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OSTROW PHARMS., INC. v. BEAL

April 4, 1975

OSTROW PHARMACIES, INC., et al.
v.
Frank BEAL, Secretary of Welfare, et al.


Broderick, District Judge.


The opinion of the court was delivered by: BRODERICK

BRODERICK, District Judge.

 This is an action in which the plaintiffs, six pharmacies in the city of Philadelphia, seek to enjoin the defendants from proceeding under the terms of a contract entered into between Paid Prescriptions, Inc. (PAID) and the Pennsylvania Department of Public Welfare (DPW), which contract was to take effect February 1, 1975. On January 20, 1975, the plaintiffs filed their complaint invoking jurisdiction under 28 U.S.C. § 1331, alleging a federal question and damages in excess of $10,000.00. Plaintiffs' cause of action is based on Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., and related provisions of the Code of Federal Regulations. On that same day, this Court ordered that pursuant to Rule 65(a)(2), F.R.Civ.P. a consolidated hearing on the motion for a preliminary injunction and a hearing on the merits would be held on January 28, 1975. The Court ordered further that the parties submit Findings of Fact and Conclusions of Law on January 27, 1975. The hearing on the merits commenced on January 28, 1975, and concluded on February 4, 1975. On January 31, 1975, a Temporary Consent Decree was entered into between the parties pursuant to which it was agreed that the contract between PAID and DPW should take effect as scheduled on February 1, 1975, subject to certain agreed conditions, for a period of thirty days. After due consideration of the pleadings, briefs and evidence presented at the hearing, the Court has determined herein that the relief requested by the plaintiffs must be denied. This Memorandum and Order shall constitute the Court's Findings of Fact and Conclusions of Law in accordance with Rule 52(a), F.R.Civ.P.

 The plaintiffs, six retail pharmacies located in Philadelphia, challenge a contract between PAID and DPW, effective February 1, 1975, which calls for the administration by PAID of a new statewide Medicaid program for prescription drug reimbursement (hereinafter referred to as the PAID program). The plaintiffs contend that this contract which provides that pharmacies participating in the program shall be paid on the basis of drug cost plus $1.85 dispensing fee per prescription is in conflict with the provisions of Title XIX of the Social Security Act, 42 U.S.C. § 1396 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.

 Jurisdiction

 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).

 Standing

 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. *fn1" Under the contract, participating pharmacies receive from PAID the cost of the drugs plus $1.85 per prescription for legend *fn2" drugs and the cost of the drugs plus 50% mark-up for nonlegend drugs *fn3" with a maximum of $15.00 per prescription. PAID bears the loss if the premium ...


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