PHARMACEUTICAL RESEARCH v. WALSH
In order to achieve savings on Medicaid purchases above federal cost-saving measures, the "Maine Rx" Program reduces prescription drug prices for state residents. Under the program, Maine attempts negotiate rebates with drug manufacturers. If a company does not enter into a rebate agreement, its Medicaid sales are subjected to a prior authorization procedure that requires state agency approval to qualify a doctor's prescription for reimbursement. The Pharmaceutical Research and Manufacturers of America, an association of nonresident drug manufacturers, challenged the program, claiming that it is pre-empted by the Medicaid Act and violates the Commerce Clause. Without resolving any factual issues, the District Court entered a preliminary injunction preventing the statute's implementation, concluding that any obstacle to the federal program's administration is sufficient to establish pre-emption. The Court of Appeals reversed.
Is a Maine statute providing for affordable prescription drugs pre-empted by the Supremacy Clause? Does the statute violate the Commerce Clause?
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
No and no. In an opinion delivered by Justice John Paul Stevens, the Court held, 9-0, that the Pharmaceutical Research and Manufacturers of America had not carried its burden of showing a probability of success on the merits of its Commerce Clause claims and, 6-3, that their showing was insufficient to support a finding that the Medicaid Act pre-empts Maine's Rx Program insofar as it threatens to coerce manufacturers into reducing their prices on non- Medicaid sales. The Court's decision upheld the Court of Appeal's reversal of the District Court's injunction. Justice Sandra Day O'Connor, joined by Chief Justice William H. Rehnquist and Justice Anthony M. Kennedy, dissented from the plurality's opinion. "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 purposes and objectives' of the federal Medicaid Act," argued Justice O'Connor.
Argument of Carter G. Phillips
Chief Justice Rehnquist: We'll hear argument next in Number 01-188, The Pharmaceutical Research and Manufacturers of America v. Kevin Concannon, et al.--
Mr. Phillips: Thank you, Mr. Chief Justice, and may it please the Court:
Under 42 U.S.C. section 1396a, in subsection (a)(19), which is found on page 244 of the joint appendix, Congress made absolutely clear, as a singular precondition of all Medicaid plans, that they must assure that care and services will be provided in a manner consistent with simplicity of administration and the best interests of the recipients.
This statute does not allow Maine to use Medicaid recipients as pawns in its effort to reduce health care costs for those individuals who are not eligible for Medicaid.
Chief Justice Rehnquist: Was this statute... was the statute discussed in the First Circuit opinion?
Mr. Phillips: The Medicaid statute?
Chief Justice Rehnquist: The... the provision you just read.
Mr. Phillips: Oh, absolutely, Mr. Chief Justice.
Justice Scalia: Mr. Phillips, that... that provision is... is in the portion of the statute dealing with the approval of the State plan, a State plan has to have that consequence.
It has to serve the interest of the Medicaid recipients.
Mr. Phillips: That's true, Justice Scalia.
Justice Scalia: It doesn't say that each... each... each feature enacted by a State has to be judged individually under that standard.
It seems to me, why isn't it the case that if... if a State adopts some provision which does not comply with that provision, its plan is no longer a conforming plan, and the Secretary has explicit authority under the statute to... to repeal the Secretary's prior approval of the plan.
Why isn't that the way this thing should work?
Mr. Phillips: Well, the way this operates is that this is not adopted as a part of the State's plan that's subjected to review by the Secretary of HHS.
What this is, is a completely separate program that's been adopted independently, and all it does is reach out and hold the recipients of Medicaid as hostages in order to extract money from out-of-state manufacturers--
Justice O'Connor: Yes, but do you--
Mr. Phillips: --but it's not a part of the plan.
Justice O'Connor: --but is it... is it the case, if we were to, let's suppose, affirm here, that the Health & Human Services head could nonetheless call a halt to it and say, you no longer conform with our understanding of what's required, you're holding hostage our Medicaid recipients and it's having a negative effect on them because of the prior approval requirements of drugs that otherwise wouldn't be required?
Is... would... would the Secretary have that power?
Mr. Phillips: I believe the Secretary might have that power, although I would ask you to ask Mr. Kneedler when... when he's arguing.
Justice O'Connor: Well, I probably will.
Unknown Speaker: [Laughter]
Mr. Phillips: But over and above that, that doesn't... but that's not an exclusive remedy, that's all.
Justice Scalia: But how can the authorization provision and the requirements attached to the authorization provision, how can that conceivably not be part of the State plan, as you say?
I mean, it seems to me it's central to the--
Mr. Phillips: Well, I mean--
Justice Scalia: --there's an authorization--
Mr. Phillips: --there's a... there's a formalistic way of looking at it, which is that they have a State plan, and this is not incorporated as part of the State plan.
What this has been... what has been done here is to adopt a completely separate program which simply reaches out, as I said before, and seeks to hold hostage certain elements of it.
Justice Souter: --But if you take that position, the State plan could be rendered meaningless.
I mean, the State plan simply becomes a kind of formal Open Sesame.
The... there's got to be power to look, as Justice Scalia suggests, or the State plan means nothing.
Mr. Phillips: Well, no, there has to be a State plan.
The question is whether or not (a)(19) reflects congressional intent that the State has to act in a particular way.
If it acts contrary to that way, the only question then is, are there multiple remedies available to respond to it?
I think, Justice O'Connor, the answer to your question is yes.
I think the Secretary does have that authority to go forward, although I would ask Mr. Kneedler--
Justice Stevens: Can I ask this question: Could the State, if it just... without adopting a Maine Rx program, just decide, we want to take a good, hard look at every sale of drugs that comes into our State, so we're going to subject every drug manufacturer to prior approval pursuant to 1396r-8(d), could they do that?
Mr. Phillips: --I... there's an open question as to whether they could do that.
Certainly, if you take the most expansive reading of 1396r-8(d) you could make that argument.
The alternative argument would be to what extent that violates or interferes with the formulary formulations that are embedded in the statute.
Justice Stevens: But if they do have that authority, and you say that's an open question, doesn't it follow, a fortiori, that they can do what they're doing here?
Mr. Phillips: No, it doesn't follow a fortiori, because what they're doing here is imposing the prior authorization with respect to, you know, to serve purposes that are completely unrelated to the Medicaid program.
Justice Stevens: Well, maybe my hypothetical was completely unrelated.
They just want to be sure you can open the caps on the drug containers, or whatever it might be, some idiocentric... I don't think that the... as I read it, I don't see anything in that provision that says it must serve a Medicaid purpose.
Mr. Phillips: Well, I think you'd have to read that provision in the context of the entirety of that provision providing for coverage of drugs, and I think you have to do it in that context, and I think there are broader issues there, but the singular problem here, obviously, is that if you interpret the statute as broadly as the State of Maine does to say that we can impose prior authorization requirements, then what they can say is, we want to extract money from manufacturers solely for the purpose of building schools or roads or anything else that we want to, and there's no restriction on that, and it seems to me that if what you're saying is you want to have prior authorization as a mechanism to deal within Medicaid, to provide generally for a balance of interest between Medicaid recipients, that's one thing.
But what... what... what Maine is doing is using Medicaid recipients to further completely unrelated purposes of the State, then it seems to me what you've done is essentially ask the Federal Government to subsidize a program that... that's not an appropriate one to subsidize.
Justice Souter: Okay, what about the halfway measure, and the halfway measure has been described by the Government as... as some instances of prior approval that, that it would authorize that go beyond what the... the... the... the very strict enforcement of Medicaid in a limited sense would require.
Do you think what the Government has... excuse me.
Do you think what the Government has suggested is also beyond the authorization of the statute?
Mr. Phillips: I think it is.
I think the better way to read the statute is to recognize that this is designed to benefit Medicaid recipients, and the problem is, once you get past programs that are designed to benefit recipients themselves, it's very difficult to see where you draw the line after that in terms of where it goes.
Justice O'Connor: Well, is it correct that the Secretary has approved a few plans in other States that do go beyond, technically, the direct Medicaid recipients, for instance, the people who are very close to the line and might well become eligible soon?
Mr. Phillips: Justice O'Connor, that is correct.
They have approved those programs.
Justice O'Connor: Yes.
Mr. Phillips: Those programs are in litigation as we stand here--
Justice O'Connor: Uh-huh.
Mr. Phillips: --as I stand here today, and--
Justice Breyer: Is that possible... I mean, as I'm seeing this at the moment, if the State uses the authorization program for any purpose at all, we know that some... that some Medicaid recipients will be hurt.
Mr. Phillips: --Yes.
Justice Breyer: If a Medicaid recipient walks into a drugstore and asks for drug X, that recipient can get it more easily if it's not on this prior approval list than if it is, and that being so, it must be impermissible under Federal law, unless the object of the program achieves a Medicaid-related purpose, so the question in front of us is, does it?
Now, what's bothering me about that is that the Secretary thinks some programs like Maine's are okay, and others maybe not.
Mr. Phillips: Well--
Justice Breyer: So in my mind the words, primary jurisdiction, suddenly flash red.
How can I decide this case without knowing what the Secretary thinks, and how can... I mean, after all, if the Secretary says this one is okay, that would have a big leg up under Chevron, and if the Secretary says no, it wouldn't, so why isn't the correct principle primary jurisdiction, which we can apply whether the parties like it or not, and why isn't the correct result here to send it back to the district court and say, district court, Maine cannot put this into effect until they ask the Secretary about it?
Mr. Phillips: --Well, I don't have any particular problem with sending it back to the district court enjoined subject to approval by the Secretary of HHS, I mean, if that's the way the Court wanted to resolve this case.
Justice Breyer: Well, I'm really... that's not what I want.
Justice Kennedy: I want to have--
Justice Scalia: --Is that the way primary jurisdiction works?
I thought there has to be in place some mechanism for getting the agency to pass upon the question, a mechanism that the person who is dismissed from Federal court is entitled to use, and I'm not sure that exists here.
Mr. Phillips: I don't know, Justice Scalia, that you need to be dismissing it from Federal court.
I think it's quite possible for the--
Justice Scalia: Well, even if you sit on it until it's done--
Mr. Phillips: --Right, stay your hand pending--
Justice Scalia: --you still have to assure that there's some... some mechanism.
I mean, all the primary jurisdiction cases I know of, there... there was a means to file a case before the agency.
Mr. Phillips: --Well, I don't disagree with that, Justice Scalia.
Justice Breyer: Well, I disagree with it, so we'll have to work it out.
Justice Scalia: You can't just send them off and say, you know, ask the Secretary, by the way, and have the Secretary write us a letter.
I don't know that we've ever done that.
Mr. Phillips: Well, I'm not sure that there isn't a mechanism for asking the... to petition the Secretary for review.
I think if Maine wanted to get approval of this particular program, it certainly had it available to do that.
It didn't seek that particular course.
And Justice Breyer, I think it's important, in the context of trying to figure out primary jurisdiction, we know the views of the United States with respect to this particular program.
There may be other programs, as Justice O'Connor identified, that come close to the line where the Secretary would have a different view, and I think it's appropriate in--
Justice Breyer: Is their views the Secretary's view?
Justice Kennedy: That's what I--
Justice Breyer: --I'll... fine, I'll ask them.
Mr. Phillips: --I believe it is the Secretary's view, but--
Justice Scalia: Mr. Phillips, as I understand your position, so long as it benefits Medicaid recipients, any... any authorization scheme is okay?
I mean, a State can say, we'll authorize your drug if you pay $5 to each Medicaid recipient?
Mr. Phillips: --That is not my position.
My basic position is that the Court doesn't need to figure out precisely what prior authorizations are permissible in order to decide this case, because the one thing that should be absolutely clear is, you cannot use this mechanism in a Federal program in order to disadvantage the primary recipients of that program without serving any Medicaid, sort of, related purpose.
Justice Scalia: You... you... you may be up in a... in a later case arguing that the... that the reasonable reading of the authorization requirement is... is to assure the safety of the drug, or the necessity of the drug for the particular illness?
Mr. Phillips: That... that's absolutely correct, Justice Scalia.
We'd... we... I mean, I think we would take that position, and that we... that you cannot read (d)(1) completely in isolation, and... and to the fullest extent of the language of that, without regard to the rest of the provisions of (d)(1) through (d)(6), and you... and for sure, you cannot read them without regard to the more fundamental requirement in subsection (a) and (a)(19), that the primary consideration must be the beneficiaries of this program.
They are the most needy people in our country, and the notion that you use them as a mechanism for trying to simply lower health care costs for the Steven Kings of the world strikes me as... as an outrageous position for the State of Maine to take.
Justice Breyer: No, but they may not be doing that.
They may think that the object of this is to lower the health care costs for the moderately poor not yet on Medicaid, and thereby prevent people from falling into the Medicaid category.
Mr. Phillips: Justice Breyer, that would be a persuasive argument if this statute had any kind of a tailoring mechanism to it whatsoever.
It is open to all residents who are otherwise not covered by--
Justice Breyer: Maine says those are never caught--
Justice Ginsburg: --Administrative regulations, one of the things that Maine said was, you've stopped us at the threshold.
We could have regulations that say, for example, people who are covered by insurance will not have access to this benefit, but on the question... you said would... you would be content if the Court said, the Secretary has to look at it, until then it's no good.
Would you have... this is the... your lawsuit.
Could you have gone to the Secretary and say, said, Secretary, we want you to look at this, the Secretary says, I'm busy with a dozen other things and I don't want to look at it?
Mr. Phillips: --I don't know of any statutory mechanism for a third party to come in and ask the Secretary to review a State plan.
I don't know that... I don't know that there's anything that prevents anyone from sending a letter to the Secretary to ask him to take, to undertake that.
That said, the Secretary obviously knows about this particular scheme.
Justice Ginsburg: Yes, and the Secretary, you said that the... at least the SG supports your view that this... that this program of Maine's is impermissible, but the SG also told us, essentially, that this case wasn't ripe, so we shouldn't have granted cert. I mean, that was the SG's first position, that this is a... we don't know what, in fact, the Maine scheme is, because it was never... it never went into effect, because you got an injunction.
Mr. Phillips: But the one thing that we absolutely know about the Maine scheme, and it... Justice Breyer described it, is that every Medicaid recipient is placed at risk by the prior authorization scheme.
Justice Stevens: Yes, but Mr. Phillips, are there any findings that any Medicaid recipient has actually been harmed by this program?
I... this is a--
Mr. Phillips: Well, because there was a joinder--
Justice Stevens: --one of the things that bothers me, I don't know that we have any findings by the district court as to what the real impact will be.
I know your... your... the Government says this is going to happen--
Mr. Phillips: --Well, if--
Justice Stevens: --but if everybody agreed, for example, to join the Maine program, maybe it may work out fine.
Mr. Phillips: --The... I don't have to go to the United States.
The State of Maine concedes in its brief at page 25, Maine Rx can be expected to trigger prior authorization more often than previously.
Justice Stevens: Yes, but it may well be that prior authorization would, in turn, lead to some solution between the drug companies and the State as to how this will all be handled.
I don't think the fact they agreed that it would trigger prior authorization necessarily proves the conclusion that the Medicaid recipients will be harmed.
It may well be true, but I'm just not sure--
Mr. Phillips: Well, but--
Justice Stevens: --the record supports that--
Mr. Phillips: --Well--
Justice Stevens: --as of this stage of the case.
Mr. Phillips: --Well, but there'd be no way to enjoin the program before going into effect, which means that you essentially have to wait until actual Medicaid recipients are deprived of drugs in order to be able to implement... to stop a program that on its face does nothing to benefit Medicaid beneficiaries, and clearly poses a serious threat to them.
I... if we go back to the Hines v. Davidowitz language, it talks about the full achievement of Congress' objectives.
Justice Stevens: But it only opposes the very threat that the statute by its own terms authorizes.
That's the threat.
Mr. Phillips: Well, but it only authorizes--
Justice Stevens: The threat of prior approval which the statute authorizes.
Mr. Phillips: --Sure.
It... to serve Medicaid-related purposes.
Justice Stevens: But the statute doesn't say that.
Mr. Phillips: I... I understand that, Justice Stevens, but the point is that if you read the statute, and it's essentially six, those six words, to say that the State has unlimited authority to do that, it strikes me as inconceivable that Congress would have allowed this entire mechanism to be available for the State to come in and simply to raise revenue from out-of-State manufacturers.
There is no rational basis for that kind of a conclusion.
The much more sensible way to narrow the statute is to say, if it serves other Medicaid purposes, then that's an appropriate way to proceed.
If it doesn't, then it seems to me the... the Court has to conclude that the best interests of the beneficiaries ultimately has to trump here under these circumstances.
Justice O'Connor: Mr. Phillips, do you also rely on the Commerce Clause as somehow prohibiting what Maine has done--
Mr. Phillips: I--
Justice O'Connor: --and if so, how do you make that argument?
Mr. Phillips: --Well, Justice O'Connor, we have sort of three components to that argument.
The thing that is... I concede at the outset that there is no case of this Court that directly controls in either direction.
This is a unique scheme that's been adopted here, and... and--
Justice O'Connor: Is there anything in the Commerce Clause that prevents a State from addressing within its State boundaries requirements for dispensing prescription drugs?
Mr. Phillips: --Well, when the entire burden of the program falls out of State, it seems to us that this creates at least a serious question about what's going on here.
Justice Kennedy: Well, any State regulation, a State wants to have a special rule for a bicycle, you could say, well, that increases the cost to the manufacturer and the other States have to pay for it, so I'm... I'm not sure that that reasoning, which was in your brief, carries the day.
Mr. Phillips: --Well, I--
Justice O'Connor: Like a special fuel requirement for automobiles?
Do you think California can set certain standards, that of course it affects the auto manufacturers?
They don't make them in California.
Mr. Phillips: --Yes.
There's no question that States are free to create certain types of regulations that are different from other States, and that's... and that's not the full sweep of the argument that we're making here.
Justice O'Connor: That's not what happened here.
Mr. Phillips: --No, that's--
Justice O'Connor: I don't understand the Commerce Clause argument.
Mr. Phillips: --I wouldn't presume to try to teach you about the Commerce Clause, Justice O'Connor, but the reality of what's happening here is much more like the West Lynn Creamery case, where what you're talking about is the payment of a subsidy, all by out-of-state entities, in order to benefit... in that case it was to benefit in-state competitors.
There are no in-state competitors in this case.
Justice Kennedy: Oh, I've got quite--
Justice Souter: --Isn't that a--
--a problem with the argument.
Justice Scalia: That was the problem.
Mr. Phillips: I'm sorry.
Justice Souter: I'm sorry.
Mr. Phillips: I didn't hear--
Justice Souter: Well... no, let me yield to Justice Kennedy.
Justice Kennedy: I had thought you might make the argument... I didn't see it in your brief, maybe I missed it... that this is just so burdensome on manufacturers to go from State to State to State that it's just an... it's an undue burden on an interstate transaction, period.
Mr. Phillips: --Under Pike v. Bruce Church.
Justice Kennedy: And... and Southern Pacific v. Arizona.
Mr. Phillips: Yeah.
The reason we didn't raise that argument is that we thought that we would require... in order to make that argument we would require more factual findings by the district court--
Justice Kennedy: Right.
Mr. Phillips: --in order to get into it, because there's a balancing component to that--
Justice Kennedy: The other thing I wondered about is, if you've come over Vermont or New York you can't have the advantage of this.
I suppose it's not necessarily in your interest to argue that it has to be expanded to other States, but I... it seems to me that also was a questionable part of the program.
Mr. Phillips: --Well, I do think one of the real problems with this program is that some States will adopt this kind of a scheme and other States won't adopt this kind of a scheme, which means that you're going to have inherent discrimination with respect to consumers.
Some consumers will benefit to the detriment of other consumers, and it does seem to me that... that the theory of West Lynn Creamery was designed to say that you don't just look at the competitors and the relationships between them, you have to look more broadly at the manufacturers, the wholesalers, all the retailers, and all the way down to the consumers, and if you have the kind of discriminatory effects here where Maine seizes for itself all the economic benefits and imposes on... on everyone else the economic burdens, that in that circumstance this runs afoul of the core--
Chief Justice Rehnquist: The... wasn't this--
Mr. Phillips: --command of the Commerce Clause.
Chief Justice Rehnquist: --one of the reasons the First Circuit vacated the injunction, the fact that there just hadn't been any factual development here as to what was happening?
Mr. Phillips: Well, that was part... yes, to be sure, Mr. Chief Justice, that's part of what they said.
On the other hand, if you accept our basic theory about the clear discriminatory implication of the way the scheme operates, that kind of an operation is per se invalid.
That's what the Court held in... in West Lynn Creamery.
Justice Souter: But isn't the West Lynn Creamery difficulty in your argument that here, unlike West Lynn, there are no entities within the same category, manufacturers, e.g., producers, for example, some of whom are being discriminated in favor of others?
What's going on here is not discrimination by the State within a given class to benefit the members of the class within the State.
What is going on here is a scheme which happens to fall on certain individuals in a manufacturing class who, incidentally, are out of State, for the benefit of people in a different class, that is, the consumers, who are in-State, and West Lynn doesn't govern that.
Mr. Phillips: No, it doesn't directly cover that, and I conceded that at the outset.
On the other hand, the point here is that there are entities out there in the stream that are within Maine, and on whom this burden is not imposed.
It was chosen to impose the burden strictly on the manufacturers, and it is done in a way that will create disparate impacts with respect to consumers in Maine versus consumers in other... in other States--
Justice Souter: But that is... I mean, that's a... that's a necessary consequence of the prior approval scheme.
That... you're going to have that argument no... no matter how... no matter how prior approval--
Mr. Phillips: --Well, and... and if it operates within Medicaid, it seems to me that there's no... there's no significant argument to be made there, because Congress has basically taken it over.
Justice Souter: --Simply because you've got to have it.
Mr. Phillips: But otherwise... and one last point I'd like to make, which is simply that the Commerce Clause issue does not need to be addressed in the event the Court holds that the, that the Maine statute is preempted.
If... I'd like to reserve the balance of my time.
Argument of Edwin S. Kneedler
Chief Justice Rehnquist: Very well, Mr. Phillips.
Mr. Kneedler: Mr. Chief Justice, and may it please the Court:
The Department of Health & Human Services has articulated a position on two issues that are directly relevant to this case, and those positions are set forth in the letter to the State Medicaid directors that is set forth in an appendix to our brief at page, I believe it's page 45a it begins.
The first of those--
Justice Kennedy: Well, does that lead to a conclusion as to its view as to this program that we're considering?
Is it valid, or isn't it?
Mr. Kneedler: --If I could... there are two problems--
Justice Kennedy: As far as the Secretary is concerned.
Mr. Kneedler: --There are two problems with the... with the State program under this Medicaid director's letter that the Secretary sent out.
The first is that it's the position of the department that a plan such as this, which imposes a prior approval requirement for Medicaid patients, if the drug manufacturer does not pay rebates with respect to sales to nonMedicaid patients, that sort of change is a material change in the State's plan which requires the approval of a plan amendment.
There is a regulation that we cite in our brief at page 28, and quote, that requires that, and that, by the way, I think could be the... the mechanism effectively for a prior jurisdiction sort of approach.
Justice Breyer: I see that, but I... I mean, I'm a little bit at sea.
I absolutely wouldn't call it primary jurisdiction.
The label doesn't matter, but the... the... but... now, where I'm... where I'm... where I'm at sea is at figuring out whether it's possible to say, and you don't say this in your brief, that... that a program like Maine's, which is arguably, arguably wrong, or arguably right, that it can't go into effect without the prior approval of HHS.
Now, that's going to require me to look up the approval statutes, a whole lot of things that weren't briefed.
Mr. Kneedler: Well, it's... the... the... we have cited this regulation in our brief, and the... and under Allens v. Robbins the Secretary's, or the... the Secretary's interpretation's set forth in the brief.
It's also set forth in the Medicaid director's letter.
Justice Scalia: Why hasn't the Secretary acted under it, then?
What are you bothering us for?
If the Secretary has power under this... under this regulation to stop this plan from going forward because it amounts to an amendment of the... of the plan, and an amendment that hasn't been approved, the... the Secretary has the power to stop it.
Why... you know, why--
Mr. Kneedler: Well--
Justice Scalia: --do we have to get involved?
Mr. Kneedler: --Well, if I could just answer that and then move to the second question, because I think it's related, the regulation identifies what... that material changes in the plan have to be submitted for an amendment.
The Secretary's enforcement authority comes from a different source, which is in 42 U.S.C. 1396c, which allows the Secretary to cut off funds in whole or in part if a State is operating under a plan that requires an amendment because of those changes, so... but I--
Justice Souter: Well then, why doesn't the Secretary do it?
Mr. Kneedler: --I think it was... it's entirely reasonable... first of all, that's a matter of enforcement discretion under Heckler v. Cheney, and at least for the time being, why this... while this case is under... is under submission, the Secretary has not... has not proceeded.
Justice Souter: Well, but I think the Secretary is ignoring one serious problem, and I suspect it's behind Justice Scalia's question.
It's certainly in my mind.
It's one thing for the Secretary to act within enforcement power.
It's one thing for the Secretary to interpret the regs by, the statute by regulations that are subject to Chevron deference, but if the Secretary does neither one of those things, and from one side of the Secretary's mouth we hear, well, yes, some prior approval beyond what is strictly necessary for the direct benefit of Medicaid recipients is okay, but this goes a little bit goes too far, courts are then placed in the position of saying, well, can we read the statute so precisely as to say that the Secretary's position of what is okay is okay and, by going this step further, there's a violation of the statute?
We are placed in a very difficult position, in effect by the Secretary, by you, in being asked to draw a line with a very fine pencil, whereas if the Secretary wants to act under administrative authority, presumably that's the end of it.
Mr. Kneedler: Well, in going forward, I mean, the Secretary issued this Medicaid director's letter in September, after the Court had granted review--
Justice Souter: Ah.
Mr. Kneedler: --because this was an area that required attention.
Going forward, we... we expect that... that States will submit their proposals to the Secretary as plan amendments--
Justice O'Connor: Well, is there some--
Justice Scalia: --And if--
Justice O'Connor: --Is there some mechanism by... or authority by which we could somehow refer this back to the district court to seek some kind of information from the Secretary?
Mr. Kneedler: --Well, here's the way I think that it could proceed.
Justice O'Connor: How... how could we do it?
I don't know of a doctrine but--
Mr. Kneedler: I... I think the procedural posture of this case would allow that, and let me explain why.
The Secretary's second position in this case, which I wanted to also make sure I articulated, which was that a... that a proposed, or a plan such as this, which provides for rebates for nonMedicaid patients, still must serve some Medicaid purpose.
In the district court, when the district court entered what is only a preliminary injunction at this stage, at page 71 of the petition appendix, the district court pointed out that the State had not argued that its proposal served any Medicaid purpose.
As the preliminary injunction was entered, it was entered on that premise.
The court of appeals then speculated that perhaps it does serve a Medicaid purpose, but looking back at when the preliminary injunction was entered, it was entered on the premise that it served none, and we think, and the Secretary believes that a plan must at least serve some Medicaid purpose.
Justice Stevens: --But as I understand it, Mr. Kneedler, it is... it is at least theoretically possible that the Secretary could approve this very plan.
Mr. Kneedler: If... on the proper showing.
Justice Stevens: Right, of course.
It needs more facts.
Mr. Kneedler: --Yes.
The rationale adopted by the district court was the rationale that some--
Justice Stevens: Yes.
It may have now advanced a Medicaid-related purpose that may or may not be sufficient.
Mr. Kneedler: --That's... but we believe that the purpose that has been advanced does not save this statute.
The purpose that has been advanced and was identified by the court of appeals was a purpose that some people who were close to being Medicaid-eligible will be forced to spend more on drugs, may become Medicaid-eligible, and therefore cost the Medicaid program more money.
That's a Medicaid-related purpose.
The problem is, the State statute is not tailored to people who are close to the poverty line.
Justice Breyer: So is the procedure--
Justice O'Connor: --Would you... would you finish your response to me--
Mr. Kneedler: Yes.
Justice O'Connor: --to tell me--
Mr. Kneedler: --Yes.
Justice O'Connor: --what it is that you think we could do?
Mr. Kneedler: If the Court reversed the court of appeals decision, in effect affirmed the district court's injunction, which was entered on the basis that the plan serves no Medicaid-related purpose, the State program would be enjoined.
At that point the State of Maine could submit the program to the Secretary of Health & Human Services along with any justifications for the plan, such as those... there are two additional ones that have been raised in its brief in this Court for the first time, and we think that's how it should play out.
This is a... right now, the case presents a very narrow issue on a preliminary injunction.
Justice Stevens: Why couldn't that procedure be followed by affirming, and saying there should be a hearing in the district court on these very issues that you're raising, and both sides would present the facts?
Mr. Kneedler: We don't think it would be a hearing in the district court.
We believe it should be submitted to the Secretary, because a plan amendment is required, but we do believe that... that the petitioner has made a sufficient showing based on the, on what the district court said, that this plan, that Maine had offered no justification, no Medicaid justification for the plan.
Justice Stevens: Do you read the statutory authorization for prior approval to mean prior approval only if there's a Medicaid-related benefit?
Mr. Kneedler: We... we do.
The legislative history of the prior approval position--
Justice Stevens: You rely entirely on legislative history for that?
Mr. Kneedler: --No, and also there are two other provisions of the act which we think are relevant, on the one hand, a19, which talks about the best interests of the patients, but on the other hand, a(30)... this is 1396a(30)(A), which says that a State plan must provide for methods of payment that advance efficiency and economy in the Medicaid program.
We think both of those speak to interests within the Medicaid program and require in the prior approval process, as well as in the administration of the plan generally, weighing the interests of the Medicaid beneficiaries against the broader institutional interests of the Medicaid program.
If there was no Medicaid-related purpose requirement at all, then a State could impose a prior approval requirement if the drug company contributes money to the art museum or to the State highway program.
We think that under this Court's decision in Dublino, the State must be pursuing a purpose in common with the Federal Government, a Medicaid-related purpose.
What... what the scope--
Justice Ginsburg: Mr. Kneedler, it... it was the Government's first position that this Court ought to let the case ripen, and now you... you are necessarily taking a position in this lawsuit because we granted cert, but the Government made a pretty good argument essentially that this case wasn't ripe.
Mr. Kneedler: --Well, ripe for this Court's review, but we now... we now believe that, given that the director's letter that was sent out in September, that there is a basis, there's an articulation of the Secretary's position both on plan amendments and the requirement of a Medicaid-related purpose that... that this Court could properly dispose of this case in the narrow... in the narrow way I suggested which, of course, would also obviate any requirement to consider the Commerce Clause question.
Things have evolved in the Secretary's evaluation of this and, as Justice O'Connor, I think pointed out, the Secretary has since approved a Michigan plan amendment under this same general approach.
Argument of Andrew S. Hagler
Chief Justice Rehnquist: Thank you, Mr. Kneedler.
Mr. Hagler, we'll hear from you.
Mr. Hagler: Mr. Chief Justice and may it please the Court:
People without insurance are charged more for prescription drugs than any other purchaser in the market, often much more.
Patients who are forced to pay cash at the pharmacy are those least able to absorb these high prices.
To ameliorate this hardship, the Maine legislature will embrace a market-based approach used by other large third party purchasers to leverage its purchasing power under... as a third party purchaser in Medicaid to obtain price relief for the uninsured in Maine.
Justice Scalia: And you think that's one of the valid uses of the authorization provision?
You think that's why it was included in the statute, so that a State could... could shake down drug companies to lower prices to other people?
Mr. Hagler: I concede that... that Congress never thought that Maine might use prior authorization in the way that Maine Rx anticipates it.
However, what Congress said--
Justice Scalia: You can use it for anything at all?
Could... could you use it to... to say, we... you know, you... you have to pay each member of the Maine legislature $100 a year?
Could... could you put that in there?
Mr. Hagler: --As you get further and further for the purposes of... of providing health care, you approach uses a... of prior authorization that might offend Congress and this Court, but preemption is a question for Congress.
Justice O'Connor: Well, did Maine offer in the district court, in the hearings on whether a preliminary injunction should issue, a justification for how the Maine Rx program benefits Medicaid patients?
Mr. Hagler: We did not so argue in the district court.
Justice O'Connor: Okay.
Justice Breyer: When you say... who does it apply to?
That is, the statute says it applies to qualified residents.
They define that as people with a Maine Rx enrollment card, and now I don't know who those people are.
Is it virtually everybody in the State?
Is it a small subclass, those who don't have insurance?
Who is it?
Mr. Hagler: Well, it's... it's those without insurance.
Justice Breyer: So that's a fairly small group.
What percentage of that... it's 15 percent of the people of Maine?
Mr. Hagler: If... we anticipate 22 percent.
The AARP has a different--
Justice Breyer: Okay, so 15, 22 percent.
Now, if that being so, it sounds to me like it could be like the one that was approved, or maybe it's not like the one that was approved.
Mr. Hagler: --And you don't know--
Justice Breyer: It sounds like a case, to me, that has to go to the Secretary, whose job it is to approve it, rather than having us fly blind.
Mr. Hagler: --Well, here's the difference between what the Secretary approved and what the Maine... and... and what he's proposing with respect to Maine Rx and the plan amendments.
What the Secretary approved was a program that's a demonstration project, a waiver program, allowing more people into Medicaid notwithstanding the fact that they're ineligible.
Justice O'Connor: That has been approved for Maine?
Mr. Hagler: Approved and struck down by the D.C. Circuit on Christmas Eve.
The Secretary and the Solicitor General, the Secretary and the Solicitor General identified the fact that that program helped people up to 300 percent of poverty.
Without the Healthy Maine program, the demonstration project, Maine Rx is now the only program that helps those people.
Justice Breyer: That isn't an answer to my question.
The answer to my... my question was, it sounds to me like a program that the Secretary might approve or might not approve, and so why should we fly blind?
Why isn't it the case that you can't put this program into effect, given Federal law, without the approval of the Secretary?
Now, when she approves it or disapproves it, they can argue about whether that was legal.
Mr. Hagler: Well, the Secretary is suggesting that the State of Maine seek a plan amendment, but by definition, a plan amendment allows... a plan amendment is something that, if we sought a plan amendment to run Maine Rx it would necessarily be allowed by the Medicaid statute.
42... the Medicaid statute, 1396 subsection--
Justice Breyer: I'm not following you.
Is your argument that--
Mr. Hagler: --We don't--
Justice Breyer: --even if the Secretary disapproved this, were it a plan, we still could do it?
If that's your argument, I'll answer that question.
That's a legal question.
I think it's an easy one to answer.
In my mind, the answer's no.
Mr. Hagler: --Well, if the Secretary were to--
Justice Breyer: Now, you can explain why it shouldn't be no, but I want to know if that's what I'm supposed to decide.
Mr. Hagler: --It's not what you're supposed to decide.
The Secretary has not acted, other than speaking to this Court through the brief of the Solicitor General.
The Medicaid statute provides a mechanism for the Secretary to tell the State when it is running its Medicaid program in a fashion which violates the provisions of the Medicaid statute.
Chief Justice Rehnquist: Well, but is this actually a... the... the State... the State of Maine running its Medicaid program, it... it's a freestanding statute, isn't it?
Mr. Hagler: --It's an entirely different... correct, it's an entirely different statute.
We don't believe we need a plan amendment to seek approval to run the Maine Rx program.
Justice Breyer: That's fine.
So then you want me to decide the question of whether it would be possible to have this statute even if the Secretary, were it an amendment to the Medicaid plan, would say no, okay?
I say that's a legal question we can decide.
Mr. Hagler: But you should not decide that now.
Justice Breyer: Is that what you think we should decide now?
Are you following what I'm saying or not?
Am I not--
Mr. Hagler: Not precisely.
Justice Breyer: --I can decide the question if the Sec... you're saying... suppose the Secretary's approval makes no difference.
Let us assume the Secretary would disapprove it.
Mr. Hagler: Okay.
Justice Breyer: There would... a legal question, can you have this statute anyway?
Mr. Hagler: Yes.
Justice Breyer: Okay.
That's what you think we should decide?
Mr. Hagler: I believe that's what I--
Justice Breyer: All right.
If that's what you think we should decide, fine, then why isn't the answer to that question clearly no?
You would have a Federal statute, it uses the Federal program, the Secretary thinks it's contrary to the Federal program, the Secretary's views are within her authority, let's say, under the... under the Federal program, and so a State cannot put something into effect--
Mr. Hagler: --Well--
Justice Breyer: --that is so clearly contrary to the Medicaid program using the Medicaid device.
Mr. Hagler: --The question that this... the first question that this Court certified was, as described in the Secretary's brief, is whether the Federal Medicaid statute allows the use of that authority under the statute to compel... the prior authorization authority--
Justice Scalia: And I assume it--
Mr. Hagler: --And he says yes.
Justice Scalia: --And it would be a waste of time and money for us to send it back to the Secretary, at least if we are convinced on the basis of the briefs submitted here, that even if the Secretary did approve it, that approval would be invalid.
I mean, you would concede that--
Mr. Hagler: If the--
Justice Scalia: --that whatever primary jurisdiction is involved here--
Mr. Hagler: --If the--
Justice Scalia: --it certainly makes no sense to send it back to the Secretary if, when the Secretary approves it, there is then a lawsuit and we say, oh, by the way, he couldn't approve this.
Mr. Hagler: --Right.
Justice Scalia: This goes too far.
We might as well decide that now, no?
Mr. Hagler: You can decide the preemption question now, and I think that the Court should, and the preemption question is whether Congress intended to prohibit what Maine has here done.
When Congress legislates against the backdrop of the preemption doctrine and it give... gave to the State the discretion to subject to prior authorization any covered outpatient drug, it qualified that discretion hardly at all.
The only qualifications are the two provisions, the procedural safeguards that require that if prior authorization is sought--
Chief Justice Rehnquist: Doesn't the Secretary have some discretion in this area as to whether to say it's good or bad, the... the Maine plan, or are you saying it's simply not his business?
Mr. Hagler: --It's Congress' business--
Chief Justice Rehnquist: Well, right.
Mr. Hagler: --to set the line--
Chief Justice Rehnquist: But did Congress in what it enacted leave any room for the Secretary to have some discretion here?
Mr. Hagler: --What Congress enacted was the opportunity for the Secretary to tell the State that when it's begun a program or is operating its Medicaid program out of compliance with the Medicaid statute, that it believes that that's the case, and the provision provides for a fair hearing for the State, we get together with the Secretary, we try to work it out.
If we can't, and if the Secretary... if Maine persists in wanting to run the program, and the Secretary disapproves the program, then his remedy is to withhold money from the State and--
Chief Justice Rehnquist: But if... if it's a freestanding pro... if it's a freestanding statute, not part of Maine's Medicaid, how can the Secretary disapprove a freestanding statute?
Mr. Hagler: --What he can do is look to the effect of what happens once Maine Rx is implemented, and look to the effect on the Medicaid beneficiaries as to whether or not they'll be harmed.
Justice O'Connor: Well, the Secretary theoretically could conclude already that to require prior approval for every prescription drug will have negative effects on Medicaid recipients who otherwise would not have to seek prior approval, because there's quite a bit in the record about the difficulty when prior approval must be obtained.
Mr. Hagler: Oh, I submit there... that there's... I disagree with respect to the record.
I believe that there's very little in the record which demonstrates that there will be any harm to Maine Rx beneficiaries, harm to their health, once Maine Rx is imposed, and should the State ultimately impose prior authorizations under the Maine Rx statute.
You have lodging materials which are untested.
The fact of the matter is, if we were to return to the district court we could demonstrate, based on a vigorous use of prior authorization in the 2 years that have intervened the granting of the injunction and today, that we are imposing prior authorization and we are answering the phone in less than 2 hours, and that Medicaid patients are, in fact, not being harmed.
We... our position is that to survive a facial challenge the petitioner must demonstrate that any use of prior authorization, as contemplated by the Maine Rx--
Chief Justice Rehnquist: Well, I question whether this is correctly described as a facial challenge.
You think of a facial challenge more in terms of somebody who has a... First Amendment implications, or at least criminal law applications.
This... as I read the First Circuit's opinion, although they talked about a facial challenge, I thought what they were saying was, we just don't know enough, since the thing had never gone into effect to uphold the injunction.
Mr. Hagler: --No, and... and what the First Circuit didn't know was how the program would actually be implemented, and there are many ways of implementing the program that not only will not cause harm to Medicaid beneficiaries, but which will affirmatively advance the purposes of Medicaid.
Justice O'Connor: Is the program now in a... being operated?
Mr. Hagler: It is not, and the reason that it's not is because the--
Justice O'Connor: The way you spoke, I thought you had some current experience.
Mr. Hagler: --We do have current experience with the use of prior authorization to save Medicaid money.
Justice O'Connor: For Medicaid, for Medicaid patients.
Mr. Hagler: For Medicaid, correct, and as a result of that experience we know much more about our abilities and would be able to describe to the district court much more about our abilities should the First Circuit--
Justice Kennedy: Why wasn't the plan put into effect if the injunction was lifted?
Mr. Hagler: --The mandate was stayed pending--
Justice Kennedy: Oh, I see.
Mr. Hagler: --for a writ of certiorari, so we've... we've not had an opportunity to implement the program.
Justice Kennedy: But the Federal Government, with reference to Medicaid, certainly thinks prior authorization is an important enforcement mechanism and now you're saying oh, don't worry about it, it doesn't make much difference.
Mr. Hagler: Well--
Justice Kennedy: That's hard for me to accept.
Mr. Hagler: --Well, the Federal Government agrees that prior authorization... prior authorization is undeniably a cost-saving measure.
That's the primary purpose why Congress permitted the States broad discretion to impose prior authorization.
Under the Maine Rx program, what the State is saying to manufacturers is, please negotiate with us, and if you don't negotiate with us, we will review the drugs that you manufacture to see and determine, on a drug-by-drug basis, whether it would be appropriate to subject those drugs to prior authorization.
Justice Kennedy: But the very reason you put that on the bargaining table is because you know it's going to... it's going to slow down the sales of some of these drugs.
Incidentally, I... and you can answer that.
I take it that if Company X has 10 different drugs, and it can't agree with you on the rebate price for just one, that all of those drugs must have prior authorization, or am I wrong about that?
Mr. Hagler: I believe that you're wrong.
I believe that... that the Secretary has the discretion--
Justice Kennedy: I read the Government's brief to the contrary, but I'll take a look at it.
Mr. Hagler: --Yeah, I believe--
Justice Kennedy: You're representing that it's drug-by-drug, so a company can agree with you as to nine of the drugs, and those will not be subject to prior authorization, but only the tenth drug, as to which you can't agree, will be subject to prior authorization?
Mr. Hagler: --I believe--
Justice Kennedy: That's your representation?
Mr. Hagler: --As to the... I believe that our administrative rules demonstrate, proposed administrative rules that the Department hasn't enacted because the injunction has been imposed allow the Department of Human Services of the State of Maine to look on a drug-by-drug basis as to whether any particular drug ought to be subjected to prior--
Justice Kennedy: Does it allow it, if it uses, to look on a company-by-company basis, as I'd first described?
In other words, does it subject--
Mr. Hagler: --What will happen is, if--
Justice Kennedy: --to discretion of the State.
Mr. Hagler: --In other words, if Pfizer were to agree to provide a rebate for some of its drugs but not all of its drugs, must we look to the other drugs--
Justice Kennedy: Yes.
Mr. Hagler: --and determine prior authorization?
The statute contemplates a negotiation.
The Commissioner is to use his best efforts to negotiate with manufacturers in order to--
Justice Scalia: I take that to be a yes?
Mr. Hagler: --The answer is yes.
Justice Scalia: You can keep all of their drugs off unless they give you what you want for some of them?
Mr. Hagler: We could, but the statute also allows us not to.
Justice Scalia: Yeah.
Mr. Hagler: The purpose of that--
Justice Scalia: You could, that's... and... and you say it... that the statute envisions using this authorization as a cost-saving measure.
Does this save any costs... does this statute save any cost to the Medicare recipients?
Mr. Hagler: --To the Medicare?
Justice Scalia: To... to the Medicaid--
Mr. Hagler: Oh, the Medicaid recipients, the Medicaid recipients themselves pay nothing, but it can save money in, and it's probable that it will save money in the Medicaid program, and the reason for that--
Justice Scalia: --I understand, because some people won't come into the program who otherwise would come in.
Mr. Hagler: --Well, that's what the First Circuit picked up on, but the other reason and the other method in which it would save Medicaid money is, it would result in shifting prescribing behavior from more expensive drugs to less expensive drugs.
The Commissioner, under subsection--
Justice Ginsburg: But doesn't that depend on who you make the deals with?
Maybe the more expensive drug... drugs we're willing to make this deal with you, and the less expensive not willing.
Mr. Hagler: --Subsection 13 of the Maine Rx statute gives to the Commissioner the discretion to run the Medicaid program and the maine Rx program in a coordinated manner so as to enhance efficiencies in both, and so I believe that the Commissioner would never impose prior authorization on the cheapest drug in a therapeutic class even if that manufacturer didn't provide a Maine Rx rebate, because it would be silly to do so.
He's got a budget to operate.
Justice Scalia: I've known some silly administrators.
Unknown Speaker: [Laughter]
Justice Scalia: The point is, he could do it.
The point is, he could... you're... you're... you're... you're troubled by a... by a statute which would allow a denial of authorization unless the drug company pays $100 to each member of the... of the legislature.
I... I gather you... you acknowledge that... that the authorization requirement in the statute has some unstated limitation upon it, or don't you acknowledge that?
Mr. Hagler: I believe that... that under the Court's preemption analysis we look to the primary purposes of the Medicaid statute and you seek to determine what Congress intended.
Justice Scalia: Does the authorization provision have some unstated limitation upon it, a limitation that is not in that sole provision alone?
Mr. Hagler: I believe that it doesn't, but even if it does--
Justice Scalia: It doesn't, so $100 to each legislator is okay?
Mr. Hagler: --And... and... and when that offends Congress, Congress has the ability to act.
Justice Stevens: The real question is whether it has an unstated limitation that's sufficiently clear that it preempts the State law.
Mr. Hagler: I'm sorry.
Justice Stevens: The real question is whether the unstated limitation is sufficiently clear to be preemptive of a State statute to the contrary.
Mr. Hagler: That's... that's correct.
Justice Breyer: Well, how is Congress--
Mr. Hagler: The language of the statute is, a State may subject to prior authorization any covered outpatient drug.
Justice Breyer: --Well, how could Congress--
Mr. Hagler: Every--
Justice Breyer: --Sorry.
No, go ahead.
Mr. Hagler: --Indeed, every outpatient drug could be subjected to prior authorization.
That, too, would be silly, but the power is that broad.
Justice Breyer: Now, that's what I want to know.
I mean, how could Congress possibly want a statute which would hurt the Medicaid patients at... no argument it wouldn't hurt some of them, and has nothing to be said for helping anyone related to Medicaid?
Mr. Hagler: Well, we... we disagree that--
Justice Breyer: I know you disagree about whether that's the effect.
Mr. Hagler: --that it will not hurt people.
Justice Breyer: I understand that.
Mr. Hagler: Right.
Justice Breyer: So how can I decide this case without knowing whether the people in charge of the statute agree with you about that, as they might, or you might negotiate some implementation of how to have regulations that they can agree to, or, or, or, the possibilities are endless.
How can I decide in your favor, in other words, without knowing, the same question, what the Secretary thinks?
Mr. Hagler: Because the Secretary can act if the injunction... if the First Circuit's decision is affirmed, the Secretary can act, and tell the State of Maine we believe that you will harm Medicaid beneficiaries and we will take your money away.
Justice Ginsburg: But suppose--
Mr. Hagler: But the Secretary hasn't acted.
The Secretary asked this Court to approve his notions of what Maine Rx might look like if it were more limited in scope in terms of the number of beneficiaries, but he hasn't defined for the Court how to set the line.
Justice Scalia: --Suppose the State passes a law that says that each Medicaid beneficiary shall pay an additional tax of $50 a year.
You say that the only way to get rid of that law, which would certainly contravene the... the whole purpose of Medicaid.
The only way to get rid of it is to go to the Secretary and say, since this law is an amendment of the State's plan, you should approve it, it requires your approval.
Mr. Hagler: Now, there--
Justice Scalia: They couldn't strike that down as just being contrary to the--
Mr. Hagler: --No, it's contrary to the statute.
Justice Scalia: --Okay.
Mr. Hagler: Medicaid beneficiaries can't be required to pay more than a nominal co-pay.
Justice Scalia: Okay, so--
Mr. Hagler: Congress thought--
Justice Scalia: --So the only remedy for something that is contrary to the statute is not going through the Secretary, that some things that are contrary to the statute can be attacked directly, as is being done here.
Mr. Hagler: --But... but I'm not convinced that from the text of the statute you can find an intent--
Justice Scalia: Okay.
That's a different question.
Mr. Hagler: --on the part of Congress to prohibit this, and even if it were to... Congress were to prohibit using Maine Rx like prior authorizations for some purpose wholly unrelated to health care, when you get closer and closer to something approaching what the Secretary in fact does approve of, how can a court set the line?
The question really is--
Justice Scalia: That's the merits question, rather than whether we have, you know, power to... to move at all, so long as the Secretary can handle the problem by denying approval.
Mr. Hagler: --The Secretary has indicated that he'll handle the problem, or he's expressed his views about what the program is.
The Court should wait to see whether the... I mean, the Court should allow the Secretary to--
Justice Stevens: Can I ask you this question: I thought you would agree that, if it were clear as a matter of fact that this program was going to harm Medicaid recipients, that we would have power to enjoin the program?
Mr. Hagler: --Yes, but it's not... I do agree with that.
Justice Stevens: So your argument, as I understand it, it's an unresolved factual question whether, in fact, these adverse consequences would follow?
Mr. Hagler: That's correct.
We have... there's no facts in the record, and... and this... this is a facial challenge in which my colleague has to demonstrate that they are in no way... there's no possibility of implementing the program in a way which doesn't cause harm to--
Justice Stevens: Well, I may not agree with that statement, but at least they have to make a showing there in fact will be an adverse effect.
Mr. Hagler: --Some showing.
Justice Stevens: Yes.
Mr. Hagler: And the only showing that the district court seized upon is this notion that, by definition, prior authorization imposes some sort of procedural impediment to free access to all drugs on behalf of Medicaid patients, but the--
Justice Scalia: I thought you... I thought you had acknowledged that the authorization requirement must not merely not harm Medicaid recipients, but that the authorization must serve the purpose of helping Medicaid recipients.
Don't... don't... don't you acknowledge that?
Mr. Hagler: --Our--
Justice Scalia: You were saying it does help them, you know, and you're mentioning the ways in which it helps the Medicaid program.
Mr. Hagler: --Under either test we think we win.
Under the first test, the question should be, did Congress intend to prohibit what Maine has here done?
If the question is, does the Maine Rx program advance the purposes of Medicaid--
Justice Scalia: Right.
Mr. Hagler: --it assuredly does that.
Justice Scalia: But you don't think that's necessary?
Mr. Hagler: I'm... I'm not convinced that that's necessary.
Justice Scalia: Okay.
Mr. Hagler: But even if it were necessary, there's... the... the fact's in the record, and the reasonable expectation of how the program will work will yield Medicaid cost savings both by imposing prior authorization on drugs that are more expensive than their therapeutic equivalents, and also by making Maine... allowing people without insurance in the State of Maine to purchase their prescription drugs and become less likely to become disabled and financially eligible for Medicaid.
Justice Ginsburg: Of the proposed regulations, is anything published?
There was nothing before either court about how this would be implemented, was there?
Mr. Hagler: There were proposed regulations.
They are in the appendix.
They have not been promulgated.
They were drafted, and they're--
Justice Ginsburg: Before the district court?
Mr. Hagler: --Yes.
They were handed up to the district court, and they... they should be in the court file.
They... they are found on page 278 of the appendix, and that provision describes how Maine will go about reviewing the drugs for prior authorization.
If a manufacturer refuses to participate in... in a Maine Rx negotiation, then the Commissioner will hand a list of... of that manufacturer's drugs to a committee of physicians and pharmacists who will determine whether it's clinically appropriate to subject those drugs to prior authorization, guided constantly by the principle that the purpose of Medicaid is to provide necessary medical assistance to those in need.
Rebuttal of Carter G. Phillips
Chief Justice Rehnquist: Thank you, Mr. Hagler.
Mr. Phillips, you have 3 minutes remaining.
Mr. Phillips: Thank you, Mr. Chief Justice.
Justice Stevens, I want to focus on the narrowest basis on which this case can be decided, which is, we have a preliminary injunction that was issued by the district court.
A preliminary injunction was issued on the basis of two bases, 1) the State has not put forward any Medicaid-related purpose to be served by Maine Rx, and 2) that no matter how you want to define it, there is an obstacle to the full achievement of the recipient's primary interest of receiving medicine.
As I said, there's a clear debate as to exactly the extent of the obstacle, but that there could be no question that there is an obstacle, and it seems to me that what this Court can do is simply say, those two findings are not an abuse of discretion on the record in this particular case, therefore there is a basis for affirming.
If the Court wants to go further from that and say, on remand, some guidance might be useful from the Secretary of HHS and propose some mechanism by which to have primary jurisdiction or some other mechanism devised by which to obtain the review by the Secretary, I think there's probably no problem with that and, as I said before, I can't imagine that we would have any complaint about that, but the importance of this is to... is to retain the injunction in place so that the unquestioned harms that are going to happen are not allowed to take place, and then try to undo them after the fact, which was the reason for issuing the injunction.
Justice Stevens: A brief question, I don't... I'm worried about your time, but is it inconceivable to say that there was no showing at the time of the preliminary injunction hearing but now they... Maine says they can make the showing that they should have made before.
Should the judge not listen to that?
Mr. Phillips: Well, I think when you get past the preliminary injunction and you move on to the permanent injunction, if they think that they can show no burden whatsoever, or if they think they can show that there are greater purposes to be served, that's certainly available to them.
But on an abuse of discretion standard this Court ought to affirm that, and nothing that the First Circuit said justifies taking any action in this particular case.
If there are no other questions--
Chief Justice Rehnquist: Thank you, Mr. Phillips.
The case is submitted.
Argument of Speaker
Mr. Phillips: The opinion of the Court in No. 01-188, Pharmaceutical Research and Manufacturers of America versus Walsh will be announced by Justice Stevens.
Argument of Justice Stevens
Mr. Stevens: This case comes to us from the United States Court of Appeals for the First Circuit.
In response to rising Medicaid expenditures in the 1970s and 1980s several States began to experiment what were known as prior authorization programs.
These programs require a State agency to approve a doctor's prescription prior to the prescription being filled in order to get reimbursement under the State's Medicaid program.
Building on the States lead in 1990, Congress amended the Medicaid's statute to grade its on prescription drug rebate program.
One part of its new program allowed States as a condition of coverage of payment for a covered outpatient drug to require approval of the drug before it was dispense so long as two safety requirements are met.
Those requirements that there will be a response by telephone or other communication device within 24 hours of a request per prior authorization, and two, except for certain excludable drugs there is at least 72-hour supply of a covered drug will be dispensed in an emergency situation.
In the year 2000, Maine enacted the Maine Rx Program which is primarily intended to provide discounted prescription drugs to Maine's uninsured resident that is actually opens to all residents of the State.
Under the program, Maine will attempt to negotiate rebates with drug manufacturers to fund a reduced price for the drugs offered to Maine Rx participants.
If a drug company does not enter into a rebate agreement, its Medicaid sales will be subjected to a prior authorization procedure.
After the passage of the statute establishing Maine Rx but before the program actually went into effect, petitioner, an association representing manufacturer's that account for more than 75% of brand name drug sales in the United States, filed suit challenging the validity of the Maine statute.
Petitioner asserted that Maine Rx is preempted by the Medicaid Statute and that it violates a Negative Commerce Clause.
The District Court sustained both challenges and entered a preliminary injunction preventing implementation of the statute.
The First Circuit reversed and we granted certiorari.
In an opinion filed with the Clerk today, we affirm the judgment of the Court of Appeals vacating the District Court's preliminary injunction.
I have filed an opinion in which Justice Souter and Justice Ginsburg join in full, and in which Justice Breyer joins as to all except one part; Justice Breyer has filed a concurring opinion; Justice Scalia has filed an opinion concurring the judgment as has Justice Thomas; Justice O'Connor has filed an opinion concurring in part and dissenting in part in which the Chief Justice and Justice Kennedy have joined.