A federal court looks at the issue of allowing "preferred pharmacies" under Medicare Part D prescription plans.
Issue of the Case
When a group of pharmacies based in a southwestern state files suit in federal court to challenge policies of the US Centers for Medicare & Medicaid Services (CMS) that permit “preferred pharmacies” under Medicare Part D prescription drug insurance plans, may the lawsuit proceed?
Facts of the Case
An organization characterized by the court as a “for-profit member-owned independent pharmacy cooperative” that represents more than 500 pharmacies in 7 states providing services to Part D beneficiaries initiated this legal action. The group filed the lawsuit in federal court, claiming that the administrative regulations of CMS did not provide an avenue for it to challenge the agency’s actions. Its focus was on the decision of the department to permit insurers offering Part D plans to use preferred provider networks of pharmacies.
The plaintiffs pointed to a provision in the legislation that authorized the Medicare Part D program known as the “Any Willing Pharmacy” provision: “A prescription drug plan shall permit the participation of any pharmacy that meets the terms and conditions under the plan.” This entry in the federal statute is parallel to provisions seen in the legislation of a substantial number of states known colloquially as “Any Willing Provider” statutes.
The collection of pharmacies alleged that the agency violated this statutory provision when it adopted a regulation authorizing use of tiered copayments, effectively blocking a pharmacy willing to meet the terms and conditions of the plan from participating in a network of preferred pharmacies. One particular Part D plan was identified in the lawsuit as exemplifying this because the insurer’ s prescription drug insurance plan designated only 1 chain of pharmacies as the preferred source of service. The pharmacies argued that this “preferred pharmacy” approach allowed prescription drug plans to exclude independent pharmacies from the preferred provider networks. The alleged result of these decisions was that patients enrolled in such prescription drug plans are subject to a higher copayment or coinsurance amount if they choose to use an independent pharmacy.
When the lawsuit reached the US District Court, the defendant, the federal government, responded with a motion to dismiss the claim, arguing that such issues must first be presented to the federal agency (CMS) for consideration of administrative remedies before the matter can be considered by a court.
The Court's Ruling
The federal district court where the lawsuit had been filed granted the motion by the government to dismiss the case. The court ruled that it lacked jurisdiction to decide the matter because the plaintiffs had not first exhausted administrative remedies available at the agency level.
The Court's Reasoning
The court ruled that judicial review of the issues raised in the lawsuit is available only after the claimants had exhausted all procedures for administrative review within the agency. This is the legal doctrine known as “exhaustion”—one must exhaust or use all avenues available within the administrative agency for resolving the dispute before taking it to court. Such a standard is codified in the federal statutes governing Medicare—judicial review is only available after the administrative procedures are exhausted under the administrative standard of review provided in the Medicare Act.
The trial court judge pointed to a US Supreme Court decision that involved a parallel issue. There, the nation’ s highest court emphasized that Congress has made a legislative judgment that the complex interrelated regulations that make up the Medicare program should be applied, interpreted, or revised by the agency with specialized knowledge in the first instance, even if this causes individual, delay-related hardship for the claimants.
The Supreme Court also rejected all distinctions among types of claims, stating that they all have been relegated to the administrative processes. Moreover, the Court also rejected any distinction between claims advanced by Medicare patients or beneficiaries and claims of providers under the Medicare program. All must be addressed through standard administrative processes.
The trial court did note that the coalition of pharmacies did have legal standing to pursue the matter. Standing exists when a party has a stake in the outcome of the issue at hand or is affected by the result. Standing is a prerequisite to challenging an action by an administrative agency in court, just as exhaustion is a requirement. This could have been an issue in this case because the cooperative does not serve Medicare patients; it is the individual pharmacy members of the group that do so.
At this writing, the case and the decision of the US District Court are on appeal before the relevant US Court of Appeals. The pharmacy cooperative is asking the higher court to overturn the decision of the lower court, thereby permitting the matter to proceed to trial.
Dr. Fink is professor of pharmacy law and policy and Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy, Lexington.