rates prove too low, and if the plaintiffs are, indeed,
closing their businesses or cutting their services in response to the
rate to an extent that denies Medicaid recipients equal access, then the
State has a duty under the Medicaid Act, to "raise the price until the
market clears," Methodist Hospitals 91 F.3d at 1030. However, on the
record now before the Court, the plaintiffs motion for preliminary
injunction (doc. # 24-1) is denied.
*fn2 By the parties' consent, on January 24, 2001, the case was
reassigned to this Court, pursuant to 28 U.S.C. § 636(c)(1) and
Northern District of Illinois Local Rule 73.1(b), to conduct any and all
proceedings in this case, and to enter final judgment (Doc. ## 40, 41,
*fn3 On December 15, 2000, after receiving briefs and hearing oral
argument, the Honorable Charles R. Norgle, Sr. - hearing the matter
as emergency judge - denied plaintiffs' motion for a temporary
restraining order (doc. # 27; see also 12/15/00 Tr. 37-41). Thereafter,
on December 21, 2000, the assigned district judge - the Honorable
Blanche M. Manning - denied plaintiffs' motion to reconsider the
denial of a temporary restraining order (doc. # 32).
*fn4 Plaintiffs imply that all states other than Illinois with large
Medicaid populations allocate these rebates to Medicaid budgets (Id.,
¶¶ 54-55). But plaintiffs offer no evidence as to the size of Medicaid
populations in various states. Judging by the size of rebates, however,
states such as Florida and Massachusetts have large Medicaid
populations - and, like Illinois, allocate the rebate funds to
their general budgets (Am. Compl., Ex. F).
*fn5 "Average wholesale price" is determined by reference to the
manufacturer's list price (Supp. Pharmacy A Aff. ¶ 10b).
*fn6 "The wholesale acquisition cost" is the amount that wholesalers pay
to manufacturers for drugs and, according to plaintiffs, always is less
than the average wholesale price, which is list price (Supp. Pharmacy A
Aff. ¶ 10c-d).
*fn7 That assertion somewhat overstates the historical record. In 1995,
in conjunction with the 1996 Budget Plan, the IDPA changed the method for
calculating the maximum reimbursement amount for brand name and generic
prescription drugs. See 19 Ill. Reg. 16677 (or 89 Ill. Adm. Code 140). For
brand name drugs, the IDPA reduced the dispensing fee component of the
maximum reimbursement amount by 28 cents per prescription. For generic
drugs, the acquisition cost component was established as the lower of the
average wholesale price minus 12 percent or the FUL or the SUL. For
over-the-counter medicines, the IDPA paid the lower of the prevailing
charge to the general public or the wholesale acquisition cost "plus the
percentage established by the Department for over-the-counter items."
*fn8 Although not clearly identified, it appears that the November 21
notice is the second document in Exhibit G; the December 7 notice is the
third document; and the December 11 notice is the first document.
*fn9 The new reimbursement formula thus became effective less than 30
days from the publication of notice, whichever notice is used as the
measuring stick. However, since the new formula was promulgated as an
"emergency rule," under the language of the provider agreements the
30-day written notice was not required (Pls.' Ex. B, ¶ 1). Having
dismissed the supplemental state law claims, we express no view as to
whether the IDPA was properly acting in response to an "emergency," or
whether plaintiffs have any viable state law claims resulting from the
manner in which the IDPA promulgated the revised reimbursement
*fn10 In a meeting on January 9, 2001, the JCAR voted to suspend the
December 15, 2000 emergency rule making by the IDPA "because it may
result in diminished access to Medicaid pharmaceutical services in
Illinois, thus threatening the safety and welfare of medical assistance
clients." See Pls.' JCAR Exhibit 3. JCAR overturned its ruling 24 hours
later. Id., Ex. 2. Based on the JCAR transcript submitted by plaintiffs,
it appears that the suspension was based on a misunderstanding (Ex. 2),
and the reinstatement of the emergency rule was intended to remedy that
mistake (Id.). In their reply brief, the plaintiffs mention the JCAR
actions, but do not argue that the JCAR suspension or reinstatement has
any particular legal significance in light of their burden under
Methodist Hospitals, nor does the Court find any.
*fn11 There are other alternative formulas for reimbursement that
carried over from the old to the revised rule. However, since those
alternative formulas would result in higher reimbursement rates, as a
practical matter, the parties (and the Court) focus on the formulas that
result in the lowest reimbursement available, under the old rule and as
changed in the new rule.
*fn12 Pharmacy A also says that the reimbursement for OTC drugs has been
reduced by 16.7%; this would result in an annual decrease in
reimbursement for OTC drugs of about $1.17 million (Supp. Pharmacy A
Aff. ¶¶ 15a-c). But that calculation is based on the premise that the
formula for OTC drug reimbursement was changed from AWP plus 50% to AWP
plus 25% (Id.). However, the redlined version of the emergency rule cited
by plaintiffs (Pls.' Ex. J) shows that this premise is incorrect, and
that the change was from WAC plus 50% to AWP plus 25%. Plaintiffs state
that "WAC is always less than AWP" (Supp. Pharmacy A Aff. ¶ 10d), and
thus it may be the case that, as changed, the new rule provides for no
significant decrease in OTC drug compensation. In any event, plaintiffs
offer no calculation based on a comparison of WAC plus 50% (the old
formula) to AWP plus 25% (the new formula).
*fn13 Pharmacy C projects a decrease in revenue of $8,576.00 per month,
or $102,912.00 annually (Pharmacy C Aff. ¶ 17). Pharmacy C says that
this will lead to a reduction in force of 19 employees, a decrease in
hours of operation, and a curtailment of delivery services (Id., at
¶ 5) - which, in the absence of any explanation, appears on its
face an excessive response to the magnitude of loss projected. The Court
considers this point in assessing the credibility of the predictions
concerning the level of cutbacks that would be needed - or
*fn14 Plaintiffs have asked the Court to consider media reports on March
29, 2001, that Walgreens had decided to eliminate evening and Sunday
prescription services at 30 of its 409 stores in Illinois. The news
reports quote Walgreens officials as citing the new reimbursement
formulas as the reason for these cutbacks. However, a few days later, the
media reported that Walgreens had decided to defer any reduction in
services pending discussions with the state. Thus, even setting aside the
perils of relying on news reports for evidence, we are unwilling to put
much weight on reports concerning Walgreens actions.
*fn15 This claculation is based on the assertions in the affidavits from
Pharmacies A, B and C.
*fn16 If the total Medicaid population is, for example, 65,000
residents, then by the plaintiffs' own admission, they do not serve
14,000 Medicaid recipients (65,000-51,000 = 14,000) (Supp. Pharmacy A
Aff. ¶ 19). These 14,000 recipients who are not served by
plaintiffs, plus the approximately 4,000 Medicaid recipients represented
by Pharmacy D equals approximately 18,000 Medicaid recipients for whom we
have no information. Eighteen thousand is approximately 28 percent of the
65,000 total Medicaid recipients in Illinois. The Court finds this to be
a significant percentage of the whole.
*fn17 The plaintiffs have submitted the affidavits of five nursing home
residents (Exs. L, M, and W); four nurses (Exs. N, S, and X); and ten
nursing home administrators and/or directors (Exs., N, O, P, Q, R, U and
Bedient Aff.). These affidavits, like the affidavits from the plaintiff
providers, make various predictions about the potential effect of service
cutbacks and/or elimination of services. As for the residents, they each
state that any elimination or reduction in services will adversely affect
their health. The nurses make the same predictions, and further predict
that the state will ultimately pay higher costs to provide necessary
services to patients that the plaintiff pharmacies may no longer
provide. The nursing home administrators sound the same chord. We do not
question the sincerity of the concerns expressed in those affidavits;
but, none of those affidavits make the predicted service cuts or
elimination more likely.
Nor do those affidavits provide further clarity on the relationship
between the agreements nursing homes and providers have with respect to
the Medicaid population and the agreements the homes and providers have
with respect to the non-Medicaid, private-pay populations residing in
those homes. For example, the affidavits do not tell the Court whether
the termination of agreements between providers and nursing homes with
respect to the Medicaid population will also terminate services to the
private pay population residing in those homes. Although the plaintiffs
argue that these affidavits "establish the direct harm caused to Medicaid
recipients in the form of inefficient, uneconomical, and lower quality of
care imposing unequal access to care, all resulting from the cutbacks in
related services" (Pls.' Reply Mem. 3), none of the affidavits listed
here mention unequal access as an issue. Rather, it is the providers who
predict unequal access between private pay and Medicaid recipients as a
result of service cuts. But, without evidence that such lines will
actually be drawn between services to Medicaid and non-Medicaid
recipients, the Court cannot draw that conclusion.
*fn18 In Rite Aid, the Third Circuit thus carved out a middle ground
between the Methodist Hospitals and the approach of the Eighth and Ninth
Circuits, which have held that § 1396a(a)(30) requires states to
consider the relevant factors of equal access, efficiency, economy, and
quality of care before setting rates. See Arkansas Medical Soc'y, Inc.
v. Reynolds, 6 F.3d 519 (8th Cir. l993); Minnesota Home Care Ass', Inc.
v. Gomez, 108 F.3d 917, 918 (8th Cir. 1997); Orthopaedic Hosp. v.
Belshe, 103 F.3d 1491 (9th Cir. 1997).
*fn19 We point out that despite numerous assertions during the argument
that were outside the record, the parties have offered little evidence as
to how the IDPA actually went about developing the rates in question.
Despite the Court's invitation on several occasions, the defendant
declined to offer any evidence to shed light on this point - perhaps
relying on Methodist Hospitals to relieve it of any obligation to
do so. But, we do point out that there is evidence that in response to
comments received concerning the initial rates proposed in the November
21 notice, that the IDPA increased the dispensing fee (Pls.' Ex. J). That
evidence would suggest that the process of developing the rates was not
as arbitrary as plaintiffs assert.
*fn20 We do not find persuasive plaintiffs' assertion at oral argument
that Methodist Hospitals does not apply because that case did not arise
in the context of a motion for preliminary injunction.
*fn21 Plaintiff also argues that the prior rate was reasonable, as
evidenced by the fact that it was in effect for nearly ten years (Pls.'
Mem. 10), and that the new rates must therefore be unreasonable. The
foregoing analysis disposes of this argument. But in addition, even apart
from the fact that the rate had been revised several times during that
period (and reduced during a time in 1996), the longevity of the prior
rate is irrelevant to its propriety: for all the Court knows, the prior
rate was unreasonably high, and thus promoted overutilization and