Long Term Care Pharmacy Alliance v. Ferguson

United States Court of Appeals
For the First Circuit

No. 03-1895

LONG TERM CARE PHARMACY ALLIANCE,

Plaintiff, Appellee,

v.

CHRISTINE FERGUSON, DIRECTOR,
COMMONWEALTH OF MASSACHUSETTS
DIVISION OF HEALTH CARE FINANCE AND POLICY,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before

Boudin, Chief Judge,

Lynch and Lipez, Circuit Judges.

Romeo G. Camba, Assistant Attorney General, with whom Thomas
F. Reilly, Attorney General, and William Porter, Assistant Attorney
General, were on brief for appellant.
David J. Farber with whom John Rosans, Patton Boggs LLP, Mark
E. Robinson, Daniel S. Savrin, Melissa G. Liazos and Bingham
McCutchen LLP were on brief for appellee.

March 17, 2004
 BOUDIN, Chief Judge. This is an appeal from a

preliminary injunction entered by the district court. That court

enjoined the Commonwealth of Massachusetts from implementing an

emergency regulation reducing the rates that the state pays under

the state’s Medicaid program to pharmacies to reimburse them for

prescription drugs furnished for the use of Medicaid patients. The

background events are as follows.

Medicaid is a federal-state program to assist the poor,

elderly, and disabled in obtaining medical care. 42 C.F.R. § 430.0

(2002). Under the Medicaid Act, which is Title XIX of the Social

Security Act, 42 U.S.C. §§ 1396-1396v (2000), the federal

government provides financial support to states that establish and

administer state Medicaid programs in accordance with federal law

through a state plan approved by the U.S. Department of Health and

Human Services ("HHS"). 42 U.S.C. § 1396 (2000); 42 C.F.R. §§

430.0, 430.10-.20 (2002). One requirement is that the state have

a scheme for reimbursing health care providers. 42 U.S.C. §§

1396a(a), 1396d(a) (2000).

Massachusetts participates in Medicaid and its plan,

known as "MassHealth," is administered by an entity ("the

Division") based in the state’s Executive Office of Health and

Human Services ("the Executive Office"). Mass. Gen. Laws. ch.

118E, §§ 1, 7, 8, 9, 9A, 11 (2002). The Division fixes the rates

it will pay to reimburse providers for numerous health services.

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These include the furnishing by pharmacies of prescription drugs

for Medicaid patients. 114.3 C.M.R. §§ 6.00-49.00 (2003).

This reimbursement is calculated separately for the cost

of the drug to the pharmacy and for the cost of dispensing it.

114.3 C.M.R. §§ 31.02, 31.04, 31.07 (2003). The former, with which

this case alone is concerned, is governed by federal, 42 C.F.R. §§

447.331, 447.332 (2002), and state formulas of some complexity,

114.3 C.M.R. § 31.04 (2003); but the only method at issue here

calls for reimbursement for the pharmacy’s "estimated acquisition

cost." Massachusetts defines this cost as an estimate of the price

"generally and currently paid by eligible pharmacy providers" for

the most common package size. Id. § 31.02.

This general and current price is calculated as a

percentage of a so-called "wholesaler's acquisition cost" ("WAC")

for each drug in question. Although how the WAC numbers are

derived is not fully explained by the parties, the Commonwealth

says that it is effectively the wholesale catalogue price for the

drug but that the real price may often be a few percentage points

lower for non-generic drugs (and many points lower for generics)

because of common discounts (e.g., for speedy payment).1 Whether

1
An August 2001 report by HHS' Office of the Inspector
General, based on data from 8 states (not including Massachusetts),
relied on by the Division in its initial rate setting, also
concluded that actual acquisition costs were on average below WAC,
although these numbers apparently did not include hospital and
nursing facility service pharmacies. Office of the Inspector Gen.,
Dep't of Health & Human Servs., Medicaid Pharmacy--Actual

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there may be other pertinent costs not included in WAC, and how

profits are provided, is less clear.

In 2002 a new HHS report suggested that a number of

states were overpaying for drugs. Office of the Inspector Gen.,

Dep't of Health & Human Servs., Medicaid Pharmacy--Actual

Acquisition Cost of Generic Prescription Drug Products (2002).

Massachusetts was then using a WAC plus 10% formula to reimburse

pharmacies. The state legislature for fiscal year 2003 ordered a

reduction, directing the Division to determine whether WAC minus 2%

would suffice to ensure enough participating pharmacies to supply

patient needs. The Division held hearings in September 2002 and

sought data from Massachusetts pharmacies as to their costs of

acquisition of individual drugs. The pharmacies generally refused

to provide the data, claiming that such data was proprietary.

At the hearings, chain pharmacies such as Brooks and CVS

conceded that they usually obtained branded drugs at WAC minus 2%

for prompt payment (and paid even less for generics), but the three

largest chains said they would no longer serve MassHealth if

payment were reduced to WAC minus 2%. They claimed inter alia that

MassHealth prescriptions involved extra work and that certain costs

like overhead and storage were not included in the WAC figures. In

sum, they said that they would lose money if they continued at the

proposed reduced rate.

Acquisition Cost of Brand Name Prescription Drugs (2001).

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 In a report issued in October 2002, the Division

concluded that the pharmacies acquired the branded drugs at WAC and

generics at less and that while other costs were incurred the

Massachusetts pharmacies had not documented them. Div. of Health

& Human Servs., Commonwealth of Massachusetts, Report to the

General Court Reimbursment for Prescribed Drugs 15 (2002). The

recommendation was to reduce payments to WAC plus 6% partly to

cover other (unquantified) costs and partly to "ensure that

MassHealth members will have sufficient access to prescribed

drugs." Id. This new WAC plus 6% rate was implemented immediately

and is not at issue in this case.

On March 14, 2003, the Division adopted emergency

amendments to its regulations, lowering the rate to WAC plus 5%

effective April 1, 2003. According to the Division, only one

pharmacy had dropped out of MassHealth under the WAC plus 6% rate,

persuading the Division that a small further reduction would save

money and not curtail supply. The notice adopting the new change,

and other changes not here involved, proposed a public hearing in

May 2003 but made clear that the Division believed it was entitled

to implement the new WAC plus 5% rate in advance of any hearing.

To challenge that contention and the proposed lower rate,

the Long Term Care Pharmacy Alliance ("Long Term") brought the

present action in the district court. Long Term represents a set

of "closed" pharmacies that provide drugs not to the general public

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but only to nursing home and other institutional patients. Seeking

a preliminary injunction, Long Term claimed that the Division’s

failure to provide a prior hearing violated one provision of the

Medicaid Act and its 1% reduction within five months and without

new evidence or findings violated another provision of the statute.

The respective statutory provisions are 42 U.S.C. § 1396a(a)(13)(A)

(2000) and 42 U.S.C. § 1396a(a)(30)(A) (2000).

In a nutshell, the first of these Medicaid Act

provisions--which we will call subsection (13)(A)--requires inter

alia that a "public process" be used to set "rates of payment . .

. for hospital services, nursing facility services, and services of

intermediate care facilities for the mentally retarded," in which

"providers," among others, can comment on "proposed" rates. The

second provision, subsection (30)(A), in substance requires inter

alia that rates for services in general be "sufficient to enlist

enough providers to provide services similar to those generally

available in the area."2

The district court granted the preliminary injunction on

April 1, 2003. Long Term Care Pharmacy Alliance v. Ferguson, 260

F. Supp. 2d 282 (D. Mass. 2003). It directed that the reduced WAC

plus 5% rate not be applied to prescription drugs supplied to

MassHealth nursing home patients until after notice and comment

2
Under federal regulations, more specific findings that rates
are adequate are required for services covered by subsection
(13)(A). 42 C.F.R. § 447.253 (2002).

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rulemaking under subsection (13)(A) and not be applied to such

drugs provided to any MassHealth patient until, following the

rulemaking, the Commonwealth made findings satisfying the

subsection (30)(A) requirements. Id. at 295. The Commonwealth

appealed from this preliminary injunction which remains in effect

today.

Because the Division gave notice of the new rates shortly

before adoption and thereafter held public hearings, the question

arises whether this case is moot. Neither party argues for

mootness, but in a footnote the Commonwealth anticipates a mootness

objection and argues against it. If the controversy were now

academic, this would hazard our Article III jurisdiction, Mangual

v. Rotger-Sabat, 317 F.3d 45, 60 (1st Cir. 2003), requiring us to

dismiss sua sponte, Allende v. Shultz, 845 F.3d 1111, 1115 n.7 (1st

Cir. 1988), unless the case fell within the exception for issues

that are "capable of repetition, yet evading review." S. Pac.

Terminal Co. v. ICC, 219 U.S. 498, 515 (1911).

The case is not moot. Although notice and opportunity

for comment have both now been provided, the Division has not

adopted a final (non-emergency) version of the rate based on the

finding under subsection (30)(A) deemed by the district court to be

required. Possibly, the Division has withheld a post-hearing order

and made no finding precisely because it wants to vindicate its

authority for use in the future. Still, the injunction currently

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precludes the Division from implementing the reduced WAC plus 5%

rate; and it does so based on an alleged violation of subsection

(30)(A) not yet cured. And, if subsection (13)(A) applied, even

more specific findings would also be required by regulations

pertaining to services covered by that section. See note 2, above.

The "controversy" is therefore not moot and we need not consider

whether the recurring issues exception would otherwise apply.

Turning then to the district court’s decision to issue

the injunction, there is no reason to repeat the familiar four-part

test for preliminary injunctions, New Comm Wireless Servs., Inc. v.

SprintCom, Inc., 287 F.3d 1, 8-9 (1st. Cir. 2002), or parse the

various standards of review that may be implicated. Water Keeper

Alliance v. U.S. Dept. of Defense, 271 F.3d 21, 30 (1st Cir. 2001).

In this case, the only issues that need be decided to resolve the

controversy are issues of law subject to plenary review. Id.

We begin with subsection (13)(A) which was the basis for

the first part of the district court’s injunction and requires, in

relevant part, that a state plan provide:

(A) for a public process for determination of
rates of payment under the plan for hospital
services, nursing facility services, and
services of intermediate care facilities for
the mentally retarded under which–

(i) proposed rates, the methodologies
underlying the establishment of such rates,
and justifications for the proposed rates are
published,

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 (ii) providers, beneficiaries and their
representatives, and other concerned State
residents are given a reasonable opportunity
for review and comment on the proposed rates,
methodologies, and justifications,

(iii) final rates, the methodologies
underlying the establishment of such rates,
and justifications for such final rates are
published . . . .

42 U.S.C. § 1396a(a)(13)(A) (2000).

Broadly speaking, subsection (13)(A) requires something

on the order of notice and comment rulemaking for states in their

setting of rates for reimbursement of "hospital services, nursing

facility services, and services of intermediate care facilities for

the mentally retarded" provided under the Medicaid Act. Am. Soc.

of Consultant Pharmacists v. Concannon, 214 F. Supp. 2d 23, 28-29

(D. Me. 2002); accord Children's Seashore House v. Waldman, 197

F.3d 654, 659 (3d Cir. 1999), cert. denied, 530 U.S. 1275 (2000).

The Commonwealth assumes that if Long Term’s members are providing

"nursing facility services," such members (represented by Long

Term) are entitled to sue as "providers" in federal court to enjoin

violations of subsection (13)(A) that affect their interest.

It is quite possible that under emergency conditions

subsection (13)(A) may not automatically require notice and comment

before a new rate goes into effect.3 But the Commonwealth has not

3
Cf. 5 U.S.C. § 553(b)(B) (2000) (APA exception to requirement
of notice and comment for "good cause" including when it would be
"impracticable"); Utility Solid Waste Activities Group v. EPA, 236
F.3d 749, 754-55 (D.C. Cir. 2001) (impracticable "when an agency

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argued on appeal that exceptional circumstances excused a

procedural requirement that would otherwise apply. And the

findings required by the regulation would remain an obstacle.

Instead, the Commonwealth's main response is that Long Term’s

members simply do not provide services encompassed by subsection

(13)(A) and so the notice and comment provisions have no

application to rates set for reimbursing its members.

In the abstract, this is not a surprising position. The

Commonwealth, through its reimbursement program, buys prescription

drugs for MassHealth patients. In the absence of a statute,

nothing whatever would require the state to provide notice and

comment, or any other kind of process, before deciding how much it

was willing to pay for any or all drugs. Retail pharmacies that

supply MassHealth customers directly are subject to the same WAC

plus something rate and have no protection under subsection (13)(A)

(or under the first prong of the district court’s injunction). See

Am. Soc. of Consultant Pharmacists, 214 F. Supp. 2d at 31.

However, subsection (13)(A) does provide notice and

comment rights as to rates set for "nursing facility services"; and

Long Term’s members seek to bring themselves within this statutory

umbrella. They say also that their own operations are different

finds that due and timely execution of its functions would be
impeded by the notice otherwise required")(quoting U.S. Dep't of
Justice, Attorney General's Manual on the Administrative Procedure
Act 30-31 (1947)).

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from, and more expensive than, those of retail pharmacies supplying

MassHealth patients who walk into drug stores--because of the extra

packaging and tracking needed for residents of nursing homes.

Apparently nursing homes use the specialized closed pharmacies

precisely to do these tasks on a cost-efficient basis.

The statutory coverage issue is not straightforward. The

critical phrase in the statute is "nursing facility services" which

is in turn defined to mean

services which are or were required to be
given an individual who needs or needed on a
daily basis nursing care (provided directly by
or requiring the supervision of nursing
personnel) or other rehabilitation services
which as a practical matter can only be
provided in a nursing facility on an inpatient
basis.

42 U.S.C. § 1396d(f) (2000). This language gives some aid to the

Commonwealth because drugs are certainly not provided "only" in

nursing facilities on an inpatient basis. On the other hand, drugs

are somewhat closer to the core function of nursing home operations

than, say, the provision of a gift shop or fresh flowers in the

rooms.

The district court points to another section of the

statute obligating nursing facilities to provide "nursing and

related services" of a high order, medically related social

services, and "pharmaceutical services," 42 U.S.C. § 1396r(b)(4)(A)

(2000); but this language is inconclusive. It says that providing

drugs is essential in a nursing home, something we already know; so

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presumably the nursing home would be reimbursed for drugs it

supplied itself and could insist on reimbursement rates that were

adopted under subsection (13)(A) after notice and an opportunity to

comment.

Yet it cannot be enough to trigger subsection (13)(A)

that Long Term’s members happen to be doing something (providing

drugs) for which reimbursement rates would require notice and

comment rulemaking if done directly by the nursing home. Here the

supplier claiming reimbursement is not the nursing home but the

closed pharmacies. As we have noted, retail pharmacies that

provide prescription drugs for Medicaid patients who walk into

drugstores are not covered by subsection (13)(A). The "who"

provides may be as important to subsection (13)(A) as the "what."

Language being less than plain, we ordinarily would look

to purpose and legislative history, Stoutt v. Banco Popular de

Puerto Rico, 320 F.3d 26, 31 (1st Cir. 2003), but we have been

furnished with nothing that is helpful. Indeed, Congress may not

have had a specific intention as to nursing homes and closed

pharmacies: it could have thought that embattled care facilities

like hospitals and nursing homes needed special protection from

arbitrary rates but that ordinary pharmacies did not and never

considered the problem of a care facility outsourcing a small part

of its customary function, with claims under subsection (13)(A)

being made not by the facility but by the third-party provider.

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 On balance, the more straightforward reading of "nursing

home services" encompasses services provided by the nursing home

and not services provided to the nursing home or its patients by

third-party independent suppliers like closed pharmacies. As a

matter of crude analogy, the closed pharmacies look more like

suppliers to the nursing home than providers of nursing home

services; and, whatever extra benefits they provide, Long Term’s

members, in supplying the raw drugs to the nursing homes, look a

lot like retail drug stores supplying MassHealth patients.

Statutory language, without a rationale for the result, is rarely

conclusive but it is a start.

Turning to imputed purpose, it is easy to imagine why

Congress wanted special protection for care facilities. Their

sunk-cost structure makes them especially vulnerable to slow

destruction by long-term underfunding; by contrast, the market

reaction is likely to be quick and decisive if the Commonwealth

seeks to underpay for drugs, whether provided by ordinary retailers

or closed pharmacies. If WAC plus 5% is not enough to elicit an

adequate supply, the Division will simply be forced to pay more and

promptly so. Thus, whether or not Congress even thought

specifically about closed pharmacies, the likely purpose for its

broader distinction suggests a rationale that leaves closed

pharmacies on the unprotected side of the line and outside

subsection (13)(A). We so hold.

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 This brings us to subsection (30)(A) which presents an

interpretive problem of quite a different kind. Whereas subsection

(13)(A) has a narrow subject (rates for three specified sets of

services) and confers procedural rights on designated persons or

entities (including "providers"), subsection (30)(A) has much

broader coverage, sets forth general objectives, and mentions no

category of entity or person specially protected. The state plan,

says subsection (30)(A), must

provide such methods and procedures relating
to the utilization of, and the payment for,
care and services available under the plan
(including but not limited to utilization
review plans as provided for in section
1396b(i)(4) of this title) as may be necessary
to safeguard against unnecessary utilization
of such care and services and to assure that
payments are consistent with efficiency,
economy, and quality of care and are
sufficient to enlist enough providers so that
care and services are available under the plan
at least to the extent that such care and
services are available to the general
population in the geographic area.

42 U.S.C. § 1396a(a)(30)(A) (2000).

This subsection, unlike subsection (13)(A), is not

confined to particular services. Although the statute does not

provide any procedure for the determination of such "methods and

procedures," implementing regulations for the subsection require

public notice of any "significant proposed change" in the "methods

and standards for setting payment rates for services," and also

opportunity for comment, 42 C.F.R. § 447.205 (2002)(although not

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necessarily in advance, see 46 Fed. Reg. 58,677, 58,678 (Dec. 3,

1981)). The statute also includes a set of substance goals for the

"methods and procedures" including the enlistment of enough

providers to furnish service generally available in the community.

42 U.S.C. § 1396a(a)(30)(A) (2000).

The Commonwealth's broadest response is that the

pharmacies have no right to sue to enforce subsection (30)(A) or

its implementing regulations. Of course, the Secretary of HHS

("the Secretary") can enforce compliance with the provision and

implementing regulations already mentioned, in a number of ways--by

disapproving a state plan, 42 C.F.R. § 430.15 (2002), and by

cutting off funds, 42 U.S.C. § 1396c (2000); 42 C.F.R. § 430.35

(2002). By contrast, nothing in subsection (30)(A) expressly

provides that those who furnish Medicaid services have any

enforcement rights or, indeed, have any specific rights to

procedural (e.g., notice and comment) or substantive (e.g., just

and reasonable rates) protections.

Private rights of action were once freely inferred from

federal statutes that regulated conduct--and here subsection (30)

(A) certainly regulates the plan provider--but the ready inference

in favor of private enforcement no longer applies. Compare J.I.

Case Co. v. Borak, 377 U.S. 426 (1964), with Cort v. Ash, 422 U.S.

66 (1975), with Alexander v. Sandoval, 532 U.S. 275 (2001). In the

past, Long Term's best argument would have been to rely upon

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section 1983 as providing an explicit automatic private right of

action for injunctive relief wherever federal law regulates conduct

by a state entity:

Every person who, under color of any statute,
ordinance, regulation, custom, or usage, of
any State or Territory or the District of
Columbia, subjects, or causes to be subjected,
any citizen of the United States or other
person within the jurisdiction thereof to the
deprivation of any rights, privileges, or
immunities secured by the Constitution and
laws, shall be liable to the party injured in
an action at law, suit in equity, or other
proper proceeding for redress . . . .

42 U.S.C. § 1983 (2000).

However, the Supreme Court recently closed that door as

well in Gonzaga University v. Doe, 536 U.S. 273, 283 (2002).

There, the Supreme Court assimilated its earlier cases restricting

implied rights of action in non-state cases with section 1983

precedent; it repeated an earlier statement that section 1983

requires a violation of a private federal right and not just a

federal law, id. at 282-83 (citing Blessing v. Freestone, 520 U.S.

329, 340 (1990)); and it indicated that nothing short of "an

unambiguously conferred right" could support a claim under section

1983 based on a federal funding statute. Id.

Prior to Gonzaga this court had held that at least in

some circumstances, subsection (30)(A) could support a right of

action by a provider. Visiting Nurse Ass'n v. Bullen, 93 F.3d 997,

1003-05 (1st Cir. 1996), cert. denied, 519 U.S. 1114 (2000). But

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Gonzaga, which charted a firm course among prior Supreme Court

precedents in some tension with one another, see 536 U.S. at 279-

286, compels us to reexamine Bullen. An intervening Supreme Court

decision trumps the usual rule that a panel decision is to be

followed by a successor panel. Stewart v. Dutra Constr. Co., 230

F.3d 461, 467 (1st Cir. 2000).

Subsection (30)(A), unlike subsection (13)(A), has no

"rights creating language" and identifies no discrete class of

beneficiaries–-two touchstones in Gonzaga’s analysis, 536 U.S. at

287-88, and of those earlier cases on which Gonzaga chose to build.

E.g., Cannon v. Univ. of Chicago, 441 U.S. 677, 690 n.13 (1979).

The provision focuses instead upon the state as "the person

regulated rather than individuals protected," Sandoval, 532 U.S. at

289, suggesting no "intent to confer rights on a particular class

of persons," or at least not providers. Id. (quoting California v.

Sierra Club, 451 U.S. 287, 294 (1981)). See also Evergreen

Presbyterian Ministries Inc. v. Hood, 235 F.3d 908, 928-29 (5th

Cir. 2000).

Admittedly, some traces of legislative history suggest

that Congress assumed or favored the ability of providers to get

relief for inadequate payment rates. Wilder v. Va. Hosp. Ass'n,

496 U.S. 498 (1990), relied on such legislative history in

construing an earlier version of section (13)(A)--known as the

Boren Amendment--to create a private right of action for Medicaid

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service providers "to have the State adopt rates that it finds are

reasonable and adequate rates to mean the costs of an efficient and

economical health care provider." 496 U.S. at 524.4 In Bullen, we

held that because the Boren Amendment and subsection (30)(A)

contained nearly identical substantive requirements, Wilder

supported the use of section 1983 to enforce subsection (30)(A).

However, following Wilder Congress in 1997 repealed the

Boren amendment and replaced it with narrower language in the

present subsection (13)(A) for the very purpose of increasing the

flexibility of the states. See Evergreen, 197 F.3d at 657.

Although Gonzaga did not overrule Wilder's construction of the now

repealed Boren amendment, Gonzaga requires clear statutory language

for the creation of private rights enforceable under section 1983

at least where based upon federal funding statutes. 536 U.S. at

283, 290. Subsection (30)(A) does not provide explicit rights for

providers.

Long Term suggests that the failure to provide a private

right of action would render subsection (30)(A) a nullity. That

concern was noted by the Supreme Court in Wilder, 496 U.S. at 514,

a decision on which Bullen itself relied. But in the present case

the Secretary has ample authority to enforce subsection (30)(A) in

4
See Wilder, 496 U.S. at 517-18 (quoting S. Rep. No. 94-1240,
at 4, U.S.C.C.A.N. 1976, at 5651); Ark. Med. Soc'y v. Reynolds, 6
F.3d 519, 526 (8th Cir. 1993). But see Pa. Pharmacists Ass'n v.
Houstoun, 283 F.3d 531, 541 (3d Cir.), cert. denied, 537 U.S. 821
(2002)(finding the legislative history inconclusive).

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the ways already described. Under Gonzaga, the presence of an

explicit enforcement mechanism weighs against inferring private

rights of action. 536 U.S. at 289-90. This is decidedly not a

situation lacking an outside watchdog.

Five justices joined the Court’s Gonzaga opinion outright

but two more, in an opinion by Justice Breyer, stressed similar

criteria without endorsing the majority’s strong tilt against

implied private rights. Yet Justice Breyer noted, as one more

point favoring the result in Gonzaga, the fact that "much of the

statute’s key [substantive] language is broad and nonspecific,"

suggesting that exclusive agency enforcement might fit the scheme

better than a plethora of private actions threatening disparate

outcomes. Id. at 292 (Breyer, J., joined by Souter, J., concurring

in the judgment).

Subsection (30)(A) presents the same concern. The

criteria (avoiding overuse, efficiency, quality of care, geographic

equality) are highly general and potentially in tension. And read

literally the statute does not make these directly applicable to

individual state decisions; rather state plans are to provide

"methods and procedures" to achieve these general ends. 42 U.S.C.

§ 1396a(a)(30)(A) (2000). Thus, the generality of the goals and

the structure for implementing them suggests that plan review by

the Secretary is the central means of enforcement intended by

Congress.

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 Prior to Gonzaga, whether subsection (30)(A) authorized

private rights for providers was a close question; the circuits

were split on the issue, and well reasoned opinions had been

written on both sides.5 If Gonzaga had existed prior to Bullen,

the panel could not have come to the same result. Whether Gonzaga

is a tidal shift or merely a shift in emphasis, we are obligated to

respect it, and it controls this case. Providers such as

pharmacies do not have a private right of action under subsection

(30)(A); if they think that state reimbursement is inadequate--and

cannot persuade the Secretary to act--they must vote with their

feet.

On a contingent basis, the Commonwealth argues that even

if Long Term’s claims under both subsections were not barred as a

matter of law, the district court still erred in granting the

injunction. It asserts that the district court wrongly presumed

injury from supposed violations of technical requirements (lack of

prior comments and a formal finding); speculated about potential

harm to "third parties" (nursing home patients); and ignored

5
Compare Pa. Pharmacists Ass'n, 283 F.3d at 541-42, and
Walgreen Co. v. Hood, 275 F.3d 475, 478 (5th Cir. 2001), cert.
denied, 536 U.S. 951 (2002)(no right of action), with Westside
Mothers v. Haveman, 289 F.3d 852, 863-64 (6th Cir.), cert. denied,
537 U.S. 1045 (2002), Methodist Hosps. v. Sullivan, 91 F.3d 1026,
1029 (7th Cir. 1996), Bullen, 93 F.3d at 1005-06, and Ark. Med.
Soc'y, 6 F.3d at 525-28 (right of action). Orthopaedic Hosp. v.
Belshe, 103 F.3d 1491 (9th Cir. 1997), assumed a right of action
but the issue was apparently not raised.

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alleged means by which Long Term members could recoup if the

Division had erred in adopting the new rate.

Our legal conclusions spare us the need to pursue these

issues, but several observations are in order. Nothing we have

seen suggests that the Division is unconcerned about assuring that

nursing home residents receive their drugs, is indifferent to the

survival of pharmacies that provide them, or has acted with

indifference to those concerns solely in order to save the state

money. It was the legislature that proposed WAC minus 2% and the

Division that resisted; the rate it now defends is 7 percentage

points higher than the legislature's target.

Nor, in the abstract, is there anything patently wrong

with the Division’s arguing that it has power to act on an

emergency basis, or its desire to see whether supply can be

maintained after a 1% reduction. See Methodist Hosps. v. Sullivan,

91 F.3d 1026, 1030 (7th Cir. 1996). Admittedly, it is open to

dispute whether this was an emergency so severe as to preclude

prior comments. And, the lack of a formal finding that WAC plus 5%

would elicit adequate supply has perhaps proved to be imprudent.

At the same time, the position of the pharmacies is

little short of remarkable. They have apparently declined to give

the Division the full range of raw cost data that it needs in order

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to fine tune its rates;6 and when the Division responded by making

its best guess and then trying a modest market test through a

further small reduction, Long Term’s members sued, offering dire

predictions of disaster–-but again no adequate cost data. If

pharmacy interests alone were of concern, the lack of equity is so

patent that an injunction would be unthinkable.

Of course, the district judge was primarily concerned not

with the pharmacies but with nursing home residents, and this was

a proper concern in granting or denying a preliminary injunction.

New Comm Wireless Servs., Inc., 287 F.3d at 8-9. But even if one

mistrusted the Division’s priorities, the Secretary of HHS and the

nursing homes are presumptively better guardians of the residents’

overall interests than are these plaintiffs. Medicaid money that

is spent unnecessarily on drugs is unavailable for other uses.

Our earlier discussion leads us to conclude that Long

Term’s members, and thus Long Term, have no claim under either

subsection and that the preliminary injunction must be vacated.

This may well entail dismissal of the case as a whole, but that

issue has not been briefed and is a matter for the district court

6
Long Term members supplied some data, but the Division said
it was incomplete and inadequate to permit verification. And,
assuming that concerns about proprietary information are real,
there are numerous techniques (e.g., averaging by the Division of
anything released publicly) to ameliorate or eliminate such
problems. Cf. 8 Wright & Miller, Federal Practice and Procedure,
§ 2043 (2d ed. 1994) (discussing various methods courts can use to
protect proprietary information under Fed. R. Civ. P. 26(c)).

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in the first instance. Under the circumstances, our mandate will

issue forthwith, although without prejudice to petitions for

rehearing or rehearing en banc in the usual course. See U.S. Pub.

Interest Research Group v. Atl. Salmon of Me., LLC, 339 F.3d 23, 35

(1st Cir. 2003).

The preliminary injunction is vacated and the matter

remanded to the district court. The mandate will issue

immediately.

It is so ordered.

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