Case: California Pharmacists Association v. Maxwell-Jolly

The California Pharmacists Association and several pharmacies filed this suit against David Maxwell-Jolly, then-Director of the California Department of Health Care Services. The suit was filed on November 11, 2009 in the United States District Court for the Central District of California. Plaintiffs brought the action under the Supremacy Clause of the U.S. Constitution, arguing that two provisions of a bill passed by the California Assembly on July 28, 2009 were contrary to and preempted by federal Medicaid law. Assembly Bill ("AB") X4 5, sections 38 and 39 would reduce the reimbursement rate paid to pharmacies for drugs provided to Medicaid recipients. This legislation was passed without prior approval from the United States Department of Health and Human Services' Centers for Medicare & Medicaid Services ("CMS"), which the plaintiffs argued was contrary to federal law. The California Legislature had also failed to study the potential effects of the rate reductions on the level of access to and quality of care available to Medi-Cal recipients, contrary to the requirements of § 1902(a)(30)(A) of the Social Security Act.

A related case between the same two parties was also filed and which eventually reached the Supreme Court (California Pharmacists Association v. Maxwell Jolly).

The plaintiffs also contested an additional 4% drop in the reimbursement rate, which was the result of changes to the Average Wholesale Prices (AWPs) for several thousand pharmaceuticals, as determined by data from First DataBank, Inc. California based its formula for calculating prescription drug reimbursement rates on these AWPs. A lawsuit filed against First DataBank alleging that the company set AWPs at artificially high levels resulted in a consent decree wherein the company agreed to reduce the AWPs for more than 2000 drugs by five percent. New England Carpenters Health Benefits Fund et al v. First Databank, Inc., 582 F.3d 30 (1st. Cir. 2009). First DataBank had voluntarily reduced its AWP for many thousand more drugs. The plaintiffs argued that California accepted the reduced reimbursement rates that resulted from the lowering of the AWPs without first considering the affects this would have on the "efficiency, economy, and quality of care," provided to Medicaid recipients as required by § 30(A).

Plaintiffs sought restraining orders and preliminary and permanent injunctions preventing the contested provisions of AB X4 5 from being implemented and preventing the State from using the reduced AWPs as the basis for its reimbursement rates. They also sought declaratory judgments holding the contested rate reductions to be unlawful.

On December 28, 2009 the Court declined to grant a temporary restraining order preventing the implementation of the rate reductions. The plaintiffs appealed the decision to the Ninth Circuit Court of Appeals, and then voluntarily dismissed the appeal when that Court found that it probably lacked jurisdiction to consider the appeal while the plaintiffs' motion for a preliminary injunction was still pending in the lower court.

On May 5, 2010, the Court granted in part and denied in part the plaintiffs' motion for a preliminary injunction, granting preliminary injunctions against the implementation of the contested effects of AB X4 5. Both parties filed appeals to the Ninth Circuit Court of Appeals. The appeals were stayed pending the petitions for certiorari review by the Supreme Court of several related cases involving the question of whether the Supremacy Clause could serve as a basis for a private suit to enforce the Medicaid Act against a state. This stay was continued after review was granted in these cases and while they remained pending before the Supreme Court. See, e.g., Douglas v. Independent Living Center of Southern California, and the other California Pharmacists Association v. Maxwell-Jolly case, mentioned above.

The District Court proceedings were also stayed pending the outcome of these Supreme Court cases. CMS approved most of the California Medicaid plan amendments while the Supreme Court cases were still awaiting adjudication. In light of this, on February 22, 2012, the Supreme Court declined to issue a ruling on the Supremacy Clause question. Instead, the Supreme Court vacated the Ninth Circuit Court's decision in the cases before it and remanded those cases to the Ninth Circuit for reconsideration. Douglas v. Independent Living Center of Southern California, 132 S. Ct. 1204 (U.S. 2012).

On July 1, 2016, the defendant (now represented by the next director of the California Department of Health and Human Services) filed a joint motion to dismiss the case with prejudice. The court granted the request on July 5, 2016, with prejudice, ordering that each side bear its own costs and attorneys' fees. The case is now closed.