Starko, Inc. v. PRESBYTERIAN HEALTH PLAN

I attest to the accuracy and
integrity of this document
New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 10:00:50 2012.06.14

Certiorari Granted, February 13, 2012, No. 33,382; Certiorari Granted, March 30,
2012, No. 33,383; Certiorari Granted, March 30, 2012, No. 33,384

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2012-NMCA-053

Filing Date: December 15, 2011

Docket No. 27,992 consolidated with Docket No. 29,016

STARKO, INC., d/b/a MEDICINE CHEST #1,
and JERRY JACOBS, d/b/a PILL BOX
PHARMACY #4, for and on behalf of
themselves and all others similarly situated,

Plaintiffs-Appellants/Cross-Appellees,

v.

PRESBYTERIAN HEALTH PLAN, INC.,
a New Mexico corporation, d/b/a
PRESBYTERIAN SALUD,

Defendant-Appellee,

and

CIMARRON HEALTH PLAN, INC.,
a New Mexico corporation, d/b/a
CIMARRON HEALTH MAINTENANCE
ORGANIZATION, a/k/a CIMARRON HMO,

Defendant-Appellee/Cross-Appellant,

consolidated with

STARKO, INC., d/b/a MEDICINE CHEST #1,
and JERRY JACOBS, d/b/a PILL BOX
PHARMACY #4, for and on behalf of
themselves and all others similarly situated,

Plaintiffs-Appellants,

v.
NEW MEXICO HUMAN SERVICES
DEPARTMENT,

Defendant-Appellee.

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Linda M. Vanzi, District Judge

Peifer, Hanson & Mullins, P.A.
Charles R. Peifer
Robert E. Hanson
Lauren Keefe
Elizabeth Radosevich
Albuquerque, NM

Cavin & Ingram, P.A.
Sealy H. Cavin, Jr.
Stephen D. Ingram
Albuquerque, NM

for Appellants/Cross-Appellees

Long, Pound & Komer, P.A.
John B. Pound
Santa Fe, NM
Rodey, Dickason, Sloan, Akin & Robb, PA
Edward Ricco
Albuquerque, NM

for Appellee Presbyterian Health Plan, Inc.

Modrall, Sperling, Roehl, Harris & Sisk, P.A.
Lisa Mann
Jennifer A. Noya
Albuquerque, NM

for Appellee/Cross-Appellant Cimarron Health Plan, Inc.

Gary K. King, Attorney General
Jerome Marshak, Special Assistant Attorney General
Eric R. Miller, Assistant Attorney General
Santa Fe, NM

for Appellee New Mexico Human Services Department

OPINION
KENNEDY, Judge.

{1} Today, we update a continuing saga of Medicaid-related litigation spanning more
than eleven years.1 Starko, Inc. and Jerry Jacobs are representatives of a certified class of
pharmacists (collectively, Plaintiffs), who contend they were not properly reimbursed for
their services under Medicaid. They argue that the New Mexico Human Services
Department (HSD) and managed care organizations, namely, Presbyterian Health Plan, Inc.
and Cimarron Health Maintenance Corporation (collectively, the MCOs), which
administered Medicaid for the State of New Mexico, were required to pay Plaintiffs in
accordance with NMSA 1978, Section 27-2-16(B) (1984), but refused to do so. In two
consolidated appeals, Plaintiffs appeal four district court orders dismissing their claims
against the MCOs and HSD for violation of Section 27-2-16(B), breach of contract, breach
of contract on a third-party beneficiary theory, unjust enrichment, declaratory relief, and
injunctive relief.

{2} We hold that Section 27-2-16(B) confers upon participating Medicaid pharmacists
an implied cause of action to enforce the statute directly against the MCOs. Furthermore,
(1) the district court properly dismissed Plaintiffs’ claim concerning HSD’s reduction of
reimbursement without federal approval for a six- month period; (2) Plaintiffs’ breach of
contract claim, third-party beneficiary contract, and unjust enrichment claims may proceed;
(3) the district court properly concluded that Section 27-2-16(B) conferred non-waivable
rights; (4) the district court did not abuse its discretion in denying Plaintiffs’ demands for
injunctive and declaratory relief; and (5) the district court properly certified Plaintiffs’ class
in these cases.

{3} Consequently, we affirm in part, reverse in part, and remand to the district court for
proceedings consistent with this Opinion.

I. BACKGROUND

{4} Congress created the Medicaid program in 1965 to supplement the Social Security
Act. Atkins v. Rivera, 477 U.S. 154, 156 (1986); see 42 U.S.C. § 1396w-2 (2009). The
program provides “medical assistance to persons whose income and resources are
insufficient to meet the costs of necessary care” and compels participating states to share the
costs of administering the program with the federal government. Atkins, 477 U.S. at 156-57.
New Mexico is a participant state. Initially, New Mexico’s Medicaid program operated on

1
This appeal is the third and fourth we have decided in this case since 2005. See
Starko, Inc. v. Cimarron Health Plan, Inc. (Starko I), 2005-NMCA-040, 137 N.M. 310, 110
P.3d 526 (holding that Rule 1-023(F) NMRA was inapplicable to the issue of class
certification); Starko, Inc. v. Gallegos (Starko II), 2006-NMCA-085, 140 N.M. 136, 140
P.3d 1085 (granting qualified immunity under 42 U.S.C § 1983 (1996) to individual
defendants who were state executives during the transition from a fee-for-service model to
a managed care model).
a fee-for-service model, in which Medicaid services were provided directly to recipients by
HSD. More recently, in the interest of cutting costs, the state has significantly curtailed the
fee-for-service model. Now, like most states, the greatest number of New Mexico’s
Medicaid recipients receive their treatment via a managed care program, in which the state
contracts with the MCOs to provide services. Starko II, 2006-NMCA-085, ¶ 3. The MCOs
then contract with pharmacists, either directly or through intermediaries called “Pharmacy
Benefits Managers” (PBMs), and pharmacists, in turn, provide prescription medication to
Medicaid recipients.2 Id.

{5} Section 27-2-16(B) governs how New Mexico’s Medicaid program pays participating
pharmacists. It was modified to its current form in 1984 and remains unchanged to the
present day. Section 27-2-16(B) thus bridges New Mexico’s transition from the original fee-
for-service model to today’s managed care and provides as follows:

If drug product selection is permitted by [NMSA 1978, Section 26-3-
3 (2005)], reimbursement by the [M]edicaid program shall be limited to the
wholesale cost of the lesser expensive[,] therapeutic equivalent drug
generally available in New Mexico plus a reasonable dispensing fee of at
least three dollars [and] sixty-five cents ($3.65).3

Section 26-3-3, referenced in Section 27-2-16(B), allows Medicaid pharmacists in their
professional discretion to substitute any “therapeutically equivalent” drug for the drug
actually prescribed as long as the substitution conforms with federal guidelines. Section 26-
3-3. Under fee-for-service Medicaid, HSD followed this requirement and paid pharmacists
the wholesale cost of the lesser expensive drug plus an additional $3.65 for each transaction.

2
Under managed care, Presbyterian has chosen to contract with pharmacists directly,
while Cimarron uses PBMs as intermediaries. In Cimarron’s case, it contracts with PBMs
and requires PBMs to subcontract with pharmacists, who then provide services to Medicaid
recipients on behalf of Cimarron. Though pharmacists do not contract directly with
Cimarron, it is somewhat unclear from the record whether Cimarron, the PBMs, or both,
truly exercise control over pharmacists. For instance, the contracts between Cimarron and
PBMs impose a variety of conditions on pharmacists, while the contracts between PBMs and
pharmacists provide that pharmacists will be paid by PBMs.
3
Since the advent of managed care, Section 27-2-16(B) has been challenged twice
in both the House and the Senate without success, once in 2002 and again in 2004. Both
bills sought to restrict payments to pharmacists. See H.B. 400, 45th Leg., 2d Sess. (N.M.
2002) (not passed) (seeking to revise Section 27-2-16(B) by replacing the phrase “wholesale
cost” with “lowest price available” and deleting the phrase “of at least three dollars sixty[-
]five cents ($3.65)” (emphasis omitted)); see also S.B. 183, 46th Leg., 2d Sess. (N.M. 2004)
(not passed) (seeking to declare “an emergency[,]” rewriting Section 27-2-16(B) to allow
pharmaceutical payments to be set “by negotiation,” and by “regulations adopted by the
[HSD]” (emphasis omitted)).
{6} That began to change in 1994. At that time, the Legislature authorized HSD to
transition from a fee-for-service to a managed care program and, in 1997, HSD implemented
SALUD!, a managed care program, in which it entered into competitively bid contracts with
the MCOs to provide care to Medicaid recipients. The contracts, known as Medicaid
Managed Care Service (MMCS) Agreements required the MCOs to provide medical care
and pharmacy services to all qualified Medicaid recipients. These contracts explicitly
incorporated “[a]ll applicable statutes, regulations and rules implemented by the [f]ederal
[g]overnment, the State of New Mexico . . . , and [HSD], concerning Medicaid services[.]”
Shortly after the adoption of SALUD!, HSD notified pharmacists that, in order to continue
to provide services under Medicaid, pharmacists would be required to contract with the
MCOs instead of HSD. Under the new MCO-pharmacist contracts, pharmacists would be
reimbursed by the MCOs at the “current and applicable Medicaid reimbursement rates”
which, Plaintiffs allege, had the potential to be significantly lower than the statutory
reimbursement rates guaranteed by Section 27-2-16(B). Yet, pharmacists wishing to
participate in the program had no choice. Anyone who refused the new contracts would be
“terminated from the active provider list” by HSD.

{7} Under SALUD!, pharmaceutical costs were negotiated directly between HSD and the
MCOs, and Plaintiffs allege that, under the new regime, the MCOs were sufficiently paid by
HSD to comply with Section 27-2-16(B). Fearing that their rights under Section 27-2-16(B)
would be waived by agreeing to contracts with the MCOs, Plaintiffs filed suit against HSD
and obtained a temporary restraining order from the district court. In essence, the district
court gave HSD an ultimatum: either withdraw the requirement that pharmacists contract
with the MCOs, or agree that the new contracts would not waive pharmacists’ right to sue
pursuant to Section 27-2-16(B). HSD chose the latter and, with other aspects of the
litigation still pending against HSD, pharmacists entered into new contracts, either with the
MCOs themselves or with the MCOs’ intermediary, the PBMs. Plaintiffs claim that the
reimbursable amounts ultimately paid under these contracts were often substantially lower
than the amounts required by Section 27-2-16(B).4 Likewise, they claim that HSD, by
instituting this new regime, circumvented its obligations under the statute by using the
MCOs as intermediaries.

{8} Over HSD’s protests, Plaintiffs were certified as a class in October 1999. At that
time, the MCOs had not yet been added as Defendants. In 2000, Plaintiffs moved for
summary judgment, and the district court ruled that HSD was affirmatively required to
comply with Section 27-2-16(B). It found that HSD could not “delegate or contract away”
its responsibilities under the statute. Then, after winning on their summary judgment motion
against HSD, Plaintiffs argued that the MCOs were indispensable parties. In October 2000,
the district court allowed them to be added and held that, like HSD, the MCOs were
required to comply with Section 27-2-16(B).

4
The present appeal does not deal with any claims by Plaintiffs against the MCOs on
breach of the contracts between Plaintiffs and the MCOs.
{9} The MCOs attacked the class certification. They filed briefs asking the court to
decertify the class and included a number of supporting exhibits. As a result, the district
court allowed discovery into “whether the class should be decertified.” The MCOs never
requested an evidentiary hearing on their motions, but oral arguments were heard in
September 2002. After this second consideration of the class certification issue, the district
court denied the MCOs’ motions to decertify the class and found that the requirements of
Rule 1-023 NMRA continued to be met. The MCOs appealed to this Court pursuant to Rule
1-023(F). We refused to consider the merits of their claim and held that an appeal under
Rule 1-023(F) was unavailable. See Starko I, 2005-NMCA-040, ¶¶ 2, 18 (discussing the
applicability of Rule 1-023(F)).

{10} It appears that such wrangling through the years has directly influenced the language
of contracts between the parties. Most notably, contracts between HSD and the MCOs have
taken several forms. The first contracts in 1997 simply required the MCOs to pay
pharmacists in a manner consistent with “current and applicable . . . reimbursement rates.”
Then, in 2001, following the district court’s order that HSD and the MCOs comply with
Section 27-2-16(B), the contracts were changed to include what the parties now refer to as
“the Starko [C]lause.” That language provides that “[t]he subcontract for pharmacy
providers shall include a payment provision consistent with [Section 27-2-16(B)] unless the
subcontractor provides a voluntary waiver to any rights under” the statute. The contracts
were again revised in 2005 when they took their current form. Those contracts alter the
Starko Clause to require that “subcontracts for pharmacy providers shall include a payment
provision consistent with [Section 27-2-16(B)] unless there is a change in law or
regulation.” (Emphasis added.) We emphasize that Section 27-2-16(B) has not changed
since 1984.

{11} As these cases have progressed since the last appeal, three separate district court
judges have issued a variety of orders. We review four.

{12} First, in 2006, Presbyterian filed a motion for judgment on the pleadings. Following
the hearing, the district court affirmed its earlier ruling that HSD’s affirmative duty to
Plaintiffs under Section 27-2-16(B) was non-delegable. As such, any right of action under
the statute would be most properly pursued against HSD, not the MCOs. Thus, the court
held that any private right of action against the MCOs under the statute must fail. Likewise,
the court held in favor of the MCOs on the issue of unjust enrichment. It found that
Plaintiffs’ contracts with the MCOs provided an “adequate remedy at law” against the
MCOs, which precluded a cause of action in equity.

{13} Second, in 2007, Presbyterian filed a second motion for judgment on the pleadings,
which Cimarron joined. Together, the MCOs sought rulings on Plaintiffs’ claim for breach
of the contracts between the MCOs and HSD. Following argument, the district court held
that the claims were unfounded because Plaintiffs were not intended third-party beneficiaries
of the contracts between the MCOs and HSD. Further, the court found that a third-party
beneficiary claim would not lie against the MCOs even if Plaintiffs had been intended
beneficiaries. The district court reasoned that “[t]o allow an action against the MCOs on a
third-party beneficiary theory would be inconsistent with th[is c]ourt’s previous ruling that
Plaintiffs have no private right of action.”

{14} Third, in 2008, Plaintiffs filed a motion for summary judgment on the issue of when
Section 27-2-16(B) applies. The court entered partial summary judgment, stating that the
statute only applies when a pharmacist actually substitutes a lower cost, therapeutic
equivalent drug for the prescribed drug.

{15} Fourth, in 2008, Plaintiffs submitted a motion for partial summary judgment on
several issues with regard to their case against HSD. HSD responded with its own motion
for summary judgment on the issues. The district court issued a memorandum opinion and
order on the cross-motions for summary judgment. In it, the court held that (1) HSD had no
obligation to pay Plaintiffs for the alleged shortfall, (2) HSD could not be held liable for past
non-compliance with Section 27-2-16(B), (3) Plaintiffs did not have a breach of contract
claim concerning HSD’s reduction of reimbursement without federal approval for a six-
month period, and (4) the $3.65 dispensing fee was reasonable.

{16} On appeal from these orders, Plaintiffs argue several points of error. First, they assert
that Section 27-2-16(B) creates a private right of action enforceable against the MCOs and
HSD. Furthermore, they argue the district court erroneously dismissed their claims for
breach of contract, third-party beneficiary breach of contract theory, unjust enrichment,
declaratory relief, and injunctive relief.

{17} Against any extent to which we reverse any portion of the district court’s rulings in
this matter, Cimarron asks us to consider its conditional cross-appeal. In it, Cimarron
argues, first, that the district court’s class certification in this case was both constitutionally
and statutorily defective and, second, presuming Section 27-2-16(B) confers any rights at
all, those rights have been waived.

II. STANDARD OF REVIEW

{18} When reviewing judgments on the pleadings, we “accept as true all facts well
pleaded and question only whether the plaintiffs might prevail under any state of facts
provable under the claim.” Garcia v. Rodey, Dickason, Sloan, Akin & Robb, P.A., 106 N.M.
757, 760, 750 P.2d 118, 121 (1988). All interpretations of law made by the district court are
reviewed de novo. Klinksiek v. Klinksiek, 2005-NMCA-008, ¶ 4, 136 N.M. 693, 104 P.3d
559.

{19} We review orders granting or denying summary judgment de novo. Romero v. Philip
Morris Inc., 2010-NMSC-035, ¶ 7, 148 N.M. 713, 242 P.3d 280. “Summary judgment is
proper when the material facts are undisputed and the only remaining issues are questions
of law.” Farmers Ins. Co. of Ariz. v. Sandoval, 2011-NMCA-051, ¶ 6, 149 N.M. 654, 253
P.3d 944 (internal quotation marks and citation omitted).

{20} We likewise apply a de novo standard when engaging in statutory interpretation.
State v. Smith, 2009-NMCA-028, ¶ 8, 145 N.M. 757, 204 P.3d 1267; see Sedillo v. N.M.
Dep’t of Pub. Safety, 2007-NMCA-002, ¶ 7, 140 N.M. 858, 149 P.3d 955 (“The question of
whether statutes create or imply a private right of action is a question of law . . . reviewed
de novo.”). In doing so, we strive to effectuate the intent and policies of the Legislature,
looking “first to the words chosen . . . and the plain meaning of the . . . language.” Smith,
2009-NMCA-028, ¶ 8 (internal quotation marks and citation omitted). When a statute’s
language “is clear and unambiguous, we give effect to that language and refrain from further
statutory interpretation.” Id. (internal quotation marks and citation omitted). Where
ambiguity arises, we go outside the plain language and engage in further statutory
interpretation. N.M. Bd. of Veterinary Med. v. Riegger, 2007-NMSC-044, ¶ 11, 142 N.M.
248, 164 P.3d 947. We “construe the entire statute . . . so that all . . . provisions [are]
considered in relation to one another.” Id. (internal quotation marks and citation omitted).
“In ascertaining legislative intent, we look not only to the language used in the statute, but
also to the object sought to be accomplished and the wrong to be remedied.” Patterson v.
Globe Am. Cas. Co., 101 N.M. 541, 543, 685 P.2d 396, 398 (Ct. App. 1984), superseded by
statute on other grounds as stated in Journal Publ’g Co. v. Am. Home Assurance Co., 771
F. Supp. 632, 635 (S.D.N.Y. 1991).

III. DISCUSSION

A. Plaintiffs Have Not Waived Claims Regarding Section 27-2-16(B)

{21} As a threshold issue, Defendants assert that Plaintiffs waived any claim they had
regarding Section 27-2-16(B). Specifically, the MCOs argue that because Plaintiffs have
entered into contracts for an amount less than the requirement in Section 27-2-16(B),
Plaintiffs have waived any cause of action based upon Section 27-2-16(B). The MCOs
contend that the district court, when it concluded that no waiver occurred, violated the
principle of freedom of contract. Citing United Wholesale Liquor Co. v. Brown-Forman
Distillers Corp., 108 N.M. 467, 471, 775 P.2d 233, 237 (1989), Presbyterian supports its
waiver argument with the principle that “[t]he voluntary relinquishment of a statutory
protection is consistent with our policy favoring the right to contract.” For reasons explained
in this Opinion, we conclude that any semblance of a relinquishment was not voluntary in
this case.

{22} In addition, HSD argues that, in the provider agreements it made with Plaintiffs,
Plaintiffs agreed “[t]o accept as payment in full the amount paid in accordance with the
reimbursement structure in effect for the period during which such services were provided
as per 42 [C.F.R. §] 447.15.” The Medicaid Payment for Services Rule, 42 C.F.R. § 447.15,
provides that participation in the Medicaid program is limited to providers that “accept, as
payment in full, the amounts paid by the agency plus any deductible, coinsurance or
copayment required by the plan to be paid by the individual.” Thus, HSD contends that
Plaintiffs cannot seek additional payments from HSD under the fee-for-service program
because, “by agreeing to become Medicaid providers[, Plaintiffs] have agreed not to seek
reimbursement from HSD beyond what is paid to them by HSD pursuant to its drug
reimbursement regulations as then in effect.” HSD further argues that as to SALUD!, “HSD
included a provision in the MMCS Agreements[, stating that Plaintiffs] must accept payment
from the MCO[s] as payment for any services included in the benefit package, and cannot
request payment from HSD or from Medicaid members . . . for services performed under the
subcontract.” (Internal quotation marks omitted.)

{23} We disagree with the contentions of both the MCOs and HSD that Plaintiffs’ claims
have been waived. In 1997, as stated above, Plaintiffs sought a temporary restraining order
from the court to determine the effect of entering into new contracts with the MCOs. The
court issued the order and required HSD to either allow Plaintiffs to refuse the new contracts,
or agree that such contracts would not waive any rights under Section 27-2-16(B). HSD
chose the latter, and Plaintiffs signed with the MCOs.

{24} This Court has explained in the past,

a valid waiver requires a known legal right, relinquished for consideration,
where such legal right is intended for the waivor’s sole benefit and does not
infringe on the rights of others. . . . In no case will a waiver be presumed or
implied, contrary to the intention of the party whose rights would be
injuriously affected thereby, unless, by his conduct, the opposite party has
been misled, to his prejudice, into the honest belief that such waiver was
intended or consented to. Absent proof of an express agreement, in order to
establish waiver[,] there must be a showing of unequivocal acts or conduct
on the part of the person against whom waiver is asserted showing an intent
to waive.

McCurry v. McCurry, 117 N.M. 564, 567, 874 P.2d 25, 28 (Ct. App. 1994) (internal
quotation marks and citations omitted). When we consider the actions taken by Plaintiffs
to preserve their statutory rights through a court order and the change in position chosen at
the time by HSD, we do not see these contracts they entered into with Defendants as
unequivocal acts showing an intent to waive statutory rights.

{25} HSD’s argument that Plaintiffs contractually waived their right to seek further
compensation from HSD is inconsistent with HSD’s agreement that Plaintiffs would not
waive their statutory rights by engaging in contracts with the MCOs. Furthermore, entering
into contracts with the MCOs can hardly be said to constitute an unequivocal intent to waive
rights under Section 27-2-16(B), especially given Plaintiffs’ refusal to enter the contracts
without HSD’s agreement and a court order that their rights would be preserved. Moreover,
the contracts, which we discuss in further detail below, continue to require compliance with
the Section 27-2-16(B) absent waiver or change of law.

{26} In addition, we will not imply waiver unless Defendants were misled by Plaintiffs’
conduct to their prejudice, while honestly believing that Plaintiffs actually intended to waive
their rights. Brown v. Jimerson, 95 N.M. 191, 192-93, 619 P.2d 1235, 1236-37 (1980); see
Ed Black’s Chevrolet Ctr., Inc. v. Melichar, 81 N.M. 602, 604, 471 P.2d 172, 174 (1970)
(“In no case will a waiver be presumed or implied, contrary to the intention of the party
whose rights would be injuriously affected thereby, unless, by his conduct, the opposite party
has been misled, to his prejudice, into the honest belief that such waiver was intended or
consented to.”); see also Brown v. Taylor, 120 N.M. 302, 305, 901 P.2d 720, 723 (1995)
(holding that a theory of implied waiver must be supported by evidence that the aggrieved
party acted in reliance on the waiver to his detriment). Here, the MCOs have presented no
evidence that they were misled by Plaintiffs or that they entered into these contracts in
reliance on Plaintiffs’ alleged waiver. Neither has HSD demonstrated such reliance, and
Plaintiffs have certainly demonstrated no such intent.

{27} Thus, we hold that the district court was correct when it concluded that Plaintiffs did
not waive their rights under Section 27-2-16(B). We also note that the case before us
involves a unique set of facts and, as the district court stated, “[n]one of the cases cited by
[the MCOs] . . . deals with this unique situation in which a [s]tate program and [s]tate actors,
who themselves must comply with the statute, can, by their own contracts with third parties,
allow the statute to be ignored or violated.” Having determined that Plaintiffs did not waive
their right to sue under the statute itself or under contracts that incorporated the statute, we
now discuss Section 27-2-16(B)’s role in the Medicaid program.

B. Section 27-2-16(B)

{28} New Mexico’s Medicaid program falls under the Public Assistance Act. See NMSA
1978, §§ 27-2-1 to -34 (1972, as amended through 2007). Under the Act, the HSD is
charged with administering Medicaid and maintaining a “statewide, managed care system
to provide cost-efficient, preventive, primary and acute care for [M]edicaid recipients.”
Section 27-2-12.6(A). In administering the Medicaid program, HSD must ensure that
recipients are provided prescription medication. Section 27-2-12.11. Section 27-2-16(B)
provides that “[i]f drug product selection is permitted by Section 26-3-3 . . . , reimbursement
by the [M]edicaid program shall be limited to the wholesale cost of the lesser expensive[,]
therapeutic equivalent drug generally available in New Mexico plus a reasonable dispensing
fee of at least three dollars sixty-five cents ($3.65).” Titled “Compliance with federal law[,]”
Section 27-2-16(B) most clearly effectuates the federal requirement that state medical
assistance plans

provide such methods and procedures . . . as may be necessary 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) (1999, as amended through 2010) (emphasis added). Indeed,
as Presbyterian recognizes in its answer brief, the statute is a response to Section
1396(a)(30)(A) and seeks “a balance between paying providers enough to assure patient
accessibility and keeping Medicaid expenditures as low as possible.”

1. Section 27-2-16(B) Survived the Transition to Managed Care

{29} The MCOs argue that Section 27-2-16(B) did not survive New Mexico’s transition
to managed care. Even if it did, they claim the statute does not provide a remedy and is
therefore unenforceable. As to whether Section 27-2-16(B) survived the transition to
managed care, the most apparent manifestation of our Legislature’s intent to pay Plaintiffs
for their stock and labor is the inescapable fact that the statute, setting the requirements for
doing so, remains on the statute books despite the 2002 and 2004 attempts to change it. The
requirement was first enacted in 1974 and has existed in its current form since 1984,
predating the advent of managed care in New Mexico by more than a decade and surviving
more than a decade past. See § 27-2-16(B); § 27-2-12.6(A). Yet, the MCOs argue that the
requirement is inconsistent with managed care as implemented in 1997 because it sets an
absolute amount for payment; whereas, managed care is premised upon periodic
renegotiations between the MCOs and their subcontractors.

{30} The MCOs fail to demonstrate that the Legislature intended for Section 27-2-16(B)
to be superseded by managed care. The Legislature twice rejected amendments that
specifically would have either lowered payments or required periodic renegotiation. See
H.B. 400, 45th Leg., 2d Sess. (N.M. 2002) (not passed); S.B. 183, 46th Leg., 2d Sess. (N.M.
2004) (not passed). It seems that the evidence is clearly contrary to the MCOs’ argument.

{31} Nor are we persuaded by Cimarron’s argument that the statute’s very language
demonstrates its inapplicability to managed care. Essentially, Cimarron claims that because
Section 27-2-16(B) requires “reimbursement by the [M]edicaid program[,]” it cannot apply
to them because they are not the Medicaid program. Cimarron’s brief assumes that the
Medicaid program is another way of saying “New Mexico Human Services Department.”
In conjunction with this argument, Presbyterian contends that nowhere do Plaintiffs cite case
law standing for the proposition that when a statute imposes a non-delegable duty on a
government agency, any implied right of action by the aggrieved party against that agency
includes a right to sue other entities with which the agency has a contractual or regulatory
relationship.

{32} These arguments are misplaced. We agree with the district court’s holding that the
MCOs “are not [health plans], and they are not third[-]party insurers. Rather, they are part
of the Medicaid program.” The Medicaid program begins at the government level, upstream
of the MCOs, and continues through the provision of care and services to recipients
downstream of the MCOs. Had our Legislature intended reimbursements to come directly
and only from HSD, it could have easily used the term “department” in Section 27-2-16(B).
See § 27-2-2(A) (defining “department” as the “[H]uman [S]ervices [D]epartment”). Rather,
the Legislature chose a broader term, “Medicaid program,” which we interpret to encompass
the entire Medicaid apparatus by which patients are served by Medicaid funds through
HSD’s agents. In other words, the statute tells pharmacists that, under a certain set of
circumstances by legislative enactment, the money appropriated by the state and federal
government and passed through several layers of bureaucracy, agents, and contractors will
be paid to them in a predetermined manner on which they may rely. This is true regardless
of whether the program operates under fee-for-service, managed care, or some other method.
Under managed care, the MCOs were contracted by HSD to be the conduits for Medicaid
funds, succeeding HSD itself. We hold that the statute applies to the MCOs and the
managed care program regardless of additional layers of bureaucracy and administrative
control.
2. Section 27-2-16(B) Creates a Private Right of Enforcement

{33} Plaintiffs contend that the district court erred in finding that there was no implied
private cause of action under Section 27-2-16(B).5 When a party seeks to enforce a statute
that provides no express mechanism for its enforcement, we examine whether a cause of
action may be implied through the common law based on an interpretation of legislative
intent or public policy. Nat’l Trust for Historic Pres. v. City of Albuquerque, 117 N.M. 590,
594, 874 P.2d 798, 802 (Ct. App. 1994); see Hovet v. Allstate Ins. Co., 2004-NMSC-010,
¶¶ 9-10, 135 N.M. 397, 89 P.3d 69 (holding that legislative intent and public policy
supported the conclusion that third parties may bring a cause of action against insurers for
unfair practices where the statute at issue provided a cause of action generally). “[A] state
court, because it possesses common-law authority, has significantly greater power than a
federal court to recognize a cause of action not explicitly expressed in a statute.” Nat’l
Trust, 117 N.M. at 593, 874 P.2d at 801. In determining whether to recognize whether there
is a cause of action, we examine three non-exclusive factors: “(1) Was the statute enacted
for the special benefit of a class of which the plaintiff is a member?[;] (2) Is there any
indication of legislative intent, explicit or implicit, to create or deny a private remedy?[;] and
(3) Would a private remedy either frustrate or assist the underlying purpose of the legislative
scheme?” Nat’l Trust, 117 N.M. at 593, 874 P.2d at 801. In addition, “[a] state’s public
policy, independent of [these] factors, may be determinative in deciding whether to
recognize a cause of action.” Id. at 594, 874 P.2d at 802.

a. Implied Cause of Action Based Upon Legislative Intent

{34} First, we address the three factors that may contribute to the recognition of a private
cause of action based upon legislative intent. We first analyze whether the statute was
enacted for the special benefit of a class of which Plaintiffs are members. Section 27-2-
16(B) states that, “[i]f drug product selection is permitted . . . , reimbursement by the
[M]edicaid program shall be limited to the wholesale cost of the lesser expensive[,]
therapeutic equivalent drug generally available in New Mexico plus a reasonable dispensing
fee of at least three dollars sixty-five cents ($3.65).” Section 27-2-16(B) benefits individuals
or entities that dispense drugs to Medicaid participants, ensuring that each receives a
reasonable dispensing fee and payment for the drug dispensed. Plaintiffs, being pharmacists,
clearly fall within a class sought to be benefitted by the statute.

{35} Next, we examine whether there is any indication in the statute of legislative intent,
explicit or implicit, to create or deny a private remedy. “The guiding principle of statutory

5
We distinguish the present appeal from a previous appeal in this same case regarding
Plaintiffs’ attempt to bring a § 1983 suit for HSD’s supposed violation of Section 27-2-
16(B). In Starko II, we held that Plaintiffs could not bring a § 1983 claim for a procedural
due process violation with regard to Section 27-2-16(B). Starko II, 2006-NMCA-085, ¶ 29.
This previous appeal determined “only the discrete question of whether Plaintiffs may
proceed against Defendants under § 1983[] and not whether Plaintiffs can proceed against
HSD under other state law remedies.” Starko II, 2006-NMCA-085, ¶ 29.
construction is that a statute should be interpreted in a manner consistent with legislative
intent. . . . [W]e look not only to the language used in the statute, but also to the purpose to
be achieved and the wrong to be remedied.” Hovet, 2004-NMSC-010, ¶ 10. Here, we utilize
factors developed by the United States Supreme Court in evaluating legislative intent,
including (1) whether the statute contains “rights-creating language”; (2) whether it has an
“aggregate, not individual, focus”; and (3) the purpose of the statute. Gonzaga Univ. v. Doe,
536 U.S. 273, 284, 290 (2002); see Blessing v. Freestone, 520 U.S. 329, 340-41 (1997);
Nat’l Trust, 117 N.M. at 593, 874 P.2d at 801. The Supreme Court typically applies these
questions regarding legislative intent within the context of a § 1983 action. However, this
particular legislative intent inquiry is the same in our context because, in both situations, a
court has the task of analyzing whether the Legislature intended to create or deny a private
remedy.

{36} In Gonzaga University, the Supreme Court held that the Family Educational Rights
and Privacy Act’s (FERPA) non-disclosure provisions failed to confer enforceable rights as
the provisions “entirely lack the sort of ‘rights-creating’ language critical to showing the
requisite congressional intent to create new rights.” 536 U.S. at 287. There, a student
sought to sue the university by bringing a § 1983 action for violating non-disclosure
provisions of FERPA that prohibited federal funding of educational institutions that had a
policy or practice of releasing education records to unauthorized persons. Gonzaga Univ.,
536 U.S. at 276-77. The Supreme Court concluded that the provisions were only addressed
to the Secretary of Education to direct the expenditure of funds and that the statute did not
address “the interests of individual students and parents.” Id at 287. The Supreme Court
also determined that “FERPA’s non[-]disclosure provisions further speak only in terms of
institutional policy and practice, not individual instances of disclosure. Therefore, . . . they
have an ‘aggregate’ focus, they are not concerned with whether the needs of any particular
person have been satisfied, and they cannot give rise to individual rights[.]” Id. at 288
(internal quotation marks and citations omitted). Thus, the Gonzaga University Court held
that the student did not have a private cause of action under FERPA. Id. at 290.

{37} In contrast, the United States Supreme Court held that there was legislative intent to
create a private cause of action under the Boren Amendment. Wilder v. Va. Hosp. Ass’n, 496
U.S. 498, 512 (1990). There, an association of hospitals brought a § 1983 action,
challenging the administration of the state’s Medicaid program on the ground that it violated
the Boren Amendment. Wilder, 496 U.S. at 501-02. The Boren Amendment required states
to reimburse Medicaid providers in an amount that was “reasonable and adequate” to meet
the costs “incurred by efficiently and economically operated facilities[.]” Id. (internal
quotation marks and citation omitted). The Supreme Court concluded that the Boren
Amendment created a substantive right for health care providers in reasonable and adequate
reimbursement rates. Id. at 509-10. The Supreme Court explained:

There can be little doubt that health care providers are the intended
beneficiaries of the Boren Amendment. The provision establishes a system
for reimbursement of providers and is phrased in terms benefit[t]ing health
care providers: It requires a state plan to provide for payment . . . of the
 hospital services, nursing facility services, and services in an intermediate
care facility for the mentally retarded provided under the plan.

Id. at 510 (internal quotation marks and citation omitted). The Supreme Court concluded
that this right was enforceable because the Boren Amendment was cast in mandatory, rather
than precatory, terms since it required the state to “provide for payment . . . of hospital[s]
according to rates the [s]tate finds are reasonable and adequate.” Id. at 512 (first alteration
in original). The Court described this language as a “congressional command, . . . wholly
uncharacteristic of a mere suggestion or nudge” and held that the hospital association had
a right to bring the action. Id. (internal quotation marks and citation omitted).

{38} The case at bar more resembles Wilder rather than Gonzaga University, and the facts
here, as in Wilder, weigh in favor of finding legislative intent to create a private cause of
action under Section 27-2-16(B). The present case and Wilder deal with mandatory
reasonable reimbursement of Medicaid providers. Like the statute in Wilder, Section 27-2-
16(B)’s language is mandatory, stating that “[i]f drug product selection is permitted by
Section 26-3-3 . . . , reimbursement by the [M]edicaid program shall be limited to the
wholesale cost of the lesser expensive[,] therapeutic equivalent drug generally available in
New Mexico plus a reasonable dispensing fee of at least three dollars sixty-five cents
($3.65).” We have stated in the past that “[t]he word ‘shall’ as used in a statute is generally
construed to be mandatory.” State v. Guerra, 2001-NMCA-031, ¶ 14, 130 N.M. 302, 24
P.3d 334. Thus, in the present case, reimbursement for filling prescriptions as intended by
the Legislature in accordance with the statute is a mandatory legislative “command” very
similar to that in Wilder. Plainly, the Legislature intended pharmacists to fill prescriptions
in a certain way under Section 26-3-3 and be paid in a certain way for doing so under
Section 27-2-16(B). This certainty reinforces our conclusion.

{39} Furthermore, Section 27-2-16(B) contains rights-creating language that gives
Plaintiffs a protected property right in the reasonable dispensing fee and average wholesale
price (AWP) of the lesser-expensive, therapeutic equivalent drug when Plaintiffs can
dispense a drug within this category to a Medicaid patient. “Property interests . . . are
created and their dimensions are defined by existing rules or understandings that stem from
an independent source such as state law-rules or understandings that secure certain benefits
and that support claims of entitlement to those benefits.” Bd. of Regents of State Coll. v.
Roth, 408 U.S. 564, 577 (1972); see Logan v. Zimmerman Brush Co., 455 U.S. 422, 430
(1982) (“The hallmark of property, the [Supreme] Court has emphasized, is an individual
entitlement grounded in state law, which cannot be removed except for cause.” (internal
quotation marks and citation omitted)). “The definition of property centers on the concept
of entitlement; therefore, interests in government benefits will be recognized as
constitutional property if the person can be deemed entitled to them.” Bd. of Educ. of
Carlsbad Mun. Sch. v. Harrell, 118 N.M. 470, 477, 882 P.2d 511, 518 (1994) (internal
quotation marks and citation omitted). Section 27-2-16(B) entitles Plaintiffs to a specific
monetary payment for drugs already dispensed. We suggested in response to a previous
appeal from this case that “Section 27-2-16(B) confers upon pharmacists a protected
property interest in a dispensing fee of $3.65, particularly where they have already filled
prescriptions and are awaiting reimbursement.” Starko II, 2006-NMCA-085, ¶ 19. We now
abandon previous assumptions and suggestions to decide that this is true. Unlike the statute
in Gonzaga University, Section 27-2-16(B) specifies the particular right attributable to
Plaintiffs, an amount of money that is clearly defined within the statute and a direction from
the Legislature that it be paid. This legislative command is not just an institutional policy
and practice.

{40} Like Wilder, the payment provision of Section 27-2-16(B) speaks directly to the
“Medicaid program,” ordering it to pay the plaintiffs a specific fee for dispensing drugs to
Medicaid recipients. Section 27-2-16(B) is pointedly concerned with whether the needs of
this particular group have been satisfied, giving each pharmacist dispensing drugs to
Medicaid patients an individual right to a particular amount of reimbursement. Thus, the
purpose of Section 27-2-16(B) is directed to the reimbursement of individual providers, and
the wrong to be remedied by the statute is the insufficient reimbursement of individual
Medicaid providers. The provisions speak not only to the expenditure of funds but, more
specifically, guarantee a property right in the dispensing fee and cost of the drug to
dispensing pharmacists. Therefore, there is implicit legislative intent to create an
enforceable right for Medicaid providers, like Plaintiffs, through Section 27-2-16(B).

{41} Last, we determine whether a private remedy would either frustrate or assist the
underlying purpose of the legislative scheme. The purpose of Section 27-2-16(B) is to set
a reasonable rate of reimbursement for Medicaid providers as part of a larger legislative
scheme dealing with the administration of Medicaid in New Mexico. This statute requires
the appropriate reimbursement of Medicaid providers and also confers a protected property
right. Unlike other statutes6 within this legislative scheme dealing with payments to
providers, the Legislature never repealed or exempted the MCOs from Section 27-2-16(B)
following the Medicaid program’s transition into managed care. Thus, we conclude that
providing a private remedy would assist and further the underlying purpose of the legislative
scheme.

{42} For the reasons we have discussed, we hold that the Legislature intended to provide
an implied cause of action under the statute.

b. Application of the Private Cause of Action to the Parties

{43} As explained above, Section 27-2-16(B) creates an implied private cause of action.
Plaintiffs may seek their remedy directly from the MCOs because the MCOs are part and
parcel with the Medicaid program and a conduit for all of the state’s Medicaid managed care
funding.

{44} In addition, Plaintiffs argue on appeal that “the district court erred in concluding that
[Section] 27-2-16(B) [did] not create a private right of action against [HSD].” Yet, the
district court never made a ruling in its memorandum opinion on the issue of whether HSD

6
The Legislature exempted the managed care system from the equal pay provision
affecting physicians, dentists, optometrists, podiatrists, and psychologists. § 27-2-12.3.
can be subject to the private cause of action derived from Section 27-2-16(B). After
reviewing Plaintiffs’ motion for summary judgment on the pleadings as to HSD, we are
unable to locate any argument regarding an implied cause of action against HSD. Moreover,
Plaintiffs fail to provide citation to an argument in the motions regarding the implied cause
of action. Instead, they argue that the issue was preserved because “the district court
explicitly relied on its prior rulings [that Section 27-2-16(B) did not create a private cause
of action] in granting [HSD]’s motions for summary judgment.” We are unpersuaded by this
argument, especially because Plaintiffs even failed to assert an implied cause of action
against HSD in their fourth amended complaint. Within Count Two of the fourth amended
complaint, Plaintiffs raise state law violations, specifically the violation of Section 27-2-
16(B). There, Plaintiffs state that “[t]he MCOs have violated [Section] 27-2-16(B). . . . The
actions of the MCOs in failing to comply with state law were done intentionally and in a
reckless and willful disregard of the rights of Plaintiffs for which they are entitled to punitive
damages.” Not once is HSD mentioned in Count Two as a party violating the statute, nor
is an implied cause of action against HSD discussed elsewhere in the complaint.

{45} For the above reasons, we hold that the issue of an implied cause of action against
HSD has not been preserved. Woolwine v. Furr’s, Inc., 106 N.M. 492, 496, 745 P.2d 717,
721 (Ct. App. 1987) (“To preserve an issue for review on appeal, it must appear that
appellant fairly invoked a ruling of the trial court on the same grounds argued in the
appellate court.”); see State v. Wyman, 2008-NMCA-113, ¶ 10, 144 N.M. 701, 191 P.3d 559.
We will not address issues that were not preserved and are now raised for the first time on
appeal. State v. Ware, 118 N.M. 703, 705, 884 P.2d 1182, 1184 (Ct. App. 1994). Thus,
upon remand, the implied cause of action under Section 27-2-16(B) may be tried against the
MCOs because such arguments were preserved, but not against HSD.

3. Section 27-2-16(B) Applies Whenever a Substitution is Possible, Even if the
Substitution Was Not Made

{46} Plaintiffs also appeal the district court’s holding that the statute “applies whenever
a pharmacist dispenses a multiple source drug to a Medicaid recipient at a lower cost than
the drug listed in the prescription; and . . . whenever a pharmacist dispenses a therapeutically
equivalent drug to a Medicaid recipient which is lower in cost than the drug listed in the
prescription.” This issue was briefed and preserved by Plaintiffs in the second of the two
appeals at issue in this Opinion to which HSD was a party. Though the MCOs have not
briefed the matter, it was properly raised, and we consider our resolution of this legal issue
applicable to all of the parties.

{47} Plaintiffs contend that based upon its plain language, Section 27-2-16(B) should
apply “anytime a pharmacist is permitted to select among multiple source drug[s] or
therapeutically equivalent drugs in providing a prescription to a Medicaid recipient.” We
agree with Plaintiffs that the plain language requires that the dispensing fee apply whenever
a substitution of a lesser expensive, therapeutic equivalent drug can be made, not only when
it is actually made. In analyzing how to apply Section 27-2-16(B), we give effect to the
statute’s clear and unambiguous language. Smith, 2009-NMCA-028, ¶ 8. We will not read
into a statute “language which is not there, especially when it makes sense as it is written.”
Reule Sun Corp. v. Valles, 2010-NMSC-004, ¶ 15, 147 N.M. 512, 226 P.3d 611 (internal
quotation marks and citation omitted). In addition, “the practical implications, as well as the
statute’s object and purpose are considered.” Id.

{48} Before we begin our analysis, we reiterate that Section 27-2-16(B) states that “[i]f
drug product selection is permitted by Section 26-3-3 . . . , reimbursement by the [M]edicaid
program shall be limited to the wholesale cost of the lesser expensive[,] therapeutic
equivalent drug generally available in New Mexico plus a reasonable dispensing fee of at
least three dollars sixty-five cents ($3.65).” Section 27-2-16(B). As explained previously,
reimbursement according to this statute is mandatory because of the Legislature’s use of
“shall.” We now address when and how Section 27-2-16(B) would be applicable.

{49} The crucial phrase of the statute is “[i]f drug product selection is permitted by
Section 26-3-3.” Section 27-2-16(B) (emphasis added). Here, the plain language conditions
the applicability of the statute on whether drug product selection is allowed. This
precondition must be fulfilled before the Medicaid program is required to pay the reasonable
dispensing fee and AWP of the lesser expensive drug. The statute specifies that it applies
when the substitution is “permitted” and does not require the substitution to actually occur.
If the Legislature wanted to condition the applicability of this payment scheme on the
dispensing of the lesser expensive, therapeutic equivalent drug, it would have included those
terms within the statute.

{50} Furthermore, this reading of the statute is consistent with the practical implications,
objective, and purpose of Section 27-2-16(B). As HSD asserts, “[t]he Legislature intended
this section to save money to the purchaser of prescription drugs regardless of whether the
purchaser is an individual or the Medicaid program.” This statute seems to proceed from the
federal mandate that New Mexico’s Medicaid system should spend its money as wisely as
possible. Thus, when a lesser expensive, therapeutic equivalent drug is available, the
government should not pay for a more expensive one. The program seeks to save money by
limiting reimbursement to the wholesale cost of the lesser expensive drug, while paying
pharmacists a predetermined “reasonable dispensing fee.” Section 27-2-16(B). This reading
promotes consistency and predictability. It also gives an incentive to pharmacists to save
the Medicaid program money by refusing to dispense name brand drugs when lesser
expensive, therapeutic equivalent drugs are available. Our reading also comports best with
the statute’s title, “Compliance with federal law[,]” by ensuring that payments to Medicaid
pharmacists are “consistent with efficiency, economy, and quality of care and are sufficient
to enlist enough providers so that care and services are available.” 42 U.S.C. §
1396a(a)(30)(A).

{51} In contrast, the district court’s interpretation of Section 27-2-16(B) limits the statute’s
application to those instances when there is actual proof that the drug dispensed differed
from the original prescription. HSD supports the district court’s conclusion with an
argument based upon Section 26-3-3, which provides the circumstances under which a
prescription can be filled with a lesser expensive, therapeutic equivalent drug. HSD argues
that the district court’s interpretation is correct because “[t]hat is precisely what
[Section] 26-3-3 requires[.]” HSD goes on to discuss the requirements of Section 26-3-3,
not just the types of permissible substitution, but also what a pharmacist must do when
dispensing the lesser expensive, therapeutic equivalent drug under Subsection (D) of Section
26-3-3. HSD contends that because “[t]he Legislature required that the proof of product
selection appear on the label of the drug dispensed [under Subsection D],” there must be
proof that the substitution occurred for Section 27-2-16(B) to apply.

{52} HSD places too much emphasis on the role of Section 26-3-3 in interpreting Section
27-2-16(B), essentially contending that every aspect of Section 26-3-3 must be fulfilled and
a lesser expensive, therapeutic equivalent drug issued in accordance with it for Section 27-2-
16(B) to apply. This is not the case. Section 27-2-16(B) only requires that “drug product
selection [be] permitted by Section 26-3-3” for the statute to apply. Section 26-3-3(A) and
(B) set forth the two instances where a pharmacist may dispense a lesser expensive,
therapeutic equivalent drug: (1) when “the drug[] . . . satisfies the final determinations so
recognized and listed by the [F]ederal [D]epartment of [H]ealth and [H]uman [S]ervices”
and (2) when the “drug . . . appears on the [F]ederal [F]ood and [D]rug [A]dministration’s
approved prescription drug products with therapeutic equivalence evaluation list as
supplemented[.]” Section 26-3-3(C) explicitly states that “[d]rug product selection shall be
permitted only under circumstances and conditions set forth in Subsections A and B of this
section[.]” Therefore, if the prescribed drug falls under one of the two categories stated in
Section 26-3-3(A) and (B), then the drug product selection is permissible and the
pharmacists must be reimbursed with the AWP of the equivalent drug plus a reasonable
dispensing fee. Whether the drug label includes the fact that a substitution has occurred is
not relevant to the criteria for determining whether a substitution is permissible.

{53} Furthermore, Plaintiffs assert that “the district court’s decision does not adequately
take into account that drug product selection occurs not only in the case of
brand[]name/generic substitution, but also in the case of choosing among non-pioneer
versions of multiple source drugs.” Plaintiffs contend that there are three reasons for which
this distinction must be accounted, all of which are related to the FDA distinguishing
between multiple source drugs as separate and unique drugs with or without the same active
ingredients. We do not see that the district court ruled that Section 27-2-16(B) only applied
when generic drugs were substituted for brand name drugs. As stated above, the district
court held that the statute “applies whenever a pharmacist dispenses a multiple source drug
to a Medicaid recipient at a lower cost than the drug listed in the prescription; and . . .
whenever a pharmacist dispenses a [therapeutic] equivalent drug to a Medicaid recipient
which is lower in cost than the drug listed in the prescription.”

{54} The district court appears to draw no distinction between substitutions where the
prescribed drug is a brand name drug and substitutions where the prescribed drug is a
multiple source generic version. Based upon the plain language of the statute, we hold that
the statute requires no distinction between prescribed drugs that are generic and those that
are brand name, as long as the pharmacist is authorized to use his or her discretion to
dispense a lesser expensive drug than the prescribed drug, and the substitution meets the
requirements set out in Section 26-3-3(A) and (B).
{55} Thus, we reverse the district court’s determination that Section 27-2-16(B) applies
only when a substitution actually occurs. Moreover, Section 27-2-16(B) applies to both
brand name and generic prescribed drugs, so long as a substitution of a lesser expensive,
therapeutic equivalent drug would be permissible. We therefore hold that Section 27-2-
16(B) applies whenever a pharmacist may use his or her discretion to issue a lesser
expensive drug that is the therapeutic equivalent to the prescribed drug even if that
substitution does not occur.

4. Amount of Payment Required by Section 27-2-16(B)—The District Court Failed
to Determine Whether $3.65 Was a Reasonable Dispensing Fee

{56} Plaintiffs appeal the district court’s finding that a base dispensing fee of $3.65 is
reasonable, arguing that there are contested issues of material fact with regard to the
reasonableness of the dispensing fee. Reasonableness is a question of fact when the court
is required to weigh evidence. Rio Grande Kennel Club v. City of Albuquerque,
2008-NMCA-093, ¶ 18, 144 N.M. 636, 190 P.3d 1131 (“The issue regarding the
reasonableness of [a statute’s license and permit] fees presented a question of fact requiring
the district court to weigh evidence. . . . Facts may exist to prove that the fee provisions in
[the statute] are excessive or unreasonable with respect to the cost of regulation.”).

{57} In granting HSD’s motion for summary judgment, the district court based its holding
that $3.65 was a reasonable dispensing fee on two grounds. First, it gave deference to
HSD’s interpretation of Section 27-2-16(B). Second, the court stated that Plaintiffs did not
provide the court with “any information that would cast doubt on [HSD’s] assertion . . . that
the amount New Mexico pays its providers is higher than that paid by private insurers in the
private sector [to pharmacists] in New Mexico.”

{58} Plaintiffs contend that they presented evidence below that created a dispute regarding
the reasonableness of the $3.65 dispensing fee, a material fact. First, Plaintiffs argue that
the numerous studies they presented about dispensing costs demonstrated that those costs
exceeded $3.65. Second, Plaintiffs assert that the reasonableness of the $3.65 fee is
questionable because there is evidence that HSD paid Medicaid pharmacists a dispensing fee
of $4.00 between 1991 and 2002. Third, Plaintiffs contend that the reasonableness of the
dispensing fee is put into question by the former Director of the Medical Assistance
Division’s admission that the $3.65 dispensing fee was well below the average pharmacy’s
dispensing cost. We agree with Plaintiffs and conclude that this information bears on the
reasonableness of the fee as it would inform and influence the fact finder’s decision.

{59} Further, HSD directs this Court to other information that raises additional factual
questions regarding the reasonableness of a $3.65 dispensing fee. HSD asserts that “the
actual cost to dispense prescription drugs varies dramatically with the volume of the
dispensing pharmacy. . . . [Some smaller pharmacies] count[] out pills by hand[,] while large
pharmacies have machines that can do it faster [and] have non-pharmacist technicians to fill
prescriptions who get paid less than a licensed pharmacist.” Thus, a base fee of $3.65 may
be reasonable for larger pharmacies, where it may not be reasonable for smaller pharmacies.
{60} Moreover, HSD’s contention that the $3.65 dispensing fee is greater than that paid
in the private health insurance sector is not determinative of reasonableness itself and raises
further factual questions. We do not know how the private sector reimburses pharmacists
for the ingredient cost of the drug, or whether they reimburse for more or less than the AWP,
minus fourteen percent, as the Medicaid program does. HSD even admits in its reply brief
regarding this motion for summary judgment that dispensing fees can vary greatly,
depending upon how much the pharmacists are reimbursed for the drug ingredient costs. In
that brief, HSD argued that “New Mexico’s dispensing fee is reasonable when compared
with the fees paid under Medicaid by other [s]tates. . . . Other [s]tates pay a dispensing fee
ranging from $2.00 to more than $10.” HSD then explained that “some [s]tates with a higher
dispensing fee pay a lower ingredient cost.” Thus, the standard insurance companies use to
reimburse for the ingredient cost plays a significant role in how much the companies will
then reimburse for the dispensing fee. We are not provided with information regarding how
the private sector reimburses pharmacists for the ingredient cost. Without such information,
we will not assume that the private sector’s ingredient cost reimbursement schemes are
similar to Medicaid’s.

{61} Because the district court was required to weigh the evidence regarding this issue,
we hold that reasonableness of the dispensing fee was a question of fact in this case. Facts
exist in the record that may prove that the $3.65 fee was unreasonable. Thus, summary
judgment on the reasonableness of the dispensing fee was inappropriate. We remand for a
factual determination about what a reasonable dispensing fee is for each pharmacy.

C. The District Court Properly Dismissed Plaintiffs’ Claim Regarding HSD’s
Reduction of Reimbursement Without Federal Approval During a Six-Month
Gap Period

{62} Plaintiffs argue that the district court erred in denying their motion for summary
judgment on HSD’s violation of Section 27-2-16(B) for failure to reimburse Plaintiffs in
accordance with Medicaid legislation for the drug ingredient costs. From January 1, 1991
through June 30, 1997, HSD reimbursed fee-for-service Medicaid pharmacy providers for
drug ingredient costs at the rate of the AWP, minus ten and one-half percent. HSD’s
regulations were amended, effective and implemented on June 30, 1997, reducing the
ingredient cost to the AWP, minus twelve and one-half percent. Federal approval of the
reduction was given by the Federal Health Care Financing Agency in April 1998, retroactive
to January 1, 1998. Plaintiffs contend they are owed $960,000 by HSD due to the reduction
during the six-month gap between when the reduction was implemented by HSD (July 1,
1997) and when federal approval was given (January 1, 1998).

{63} Although all parties agree that approval is necessary, they disagree about whether
approval can be retroactive. Plaintiffs contend that “they are entitled to this amount because
Defendants did not have approval for the rate change when they began to reimburse at the
new amount.” HSD argues that retroactive approval is sufficient. The district court held that
HSD was not liable for implementing an amendment to the state Medicaid program prior to
approval by the federal government. We affirm the district court’s ruling and hold that
retroactive approval is sufficient.
{64} Two federal statutes of the Social Security Act provide guidance in this matter.
Under Title XIX of the Social Security Act, 42 U.S.C.A. § 1396-1 (1984), “[t]he sums made
available under [Medicaid legislation] shall be used for making payments to [s]tates which
have submitted, and had approved by the Secretary [of the Federal Department of Health and
Human Services], [s]tate plans for medical assistance.” Furthermore, under 42 U.S.C.A. §
1396c (1965),

[i]f the Secretary, after reasonable notice and opportunity for hearing to the
[s]tate agency administering or supervising the administration of the [s]tate
plan approved under this subchapter, finds--

(1) that the plan has been so changed that it no longer complies with
the provisions of section 1396a of this title; or

(2) that in the administration of the plan there is a failure to comply
substantially with any such provision;

the Secretary shall notify such [s]tate agency that further payments will not
be made to the [s]tate (or, in his discretion, that payments will be limited to
categories under or parts of the [s]tate plan not affected by such failure), until
the Secretary is satisfied that there will no longer be any such failure to
comply. Until he is so satisfied he shall make no further payments to such
[s]tate (or shall limit payments to categories under or parts of the [s]tate plan
not affected by such failure).

{65} The statutes quoted above are the current versions of the Act. Prior to 1981, the Act
contained different language that required preapproval of state plans before they were
implemented. Specifically, 42 U.S.C. § 1396a(a)(13)(D) (1980) required that the state
Medicaid program provide “for payment of the reasonable cost of inpatient hospital services
provided under the plan, as determined in accordance with methods and standards . . . which
shall be developed by the state and reviewed and approved by the Secretary, and (after notice
of approval by the Secretary) included in the plan[.]” Magee-Womens Hosp. v. Heckler, 562
F. Supp. 483, 485 (W.D. Pa. 1983) (citing 42 U.S.C. § 1396a(a)(13)(D) (internal quotation
marks omitted)). This previous version of the Act required that the state obtain notice of
approval from the Secretary before the changes were included in the state’s Medicaid
program. The amended statutes in place today do not facially require prior approval. The
absence of such language in the amended version of Title XIX is compelling evidence that
Congress intended to abandon the requirement of prior approval.

{66} Furthermore, as the district court highlighted in its memorandum opinion, persuasive
case law supports this position. In Charleston Mem’l Hosp. v. Conrad, 693 F.2d 324, 325-26
(4th Cir. 1982), the plaintiff argued that the state illegally implemented reductions in
Medicaid coverage because implementation took place before the federal government
approved the changes. After analyzing 42 U.S.C. § 1396 (1974), the court held for the
defendants, stating that the Act does not require prior approval. The court reasoned that
“[t]he Act does not expressly provide that a plan may not be modified without prior approval
by the Secretary. Congress easily could have given the Secretary such approval authority.
Instead, the Secretary is authorized only to impose sanctions when modifications do not
comport with the Act.” Charleston Mem’l. Hosp., 693 F.2d at 332-33. Similarly, in
Jennings v. Alexander, 518 F. Supp. 877 (M.D. Tenn. 1981), Medicaid recipients sued to
enjoin the state’s reduction of funding for inpatient hospital care. In addressing the
plaintiffs’ argument that the reduction was invalid without prior approval of the Secretary,
the court held that prior approval was unnecessary. Id. at 888. “Such a requirement [of prior
approval] would effectively hamstring the ability of state administrators to respond to
changing demands on the Medicaid program or to respond to fiscal crises such as the one
currently facing the [s]tate.” Id. The Jennings court also reasoned that the prior approval
requirement would be inconsistent with 42 U.S.C. § 1396c, which, as explained above,
requires the Secretary to review state Medicaid programs and changes to such plans and to
cut off federal payments to the state when its plan fails to comply with federal law.
Jennings, 518 F. Supp. at 888; see Ill. Council on Long Term Care v. Miller, 579 F. Supp.
1140, 1147 (N.D. Ill. 1983) (“This court holds . . . that implementation of the state’s
amendment to its reimbursement plan before acceptance by the Secretary was not in
violation of federal law.”). We agree with the above holdings. Statutory construction of the
Act reveals that preapproval is not required, and such a requirement would weaken New
Mexico’s ability to react to fiscal exigencies.

{67} Plaintiffs cite two cases in support of their appeal of this issue: AMISUB (PSL), Inc.
v. Colorado Dep’t. of Soc. Servs., 879 F.2d 789 (10th Cir. 1989) and Oregon Ass’n. of
Homes for Aging, Inc. v. Oregon, 5 F.3d 1239 (9th Cir. 1993). In AMISUB, the court held
that when the state amended its Medicaid inpatient reimbursement rates, such an amendment
was void because it violated procedural and substantive requirements of the Federal
Medicaid Act. 879 F.2d at 801. However, the violations at issue had nothing to do with
implementing reimbursement rates without prior authorization. Id. Likewise, Oregon Ass’n.
does not deal with an amended plan submitted for HCFA approval. 5 F.3d at 1241. There,
nursing homes challenged the state’s reclassification of nursing services into rate categories,
causing the nursing homes to receive less reimbursement from the Medicaid program. Id.
at 1240. The court found that “[a] law that effects a change in payment methods or standards
without HCFA approval is invalid.” Id. at 1241. Nonetheless, the state in that case never
submitted an amendment to HCFA for approval even after the reclassification of nursing
services was implemented. Because neither of these cases deals with the issue of
implementing changes in reimbursement prior to HCFA approval, we do not find them
persuasive.

{68} We agree with the district court that “[t]he cases cited by Defendants [in their
motion], the fact that prior approval would hamstring [s]tate officials trying to anticipate . . .
and react to changing demands on the Medicaid program, as well as the history of the
statute[,] make a strong case against prior approval.” Thus, we affirm the district court’s
holding that Plaintiffs do not have a cause of action against HSD for reimbursement during
the period the amendment to the Medicaid payment structure was not yet approved.

D. Plaintiffs May Bring a Breach of Contract Claim Against HSD Under the
Provider Agreements
{69} Before the Medicaid program in New Mexico transitioned to managed care, Plaintiffs
signed provider agreements with HSD “in order to qualify for reimbursement from the
Medicaid program.” Through the agreements, HSD required providers to agree to terms
regarding record keeping, payment, compliance with state and federal law, reimbursement
by third parties, and other issues. Plaintiffs argue that the district court improperly held that
no obligation could arise from Plaintiffs’ provider contracts that incorporate the guarantees
of Section 27-2-16(B). Plaintiffs contend that the provider “agreements expressly and
impliedly require [HSD] to pay any shortfall in pharmacist reimbursement and create an
actionable claim against [HSD] for the shortfall between what the MCOs paid and what
[Section] 27-2-16(B) requires.” Plaintiffs make two specific arguments regarding a third-
party liability clause in the contract and the incorporation of Section 27-2-16(B) into the
contracts.

{70} First, Plaintiffs argue that the third-party liability provisions of the provider
agreements require HSD to make up any shortfall arising out of the MCOs’ failure to abide
by Section 27-2-16(B). The 1990 provider agreements contain a section called “Third[-
]Party Liability” that requires Plaintiffs to seek payment from third-party insurers prior to
seeking payment from the Medicaid program. The section further states that “[t]he provider
understands that in those instances where the provider receives payment from a liable third
party for a Medicaid covered service, the Medicaid agency can pay only to the extent that
the Medicaid allowed amount exceeds the amount paid by the third party.” Plaintiffs
contend that the MCOs are third-party insurers or health plans, and since the MCOs have
failed to pay the proper dispensing fee, “[HSD] is responsible for the difference.”

{71} We reiterate here, applying the same reasoning as we did above, that the MCOs are
part of the Medicaid program. They are not third-party insurers or health plans when they
pay providers for the services and drugs provided to Medicaid participants. In this context,
they are conduits for Medicaid funds. Thus, we hold that Plaintiffs’ contention that HSD is
responsible for the difference under the “Third[-]Party Liability” section of the provider
agreements lacks merit. Thus, the district court properly dismissed the contract claim on this
ground.

{72} Second, Plaintiffs argue that the provider agreements incorporate Section 27-2-16(B)
because all relevant statutes are incorporated into contracts. Plaintiffs argue that, under this
agreement, HSD should have ensured that Plaintiffs were paid in accordance with Section
27-2-16(B) and, by failing to do so, they breached the provider contracts.

{73} “A contract incorporates the relevant law, whether or not it is referred to in the
agreement.” State ex rel. Udall v. Colonial Penn Ins. Co., 112 N.M. 123, 130, 812 P.2d 777,
784 (1991); Durham v. Sw. Developers Joint Venture, 2000-NMCA-010, ¶ 18, 128 N.M.
648, 996 P.2d 911 (“The provisions of applicable statutes are part of every contractual
commitment.”). We agree that the provider agreements incorporated Section 27-2-16(B) as
the statute is relevant and applicable to the contractual commitments involved in the provider
agreements, namely, Plaintiffs’ commitment to provide services and HSD’s commitment to
reimburse Plaintiffs. Moreover, the provider agreements specifically reference New
Mexico’s Medicaid payment structure in the section titled “Payment in Full,” stating that the
providers agree to “accept as payment in full the amounts paid in accordance with the
reimbursement structure in effect for the period during which such services were provided
as per 42 C.F.R. 447.15.” There is no doubt that Section 27-2-16(B), as an integral part of
the state’s Medicaid payment structure for pharmacists, was incorporated into the contracts.
Thus, Section 27-2-16(B)’s requirement that pharmacists be reimbursed with the AWP, plus
a reasonable dispensing fee when the pharmacist dispenses a lesser expensive, therapeutic
equivalent drug, is a term of the provider agreements with which HSD must abide.

{74} HSD argues that Plaintiffs do not have a right to sue for further reimbursement under
this contract because of the above quoted section in the agreements titled, “Payment in Full.”
HSD contends that this term of the contract waives any right to sue for further
reimbursement because Plaintiffs promised to “accept as payment in full the amounts paid
in accordance with the reimbursement structure in effect for the period during which such
services were provided as per 42 C.F.R. 447.15.” HSD argues that, under 42 C.F.R. 447.15,
the Medicaid program must be “limited to providers who agree to accept as payment in full
the amounts paid by the agency.” HSD construes this to mean that providers may not seek
further reimbursement or additional payments from the state even when HSD fails to pay
providers for their services with the amount required by state statute.

{75} This is not the meaning of this clause of the contract. If it were, HSD could pay
providers nominal fees for their services, and the providers would have no recourse.
Plaintiffs entered into the provider agreements, agreeing to accept as payment in full
“amounts paid in accordance with the reimbursement structure in effect.” They did not agree
to accept amounts less than that provided by statute as payment in full. If Plaintiffs were
paid in accordance with the reimbursement structure in effect—Section 27-2-16(B)—we
would agree that they could not sue under this contract. As Plaintiffs contend that they were
paid less than the minimum $3.65 dispensing fee for Section 27-2-16(B)’s applicable
prescriptions, we conclude that Plaintiffs have a right to sue for the deficiency.

{76} HSD further argues the MMCS agreements between HSD and the MCOs included
a provision that exempts the state from liability for shortfalls in payments made by the
MCOs to Plaintiffs. This provision states that “[t]he subcontractor must accept payment
from the MCO as payment for any services included in the benefit package, and cannot
request payment from HSD or from Medicaid members . . . for services performed under the
subcontract.” HSD argues that “[t]his provision was to be incorporated in all contracts
between the MCOs and their subcontractors. . . . Thus, [Plaintiffs] have independently
contracted away any claim they might have for additional reimbursement by HSD.” We
disagree with HSD’s waiver argument. Pursuant to the district court’s order requiring HSD
to agree that Plaintiffs did not waive their rights by agreeing to participate in managed care,
Plaintiffs have not waived their rights under provider agreements by contracting to
participate and participating in managed care.

{77} Last, HSD opposes Plaintiffs’ argument on the ground that Plaintiffs admitted in their
fourth amended complaint that the provider agreements only apply to fee-for-service
transactions and not to managed care. The paragraph HSD references in Plaintiffs’ fourth
amended complaint states that “HSD has entered into contracts with . . . Plaintiffs and the
Class for the provision of Medicaid pharmaceutical services on behalf of . . . HSD in the fee-
for-service portion of the Medicaid [p]rogram that HSD administers.” We do not see how
this historical explanation of the provider agreements’ purpose amounts to an admission that
the contracts only apply to fee-for-service Medicaid reimbursements. The provider
agreements were signed during the period in which HSD only reimbursed providers in
accordance with the fee-for-service reimbursement plan, prior to the implementation of
managed care. Such information was relevant to their complaint. Furthermore, the provider
agreements explicitly state that assent by providers is a precondition to any reimbursement
by the Medicaid program whatsoever. The final clause of the contract states the provider
agreements must be signed as “a precondition to participation in the New Mexico Medical
Assistance Program . . . that the provision of services, the billing of services, [and] the
receiving of payment for services under the program cannot be accomplished without the
proper completion and Department approval of [the provider agreement].” Thus, we
conclude that these agreements govern Plaintiffs’ relationship with HSD with regard to any
Medicaid reimbursement. We therefore reject HSD’s argument with regard to the admission.

{78} In sum, Plaintiffs may bring a breach of contract cause of action against HSD for the
Medicaid program’s failure to reimburse Plaintiffs in accordance with Section 27-2-16(B).
We remand to the district court to determine whether HSD, in its performance under the
provider agreements, has “fail[ed] to perform a contractual obligation when that performance
is called for.” UJI 13-822 NMRA.

E. Plaintiffs’ Contract Claim as Third-Party Beneficiaries

{79} Plaintiffs seek to enforce contracts between HSD and the MCOs on a third-party
beneficiary theory. As we stated earlier, these contracts specifically incorporate Section 27-
2-16(B). The contractual provisions are written in clear language, and there can be no doubt
that the MCOs and HSD intended compliance with the statute to form part of their
agreement. In their most current form, the contracts provide that subcontracts “for pharmacy
providers shall include a payment provision consistent with [Section 27-2-16(B)] unless
there is a change in law or regulation.” There have been no such changes.

{80} Plaintiffs argue that the district court erred when it held that “an action against [the]
MCOs on a third-party beneficiary theory would be inconsistent with the [conclusion] that
Plaintiffs have no private right of action.” HSD argues that Plaintiffs were not intended
third-party beneficiaries as they are not referenced in the MMCS agreements and neither
HSD nor any MCO intended or believed that the agreements had the purpose of benefitting
Plaintiffs. In addition, the MCOs put forward a two-fold parry to HSD’s argument that
Plaintiffs are not intended third-party beneficiaries. First, they echo the order of the district
court, arguing that because no private right of action is available under the statute, any
attempt to enforce it through the contract must fail. Second, they argue that any analysis of
such a claim must conclude that Plaintiffs were not intended third-party beneficiaries to the
contracts between the MCOs and HSD and, therefore, the district court was correct. We
consider each argument in turn.
{81} We are unpersuaded by HSD’s contention that Plaintiffs were not intended third-
party beneficiaries because they were not referenced by name in the contract, and the
contention that Defendants did not believe that the purpose of the contract was to benefit
Plaintiffs. “A third-party is a beneficiary if the actual parties to the contract intended to
benefit the third-party. The intent to benefit the third-party must appear either from the
contract itself or from some evidence that the person claiming to be a third party beneficiary
is an intended beneficiary.” Callahan v. N.M. Fed’n of Teachers-TVI, 2006-NMSC-010,
¶ 20, 139 N.M. 201, 131 P.3d 51 (internal quotation marks and citations omitted). Whether
the parties had the requisite intent is a question of fact, appropriate for the trier-of-fact to
decide. Moriarity v. Meyer, 21 N.M. 521, 529-30, 157 P. 652, 655 (1916). The fact that
Plaintiffs were not referenced by name in the contract does not prove by itself that the
contract was not intended to benefit them. Section 27-2-16(B), which is incorporated into
the contract, specifically references Medicaid providers who dispense drugs to Medicaid
participants. Plaintiffs fall within this class of Medicaid providers and, thus, could be found
by a trier-of-fact to be intended third-party beneficiaries on that basis. Moreover,
Defendants’ assertions that they did not intend to benefit Plaintiffs, as well as the fact they
were not named in the contract, are evidence for the trier-of-fact to consider in determining
whether Plaintiffs are intended third-party beneficiaries.

{82} Next, the MCOs’ first argument has been disposed of by our analysis above,
indicating that there is an implied cause of action under Section 27-2-16(B). Even if there
was not an implied cause of action under that statute, such a fact would not bar their third-
party beneficiary claim. The cases cited by the MCOs and relied upon by the district court
generally hold that a third-party beneficiary claim is just another way of getting a certain
remedy from a statute that does not provide that remedy. Grochowski v. Phoenix Constr.,
318 F.3d 80, 86 (2d Cir. 2003) (refusing to consider third-party beneficiary claim where the
plaintiffs had not sought relief under the prescribed statutory remedy); Hodges v. Atchison,
Topeka & Santa Fe Ry. Co., 728 F.2d 414, 415 (10th Cir. 1984) (disallowing the plaintiff’s
claim under a third-party beneficiary theory because the plaintiff refused to participate in
arbitration as provided by statute and, stating in dicta, that the claim was “but another aspect
of the implied right of action argument”); Carson v. Pierce, 546 F. Supp. 80, 87 (E.D. Mo.
1982) (reaching the merits of the contract claim, but holding that the plaintiffs were not
intended third-party beneficiaries on the basis that the statute created no implied right of
action); Wogan v. Kunze, 623 S.E.2d 107, 117, 120 (S.C. Ct. App. 2005) (holding that the
non-existence of a private remedy under the statute prohibited the third-party beneficiary
claim).

{83} Nonetheless, other courts have recognized such claims. See Brogdon ex rel. Cline
v. Nat’l Healthcare Corp., 103 F. Supp. 2d 1322, 1330 (N.D. Ga. 2000) (allowing a third-
party beneficiary claim despite a lack of Congressional intent to create a private remedy
under the Medicare and Medicaid Acts); Found. Health v. Westside EKG Assocs., 944 So.
2d 188, 194-95 (Fla. 2006) (holding that the lack of a private right of action in a state statute
did not foreclose the plaintiff’s third-party beneficiary claim); Dierkes v. Blue Cross & Blue
Shield of Mo., 991 S.W.2d 662, 668 (Mo. 1999) (en banc) (allowing a third-party beneficiary
claim to enforce the inclusion of a statute in a contract where the statute provided no private
cause of action).
{84} The first approach promoted by the MCOs is founded on the notion that allowing a
third-party beneficiary claim is somehow identical to recognizing an implied right of action
under the statute. For instance, in Hodges, the circuit court disallowed the plaintiff’s third-
party claim after finding that there was no implied right of action. 728 F.2d at 416. It held
that such a claim was “but another aspect of the implied right of action argument.” Id.
Similarly, in Wogan, the court held that “[n]othing in the contract creates liability outside
the Medicare Act. Because the Act does not confer a private right of action to sue . . . , we
refuse to allow an action . . . on the ground [that the defendant] breached his contract” to
comply with the Act. 623 S.E.2d at 119.

{85} The MCOs would have us adopt the reasoning of those jurisdictions as discussed
above, which disallows third-party beneficiary claims of this type. We refuse to do so. The
court in Dierkes reasoned:

[The] plaintiffs are not suing solely for [the defendant’s] violation of [the
statute], although compliance with that section becomes an element of the
claim to the extent it is part of [the defendant’s] promise. Instead, [the]
plaintiffs are suing for . . . breach of contract, . . . [a] claim[] existing
independent of the foregoing statute.

991 S.W.2d at 668.

{86} The contract specifically includes the statutory requirement for payment to Plaintiffs
pursuant to law. Plaintiffs seek to enforce this contract on a third-party beneficiary theory.
Plaintiffs are not foreclosed from asserting a third-party beneficiary contract claim just
because they may not do so directly under Section 27-2-16(B) when operation of the statute
appears to be written as a contractual requirement for their reimbursement.

{87} In looking at Plaintiffs’ third-party beneficiary claim in this case, the district court
began by asking why HSD entered into contracts with the MCOs “in the first place.” It then
found, based on an interpretation of Section 27-2-16(B) and by analogy to cases from other
jurisdictions, that the statute expresses a motivation to serve “the medical needs of the aged,
blind, and disabled. This [motivation] makes it apparent that the beneficiaries of these
services are Medicaid enrollees, not providers.” Finally, though not completely clear from
the record, the conclusion that the statute was intended to benefit Medicaid enrollees led the
district court to reason that the contract term incorporating it could not have been intended
to benefit Plaintiffs. The district court stated that “Plaintiffs are not third[-]party
beneficiaries to the contracts between HSD and the MCOs[.]” We hold that this finding
requires reversal.

{88} As we discussed above, when a district court considers a motion for judgment on the
pleadings, it must “accept as true all facts well pleaded and question only whether the
plaintiffs might prevail under any state of facts provable under the claim.” Garcia, 106 N.M.
at 760, 750 P.2d at 121. In their fourth amended complaint, Plaintiffs argue that “HSD has
entered into valid written contracts with the MCOs for implementation of the managed care
program[.]” Furthermore, Plaintiffs assert that they “are third[-]party beneficiaries under
[those contracts] as the unambiguous language of such contracts governs the benefits
received by Plaintiffs in dispensing prescription medicines to Medicaid recipients.”

{89} By finding that the Medicaid program as a whole was intended to benefit only
Medicaid enrollees, the district court decided the merits of the third-party beneficiary claim.
Essentially, it ruled on the intent of HSD and the MCOs in bargaining for the inclusion of
the term in the contract. We hold that such a finding was a factual determination
inappropriate to decide in a judgment on the pleadings. We reverse the district court on this
issue and remand for additional factual development. Though we do not reach the merits of
the issue, at this point, we see no reason why the contract term could not have been intended
to benefit both Medicaid recipients and Plaintiffs. Certainly, if Medicaid recipients are to
receive prescription medication, the participation of Plaintiffs is essential to the proper
functioning of the system, and it is for this reason that we are unpersuaded by Defendants’
arguments against the recognition of a third-party claim.

F. Plaintiffs May Bring the Unjust Enrichment Claim

{90} Plaintiffs sued the MCOs for unjust enrichment, alleging that “the MCOs failed to
pay Plaintiffs the reimbursement rates to which they were entitled under [Section] 27-2-
16(B) and were [thus] unjustly enriched by the amount of Medicaid reimbursements they
wrongfully withheld[—]the difference between what [Section] 27-2-16(B) required and what
they paid.” The district court dismissed Plaintiffs’ unjust enrichment claim on the ground
that a contract existed between Plaintiffs and the MCOs and between the MCOs and HSD,
barring equitable relief. The court subsequently dismissed Plaintiffs’ contractual claims.

{91} Unjust enrichment allows recovery by an aggrieved party from another who has
profited at the aggrieved party’s expense. Heimann v. Kinder-Morgan CO2 Co.,
2006-NMCA-127, ¶ 20, 140 N.M. 552, 144 P.3d 111. In order to state a claim for unjust
enrichment against the MCOs, Plaintiffs are required to allege, first, that the MCOs
knowingly benefitted at Plaintiffs’ expense and, second, that allowing the MCOs to retain
this benefit would be unjust. Id. That Plaintiffs had a contractual relationship with the
MCOs does not foreclose a claim for unjust enrichment. See Danley v. City of Alamogordo,
91 N.M. 520, 521, 577 P.2d 418, 419 (1978) (holding that a builder was free to pursue an
unjust enrichment claim despite the fact that it was in privity with the defendant); Platco
Corp. v. Shaw, 78 N.M. 36, 37, 428 P.2d 10, 11 (1967).

{92} Plaintiffs argue that the district court improperly dismissed their claim for unjust
enrichment, and we agree. In its order granting Presbyterian’s 2006 motion for judgment
on the pleadings, the court dismissed Plaintiffs’ claim because it found they possessed “a
complete and adequate remedy at law. . . . In this case, the party’s actions are regulated by
a contract [between the MCOs and HSD,] and Plaintiffs are seeking damages for breach of
that contract.” (Internal quotation marks and citation omitted.) Thus, the district court
dismissed Plaintiffs’ unjust enrichment claim because it considered it “legally insufficient.”

{93} To support its conclusion, the district court relied on Sims v. Sims, 1996-NMSC-078,
¶ 28, 122 N.M. 618, 930 P.2d 153, but that case is not dispositive on these facts. In Sims,
our Supreme Court considered the issue of whether the existence of a statutory cause of
action foreclosed a traditionally recognized equitable claim. Id. ¶ 17. Holding that equity
remained available in such a situation, the Court concluded that “[t]here is no requirement
that the creation of a statutory remedy at law for a particular type of claim will automatically
supplant an equitable remedy that addresses the same claim. [Any] major departure from
the long tradition of equity practice should not be lightly implied.” Id. ¶ 29 (internal
quotation marks and citations omitted). Likewise, as the Court held in Hydro Conduit Corp.
v. Kemble, 110 N.M. 173, 178, 793 P.2d 855, 860 (1990), “unjust enrichment constitutes an
independent basis for recovery in a civil-law action, analytically and historically distinct
from the other two principal grounds for such liability, contract and tort.” See Tom Growney
Equip., Inc. v. Ansley, 119 N.M. 110, 112, 888 P.2d 992, 994 (Ct. App. 1994).

{94} Thus, dismissal of Plaintiffs’ claim for unjust enrichment on Presbyterian’s motion
for judgment on the pleadings was error. Plaintiffs assert that the MCOs entered into valid
contracts with HSD, ones in which the MCOs promised to pay in accordance with Section
27-2-16(B). Plaintiffs allege further that HSD paid the MCOs to comply with the statute,
but that those payments were at least partially retained by them. Such pleadings are enough
to state a claim in equity for unjust enrichment, and the fact that Plaintiffs had contracts with
the MCOs does not work to automatically foreclose it. Our system explicitly provides for
alternative pleading of civil claims. Rule 1-008(E)(2) NMRA. We therefore leave open
their claim for unjust enrichment.

G. Declaratory and Injunctive Relief Was Properly Denied

{95} Finally, Plaintiffs argue that their demands for declaratory and injunctive relief were
improperly dismissed by the district court. We disagree. Our Supreme Court has held:

It is the general rule that the granting of declaratory relief is
discretionary, under both the federal and the state acts. Whether such
jurisdiction is to be entertained rests in the exercise of sound judicial
discretion by the [district] court, and its decision will not be disturbed on
appeal, in the absence of a clear showing of abuse of that discretion.

Allstate Ins. Co. v. Firemen’s Ins. Co., 76 N.M. 430, 434, 415 P.2d 553, 555 (1966) (internal
quotation marks and citation omitted). Furthermore, injunctive relief is a harsh, drastic
remedy that a district court “should issue only in extreme cases of pressing necessity and
only where there is a showing of irreparable injury.” Leonard v. Payday Prof./Bio-Cal
Comp., 2008-NMCA-034, ¶ 14, 143 N.M. 637, 179 P.3d 1245 (internal quotation marks and
citation omitted). The district court in this case acted within its discretion having already
entered an order keeping Plaintiffs’ statutory entitlement alive, allowing access to a measure
of relief that perhaps might exceed the reach of declaratory or injunctive judgments.
Plaintiffs’ demands for injunctive and declaratory relief essentially sought to remedy the
underlying substantive claims. Because the outcomes of those substantive issues were
unclear at the time the district court considered these equitable remedies, the district court
did not abuse its discretion in denying them.
H. Class Certification Was Proper

{96} Because we reverse in part the orders of the district court, we now consider
Cimarron’s conditional cross-appeal. Specifically, Cimarron makes two arguments that
Plaintiffs’ class was improperly certified. First, Cimarron claims that allowing the MCOs
to be added as Defendants after the original class certification results in a violation of its
constitutional due process rights. Second, Cimarron claims the district court improperly
applied the requirements for class certification under Rule 1-023 NMRA. We affirm the
certification.

{97} Decisions to certify a class are reviewed for abuse of discretion. Abuse occurs when
the district court “misapprehends the law or if [its] decision is not supported by substantial
evidence.” Brooks v. Norwest Corp., 2004-NMCA-134, ¶ 7, 136 N.M. 599, 103 P.3d 39.
“Within the confines of Rule 1-023, the district court has broad discretion whether or not to
certify a class.” Id. The rule lists four prerequisites to certification of a class action:

(1) [Numerosity:] the class is so numerous that joinder of all members
is impracticable;

(2) [Commonality:] there are questions of law or fact common to the
class;

(3) [Typicality:] the claims or defenses of the representative parties are
typical of the claims or defenses of the class; and

(4) [Adequacy of representation:] the representative parties will fairly
and adequately protect the interests of the class.

Ferrell v. Allstate Ins. Co., 2008-NMSC-042, ¶ 9, 144 N.M. 405, 188 P.3d 1156 (internal
quotation marks and citation omitted). Litigants attempting to certify a class must also meet
one of three requirements under Rule 1-023(B). In this case, the pertinent requirement is that
“questions of law or fact common to the members of the class predominate over any
questions affecting only individual members, and that a class action is superior to other
available methods for the fair and efficient adjudication of the controversy.” Rule 1-
023(B)(3). In certifying the class, the district court “must engage in a rigorous analysis of
whether the Rule’s requirements have actually been met.” Ferrell, 2008-NMSC-042, ¶ 8
(internal quotation marks and citation omitted).

{98} As we stated above, the court certified the class in this case before the MCOs were
added as Defendants. Thereafter, Plaintiffs, unopposed by HSD, argued that the MCOs were
indispensable parties by virtue of the changed Medicaid administrative and payment scheme.
They persuaded the district court to allow amendment of their complaint. The MCOs
attacked the class certification. They filed briefs asking the court to decertify the class and
included a number of supporting exhibits. As a result, the district court allowed discovery
into “whether the class should be decertified.” After hearing oral arguments on the issue,
the district court concluded that the class certification was proper. The court stated that
“[a]fter a review of the various motions to decertify the class, determine it to be void, to
dismiss and to sever, I have determined that those motions will be denied.”

{99} Cimarron argues that this scenario gives rise to a due process violation. We disagree.
As case law demonstrates, post-certification amendments to include additional defendants
typically only violate due process where the subsequently added defendants do not receive
an adequate opportunity to contest the certification and the allegations against them. See In
re Am. Med. Sys., Inc., 75 F.3d 1069, 1075, 1086 (6th Cir. 1996) (holding that the additional
defendants could not be added after original class certification without having time to contest
the certification); Van Vels v. Premier Athletic Ctr. of Plainfield, Inc., 182 F.R.D. 500, 506-
07 (W.D. Mich. 1998) (allowing post-certification amendment to include the additional
defendants as long as they were given additional time for discovery and dispositive motions);
see Walker v. World Tire Corp., 563 F.2d 918, 921 (8th Cir. 1977) (concluding that courts
may not “rule on the class action question without affording the parties notice and an
opportunity to make a record on the issue” and stating that “[t]he propriety of class action
status can seldom be determined on the basis of the pleadings alone”).

{100} Both Plaintiffs and Cimarron cite In re Am. Med. Sys., Inc., 75 F.3d at 1086, and we
too believe that case provides the appropriate analytical framework for these facts. There,
the plaintiffs received class certification, and the next month they moved to amend their
complaint to include an additional defendant. Id. at 1075. Then, “[w]ithout any further
discovery, briefing, or argument, the district judge issued an amended order of class
certification.” Id. The newly added defendant appealed, and the Sixth Circuit held that
“[t]he district [court] failed in its duty to conduct a rigorous analysis . . . and clearly abused
its discretion.” Id. at 1086 (internal quotation marks omitted). Such a defendant must
receive a meaningful opportunity to respond to the complaint, a chance to conduct discovery,
time to brief the issues, and a hearing in which the issue may be argued. Id.

{101} Each of the above requirements were met in the present case. Once the district court
granted Plaintiffs’ motion to amend their complaint, the MCOs almost immediately
challenged the class certification. The district court granted discovery to the MCOs on the
issue of “whether, under the [s]econd [a]mended [c]omplaint, Plaintiffs have abandoned the
class certification against the [s]tate . . . and whether the MCOs, as new Defendants, are
subject to the previous class certification[.]” Likewise, a hearing was held where the parties
were given an opportunity to argue the issue and, on June 5, 2003, more than two years after
Plaintiffs moved to add the MCOs as Defendants, the district court held that class
certification was proper as to the MCOs. Under such conditions, where the MCOs had
adequate notice and a chance to fully respond, we hold that no violation of their due process
rights occurred.

{102} We are similarly unpersuaded by Cimarron’s argument that the burden of proof as
to class certification was unlawfully shifted to their shoulders. Our Supreme Court held:

We can properly consider only those facts which appear in the
transcript on appeal, which in this case is identical with the record proper in
the district court. Upon a doubtful or deficient record[,] we indulge every
 presumption in support of the correctness and regularity of the decision of the
trial court. Every reasonable intendment and presumption are resolved in
favor of the proceedings and judgment in that court.

State ex rel. Alfred v. Anderson, 87 N.M. 106, 107, 529 P.2d 1227, 1228 (1974) (citations
omitted).

{103} Given that Cimarron provides us with no citations to the record tending to prove its
allegation, we must presume that the district court applied the correct burden of proof,
requiring Plaintiffs to establish that class certification remained proper after the MCOs were
added. See Brooks, 2004-NMCA-134, ¶ 10 (stating that the plaintiffs beared the burden of
proof to demonstrate that the requirements of Rule 1-023 were met).

{104} We also hold that the district court did not abuse its discretion in its application of
Rule 1-023. Plaintiffs clearly have standing to sue. They meet the requirements of
numerosity, commonality, typicality, and adequacy of representation. Furthermore, it is
clear to us that the Rule 1-023(B)(3) requirements of predominance and superiority were
satisfied. Substantial evidence supports the district court’s conclusions on these matters.

{105} The requirements of standing have been met. In order to demonstrate standing, a
plaintiff must demonstrate “(1) an injury in fact, (2) a causal relationship between the injury
and the challenged conduct, and (3) a likelihood that the injury will be redressed by a
favorable decision.” Forest Guardians v. Powell, 2001-NMCA-028, ¶ 16, 130 N.M. 368,
24 P.3d 803 (internal quotation marks and citation omitted). Standing is a “threshold legal
issue” to class certification. Andrews v. Am. Tel. & Tel. Co., 95 F.3d 1014, 1022 (11th Cir.
1996). Cimarron alleges that because Plaintiffs contracted with the PBMs and not directly
with the MCOs themselves, they lack standing to sue. This proposition is unsupported by
precedent in Cimarron’s briefs. Indeed, Plaintiffs alleged direct economic injuries against
HSD and the MCOs because they were paid less than the statutory requirement. Such
injuries were allegedly attributable to actions of either HSD, the MCOs, or both, and would
presumably be cured if those parties were required to pay. That some Plaintiffs were
required to contract with a PBM who, in turn, contracted with an MCO, does not defeat
standing. In such a situation, a causal connection between the injury and challenged conduct
may still exist and because the MCOs provide no law to the contrary, we hold that standing
is not defeated by the mere existence of contracts between Plaintiffs and the PBMs. By the
same token, some Plaintiffs had a direct relationship with an MCO; all allege the same right
to payment of Medicaid reimbursement monies.

{106} We hold that substantial evidence supports the district court’s conclusions as to
numerosity, typicality, commonality, and adequacy of representation. Rule 1-023(A). This
case provides an almost textbook example of a case proper for class certification. First, the
rule requires that the number of potential plaintiffs be so high “that joinder of all members
is impracticable[.]” Rule 1-023(A)(1). During class certification, Plaintiffs estimated that
the number of potential plaintiffs would be between two and three hundred. Further, those
potential plaintiffs were widely dispersed across the entire state. In the event that
certification had been denied, those potential plaintiffs would have been greatly
inconvenienced by having to individually join in the litigation, many from remote locations.
Second, the rule requires that there be “questions of law or fact common to the class[.]”
Rule 1-023(A)(2). Here, each class member argues that Section 27-2-16(B) allows for
certain rights under both the statute and common law. The relationship of each with both
HSD and the MCOs, and the facts necessary to decide the case as to each class member, is
essentially identical. See Cottrell v. Lopeman, 119 F.R.D. 651, 657 (S.D. Ohio 1987)
(stating that commonality is met where a regulatory scheme common to all class members
has been established). Third, the rule requires that “the claims or defenses of the
representative parties [be] typical of the claims or defenses of the class[.]” Rule 1-
023(A)(3). Each member in this class seeks an interpretation of Section 27-2-16(B) that will
require either HSD or the MCOs to pay. Likewise, each seeks damages, though injured in
a different sum, to recover the money that went unpaid under the statute. Fourth, Rule 1-
023(A)(4) requires that “the representative parties [must] fairly and adequately protect the
interests of the class.” No evidence was presented below establishing that the interests of
any individual class members were contrary to those of the entire class. Furthermore,
counsel for Plaintiffs demonstrated that they were qualified and experienced enough to
conduct the representation. When the MCOs were added as Defendants, little changed.
Plaintiffs again asserted claims based on a common statute and involving a common set of
factual circumstances. Under those conditions, we hold that the district court did not abuse
its discretion in finding that the requirements of Rule 1-023(A) were met.

{107} Nor did it abuse its discretion in finding that the requirements of predominance and
superiority were met. Under Rule 1-023(B)(3), the district court is required to find “that the
questions of law or fact common to the members of the class predominate over any questions
affecting only individual members, and that a class action is superior to other available
methods for the fair and efficient adjudication of the controversy.” Cimarron asserts that
because Plaintiffs in this case dealt with many different PBMs and because each suffered a
different amount of economic injury, individual issues predominate over the larger issues of
the class as a whole. This disregards the big picture of the issue at stake, and we disagree.
“A single common issue may be the overriding one in the litigation, despite the fact that the
suit also entails numerous remaining individual questions.” Armijo v. Wal-Mart Stores, Inc.,
2007-NMCA-120, ¶ 32, 142 N.M. 557, 168 P.3d 129 (internal quotation marks and citation
omitted). Such is the case here, where the claims of each class member involve a statutory
interpretation of Section 27-2-16(B), a determination of whether that statute survived the
transition to managed care, and a conclusion as to the legal effect of that statute’s inclusion
in contracts between HSD and the MCOs. Certainly, minor differences will exist among
class members in this case, but the critical issues described above remain operative and
predominate among all class members. In other words, in order to prevail, each class
member will need a holding as to the major issues common to all. Each can then
demonstrate the extent of its injury. Those are considerations far removed from a judgment
on the pleadings.

{108} We find nothing in the record to indicate the existence of any class member
interested in maintaining a separate action. Judicial resources will be saved by certification,
the number of class members is manageable, and the damages of each class member can be
calculated in a similar manner.

{109} In addition, Cimarron contends that the class certification resulted in “one-way
intervention.” Cimarron argues that Plaintiffs’ decision to submit their motion for partial
summary judgment for resolution after the original class certification, but before joining the
MCOs, constituted impermissible “one-way intervention.” One-way intervention is the
principle that potential members of a class may not wait until after the resolution of the case
on the merits before joining the class. Valley Utils., Inc. v. O’Hare, 89 N.M. 262, 264-65,
550 P.2d 274, 276-77 (1976). To do so would be to “invite[] non[-]participating parties to
share in the spoils of a judgment obtained by others even though those absent parties will not
be bound by the judgment if they [subsequently] decide to bring another action.” Id. at 265,
550 P.2d at 276.

{110} Cimarron fails to explain how one-way intervention is applicable to this situation,
citing case law that expressly applies the principle solely to intervening plaintiffs in class
actions. See id. at 264, 550 P.2d at 276 (holding that “only those members of [the plaintiff]
class who joined the suit prior to the verdict are either bound by it, or allowed to benefit
from it”); see also Peritz v. Liberty Loan Corp., 523 F.2d 349, 353-54 (7th Cir. 1975)
(describing one-way intervention as the problem created by potential class members waiting
for a resolution of the merits before deciding to join the lawsuit). One-way intervention is
inapplicable here as non-parties are not attempting to intervene and share in the spoils of a
judgment already obtained by others in this case.

{111} As part of this one-way intervention argument, Cimarron further contends that
Plaintiffs received “an impermissible preview of the merits before obtaining class
certification binding all . . . parties in the case” because Plaintiffs obtained a partial decision
on the merits that “[Section] 27-2-16(B) . . . applied to the pharmacy contracts at issue[.]”
Even though the court decided that the statute applied to pharmacy contracts, this decision
about a threshold legal matter was outside the scope of prohibited one-way intervention. As
stated above, our Supreme Court prohibits the practice of intervention after a final judgment
has been rendered, so as to prevent non-participating prospective plaintiffs from sharing in
the “spoils of a judgment.” Valley Utils., 89 N.M. at 265, 550 P.2d at 277. The judgment
at issue here was about a threshold legal matter that did not result in a final judgment against
HSD or the MCOs. Thus, Plaintiffs’ litigation of Section 27-2-16(B)’s applicability, prior
to joining Cimarron, did not result in one-way intervention. One-way intervention is
inapplicable to both the facts of this case and the decision at issue.

IV. CONCLUSION

{112} Based on the foregoing analysis, we affirm in part, reverse in part, and remand this
case for further proceedings.

{113} IT IS SO ORDERED.

____________________________________
 RODERICK T. KENNEDY, Judge

WE CONCUR:

____________________________________
MICHAEL D. BUSTAMANTE, Judge

____________________________________
JONATHAN B. SUTIN, Judge

Topic Index for Starko, Inc. v. Presbyterian Health Plan, Inc., Docket Nos. 27,992/29,016

AE APPEAL AND ERROR
AE-SR Standard of Review

CP CIVIL PROCEDURE
CP-CA Class Actions
CP-IJ Injunctions
CP-SJ Summary Judgment
CP-WA Waiver

CN CONTRACTS
CN-BF Beneficiaries
CN-BR Breach
CN-TB Third Party Beneficiary
CN-WV Waiver of Rights

IN INSURANCE
IN-HI Health Insurance
IN-HO Health Maintenance Organizations

JM JUDGMENT
JM-DJ Declaratory Judgment

PA PUBLIC ASSISTANCE
PA-MM Medicare and Medicaid

RE REMEDIES
RE-UE Unjust Enrichment

ST STATUTES
ST-IP Interpretation
ST-LI Legislative Intent