et seq., and the federal regulations of the Department of Health, Education, and Welfare concerning the administration of the Medicaid program. The plaintiffs seek to enjoin the defendants from proceeding with the PAID program. Plaintiffs also seek compensation "for losses and damages and reasonable counsel fees and costs" for alleged losses sustained.
At the close of the plaintiffs' case, the defendants, pursuant to Rule 41(b), moved to have the complaint against the Commonwealth of Pennsylvania and the Pennsylvania Department of Public Welfare dismissed on the basis of immunity from suit under the Eleventh Amendment. At the close of the evidence, the defendants reasserted this motion and the Court dismissed the complaint against these two defendants on the basis of Edelman v. Jordan, 414 U.S. 1301, 94 S. Ct. 13, 38 L. Ed. 2d 15 (1974) and Downs v. Department of Public Welfare, 368 F. Supp. 454 (E.D.Pa.1973).
The remaining defendants have raised the following issues by way of defense to this action: (1) That the plaintiffs have failed to meet the $10,000.00 jurisdictional amount required under 28 U.S.C. § 1331; (2) That the plaintiffs do not have standing to sue; and (3) That under the facts and the law the plaintiffs are not entitled to the relief requested.
Plaintiffs allege that this Court has jurisdiction under 28 U.S.C. § 1331. There is no question that plaintiffs' attack on the PAID program on the basis that it conflicts with the provisions of federal statutes and federal regulations promulgated thereunder presents a federal question as to which this Court has jurisdiction. Seneca Nursing Home v. Kansas State Board of Social Welfare, 490 F.2d 1324 (10th Cir. 1974). The plaintiffs have alleged in their complaint that "the amount in controversy . . . exceeds the sum of Ten Thousand ($10,000.00) Dollars" and that "plaintiffs have sustained and will sustain money losses and damages by virtue of the actions of the defendants . . . ." Defendants contend, however, that plaintiffs have failed to demonstrate that the "amount in controversy" exceeds the sum of $10,000.00, exclusive of interest and costs. It is not incumbent upon a plaintiff to show to an absolute certainty that he will obtain a verdict in excess of $10,000.00; however, in order for the Court to dismiss a suit for lack of the jurisdictional amount, it must appear to a legal certainty that the plaintiff will not recover a sum in excess of $10,000.00. Opelika Nursing Home, Inc. v. Richardson, 448 F.2d 658 (5th Cir. 1971); Nelson v. Keefer, 451 F.2d 289 (3d Cir. 1971). Moreover, claims may not be added together to provide the $10,000.00 jurisdictional amount in controversy. Zahn v. International Paper Co., 414 U.S. 291, 94 S. Ct. 505, 38 L. Ed. 2d 511 (1973). The defendants argue that it is apparent to a legal certainty that no plaintiff can recover in excess of $10,000.00 in damages, since any loss which the plaintiffs might suffer would be the result of their own voluntary action in not participating in the PAID program. The plaintiffs claim that the $1.85 dispensing fee plus the cost of the drugs for each prescription as provided by the PAID program will cause each of them substantial financial damage in excess of $10,000.00. The plaintiffs produced evidence in support of their claim that implementation of the PAID program will substantially cut their income and result in loss to each plaintiff in excess of $10,000.00. Such evidence was presented by the direct testimony of two plaintiffs. In an effort to expedite the hearing, the parties agreed that the testimony of the other four plaintiffs as to damages would be substantially similar to the testimony presented by the two plaintiffs who did testify. The Court heard the evidence as to damages for the sole purpose of determining whether it had jurisdiction and finds that it does not appear to a legal certainty that the plaintiffs will not each recover a sum in excess of $10,000.00. Accordingly, this Court finds that it has jurisdiction pursuant to 28 U.S.C. § 1331. Opelika Nursing Home, Inc. v. Richardson, 356 F. Supp. 1338 (M.D.Ala.1973), aff'd 490 F.2d 841 (5th Cir. 1974).
The defendants contend that the plaintiffs have no standing to raise the issues which have been presented in this case. The plaintiffs are pharmacies which have been filling prescriptions for welfare recipients. Prior to the PAID program they received directly from the Commonwealth a fee for each prescription based upon the cost of the prescribed drugs plus a standard 50% mark-up, up to a $10.00 maximum. We find that these plaintiffs do have sufficient personal stake in the outcome of this controversy to give them standing to bring this lawsuit. Data Processing Service Org. v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970); Seneca Nursing Home v. Kansas State Board of Social Welfare, 490 F.2d 1324 (10th Cir. 1974); Harmony Nursing Home, Inc. v. Anderson, 341 F. Supp. 957 (D.Minn.1972); see also Sierra Club v. Morton, 405 U.S. 727, 31 L. Ed. 2d 636, 92 S. Ct. 1361 (1972); Opelika Nursing Home, Inc. v. Richardson, 356 F. Supp. 1338 (M.D.Ala.1973), aff'd 490 F.2d 841 (5th Cir. 1974).
Discussion of the Merits
Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., establishes a federal program which provides medical assistance to individuals whose economic resources are insufficient to meet the cost of necessary medical services. This program is known as "Medicaid". It is a matching-fund program administered by the Department of Health, Education and Welfare in conjunction with participating states. The federal funds used to finance the Medicaid programs are disbursed by the state, pursuant to the Social Security Act and regulations. The state channels the money through an appropriate state agency to various providers of medical services including pharmacies. The amount of such payment is largely within the discretion of the state, subject however to the Social Security Act and the federal regulations enacted thereunder. Opelika Nursing Home, Inc. v. Richardson, 448 F.2d 658 (5th Cir. 1971).
The Commonwealth of Pennsylvania participates in the Medicaid program and, in addition to other medical services, provides prescription drugs for certain people with low incomes. Through DPW, the state reimburses licensed pharmacies who fill prescriptions for eligible needy medical recipients. Prior to February 1, 1975, DPW directly administered this program by paying the participating pharmacies the cost of the prescribed drug plus a standard 50% mark-up for each prescription filled, up to a $10.00 maximum. No pharmacy was required to participate in the program; participation was voluntary.
The Commonwealth decided to change its method of operating the Medical prescription program and in July, 1974, solicited proposals from non-profit companies to administer the Medicaid prescription program. (Pa.Bull. Vol. 4, No. 31, July 20, 1974). Blue Cross/Blue Shield and PAID submitted bids to the Commonwealth. Both organizations proposed to administer the program and pay a fee of $1.85 for each prescription plus the cost of the drugs. According to the Commonwealth, PAID's proposal was lower in cost and the Commonwealth entered into a contract with PAID on November 6, 1974. This contract provided that the PAID program should start February 1, 1975. Under the contract with PAID, DPW is required to pay a predetermined premium for each eligible Medicaid recipient.
Under the contract, participating pharmacies receive from PAID the cost of the drugs plus $1.85 per prescription for legend
drugs and the cost of the drugs plus 50% mark-up for nonlegend drugs
with a maximum of $15.00 per prescription. PAID bears the loss if the premium total received from the Commonwealth is less than the claims paid. PAID bears the cost of administering the program. In the event the premiums received exceed the amounts paid and the costs of administering the program, the Commonwealth and PAID share the surplus, pursuant to a formula provided in the contract.
The plaintiffs are six pharmacies in Philadelphia who participated in the Medicaid program for prescription drug reimbursement during the period immediately prior to February 1, 1975, the date on which the PAID program was due to commence. At the time of the hearing, the plaintiffs had not agreed to participate in the PAID program. The plaintiffs argue that the PAID program violates 42 U.S.C. § 1396a(a)(30) and 45 C.F.R. § 250.30(b)(2)(i)(a), the federal regulation promulgated thereunder, in that the fee of $1.85 plus the cost of drugs provided by the PAID program was not determined "by analysis of pharmacy operational data which includes such components as overhead, professional services, and profit." The plaintiffs contend that 45 C.F.R. § 250.30(b)(2)(i)(a) requires a state to make an analysis of pharmacy operational data which includes such components as overhead, professional services and profit, before contracting to pay pharmacists a dispensing fee under the Medicaid program. The defendants admit that no such analysis has been made.
Title XIX of the Social Security Act, as amended, serves as the basic authority for Medicaid. Section 1396a(a)(30) of the Social Security Act provides:
(a) (30) A State plan for medical assistance must . . . provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan as may be necessary to safeguard against unnecessary utilization of such care and services to assure that payments (including payments for any drugs provided under the plan) are not in excess of reasonable charges consistent with efficiency, economy, and quality of care.