Pharmaceutical Research & Manufacturers of America v. Meadows

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
________________ FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 02-10151 September 6, 2002
________________ THOMAS K. KAHN
D. C. Docket No. 01-00356 CV-4-WS CLERK

PHARMACEUTICAL RESEARCH AND MANUFACTURERS
OF AMERICA,

Plaintiff-Appellant,

versus

RHONDA M. MEADOWS,
BOB SHARPE,
Deputy Secretary of Medicaid Agency for Health
Care Administration of the State of Florida,

Defendants-Appellees.

_______________________

Appeal from the United States District Court for the
Northern District of Florida
_______________________

(September 6, 2002)

Before BIRCH, MARCUS and CUDAHY*, Circuit Judges.

*
Honorable Richard D. Cudahy, U.S. Circuit Judge for the Seventh Circuit, sitting by designation.
CUDAHY, Circuit Judge:

The Florida legislature recently added another chapter in the ongoing efforts

of states to hold down their Medicaid drug costs. The new Florida law enacted

changes in its Medicaid program by creating a “preferred drug formulary” (also

referred to as a “preferred drug list”), which exempts certain Medicaid-eligible

drugs from a “prior authorization” requirement. If a drug is not on the preferred

list, the prescribing doctor must call a state pharmacist to obtain approval of its use.

In the course of this procedure, the pharmacist informs the doctor of the

availability of other drugs (usually on the preferred drug list) that allegedly have

comparable therapeutic value but are less expensive. The actual phone calls tend

to be relatively brief (usually less than 10 minutes in length), and approval of the

prescribing doctor’s first-choice drug is guaranteed in 100 percent of all cases,

provided only that he or she make the telephone call. During the first three months

of the program, approximately 55 percent of all these calls have resulted in a

change of the prescription to a drug on the preferred drug list. Naturally, because

this procedure may tend to promote less profitable drugs at the expense of more

profitable ones, it is not favored by the pharmaceutical manufacturers that brought

this lawsuit.

2
 The prior authorization program gives the state of Florida considerable

leverage in negotiating with pharmaceutical companies. Following its enactment,

the Medicaid market share for drugs not on the preferred drug list has shrunk

significantly. Companies that have agreed to pay a “supplemental rebate” to reduce

or offset the state’s Medicaid expenditures are guaranteed the right to have their

products considered for the preferred drug list. And, as noted, preferred drugs are

exempt from the prior authorization program. Currently, slightly less than half of

all Medicaid-eligible drugs are included on Florida’s preferred drug list.

Shortly after the Florida law went into effect, the Pharmaceutical Research

and Manufacturers of America (PhRMA), an industry trade group, sued the

Agency for Health Care Administration (AHCA), which is the Florida agency that

administers the state Medicaid program. The PhRMA alleged that the preferred

drug provision was a “formulary” within the meaning of 42 U.S.C. § 1396r-

8(d)(4). Since the Florida law did not satisfy all the requirements of that statute for

a Medicaid formulary, the PhRMA argued that Florida’s preferred drug list and

prior authorization provisions were preempted by federal law. On cross-motions

for summary judgment, the district court ruled that the Florida law was a

permissible application of § 1396r-8(d)(1)(A), (d)(5), which expressly authorizes

3
prior authorization programs. The court therefore granted summary judgment for

the AHCA. The PhRMA subsequently filed this appeal. We now affirm.

I.

Both the PhRMA and the AHCA agree that the material facts of this case are

not in dispute. Therefore, this case ultimately turns on questions of statutory

interpretation, which we review de novo. See United States v. DBB, Inc., 180 F.3d

1277, 1281 (11th Cir. 1999); Haynes v. Ambulance Svc., Inc. v. State of Alabama,

36 F.3d 1074, 1075 (11th Cir. 1994). The central issue is whether there is a conflict

between the recently enacted Florida law and the governing federal Medicaid

statute, 42 U.S.C. § 1396r-8. The state of Florida argues that the new Florida law,

ch. 2001-104, codified at Fla. Stat. § 409.91195, 409.912, provides for a “prior

authorization program” within the meaning of 42 U.S.C. § 1396r-8(d)(1)(A),

(d)(5). In contrast, the PhRMA contends that the same provisions contemplates a

“formulary” within the meaning of § 1396r-8(d)(1)(B)(iv), (d)(4).

Before commencing our analysis, we must discuss the relevant provisions of

the federal Medicaid statutes and the new Florida law. We note at the outset that

questions of statutory interpretation begin “by examining the text of the statute to

determine whether its meaning is clear.” Harry v. Marchant, 291 F.3d 767, 770

(11th Cir. 2002) (en banc) (citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432,

4
438 (1999)). “In construing a statute we must begin, and often should end as well,

with the language of the statute itself.” United States v. Steele, 147 F.3d 1316,

1318 (11th Cir. 1998) (en banc) (quoting Merritt v. Dillard Paper Co., 120 F.3d

1181, 1185 (11th Cir. 1997)).

A.

Congress enacted the Medicaid program in 1965 in an effort to assist states

with the cost of providing health care for the poor. Although the federal

government provides approximately 56 percent of Florida’s Medicaid funds, see 65

Fed. Reg. 69560-61, actual Medicaid relief is administered through state agencies

pursuant to a Medicaid program that has been submitted to and approved by the

U.S. Department of Health and Human Services. This cooperative venture between

the federal and state governments is governed by the terms of Title XIX of the

Social Security Act (SSA), §§ 1901-1935, codified at 42 U.S.C. §§ 1396-1396v.

In addition, every state in the nation currently operates its own Medicaid program

under its own statutes.

One large and growing part of the Medicaid program is the coverage of

outpatient prescription drugs. Under 42 U.S.C. § 1396r-8, a drug is eligible for

Medicaid coverage only if its manufacturer enters into an agreement with the

Secretary of the Department of Health and Human Services to make a specified

5
rebate on each covered drug. With a few limited exceptions, this rebate is set by

statute at 15.1 percent of the average manufacturer price. See § 1396r-8(c)(1)

(setting 15.1 percent as the “minimum rebate percentage” for any rebate period

commencing after December 31, 1995); § 1396r-8(k)(1) (defining the term

“average manufacturer price”). The states, of course, are interested in securing

additional rebates, and this is where the Florida legislature enters the picture.

Under 42 U.S.C. § 1396r-8(d)(1), state Medicaid agencies can impose

additional “restrictions” on the coverage of Medicaid-eligible drugs. One provision

of this statute, subsection (d)(1)(A), permits a “prior authorization program” for

any covered outpatient drug. A second provision, subsection (d)(1)(B), permits

various mechanisms for the exclusion or restricted coverage of outpatient drugs,

including the creation of a “formulary” that meets certain statutory criteria.

The AHCA maintains that the new Florida law provides for a “prior

authorization program.” Under the applicable provision, “A State may subject to

prior authorization any covered outpatient drug. Any such prior authorization

program shall comply with the requirements of paragraph (5).” § 1396r-8(d)(1)(A)

(emphasis added). Paragraph (5), entitled “Requirements of prior authorization

programs,” reads as follows:

A State plan under this subchapter may require, as a condition of
coverage or payment for a covered outpatient drug for which Federal

6
 financial participation is available in accordance with this section, ...
the approval of the drug before its dispensing for any medically
accepted indication (as defined in subsection (k)(6) of this section)
only if the system providing for such approval–
(A) provides response by telephone or other telecommunication
device within 24 hours of a request for prior authorization; and
(B) except with respect to the drugs on the list referred to in
paragraph (2), provides for the dispensing of at least 72-hour supply
of a covered outpatient prescription drug in an emergency situation
(as defined by the Secretary).

42 U.S.C. § 1396r-8(d)(5) (emphasis added). Under the plain language of this

statute, any covered outpatient drug can be made subject to a prior authorization

program if two requirements are met: (1) a response is provided within 24 hours of

the request; and (2) a 72-hour supply of the drug is made available in emergency

situations. In Pharmaceutical Research & Manufacturers of America v.

Concannon, 249 F.3d 66, 76 (1st Cir. 2001), the First Circuit adopted this same

interpretation of a § 1396r-8(d)(5) prior authorization program. At present,

Concannon is the only other appellate opinion that has addressed this issue.

However, during the pendency of this appeal, the Supreme Court granted a writ of

certiorari in Concannon. See Pharmaceutical Research & Mfgs. of Am. v.

Concannon, 122 S.Ct. 2657 (U.S. Jun. 28, 2002) (No. 01-188).

In contrast to the interpretation proffered by the AHCA, the PhRMA

contends that the new Florida law contemplates a “formulary,” which is therefore

subject to a requirements of § 1396r-8(d)(1)(B), (d)(4). Under these provisions, “A

7
State may exclude or otherwise restrict coverage of a covered outpatient drug if ...

(iv) the State has excluded coverage of the drug from its formulary established in

accordance with paragraph (4).” § 1396r-8(d)(1)(B). The relevant parts of

paragraph (4), entitled “Requirements for formularies,” read as follows:

A State may establish a formulary if the formulary meets the
following requirements:
(A) The formulary is developed by a committee consisting of
physicians, pharmacists, and other appropriate individuals appointed
by the Governor of the State ... .
(B) Except as provided in subparagraph (C), the formulary
includes the covered outpatient drugs of any manufacturer which has
entered into and complies with an agreement under subsection (a) of
this section [which pertains to the rebate agreement required for
Medicaid eligibility] ... .
(C) A covered outpatient drug may be excluded with respect to the
treatment of a specific disease or condition for an identified
population (if any) only if, based on the drug's labeling ... the
excluded drug does not have a significant, clinically meaningful
therapeutic advantage in terms of safety, effectiveness, or clinical
outcome of such treatment for such population over other drugs
included in the formulary and there is a written explanation
(available to the public) of the basis for the exclusion.
(D) The State plan permits coverage of a drug excluded from the
formulary ... pursuant to a prior authorization program that is
consistent with paragraph (5).
(E) The formulary meets such other requirements as the Secretary
may impose in order to achieve program savings consistent with
protecting the health of program beneficiaries.

§ 1396r-8(d)(4).

One important feature of subsection (d)(4)(D) of the quoted text is that, for

drugs excluded from the formulary, a state must permit coverage pursuant to “a

8
prior authorization program that is consistent with paragraph (5).” Paragraph (5) is

the provision that outlines the 24-hour response and the 72-hour emergency drug-

supply requirements of a prior authorization program. However, in order to clarify

that a prior authorization program and a formulary are distinct methods of

restricting coverage of outpatient drugs, the last sentence of subsection (d)(4) ends

with the following proviso: “A prior authorization program established by a State

under paragraph (5) is not a formulary subject to the requirements of this

paragraph.” § 1396r-8(d)(4) (emphasis added).

When comparing the statutory requirements of a “prior authorization

program” with the statutory requirements that apply to a “formulary,” one begins

with the general principle that a state can impose, as a condition of Medicaid

coverage or payment, that it be contacted prior to the dispensing of any covered

outpatient drug. See § 1396r-8(d)(1)(A). If a state intends to operate a prior

authorization program, that program must provide for (1) a response within 24

hours, and (2) the availability of 72-hour emergency supply. See § 1396r-8(d)(5).

By way of contrast, a state can take the more stringent course of creating a

“formulary,” which has the effect of excluding coverage of, or payment for, certain

Medicaid-eligible drugs. See § 1396(d)(1)(B). In addition, the “formulary” must

fully comply with five specific requirements set forth in § 1396r-8(d)(4), which,

9
among other things, generally limit an exclusion decision to issues of clinical

safety and effectiveness. See § 1396r-8(d)(4)(C).

B.

In the spring of 2001, the Florida legislature passed the law that forms the

basis of the present controversy. See Laws of Florida, ch. 2001-104 (“the 2001

amendments”), amending Fla. Stat. §§ 409.91195, 409.912.1 After Governor Bush

signed the bill, the Florida law went into effect on July 1, 2001. As a Medicaid

reform measure that addressed the issue of covered outpatient drugs, the Florida

law was presumably designed to operate against the existing backdrop of federal

Medicaid statutes. In fact, the 2001 amendments explicitly reference the 42 U.S.C.

§ 1396r-8 – the provision that prescribes circumstances under which a state

Medicaid plan can restrict coverage of Medicaid-eligible outpatient drugs.

Unfortunately, the terminology adopted by the Florida law has at least two

ambiguities that have produced the current controversy. First, section 409.91195

mandates the creation of a “preferred drug formulary,” which seems to be an

imprecise parallel to a “formulary” within the meaning of § 1396r-8(d)(1)(B)(iv),

(d)(4). Second, the term “preferred drug formulary” is used interchangeably

1
The text of §§ 409.91195, 409.912(37) are reproduced in an appendix to this opinion.

10
throughout section 409.91195 with the term “preferred drug list.”2 The reference

to a “preferred” drug list or “preferred” drug formulary appears to be unique to the

Florida statute, since the term “formulary” in § 1396r-8 is not modified by any

adjectives, much less a synonym for “preferred.” Further, it is noteworthy that

“formulary” is not a term of art that is specific to the requirements of § 1396r-

8(d)(4). Webster’s New Collegiate Dictionary (1994) defines a “formulary” as “a

book listing medicinal substances and formulas.”

That said, the amended Florida law obviously represents an attempt by the

Florida legislature to conform a “preferred drug formulary” to at least some of the

requirements of a “formulary” as defined by the federal Medicaid statutes. For

example, the first sentence of Fla. Stat. § 409.91195 reads as follows: “There is

created a Medicaid Pharmaceutical and Therapeutics Committee within the Agency

for Health Care Administration for the purpose of developing a preferred drug

2
The Report and Recommendation of the federal magistrate judge, which was subsequently adopted
by the district court, makes the following rather succinct observation:
The Florida statutes use the phases “preferred drug formulary” and “preferred drug list”
interchangably. E.g., Fla. Stat. § 409.91195(1), (4), (6), (7), (8), (9), (11). Sometimes the first
phrase is used (subsections (1), (5), and (6)), sometimes the second is used (subsections (7)
and (8)), and sometimes both are used interchangeably in the same subsection (subsections
(4) and (9)). Thus, while it would appear that the law intends a “preferred drug list” to be a
“formulary,” it would appear equally true that the Florida Statutes intend any “formulary”
to be a “preferred drug list.” Since the words are used so interchangeably, little can be
inferred from the choice of words.
Pharmaceutical Research & Mfg. of Am. v. Medows, No. 4:01cv356-WS, Report and
Recommendation of William C. Sherrill, Jr., U.S. Magistrate Judge, at 16 (N.D. Fla. Sept. 20, 2001)
(footnote omitted).

11
formulary pursuant to 42 U.S.C. § 1396r-8.” Paragraph (1) of this statute then

defines the composition of the Medicaid Pharmaceutical and Therapeutics

Committee in a way that is entirely consistent with a committee intended to

develop a formulary within the meaning of § 1396r-8(d)(4). Compare § 1396r-

8(d)(4)(A) (“The formulary is developed by a committee consisting of physicians,

pharmacists, and other appropriate individuals appointed by the Governor of the

State ... .”), with Fla. Stat. § 409.91195(1) (“The Medicaid Pharmaceutical and

Therapeutics Committee [charged with the development of a preferred drug

formulary] shall be comprised as specified in 42 U.S.C. § 1396r-8 and consist of

11 members appointed by the Governor. Four members shall be physicians, ... five

members shall be pharmacists ... and one member shall be a consumer

representative. ... At least one of the members shall represent the interests of

pharmaceutical manufacturers.”).

However, in addition to parallels between the federal Medicaid statute and

the new Florida law, there are also important distinctions. For example, under the

federal statute, clinical factors are the only permissible criteria for excluding a drug

from the formulary. In contrast, the Florida law explicitly permits the Medicaid

Pharmaceutical and Therapeutics Committee to consider economic factors when

establishing the preferred drug list. Compare § 1396r-8(d)(4)(C) (“A covered

12
outpatient drug may be excluded ... only if ... the excluded drug does not have a

significant, clinically meaningful therapeutic advantage in terms of safety,

effectiveness, or clinical outcome of such treatment for such population over other

drugs included in the formulary and there is a written explanation (available to the

public) of the basis for the exclusion.”), with Fla. Stat. § 409.91195(9) (“The

Medicaid Pharmaceutical and Therapeutics Committee shall develop its preferred

drug list recommendations by considering the clinical efficacy, safety, and cost-

effectiveness of a product.” (emphasis added)), and Fla. Stat. § 409.91195(4) (“To

the extent feasible, the committee shall review all drug classes included in the

formulary at least every 12 months, and may recommend additions to and deletions

from the formulary, such that the formulary provides for medically appropriate

drug therapies for Medicaid patients which achieve cost savings contained in the

General Appropriations Act.” (emphasis added)). The Florida law, in contrast to §

1396r-8(d)(4)(C), also does not contain any requirement that the Medicaid

Pharmaceutical and Therapeutics Committee provide a written public explanation

for its decision to exclude a particular drug from its preferred drug list.3

3
Note that the exclusion of a drug from the preferred drug list under the Florida law makes that drug
subject to the prior authorization requirement. However, that same drug is not excluded from
Medicaid coverage, which is the specific consequence of non-inclusion in a Medicaid formulary
under § 1396r-8(d)(1)(B), (d)(4).

13
 Differences between the Florida law and the federal Medicaid statute

eventually became the topic of correspondence between Florida and federal

administrators. On June 19, 2001, approximately three weeks after the Florida

governor signed the 2001 amendments into law, AHCA submitted for approval the

proposed revisions of Florida’s Medicaid plan to the Center for Medicare &

Medicaid Services (CMS).4 In an e-mail dated July 27, 2001, an official of the

CMS informed the AHCA of various potential problem areas in the state’s plan

and made the following observation and suggestion:

Under the section titled Prescribed Drug Formulary with Prior
Authorization, the state’s use of the word “formulary” doesn’t meet
the definition of formulary in Section 1927 of the Act. Therefore, the
state should strike all references to “formulary” from their state plan
and replace them with another term/phrase such as “preferred drug
list.”

Sharpe Supplemental Affidavit, Doc. 33, Exh. C., at 1-2. On August 8, 2001,

AHCA Deputy Secretary Bob Sharpe sent a letter to the CMS that specifically

addressed the state plan’s ambiguous terminology:

AHCA is unclear as to CMS’s rationale for the statement that
Florida’s use of the term “formulary” doesn’t meet the definition of
the term used in Section 1927 [codified at 42 U.S.C. § 1396r-8], and
as to the legal effect of using another term.
***

4
The CMS is the federal agency within the U.S. Department of Health & Human Services that
oversees state Medicaid plans.

14
 If the Section 1927 use of “formulary” means a restrictive list
designed to limit Medicaid coverage (i.e., to exclude certain drugs
from coverage by the Medicaid program), then CMS is correct: the
Florida “formulary” does not meet the definition of formulary in
Section 1927. The Florida formulary does not affect Medicaid
coverage; it merely establishes a preference for certain drugs, and
submits all others (which remain covered services) to a prior
authorization program.

Id., Exh. D., at 2 (emphasis added).

On September 14, 2001, Deputy Secretary Sharpe submitted to the CMS

proposed revisions to the State’s Medicaid Plan, including deletion of the phrase

“preferred drug formulary,” replacing it with “preferred drug list.”5 The new

sentence reads, “In accordance with Florida Statute 409.91195 and pursuant to 42

U.S.C. § 1396r-8, there is created a preferred drug list with prior authorization for

drugs not included on the preferred drug list.” Four days latter, the CMS sent the

AHCA a letter stating that Florida’s Medicaid plan was now approved, retroactive

to July 1, 2001, the day the 2001 amendments went into effect.

5
Contrary to suggestions made by the PhRMA, the AHCA’s current position on the structure and
mechanics of the Florida law is consistent with its pre-litigation stance. In a public meeting held on
May 31, 2001, the same day the Governor’s signed the bill into law, George Kitchens, R.Ph., Bureau
Chief, AHCA Medicaid Pharmaceutical Services, made the following remark to clarify the effect
of the prior authorization provision: “The physician has the overriding ability to say, ‘This is the
therapy I want and this is the one I’m going to continue to use,’ and it will be approved that way.
[The prior authorization requirement is] more or less making the physicians aware that there are
some options and have you considered [sic] this.” AHCA Pharmaceutical Manufacturers Formulary
& Supplemental Rebate Briefing, May 31, 2001 transcript, at 68. Kitchens made a similar statement
during a public meeting of the Medicaid Pharmaceutical and Therapeutics Committee. P&T
Committee meeting, June 26, 2001 transcript, at 37-38.

15
 Notwithstanding ambiguities in the language of the Florida law, it is clear

that the intended purpose of the preferred drug list is to reduce or offset the state’s

Medicaid expenditures. Under Fla. Stat. § 409.912(37), which is the other

provision amended by the new Florida law, the establishment of the “preferred

drug list” is directly tied to a “supplemental rebate” program. In most cases, the

supplemental rebate is required to be at least 10 percent of the average

manufacturer price over and above the § 1396r-8(a) federally mandated rebate.

However, the statute provides a definite benefit to drug manufacturers:

“Agreement to pay the minimum supplemental rebate percentage will guarantee a

manufacturer that the Medicaid Pharmaceutical and Therapeutics Committee will

consider a product for inclusion on the preferred drug formulary.” Fla. Stat. §

409.912(37)(a)7. Although some drugs, presumably because of product-specific

clinical advantages, may make it onto the preferred drug list without agreeing to a

supplemental rebate, other drugs make it onto the preferred list by providing

comparable therapeutic benefits at a cost-effective price.6 As noted, the preferred

drug list in combination with the prior authorization provision has had a significant

6
The statute reads in relevant part: “Agency decisions [on the preferred drug list] will be made on
the clinical efficacy of a drug and recommendations of the Medicaid Pharmaceutical and
Therapeutics Committee, as well as the price of competing products minus federal and state
rebates.” Fla. Stat. § 409.912(37)(a)7.

16
effect on the market share of various drug products among Florida’s Medicaid

population.7

C.

On August 7, 2001, the PhRMA filed this lawsuit. The PhRMA contended

that Florida’s “preferred drug formulary” was a “formulary” within the

contemplation of federal law, but that the demands of the Florida law fell short of

the narrow requirements set forth in 42 U.S.C. § 1396r-8(d)(4). Specifically, the

PhRMA argued that the AHCA impermissibly relied on economic rather than

clinical criteria when developing its preferred drug list. The case was assigned to a

magistrate judge, and on September 20, 2001, he issued a report and

recommendation, which concluded that the Florida law had created a “prior

authorization program” pursuant to § 1396r-8(d)(1)(A), (d)(5). On December 28,

2001, the district court adopted the magistrate judge’s report and recommendations

in full and granted summary judgment to the AHCA. The PhRMA now appeals.

II.

7
The PhRMA cites the AHCA’s own statistics as evidence of this trend. For example, following the
enactment of the Florida law, the market share for the antimigrane drug Imitrex fell from 60 to 6
percent. The market share of the proton pump inhibitor drug Prilosec fell from 38 percent to 4
percent, while the market share of Prevacid, which was included on the preferred drug list, increased
from 43 to 65 percent. The PhRMA cites other equally large market shifts among various
prescription drugs.

17
 The central issue in this case is whether the Florida’s system for covering

Medicaid-eligible outpatient drugs conflicts in part with the governing federal

statute, 42 U.S.C. § 1396r-8, and is therefore preempted under the Supremacy

Clause, U.S. Const., art. VI, cl. 2. The Supreme Court has held that preemption

may be differentiated into three discrete categories: (1) express preemption, where

a federal statute contains “explicit preemptive language”; (2) field preemption, in

which the federal regulatory scheme is “so pervasive as to make reasonable the

inference that Congress left no room for the States to supplement it”; and (3)

implied conflict preemption, in which “compliance with both federal and state

regulations is a physical impossibility” or where state law “stands as an obstacle to

the accomplishment and execution of the full purposes and objectives of

Congress.” Gade v. National Solid Wastes Mgmt., 505 U.S. 88, 98 (1992)

(quotations and citations omitted); accord This That and the Other Gift & Tobacco,

Inc. v. Cobb County, 285 F.3d 1319, 1322 (11th Cir. 2002); Boyes v. Shell Oil

Prods. Co., 199 F.3d 1260, 1267 (11th Cir. 2000).

Medicaid is a cooperative state-federal program, in which each participating

state designs and implements its own Medicaid program subject to certain

strictures established by federal law. 42 U.S.C. § 1396a (prescribing general

requirements of state Medicaid plan); cf. Harris v. McRae, 448 U.S. 297, 309

18
(1980) (referring to the Medicaid program as a “system of ‘cooperative

federalism’” (quoting King v. Smith, 392 U.S. 309, 316 (1968)). As such, we

readily conclude that the categories of express preemption and implied preemption

are inapplicable here. Under § 1396r-8(d), the states are clearly given the authority

to impose certain restrictions on the coverage of outpatient drugs, including a

formulary for excluding coverage of certain outpatient drugs, or a distinct prior

authorization program. Similarly, the federal government cannot “occupy the

field” when no Medicaid relief is available unless a state designs and implements

its own Medicaid program. Therefore, implied conflict preemption is the only

category left standing and will be analyzed here.

In this circuit, a state statute is generally not entitled to a presumption

against implied conflict preemption. See Irving v. Mazda Motor Corp., 136 F.3d

764, 769 (11th Cir. 1998) (“When considering implied preemption, no presumption

exists against preemption.”); Lewis v. Brunswick Corp., 107 F.3d 1494, 1502 (11th

Cir. 1997) (in a case involving implied conflict preemption under the Federal Boat

Safety Act, noting that “we do not apply a presumption against preemption, even

though common law tort claims are a mechanism of the police powers of the

state”). However, Medicaid is one of several cooperative state-federal program

covered by the Social Security Act, and the Supreme Court has suggested that

19
preemption for these types of programs may be difficult to establish. In New York

State Department of Social Services v. Dublino, 413 U.S. 405 (1973), the Court

addressed whether a New York welfare reform statute preempted another provision

of the Social Security Act. In upholding the New York law, the Supreme Court

observed, “Where coordinate state and federal efforts exist within a

complementary administrative framework, and in the pursuit of common purposes,

the case for federal pre-emption becomes a less persuasive one.” Id. at 421

(reviewing possible preemption under the Federal Work Incentive Program);

accord Concannon, 249 F.3d at 75; New Mexico Dep’t of Human Servs. v.

Department of Health & Human Servs. Health Care Financing Admin., 4 F.3d 882,

886 (10th Cir. 1993); Wash. Dep’t of Soc. & Health Servs. v. Bowen, 815 F.2d 549,

557 (9th Cir. 1987). We therefore believe there may be a presumption against

preemption here.

Bearing this presumption in mind, we turn to the preemption analysis.

Implied conflict preemption occurs when (a) compliance with both federal and

state regulations is a physical impossibility, or (b) when a state law is an obstacle

to execution and accomplishment of the objectives and purpose of a Congressional

enactment. See Gade, 505 U.S. at 98; This That and the Other Gift & Tobacco, 285

F.3d at 1322; Boyes, 199 F.3d at 1267. If the Florida law created a Medicaid

20
“formulary,” we would agree with the PhRMA that Florida officials developing the

preferred drug list could not consider a drug’s “cost-effectiveness,” as required

under Fla. Stat. § 409.91195(9), when the governing federal statute clearly limits

such decisions to clinical issues of safety and drug effectiveness. See § 1396r-

8(d)(4)(C).

However, we need not belabor the issue of physical impossibility because

we agree with the magistrate judge and the district court that a reasonable reading

of the Florida law suggests that the state has created a “prior authorization

program” within the meaning of § 1396r-8(d)(1)(A), (d)(5). Subsection (d)(1)(A)

permits a state Medicaid plan to “subject to prior authorization any covered

outpatient drug.” (emphasis added). Further, the text of the Medicaid statute

contains only two specific limitations on prior authorization: a response within 24

hours and the availability of an emergency 72 hour supply of the drug. Cf.

Concannon, 249 F.3d at 76 (stating that the only two requirements for a prior

authorization program under § 1396r-8(d)(5) are “the 24-hour response and the 72-

hour drug-supply requirements”). Because the Florida law satisfies both of these

requirements, see Fla. Stat. § 409.912(37)(a)1, compliance with both federal and

state law is certainly possible.

21
 Our determination that the Florida law creates only a prior authorization

program, and not a “formulary” in the federal sense, is further buttressed by

substantial record evidence that the State’s preferred drug list does not actually

“exclude” any Medicaid-eligible outpatient drug from coverage.8 Under the

federal Medicaid statute, exclusion of a drug from a “formulary” has the effect of

actually denying coverage of, or payment for, certain Medicaid-eligible drugs. As

the PhRMA correctly points out, a decision to remove a drug from a § 1396r-

8(d)(4) formulary must be based solely on clinical factors. Because the statutory

8
The issue of exclusion is an important one. PhRMA v. Concannon, supra, is the only case that has
addressed the legal contours of a Medicaid prior authorization program, and it is currently pending
before the Supreme Court. In Concannon, the First Circuit held that a similar supplemental rebate
program under Maine law satisfied the requirements of a prior authorization program under § 1396r-
8(d)(a)(A), (d)(5). However, the disputed Maine law actually has a greater potential for interfering
with a prescribing doctor’s medical judgment. In Concannon, Maine acknowledged “that it will not
authorize payment for the first-choice drug manufactured by a non-participant where there is another
drug for the ailment manufactured by a participant, but [the state] insists that the Medicaid recipient
will always receive medically necessary drugs.” 249 F.3d at 77. Recognizing the possibility that a
prescribing doctor’s first choice medication may not be covered, the First Circuit specified that its
ruling was limited to a facial attack on the Maine law: “This decision is without prejudice to
PhRMA’s right to renew its preemption challenge after implementation of the Act, should there be
evidence that Medicaid recipients are harmed by the prior authorization requirement as ‘as applied.’”
Id. at 78.
Under the Florida law, the prescribing physician retains the final authority to prescribe a
Medicaid-eligible outpatient drug. See note 5, supra. On the record before us, we have no reason to
believe that a prescribing physician would compromise the medical care of his patient in order to
avoid making a telephone call to obtain a 12-month authorization of a medication not on the
preferred drug list. From July 1, 2001 to September 30,2001, the AHCA agent pharmacist received
6,565 requests for non-preferred drugs; 2,874 prescriptions were authorized and 3,691 resulted in
the physician’s changing the prescription to a drug on the preferred list. These statistics suggest that
in over 55 percent of these cases, the prescribing physicians received additional information from
the AHCA pharmacist that persuaded them that a drug on the preferred list was medically
appropriate. In short, it appears that the Florida law permits a clinical dialogue between a doctor and
a pharmacist that can reduce the state’s Medicaid costs without jeopardizing patient care.

22
requirements of such a formulary also mandate a prior authorization program, see §

1396r-8(d)(4)(D) (specifying as one of the requirements of a formulary is that

“[t]he State plan permits coverage [of an excluded drug] ... pursuant to a prior

authorization program that is consistent with paragraph (5)”), we construe this

requirement to mean that a state must consider coverage for an excluded drug on a

case-by-case basis. The decision to provide coverage would presumably be based

on medical information conveyed by the prescribing doctor to the state agency that

administers the Medicaid program.9 However, the AHCA maintains that the

Florida law actually creates a prior authorization program that covers all Medicaid-

eligible drugs, provided that the prescribing doctor contacts the state pharmacist.

The AHCA has consistently advanced this interpretation since the enactment of the

9
Based on our interpretation of § 1396r-8, we note that the prior authorization requirement of a
federal Medicaid formulary, pursuant to subsection (d)(4)(D), is likely to serve a different function
than a prior authorization program authorized under subsections (d)(1)(A), (d)(5). Since a federal
formulary excludes from coverage Medicaid-eligible outpatient drugs, see subsection (d)(1)(B)(iv),
the prior authorization provision specified by subsection (d)(4)(D) permits the prescribing doctor
to obtain an exception to this exclusion, presumably because of medical factors specific to his or her
patient. In contrast, a prior authorization program under subsections (d)(1)(A), (d)(5), such as that
provided in the Florida law, can be used to inform doctors about the availability of drugs with
comparable therapeutic properties that are also more cost-effective for the state. Presumably, some
doctors will learn to avoid the prior authorization program by routinely looking for a suitable drug
on the “preferred drug list,” Fla. Stat. § 409.91195(4); hence, the shifts in market share following
the enactment of the Florida law. See note 7, supra. Based on the record before us, it is clear that
prescribing physicians retain the authority to override any suggestions made by the AHCA state
pharmacist. However, if the Florida law had actually created a federal formulary, and complied with
all the requirements of subsection (d)(4), it would be permissible for the state to retain the final
authority over coverage of, or payment for, non-formulary drugs.

23
Florida law. See note 5, supra. As the state agency that administers the state

Medicaid plan, and because its construction is reasonable, we believe that the

AHCA’s interpretation of the Florida law is entitled to substantial deference. See

Enterprise Leasing Co. v. Metropolitan Airports Comm., 250 F.3d 1215, 1223 (8th

Cir. 2001) (holding that “substantial deference is afforded to a state agency’s

interpretation of a statute the agency administers” and that the agency’s

interpretation cannot be set aside “unless it is arbitrary, capricious, an abuse of

discretion, or otherwise not supported by law”); see also National RR Passenger

Corp. v. Boston & Maine Corp., 503 U.S. 407, 417 (1992) (“Judicial deference to

reasonable interpretations by an agency of a statute that it administers is a

dominant, well-settled principle of federal law.”).

Turning to the second species of implied conflict preemption, we do not

believe that the Florida law “stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress.” Gade, 505 U.S. at 98.

As noted by the First Circuit in Concannon, the “primary purpose of Medicaid is to

enable states to provide medical services to those whose ‘income and resources are

insufficient to meet the costs of necessary medical services.’” 249 F.3d at 75

(quoting 42 U.S.C. § 1396 (2000)). In this case, the Florida law operates to drive

down the cost of prescription drugs under the Medicaid program by providing drug

24
manufacturers with a strong economic incentive to offer the state a supplemental

rebate. Moreover, these rebates do not necessarily have to be cash adjustments that

can be applied to other, unrelated general fund expenditures. Rather, the

supplemental rebates can directly improve the coverage and efficiency of the state

Medicaid program by being applied to “disease management programs, drug

product donation programs, drug utilization control programs, prescriber and

beneficiary counseling and education, fraud and abuse initiatives, and other

services or administrative investments with guaranteed savings to the Medicaid

program in the same year the rebate reduction is included in the General

Appropriations Act.” Fla. Stat. § 409.912(37)(a)7. By stretching its Medicaid

dollars, the Florida law has the potential for providing more and better medical

services to the target population. Finally, because Florida’s preferred drug list is

based on both clinical and cost-related factors, see Fla. Stat. § 409.91195(9)

(requiring that preferred drug list recommendations be based on “clinical efficacy,

safety, and cost-effectiveness of a product”), the Florida law leaves open the

possibility that a medically superior drug will be included on the list even without

a supplemental rebate.

In its effort to demonstrate that the Florida law frustrates the objectives of

the federal Medicaid legislation, the PhRMA contends that the state of Florida has

25
created a “de facto” formulary that sidesteps the clinical safeguard requirements of

§ 1396r-8(d)(4). The PhRMA constructs its rather complex argument by discussing

a series of revisions to the prescription drug provisions of the Social Security Act.

The PhRMA’s contentions can be summarized in the following manner.

In 1990, Congress banned Medicaid formularies because states were using

them to eliminate coverage for expensive but medically necessary drugs. See Pub.

L. No. 101-508, § 4401(a)(2)(C), 104 Stat. 1388-143 (1990) (amending 42 U.S.C.

§ 1396a(a)(54)). According to the legislative debate cited by the PhRMA, the then

predominant patterns of using formularies had been compromising the quality of

medical care for Medicaid patients, and the formularies were therefore eliminated

by Congress. In 1993, Congress enacted the current version of § 1396r-8(d). See

Pub. L. No. 103-66, § 13602(a), 107 Stat. 616-17 (1993) (amending 42 U.S.C. §

1396r-8 and adding the current subsection (d)(4)). Although the new law once

again permitted the creation and use of formularies, it included stringent clinical

safeguards to reduce the potential for abuse. However, as the PhRMA points out,

the prior authorization provision survived all of these changes (i.e., it was part of

the pre-1990 law and remained largely unchanged by the 1990 and 1993

amendments), thus giving rise to the inference (according to the PhRMA) that

Congress never intended that a prior authorization program under this provision

26
would be used to impose significant restrictions on prescribing doctors. Therefore,

because the present Florida law, deemed to authorize a “prior authorization

program,” essentially replicates the abuses that crept in under the pre-1990

formularies (or so the PhRMA alleges), the PhRMA contends that the Florida law

cannot be squared with the Congressional intent motivating the 1990 and 1993

reforms. To support its theory, the PhRMA refers us to copious volumes of

legislative history.10

10
To make its case, the PhRMA has assiduously plumbed the sprawling legislative history of the
Medicaid prescription drug statute. For example, the PhRMA directs our attention to a 1990 Senate
hearing on proposed changes to the Medicaid prescription drug provisions, in which Representatives
Wyden and Cooper testified that approximately 20 states had established formularies that restricted,
primarily on the basis of cost, the number of covered outpatient drugs available to Medicaid patients.
See Medicaid Prescription Drug Pricing: Hearing on S. 2605 and S. 3029 Before the Subcomm. on
Health for Families and the Uninsured of the Comm. on Finance, S. HRG. 101-1261, 101st CONG.
10, 19 (1990). Although these debates contained some reference to existing flaws in the prior
authorization programs, see id. at 17 (statement by Rep. Wyden that “under the status quo there are
prior authorization programs where no one even answers the phone”), the PhRMA maintains that
these debates suggest that the problems with prior authorization programs were relatively minor
compared to the widespread abuse of the formulary provisions – hence the scope of the 1990
amendments, which preserved the former but eliminated the latter.
Three years later, the tenor of congressional discourse had apparently changed. As an example
of what motivated the 1993 amendments to the Medicaid prescription drug statute, the PhRMA
invites our attention to a statement made by William Toby, Jr., Acting Administrator of the Health
Care Finance Administration, requesting that states once again be permitted to establish formularies
in order that they might have “greater flexibility to ensure the effective use of Medicaid funds.”
Medicare and Medicaid Reconciliation: Hearings Before the Subcomm. on Health and the
Environment of the Committee on Energy and Commerce, H. HRG. 103-61, 103rd CONG. 7 (1993).
Once again relying on legislative debates, the PhRMA argues that the 1993 amendments were
carefully designed to preserve the patient access to drugs that was achieved through the 1990
amendments. See id. at 453 (quoting Rep. Waxman that the 1990 amendment represented a
“government-industry compact” that expanded the availability of Medicaid of drugs while
simultaneously extracting rebates from manufacturers). As a result, the post-1993 incarnation of the
Medicaid formulary is subject to the strict clinical safeguards of § 1396r-8(d)(4).
The PhRMA contends that the Florida law upsets this carefully calibrated equilibrium. However,

27
 The primary flaw in the PhRMA’s analysis is that the statutory interpretation

problem here arises from an ambiguity in the Florida law, not in the federal

Medicaid statute. The text of § 1396r-8(d) clearly authorizes: (1) a “prior

authorization program,” which requires as a condition of Medicaid coverage or

payment, that the relevant state agency be contacted prior to the dispensing of any

covered outpatient drug; and (2) a “formulary,” which permits the more stringent

consequence of excluding coverage or payment with respect to certain Medicaid-

eligible drugs if certain clinical criteria are adhered to. But the last sentence of §

1396r-8(d)(4), which is the provision that specifies the minimum requirements for

a formulary, also contains the following unequivocal proviso: “A prior

authorization program established by a State under paragraph (5) is not a formulary

subject to the requirements of this paragraph.” As we have observed on many

previous occasions, when an enactment of Congress has spoken with this level of

clarity, recourse to legislative history is unnecessary. See Federal Reserve Bank of

Atlanta v. Thomas, 220 F.3d 1235, 1239 (11th Cir. 2000) (stating that statutory

language must be ambiguous before “courts may examine extrinsic materials,

including legislative history, to determine Congressional intent”); United States v.

we decline the PhRMA’s invitation to scour the legislative history in order to improve upon a clearly
drafted federal statute.

28
Orozco, 160 F.3d 1309, 1313 (11th Cir. 1998) (“Review of the legislative history is

not necessary unless a statute is inescapably ambiguous’” (quotations omitted));

United States v. Veal, 153 F.3d 1233, 1245 (11th Cir. 1998) (same); see also

United States v. Rush, 874 F.2d 1513, 1514 (11th Cir. 1989) (stating that

legislative history cannot be relied upon to create an ambiguity when the statutory

text is clear).

The PhRMA further argues that Congress intended the prior authorization

provision of § 1396r-8(d)(5) to serve as an “adjunct” to the requirements of a

formulary under § 1396r-8(d)(4). However, this construction of the Medicaid

statute by the PhRMA renders meaningless the proviso in subsection (d)(4) that a

“prior authorization program established ... under paragraph (5) is not a formulary

subject to the requirements of [paragraph (4)].” The PhRMA’s interpretation also

cannot be reconciled with the unequivocal language contained elsewhere in the

statute: “A State may subject to prior authorization any covered outpatient drug.

Any such prior authorization program shall comply with the requirements of

paragraph (5).” § 1396r-8(d)(1)(A) (emphasis added).

The PhRMA attempts to dodge these inconsistencies by arguing that “the

precise contours of a state’s prior authorization powers under [paragraph (5)] are

not at issue in this case” and that, notwithstanding these ambiguities, the Florida

29
law undermines the explicit clinical safeguard requirements of a § 1396r-8(d)(4)

formulary. This line of reasoning is unconvincing. The Florida law does not

exclude coverage for any Medicaid eligible drugs, which is the literal effect of a §

1396r-8(d)(4) formulary. See § 1396r-8(d)(1)(B)(iv) (permitting a State to “exclude

or otherwise restrict coverage of a covered outpatient drug if ... the State has

excluded coverage of the drug from its formulary established in accordance with

paragraph (4)” (emphasis added)). Instead, the Florida law merely conditions

coverage for non-preferred drugs on whether the prescribing physician has

followed the prior authorization procedure.

If this case presents us with difficult issues of statutory interpretation, this

difficulty arises from the confusing phraseology of the Florida law. Section

409.91195 begins with the sentence, “There is created a Medicaid Pharmaceutical

and Therapeutics Committee within the Agency for Health Care Administration

[AHCA] for the purpose of developing a preferred drug formulary pursuant to 42

U.S.C. § 1936r-8.” (emphasis added). However, the term “preferred drug

formulary” does not appear in the governing Medicaid statute, and the reference to

§ 1396r-8 resolves nothing; a prior authorization program is defined in subsections

(d)(1)(A) and (d)(5), while a “formulary” is defined in subsections (d)(1)(B) and

(d)(4). Further, section 409.91195 of the Florida law uses the term “preferred drug

30
formulary” interchangeably with “preferred drug list”: subsections (1) and (6) refer

to “preferred drug formulary”; subsections (7) and (8) refer to “preferred drug list”;

and subsections (4) and (9) refer to “formulary” and “preferred drug list”as if they

were synonyms. As noted in the report and recommendation submitted by the

magistrate judge, “while it would appear that the law intends a ‘preferred drug list’

to be a ‘formulary,’ it would appear equally true that the Florida Statutes intend

any ‘formulary’ to be a ‘preferred drug list.’ Since the words are used so

interchangeably, little can be inferred from the choice of words.”

The PhRMA contends that the use of the word “formulary” effectively

eliminates any resulting ambiguity and requires anything designated as a

“formulary” to be subject to the clinical safeguards of § 1396r-8(d)(4). However,

this argument is unpersuasive. As previously noted, “formulary” is not a term of art

that is exclusive to federal Medicaid law. The dictionary definition of “formulary”

is a “book listing medicinal substances and formulas.” Webster’s New Collegiate

Dictionary (1994). The PhRMA also argues that the Florida legislature intended to

create a § 1396r-8(d)(4) formulary because it mandated a committee of physicians

and pharmacists that satisfied the specific requirements of subsection (d)(4)(A).

Yet, if the Florida legislature were carefully conforming the Florida statutes to the

requirements of the governing Medicaid statute, it is puzzling that it failed to

31
include a provision for a “written explanation (available to the public)” of a

decision to exclude a particular drug from the formulary, as required by § 1396r-

8(d)(4)(C). The AHCA insists that the Florida law permits the state to implement a

conforming Medicaid formulary at a later date, and that the Medicaid

Pharmaceutical and Therapeutics Committee, created pursuant to section

409.91195, would already be in place to assume this additional duty. As the agency

charged with administering the Florida law, we must defer to its reasonable

construction of an ambiguous state statute. See Enterprise Leasing Co., 250 F.3d at

1223 (according substantial deference to state agency charged with the

administration of a statute when its construction is reasonable).

III.

In summary, we hold that the 2001 amendments to the Florida law provide

for a prior authorization program within the meaning of 42 U.S.C. § 1396r-

8(d)(1)(A), (d)(5). The AHCA has adopted a reasonable construction of the Florida

law that comports with the requirements of the governing federal Medicaid statute.

The judgment of the district court is therefore AFFIRMED.

32
33
Appendix

The following is the text of Fla. Stat. § 409.91195:

There is created a Medicaid Pharmaceutical and Therapeutics
Committee within the Agency for Health Care Administration for the
purpose of developing a preferred drug formulary pursuant to 42
U.S.C. s. 1396r-8.

(1) The Medicaid Pharmaceutical and Therapeutics Committee shall
be comprised as specified in 42 U.S.C. s. 1396r-8 and consist of 11
members appointed by the Governor. Four members shall be
physicians, licensed under chapter 458; one member licensed under
chapter 459; five members shall be pharmacists licensed under
chapter 465; and one member shall be a consumer representative.
The members shall be appointed to serve for terms of 2 years from the
date of their appointment. Members may be appointed to more than
one term. The Agency for Health Care Administration shall serve as
staff for the committee and assist them with all ministerial duties. The
Governor shall ensure that at least some of the members of the
Medicaid Pharmaceutical and Therapeutics Committee represent
Medicaid participating physicians and pharmacies serving all
segments and diversity of the Medicaid population, and have
experience in either developing or practicing under a preferred drug
formulary. At least one of the members shall represent the interests of
pharmaceutical manufacturers.

(2) Committee members shall select a chairperson and a vice
chairperson each year from the committee membership.

(3) The committee shall meet at least quarterly and may meet at other
times at the discretion of the chairperson and members. The
committee shall comply with rules adopted by the agency, including
notice of any meeting of the committee pursuant to the requirements
of the Administrative Procedure Act.

(4) Upon recommendation of the Medicaid Pharmaceutical and
Therapeutics Committee, the agency shall adopt a preferred drug list.

34
To the extent feasible, the committee shall review all drug classes
included in the formulary at least every 12 months, and may
recommend additions to and deletions from the formulary, such that
the formulary provides for medically appropriate drug therapies for
Medicaid patients which achieve cost savings contained in the General
Appropriations Act.

(5) Except for mental health-related drugs, antiretroviral drugs, and
drugs for nursing home residents and other institutional residents,
reimbursement of drugs not included in the formulary is subject to
prior authorization.

(6) The Agency for Health Care Administration shall publish and
disseminate the preferred drug formulary to all Medicaid providers in
the state.

(7) The committee shall ensure that interested parties, including
pharmaceutical manufacturers agreeing to provide a supplemental
rebate as outlined in this chapter, have an opportunity to present
public testimony to the committee with information or evidence
supporting inclusion of a product on the preferred drug list. Such
public testimony shall occur prior to any recommendations made by
the committee for inclusion or exclusion from the preferred drug list.
Upon timely notice, the agency shall ensure that any drug that has
been approved or had any of its particular uses approved by the
United States Food and Drug Administration under a priority review
classification will be reviewed by the Medicaid Pharmaceutical and
Therapeutics Committee at the next regularly scheduled meeting. To
the extent possible, upon notice by a manufacturer the agency shall
also schedule a product review for any new product at the next
regularly scheduled Medicaid Pharmaceutical and Therapeutics
Committee.

(8) Until the Medicaid Pharmaceutical and Therapeutics Committee
is appointed and a preferred drug list adopted by the agency, the
agency shall use the existing voluntary preferred drug list adopted
pursuant to s. 72, chapter 2000-367, Laws of Florida. Drugs not listed

35
 on the voluntary preferred drug list will require prior authorization by
the agency or its contractor.

(9) The Medicaid Pharmaceutical and Therapeutics Committee shall
develop its preferred drug list recommendations by considering the
clinical efficacy, safety, and cost-effectiveness of a product. When
the preferred drug formulary is adopted by the agency, if a product on
the formulary is one of the first four brand-name drugs used by a
recipient in a month the drug shall not require prior authorization.

(10) The Medicaid Pharmaceutical and Therapeutics Committee may
also make recommendations to the agency regarding the prior
authorization of any prescribed drug covered by Medicaid.

(11) Medicaid recipients may appeal agency preferred drug formulary
decisions using the Medicaid fair hearing process administered by the
Department of Children and Family Services.

The following is the text of Fla. Stat. § 409.912(37):

(37)(a) The agency shall implement a Medicaid prescribed-drug
spending- control program that includes the following components:

1. Medicaid prescribed-drug coverage for brand-name drugs for adult
Medicaid recipients is limited to the dispensing of four brand-name
drugs per month per recipient. Children are exempt from this
restriction. Antiretroviral agents are excluded from this limitation.
No requirements for prior authorization or other restrictions on
medications used to treat mental illnesses such as schizophrenia,
severe depression, or bipolar disorder may be imposed on Medicaid
recipients. Medications that will be available without restriction for
persons with mental illnesses include atypical antipsychotic
medications, conventional antipsychotic medications, selective
serotonin reuptake inhibitors, and other medications used for the
treatment of serious mental illnesses. The agency shall also limit the
amount of a prescribed drug dispensed to no more than a 34-day
supply. The agency shall continue to provide unlimited generic drugs,
contraceptive drugs and items, and diabetic supplies. Although a drug

36
may be included on the preferred drug formulary, it would not be
exempt from the four-brand limit. The agency may authorize
exceptions to the brand-name-drug restriction based upon the
treatment needs of the patients, only when such exceptions are based
on prior consultation provided by the agency or an agency contractor,
but the agency must establish procedures to ensure that:

a. There will be a response to a request for prior consultation by
telephone or other telecommunication device within 24 hours after
receipt of a request for prior consultation;

b. A 72-hour supply of the drug prescribed will be provided in an
emergency or when the agency does not provide a response within 24
hours as required by sub- subparagraph a.; and

c. Except for the exception for nursing home residents and other
institutionalized adults and except for drugs on the restricted
formulary for which prior authorization may be sought by an
institutional or community pharmacy, prior authorization for an
exception to the brand-name-drug restriction is sought by the
prescriber and not by the pharmacy. When prior authorization is
granted for a patient in an institutional setting beyond the
brand-name-drug restriction, such approval is authorized for 12
months and monthly prior authorization is not required for that
patient.

2. Reimbursement to pharmacies for Medicaid prescribed drugs shall
be set at the average wholesale price less 13.25 percent.

3. The agency shall develop and implement a process for managing
the drug therapies of Medicaid recipients who are using significant
numbers of prescribed drugs each month. The management process
may include, but is not limited to, comprehensive, physician-directed
medical-record reviews, claims analyses, and case evaluations to
determine the medical necessity and appropriateness of a patient's
treatment plan and drug therapies. The agency may contract with a
private organization to provide drug-program-management services.
The Medicaid drug benefit management program shall include

37
initiatives to manage drug therapies for HIV/AIDS patients, patients
using 20 or more unique prescriptions in a 180-day period, and the top
1,000 patients in annual spending.

4. The agency may limit the size of its pharmacy network based on
need, competitive bidding, price negotiations, credentialing, or similar
criteria. The agency shall give special consideration to rural areas in
determining the size and location of pharmacies included in the
Medicaid pharmacy network. A pharmacy credentialing process may
include criteria such as a pharmacy's full- service status, location, size,
patient educational programs, patient consultation,
disease-management services, and other characteristics. The agency
may impose a moratorium on Medicaid pharmacy enrollment when it
is determined that it has a sufficient number of Medicaid-participating
providers.

5. The agency shall develop and implement a program that requires
Medicaid practitioners who prescribe drugs to use a counterfeit-proof
prescription pad for Medicaid prescriptions. The agency shall require
the use of standardized counterfeit-proof prescription pads by
Medicaid-participating prescribers or prescribers who write
prescriptions for Medicaid recipients. The agency may implement the
program in targeted geographic areas or statewide.

6. The agency may enter into arrangements that require
manufacturers of generic drugs prescribed to Medicaid recipients to
provide rebates of at least 15.1 percent of the average manufacturer
price for the manufacturer's generic products. These arrangements
shall require that if a generic-drug manufacturer pays federal rebates
for Medicaid-reimbursed drugs at a level below 15.1 percent, the
manufacturer must provide a supplemental rebate to the state in an
amount necessary to achieve a 15.1-percent rebate level.

7. The agency may establish a preferred drug formulary in
accordance with 42 U.S.C. s. 1396r-8, and, pursuant to the
establishment of such formulary, it is authorized to negotiate
supplemental rebates from manufacturers that are in addition to those
required by Title XIX of the Social Security Act and at no less than 10

38
percent of the average manufacturer price as defined in 42 U.S.C. s.
1936 on the last day of a quarter unless the federal or supplemental
rebate, or both, equals or exceeds 25 percent. There is no upper limit
on the supplemental rebates the agency may negotiate. The agency
may determine that specific products, brand-name or generic, are
competitive at lower rebate percentages. Agreement to pay the
minimum supplemental rebate percentage will guarantee a
manufacturer that the Medicaid Pharmaceutical and Therapeutics
Committee will consider a product for inclusion on the preferred drug
formulary. However, a pharmaceutical manufacturer is not
guaranteed placement on the formulary by simply paying the
minimum supplemental rebate. Agency decisions will be made on the
clinical efficacy of a drug and recommendations of the Medicaid
Pharmaceutical and Therapeutics Committee, as well as the price of
competing products minus federal and state rebates. The agency is
authorized to contract with an outside agency or contractor to conduct
negotiations for supplemental rebates. For the purposes of this
section, the term " supplemental rebates" may include, at the agency's
discretion, cash rebates and other program benefits that offset a
Medicaid expenditure. Such other program benefits may include, but
are not limited to, disease management programs, drug product
donation programs, drug utilization control programs, prescriber and
beneficiary counseling and education, fraud and abuse initiatives, and
other services or administrative investments with guaranteed savings
to the Medicaid program in the same year the rebate reduction is
included in the General Appropriations Act. The agency is authorized
to seek any federal waivers to implement this initiative.

8. The agency shall establish an advisory committee for the purposes
of studying the feasibility of using a restricted drug formulary for
nursing home residents and other institutionalized adults. The
committee shall be comprised of seven members appointed by the
Secretary of Health Care Administration. The committee members
shall include two physicians licensed under chapter 458 or chapter
459; three pharmacists licensed under chapter 465 and appointed
from a list of recommendations provided by the Florida Long-Term
Care Pharmacy Alliance; and two pharmacists licensed under chapter
465.

39
 9. The Agency for Health Care Administration shall expand home
delivery of pharmacy products. To assist Medicaid patients in
securing their prescriptions and reduce program costs, the agency
shall expand its current mail-order- pharmacy diabetes-supply
program to include all generic and brand-name drugs used by
Medicaid patients with diabetes. Medicaid recipients in the current
program may obtain nondiabetes drugs on a voluntary basis. This
initiative is limited to the geographic area covered by the current
contract. The agency may seek and implement any federal waivers
necessary to implement this subparagraph.

(b) The agency shall implement this subsection to the extent that
funds are appropriated to administer the Medicaid prescribed-drug
spending-control program. The agency may contract all or any part of
this program to private organizations.

(c) The agency shall submit quarterly reports to the Governor, the
President of the Senate, and the Speaker of the House of
Representatives which must include, but need not be limited to, the
progress made in implementing this subsection and its effect on
Medicaid prescribed-drug expenditures.

40