Fed Court Throws Out California Pharmacy Cuts

In News by AHF

Federal Court Permanently Enjoins the State of California’s Department of Health Care Services (DHCS)—the Agency that Administers the State’s Medicaid Program—From Enforcing a California Law that Slashed Reimbursements for Safety Net Providers that Participate in the Federal 340B Drug Pricing Program

LOS ANGELES (May 7, 2013)-In a sharp rebuke to California Medicaid officials, a federal court has invalidated a California state law that hurt safety net medical providers that participate in a federal program known as the 340B Drug Pricing Program, which allows qualified health care organizations that care for underserved people to purchase outpatient drugs at discounted prices.

On Friday, the United States District Court, Central District of California, ruled that defendant Toby Douglas, Director of the California Department of Health Care Services (DHCS) and “…his agents, servants, employees, attorneys, successors, and all those working in concert with him, are permanently enjoined from enforcing Section 14105.46.” (of California’s Welfare and Institutions Code) The ruling came in the case ‘AIDS Healthcare Foundation vs. Toby Douglas, Director of the California Department of Health Services et al’ (case number CV 09-8199-R). The legal action, filed by AIDS Healthcare Foundation (AHF), challenged the State’s attempt to solve its fiscal woes by slashing drug reimbursements to 340B safety net providers and forcing them to accept an amount that undisputedly could not cover their actual dispensing costs. The court granted AHF’s motion for summary judgment because:
“(a) the State of California and Defendant failed to obtain federal approval of a state plan amendment before implementing Section 14015.46, and (b) neither the Legislature nor the Defendant considered the relevant Title 42 U.S.C. § 1396(a)(30)(A) factors before implementing Section 14105.46.”

In other words, the State slashed 340B providers’ drug reimbursement – but not those of their commercial pharmacy counterparts – without considering whether doing so would be consistent with Medicaid program efficiency, economy, and quality of beneficiary care, nor did the State consider whether Section 14105.46 would have an adverse impact on Medi-Cal beneficiaries’ access to health care services to the same extent as the general public.

“The federal court has slapped down yet another California state effort to fix its budget problems on the backs of the poor and the powerless,” said Laura Boudreau, Chief Counsel for Operations for AHF. “This is an important victory for safety net providers throughout California and nationwide. Thanks to the court’s ruling, State Medicaid agencies cannot single out safety net providers, pay them less for the same services than they pay big pharmacies like CVS and Walgreen’s, all the while expecting them to bear the burden of caring for the state’s sickest and neediest residents. By invalidating the law, 340B providers are restored to a more level playing field, giving them the ability to carry on with their vital missions.”

According to the website for the Health Resources and Services Administration (HRSA), which oversees and administers the 340B program, “The purpose of the 340B Program is to permit covered entities “to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” H.R. Rep. No. 102-384(II), at 12 (1992).”

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