Starko, Inc. v. New Mexico Human Servs. Dep't

333 P.3d 947

STARKO, INC., d/b/a Medicine Chest # 1, and Jerry Jacobs, d/b/a Pill Box Pharmacy # 4, for and on behalf of themselves and all others similarly situated, Plaintiffs–Respondents and Cross–Petitioners,

v.NEW MEXICO HUMAN SERVICES DEPARTMENT and Medical Assistance Division of the New Mexico Human Services Department, Defendants–Petitioners and Cross–Respondents,andPresbyterian Health Plan, Inc., a New Mexico corporation, d/b/a Presbyterian Salud and Cimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization, a/k/a Cimarron HMO, Defendants,

and

Starko, Inc., d/b/a Medicine Chest # 1, and Jerry Jacobs, d/b/a Pill Box Pharmacy # 4, for and on behalf of themselves and all others similarly situated, Plaintiffs–Respondents and Cross–Petitioners,

v.Presbyterian Health Plan, Inc., a New Mexico corporation, d/b/a Presbyterian Salud, Defendant–Petitioner and Cross–Respondent,andCimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization, a/k/a Cimarron HMO and New Mexico Human Services Department and Medical Assistance Division of the New Mexico Human Services Department, Defendants,

and

Starko, Inc., d/b/a Medicine Chest # 1, and Jerry Jacobs, d/b/a Pill Box Pharmacy # 4, for and on behalf of themselves and all others similarly situated, Plaintiffs–Respondents and Cross–Petitioners,

v.Cimarron Health Plan, Inc., a New Mexico corporation, d/b/a Cimarron Health Maintenance Organization, a/k/a Cimarron HMO, Defendant–Petitioner and Cross–Respondent,andPresbyterian Health Plan, Inc., a New Mexico corporation, d/b/a Presbyterian Salud, and New Mexico Human Services Department and Medical Assistance Division of the New Mexico Human Services Department, Defendants.

Nos. 33,382, 33,383, 33,384.

Supreme Court of New Mexico.

Aug. 25, 2014.

Gary K. King, Attorney General, Jerome Marshak, Special Assistant Attorney General, N.M. Human Services Department, Larry Heyeck, Santa Fe, NM, for Petitioners and Cross–Respondents, New Mexico Human Services Department and Medical Assistance Division of the New Mexico Human Services Department.

John B. Pound, L.L.C., John Bennett Pound, Santa Fe, NM, Rodey, Dickason, Sloan, Akin & Robb, P.A., Edward R. Ricco, Melanie Bret Stambaugh, Albuquerque, NM, for Petitioner and Cross–Respondent, Presbyterian Health Plan, Inc., a New Mexico Corporation, d/b/a Presbyterian Salud.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Emil John Kiehne, Anna Elizabeth Indahl, Albuquerque, NM, for Petitioner, Cimarron Health Plan, Inc., a New Mexico Corporation, d/b/a Cimarron Health Maintenance Organization, a/k/a Cimarron HMO.

Peifer, Hanson & Mullins, P.A., Charles R. Peifer, Robert E. Hanson, Lauren Keefe, Elizabeth K. Radosevich, Cavin & Ingram, P.A., Stephen Dean Ingram, Sealy Hutchings Cavin, Jr., Albuquerque, NM, for Respondents and Cross–Petitioners.

OPINION

MAES, Justice.

{1} In these consolidated appeals, we consider whether pharmacists who dispense prescription drugs to Medicaid recipients must be paid under the formula set forth in NMSA 1978, Section 27–2–16(B) (1984). Section 27–2–16(B) provides that the New Mexico Human Services Department (HSD) pay participating pharmacists the wholesale cost of the generic brand plus a dispensing fee of at least three dollars sixty-five cents ($3.65). Section 27–2–16(B) was enacted when New Mexico only operated under a fee-for-services model. The Legislature created a new, alternative managed care system in 1994 in an effort to rein in the burgeoning costs of medical public assistance. Under the managed care system pharmacists contract with managed care organizations (MCOs), not the State, to provide services, and are compensated directly by the MCOs.

{2} The district court and our Court of Appeals held that Section 27–2–16(B) applies in both the fee-for-services context and in managed care settings. We reverse, and hold that Section 27–2–16(B) applies only in the fee-for-services context, which requires HSD to directly reimburse providers.

I. BACKGROUND

{3} Starko, Inc. and Jerry Jacobs (collectively, Plaintiffs) are representatives of a certified class of pharmacists. Plaintiffs argue in these consolidated appeals that New Mexico law requires that pharmacists be reimbursed for dispensing prescription drugs as part of the Medicaid program at the same rate, whether done under a fee-for-services model or a managed care model.

{4} Presbyterian Health Plan and Cimarron Health Maintenance Corporation are MCOs that administer a portion of the State of New Mexico's Medicaid program under the supervision of HSD. All three are defendants in these consolidated appeals. Defendants argue that Section 27–2–16(B) (establishing a reimbursement rate for pharmacists) applies only to the fee-for-services Medicaid model, and that the statute necessarily does not apply to MCOs.

{5} Section 27–2–16(B) provides that “[i]f drug product selection is permitted by [NMSA 1978, Section 26–3–3 (2005) ], reimbursement by the [M]edicaid program shall be limited to the wholesale cost of the lesser expensive therapeutic equivalent drug generally available in New Mexico plus a reasonable dispensing fee of at least three dollars sixty-five cents ($3.65).” Essentially, Defendants contend that MCOs are not required to pay a dispensing fee of $3.65, but are free to contract with providers at any other rate that complies with the federal Medicaid regulations.

{6} Congress established the Medicaid program as part of the Social Security Act in 1965 “to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care and services.” Atkins v. Rivera, 477 U.S. 154, 156, 106 S.Ct. 2456, 91 L.Ed.2d 131 (1986). If a state elects to participate in the Medicaid program, it receives federal funds as long as it “compl[ies] with requirements imposed by the Act and by the Secretary of Health and Human Services” in administering the program. Id. at 157, 106 S.Ct. 2456. Some Medicaid benefits are mandatory under the Medicaid program, and others, such as prescribed drugs, are provided at the discretion of the participating state. See42 U.S.C. 1396d (2012) (defining “medical assistance” which includes both mandatory and optional Medicaid benefits).

{7} New Mexico is a participating state and has opted to provide a prescribed drug benefit. SeeNMSA 1978, § 27–2–12 (2006) (providing for medical assistance programs “[c]onsistent with the federal act and subject to the appropriation and availability of federal and state funds”). Initially, New Mexico's Medicaid program operated as a fee-for-services model, under which HSD directly provided Medicaid services to eligible recipients. Starko, Inc. v. Presbyterian Health Plan, Inc., 2012–NMCA–053, ¶ 4, ––– N.M. ––––, 276 P.3d 252. Under the fee-for-services model, HSD directly paid medical service providers, including pharmacists, from public funds. SeeNMSA 1978, § 27–2–12.13(D)(5) (2003) (“ ‘[F]ee-for-service’ means a traditional method of paying for health care services under which providers are paid for each service rendered.”). Section 27–2–16(B) was enacted when Medicaid operated on a fee-for-services model.

{8} Unfortunately, the fee-for-services model drained the public coffers at what appeared to be an ever increasing rate. “During the late 1980s and early 1990s, Medicaid expenditures soared, rising an average rate of 16.4% per year.” William Alvarado Rivera, A Future for Medicaid Managed Care: The Lessons of California's San Mateo County, 7 Stan. L. & Pol'y Rev. 105, 111 (1996). As a result New Mexico, like many states, sought to find a way to continue to provide necessary medical services to its citizens while maintaining its fiscal stability.

{9} According to testimony by Ramona Flores–Lopez, the Assistant Director of the Medical Assistance Division at HSD, by 1992 the Medicaid program in New Mexico was in “dire financial straits ... [and] running out of money.... We were asked to look at all optional services [pharmaceutical benefits were one of those optional services not required by the federal Medicaid program], and [consider our options,] from eliminating optional benefits to reducing benefits to reducing eligibility.” In an attempt to control the costs, following hearings and discussions, the New Mexico Legislature authorized the transition to a managed care system for the Medicaid program and required the new system to “ensure ... access to medically necessary services ... [to] maint[ain] the rural primary care delivery infrastructure ... [and] that the department's approach is consistent with national and state health care reform principles....” 1994 N.M. Laws, ch. 62, § 22 (codified at § 27–2–12.6(B) (1994)).

{10} Managed care is neither inconsistent with nor prohibited under the Social Security Act or the federal law governing the Medicaid program. See42 U.S.C. § 1396u–2(a)(1)(A)(I) (2012) (“[S]tate[s] may require an individual who is eligible for medical assistance under the State plan ... to enroll with a managed care entity as a condition of receiving such assistance.”). Under a managed care model, the State contracts with a private organization, an MCO, to deliver health care services to program participants for a fixed fee per person. The MCO develops a network to deliver the required services by negotiating contracts with various medical service providers, such as pharmacists. These provider agreements establish the rates at which the MCO will reimburse providers for their services. If the services provided by the MCO cost more than the fixed fee provided by the State, the MCO bears the loss. Regardless of whether there is a loss or a profit, the MCO is responsible for providing all the required healthcare services. Currently HSD presumes all Medicaid eligible recipients will be enrolled in the managed care system. See8.308.6.9 NMAC (“An eligible recipient is required...