FILED
NOT FOR PUBLICATION MAR 03 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
INDEPENDENT LIVING CENTER OF No. 09-55692
SOUTHERN CALIFORNIA, INC.; et al.,
D.C. No. 2:09-cv-00382-CAS-
Plaintiffs - Appellees, MAN
v.
MEMORANDUM *
DAVID MAXWELL-JOLLY, Director of
Department of Health Care Services of the
State of California,
Defendant - Appellant.
Appeal from the United States District Court
for the Central District of California
Christina A. Snyder, District Judge, Presiding
Argued and Submitted January 19, 2010
Pasadena, California
Before: REINHARDT, W. FLETCHER and M. SMITH, Circuit Judges.
Plaintiffs-Appellees Independent Living Center of Southern California, Inc.,
et al. sought a preliminary injunction in the district court to enjoin AB 1183’s five
percent Medi-Cal reimbursement rate reduction as to providers of pharmacy
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
services. As the facts and procedural history are familiar to the parties, we do not
recite them here except as necessary to explain our decision. We affirm the district
court’s grant of the preliminary injunction.
For the reasons discussed in Cal. Pharms. Ass’n v. Maxwell-Jolly, No. 09-
55532, slip op. at 3331-3361 (9th Cir. Mar. 3, 2010) (California Pharmacists II),
we reject the Director’s contention that the State legislature was not required to
study the impact of the five percent rate reduction on the statutory factors of
efficiency, economy, quality, and access to care, prior to enacting AB 1183.
The primary issue in this appeal is whether the legislature actually conducted
the requisite analysis prior to enacting AB 1183. At oral argument, the Director
called our attention to a December 2007 Survey of Dispensing and Acquisition
Costs of Pharmaceuticals in the State of California, which was prepared for the
Department by the accounting firm Myers and Stauffer LC (the Myers and Stauffer
Study). The Director referenced the Myers and Stauffer Study in its briefing
before the district court, but only to support the argument that the Department had
sufficiently considered the § 30(A) factors prior to implementing the five percent
rate reduction. However, for the reasons we explained in California Pharmacists
II, slip op. at 3349-3355, any analysis performed by the Department was
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inadequate because the Department did not retain the discretion not to implement
the rate reductions based on a § 30(A) analysis.
On appeal, the Director argues that the legislature also considered the Myers
and Stauffer Study, because it appears in the “Comments” column of the May 30,
2008 agenda released by the Assembly Budget Subcommitee No. 1 on Health and
Human Services. That comment reads: “Dec. 2007 Myers and Stauffer study
found that current Medi-Cal drug pricing averages around 5 percent over cost.”
The Director did not argue in his briefing, either here or in the district court, that
the citation to the Myers and Stauffer Study in the May 2008 agenda satisfied §
30(A)’s requirements. However, the Director presented the agenda to the district
court as part of AB 1183’s legislative history, and the district court held that the
legislative history shows no indication that the § 30(A) factors were considered.
We have held that the district court’s finding on that issue was not clearly
erroneous. See California Pharmacists II, slip op. at 3349.
In any event, for two additional reasons, we reject the Director’s reliance on
the Myers and Stauffer Study to satisfy the requirement that the legislature
“stud[ied] the impact of the contemplated rate change(s) on the statutory factors
prior to setting rates, or in a manner that allow[ed] those studies to have a
meaningful impact on rates before they [were] finalized.” California Pharmacists
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II, slip op. at 3360-61 (emphasis omitted). First, the one-sentence citation to the
May 30, 2008 agenda does not show adequate consideration of the § 30(A) factors.
Second, while the Myers and Stauffer Study provides a detailed discussion of
costs, it is bereft of any analysis of the remaining § 30(A) factors—efficiency,
economy, quality, and access to care. See California Pharmacists II, slip op. at
3360 (holding that the State must consider costs and study the impact of the rate
change on the statutory factors). Indeed, the Myers and Stauffer Study notes
several times that it is only a cost study, and recommends that the Department
conduct additional analysis in light of those costs. See, e.g., Myers and Stauffer
Study at 79 (“There are several factors that should be considered in determining an
appropriate pharmacy reimbursement formula for Medi-Cal. These factors include
dispensing costs . . . , drug acquisition costs and market dynamics . . . balanced
with the need to maintain sufficient access to services for Medi-Cal recipients
throughout the state.”); id. (“Myers and Stauffer recommends that the Department
of Health Services evaluate its pharmacy participation level as well as any
additional data sources available for tracking complaints about recipient access to
services.”); id. at 81 (“The cost survey performed by Myers and Stauffer reports
aggregate historical costs of dispensing as observed in the current provider
community but does not determine if the costs observed are reflective of providers
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operating in the most efficient manner possible.”); id. (“An evaluation of the
dispensing fee should also consider issues of access to services, reimbursement
rates prevalent in the marketplace from other third party payers and payment rates
that promote incentives for provider efficiency.”). Accordingly, we affirm the
district court’s holding concerning Plaintiffs’ likelihood of success on the merits
because the State did not study the impact of the five percent rate reduction on the
statutory factors prior to enacting AB 1183, or in a manner that allowed those
studies to have a meaningful impact on rates before they were finalized. See
California Pharmacists II, slip op. at 3360-61.
Nor did the district court abuse its discretion in finding that Plaintiffs
demonstrated irreparable harm. After considering both parties’ evidence, the
district court concluded that the Director failed to refute Plaintiffs’ showing of
irreparable harm. The district court concluded that even if, on average, pharmacies
would be compensated above their acquisition costs, the Director had not refuted
Plaintiffs’ showing that many brand and generic drugs would be reimbursed at a
level below cost, limiting Medi-Cal patients’ access to those drugs. The district
court noted that because many single-source drugs are protected from competition
by patents, there are no available generic alternatives. The court also concluded
that if pharmacies are forced to curtail services or go out of business, existing
5
customers would not have access to other pharmacies, especially since home-
delivery services would end. It further noted that independent pharmacies
represent thirty-three percent of the licensed community pharmacies in California
and that they would be severely impacted by the reductions.
Contrary to the Director’s argument, the district court did not disregard the
Director’s evidence, and the Director cannot rely solely on asking this court to re-
weigh the evidence presented to the district court. Indep. Living Ctr. of S. Cal.,
Inc. v. Maxwell-Jolly, 572 F.3d 644, 658 (9th Cir. 2009). The district court’s
conclusion that Plaintiffs would suffer irreparable harm was not clear error.
The district court also did not abuse its discretion in determining that the
balance of hardships tipped decidedly in Plaintiffs’ favor. See California
Pharmacists II, slip op. at 3360.
For these reasons and those we provided in California Pharmacists II, slip
op. at 3331-61, we affirm the district court’s grant of a preliminary injunction.
AFFIRMED.
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