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RITE AID OF PENNSYLVANIA, INC. v. HOUSTOUN

November 3, 1997

RITE AID OF PENNSYLVANIA, INC.
v.
FEATHER O. HOUSTOUN



The opinion of the court was delivered by: BARTLE

 Bartle, J.

 November 3, 1997

 Rite Aid of Pennsylvania, Inc. ("Rite Aid") has filed an action under 42 U.S.C. § 1983 ("§ 1983") against Feather O. Houstoun, the Secretary of the Pennsylvania Department of Public Welfare ("Department"). Plaintiff alleges that the Department failed to comply with Title XIX of the Social Security Act ("Medicaid Act"), 42 U.S.C. § 1396 et seq., and accompanying regulations as well as various state statutes and regulations and the Due Process clause of the Fourteenth Amendment. According to Rite Aid, the Department improperly lowered the reimbursement rates for prescription drugs and related services in Pennsylvania's State Plan.

 Before the court are the defendant's motion for judgment on the pleadings on all counts of the complaint while plaintiff seeks judgment on the pleadings as to Count II only. When considering these motions, the court accepts all of the opposing party's well-pleaded allegations as true, as well as facts specifically admitted by the opposing party. See, e.g., Jablonski v. Pan American World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988).

 Rite Aid requests various forms of relief, including a declaration that the Department adopted the amended regulations in violation of 42 U.S.C. § 1396a(a)(30)(A), 42 C.F.R. §§ 440.210-211, 447.205(a) & (c)(4), 431.12(e), and 55 Pa. Code § 1101.70 (West 1997), as well as in violation of the Fourteenth Amendment of the United States Constitution. In addition, it seeks to enjoin defendant from continuing to use the lower reimbursement rates for calculating payments to Rite Aid for prescription drugs and related services. Rite also asks this court to direct defendant to pay the higher pre-October 1, 1995 rates until the new rates are adopted in conformance with federal and state laws and regulations. Finally, it claims attorney's fees and costs.

 Medicaid is a cooperative federal-state cost sharing program to finance medical assistance to indigent, elderly and disabled individuals. See 42 U.S.C. § 1396 et seq. Since Pennsylvania has elected to participate in Medicaid, it must meet federal requirements and submit a State Plan, and any amendments thereto, to the United States Department of Health and Human Services ("HHS") for approval. See, e.g., Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 L. Ed. 2d 455, 110 S. Ct. 2510 (1990). The Department is responsible for implementing Pennsylvania's State Plan.

 The Medicaid Act requires states to pay for certain enumerated services and allows states to provide additional services. § 1396a(a)(10)(A); 42 C.F.R. §§ 440.210-440.211. Because Pennsylvania has opted to include prescription drugs and related services in its State Plan, it has contracted with Rite Aid, among others, to provide these services. See 55 Pa. Code § 1121.

 It is undisputed that the Department submitted the amended regulations, which are the subject of this lawsuit, to Pennsylvania's Independent Regulatory Review Commission ("IRRC") for approval on August 8, 1995. Defendant did not issue a notice of proposed rulemaking or provide Pennsylvania's medical care advisory committee ("MAAC") with a copy of the regulations before sending them to the IRRC. The Department, however, did publish a notice in the August 26, 1995 Pennsylvania Bulletin stating that it "will amend" the regulations effective October 1, 1995. See 25 Pa. Bull. at 3540 (Aug. 26, 1995). The regulations were deemed approved by the IRRC on September 8, 1995 and took effect on October 1, 1995. The text of the order of the Department adopting the regulations was published in the Pennsylvania Bulletin on September 23, 1995. 25 Pa. Bull. at 3978.

 On December 29, 1995, the Department sent the amended State Plan to the Health Care Financing Administration ("HCFA") of HHS for approval. HCFA approved Pennsylvania's revised State Plan with the lower reimbursement rates on May 7, 1996, with the changes effective October 1, 1995.

 I. Enforceability

 Defendant first asserts that a private party such as Rite Aid may not seek enforcement of the Medicaid regulations under § 1983, although the defendant apparently concedes that Rite Aid has a right of action to enforce § 1396a(30)(A) itself. (Br. of Def. in Opp'n to Rite Aid of Pa. Mot. for J. on the Pleadings n.4). Accordingly, defendant moves for judgment on the pleadings on the claim in Count I of the complaint that defendant violated a regulation in not adequately consulting with the medical advisory committee before promulgating the lower reimbursement rates. Defendant has a similar argument as to the claim in Count II that it violated the public notice requirements of the regulations.

 Rite Aid is suing under § 1983 to enforce requirements found in 42 C.F.R. § 447.205 and 42 C.F.R. § 431.12(e). These regulations are authorized by § 1396a(a). Section 1983 provides a remedy for deprivation under color of state law of "any rights ... secured by the Constitution and laws" of the United States. 42 U.S.C. § 1983.

 The Court of Appeals for the Third Circuit thoroughly analyzed this question when it held that West Virginia University Hospitals, Inc. had a remedy under § 1983 to enforce the Medicaid regulations implementing § 1396a(a)(13)(A). West Virginia, 885 F.2d at 35. It decided that "valid federal regulations as well as federal statutes may create rights enforceable under § 1983." Id. at 18. Since the regulations at issue in this case are also authorized by § 1396a, we follow West Virginia's analysis and conclusion.

 The court emphasized that § 1396a(a) contains mandatory language. It commands that a state "must" provide for certain methods and standards when setting payment rates. West Virginia, 885 F.2d at 19-20. This statutory language quashes any doubts that State Plans are not subject to federal conditions. Id. at 20.

 In addition, the Third Circuit rejected arguments that the Medicaid Act only confers rights on Medicaid patients. Id. at 21. Section 1396(a)(13)(A) established a plan for adequate hospital reimbursement. Hospitals, as well as Medicaid patients, were intended beneficiaries. "Their [the hospitals'] interests and the interests of medicaid patients are bonded by a common goal, the delivery of adequate health care by hospitals to state medicaid patients and the enjoyment of such care by patients." Id. at 20. The Third Circuit joined other courts in allowing hospitals to enforce Medicaid Act violations because patients and hospitals have "parallel" interests. Id. at 21. The same holds true for Rite Aid. As a Medicaid provider, Rite Aid has a private right of action to enforce the statute and regulations which mandate adequate reimbursement for prescription drugs and related services.

 The West Virginia court quickly disposed of the second prong of the two part test. Pennsylvania argued that providing an administrative remedy and subjecting the State Plan to HCFA approval meant that Congress intended to foreclose private enforcement of the Medicaid Act. Id. at 22. The Third Circuit disagreed. "The existence of a state administrative remedy does not ordinarily foreclose resort to § 1983." Wright v. Roanoke Redevelopment and Housing Auth., 479 U.S. 418, 427-28, 93 L. Ed. 2d 781, 107 S. Ct. 766 (1987). Moreover, the possibility that HCFA may suspend or reduce federal payments does not prohibit private enforcement for past violations. See West Virginia, 885 F.2d at 22. The second prong of the test is satisfied.

 The Department submits that a better view is expressed in Kansas Hosp. Ass'n v. Whiteman, 835 F. Supp. 1556 (D. Kan. 1993), aff'd mem. sub nom. Williams v. Whiteman, 36 F.3d 1106 (10th Cir. 1994). While Kansas Hosp. held that 42 C.F.R. § 431.12(e) is not privately enforceable, the district court specifically noted that its holding contradicted the Third Circuit's conclusion in West Virginia. 835 F. Supp. at n.37. Whatever the merits of Kansas Hosp. may be, we are bound by our Court of Appeals' decision. Rite Aid has a right of action to bring its claims under § 1983.

 II. Count I

 1. 42 U.S.C. § 1396a(a)(30)(A)

 The Department further moves for judgment on the pleadings with respect to Rite Aid's claims in Count I of its complaint under 42 U.S.C. § 1396a(a)(30)(A) ("(30)(A)"). Rite Aid brings both a "procedural" and a "substantive" § ...


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