district court should not have granted the preliminary injunction, which remained in place on appeal, the Court failed to provide the unqualified win that some had hoped for, leaving open the possibility that additional proceedings could change the outcome. The question at issue is whether the district court abused its discretion in entering the preliminary injunction, "[b]y no means will our answer to that question finally determine the validity of Maine's Rx Program," Justice John Paul Stevens wrote in his plurality opinion. Stevens also cautioned that "further proceedings in this case may lead to a contrary result" and noted that the Department of Health and Human Services (DHHS) Secretary may have a role to play if Maine Rx is viewed as a Medicaid Plan amendment requiring his approval before taking effect. All the Justices rejected PhRMA's Commerce Clause challenge, but the Court splintered on the Medicaid Act pre-emption issue, with Justice Sandra Day O'Connor, joined by Chief Justice William H. Rehnquist and Justice Anthony M. Kennedy, arguing that the injunction should be upheld on that basis. Only Justices Ruth Bader Ginsburg and David H. Souter joined Stevens' analysis in full.

The Court uniformly rejected PhRMA's commerce clause challenge that the Maine Rx Program constitutes an impermissible extraterritorial regulation and discriminates against interstate commerce to subsidize in-state retail sales. Quoting the First Circuit's opinion, Stevens noted that "the Maine Act does not regulate the price of any out-of-state transaction, either by its express terms or by its inevitable effect." Nor does the Maine Rx Program impose a disparate burden on any competitors, Stevens said, pointing out that a manufacturer opening production facilities in Maine would receive no relief from the rebate requirement and would not receive any benefits from the rebates either.

In granting PhRMA's motion for a preliminary injunction, the district court concluded that the Medicaid Act pre-empted Maine's Rx Program because the state failed to show a Medicaid purpose for imposing the new prior authorization requirement, which could, at the same time, interfere with the delivery of Medicaid benefits. According to Stevens, joined by Souter and Ginsburg, for PhRMA to prevail on this argument, it had the burden of showing "no Medicaid-related goal or purpose was served by Maine Rx." Stevens found three such goals were plainly present in the Maine Rx Program--namely, that it will provide medical benefits to the "medically needy" even if they do not qualify for AFDC or SSI benefits; it could reduce Medicaid expenses by allowing some borderline aged and infirm individuals access to prescription medicine earlier; and prior authorization requirements have been shown to produce substantial savings for high-volume purchasers. Stevens acknowledged, however, that even these Medicaid-related purposes "would not provide a sufficient basis for upholding the program if it severely curtailed Medicaid recipients' access to prescription drugs." At the same time, "the mere fact that prior authorization may impose a modest impediment to access to prescription drugs provided at government expense does not provide a sufficient basis for pre-emption of the entire Maine Rx Program." Based on the record as it currently stands, determining the severity of any impediment to access for Medicaid beneficiaries resulting from the program would be too speculative, Stevens explained. "[W]e cannot predict at this preliminary stage the ultimate fate of the Maine Rx Program," Stevens wrote.

In a concurring opinion, Justice Stephen G. Breyer argued that in order to prevail PhRMA must ultimately demonstrate Maine's program would "seriously compromise important federal interests." To resolve the pre-emption question, Breyer added, requires a "more careful balancing of Medicaid-related harms and benefits" than performed by the district court. Breyer also indicated that the DHHS Secretary's views on the program should be sought. Justice Clarence Thomas, concurring in the judgment, disagreed with the plurality's conclusion that further proceedings could lead to a contrary result. In Thomas' view, the Medicaid Act did not pre-empt Maine Rx, a conclusion that could be reached without speculating about whether the program advances "Medicaid-related goals." Justice Antonin Scalia, who also concurred in the judgment, said PhRMA must look to the DHHS Secretary for relief.

Justice O'Connor, joined by Chief Justice Rehnquist and Justice Kennedy, argued the district court did not abuse its discretion in enjoining the state from imposing the prior authorization requirement on the pre-emption basis. "By imposing prior authorization on Maine's Medicaid population to achieve wholly non-Medicaid related goals, Maine Rx 'stands as an obstacle to the accomplishment and execution of the full purpose and objectives' of the federal Medicaid Act," O'Connor wrote. In the dissent's view, a state may not "impose prior authorization to generate revenue for purposes wholly unrelated to its Medicaid program."

Pharmaceutical Research & Mfrs. of Am. v. Walsh, No. 01-188 (U.S. May 19, 2003).

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