Medicaid and the unconstitutional dimensions of prior authorization.

• Author: Ranjan, Jagan Nicholas
• Position: Case Note

TABLE OF CONTENTS INTRODUCTION I. THE STRONG MEDICINE OF PREEMPTION A. A Purposive Framework: The Search for Intent 1. The Doctrinal Formulation 2. Purposive Application: The Maine Rx Program B. A Delicate Balance Undone: The Impermissibility of Cost over Access II. A SLEEPING GIANT AWAKENS: THE DORMANT COMMERCE CLAUSE AND THE PRACTICAL EFFECTS OF PRIOR AUTHORIZATION STATUTES A. A Word on Market Participation: The Easy Case B. Extraterritoriality and the Prohibition Against Legislative Projection C. Medicaid in the Balance: An Examination of Burdens and Benefits CONCLUSION INTRODUCTION

If a free society cannot help the many who are poor, it cannot save the few who are rich. --John Fitzgerald Kennedy (1) Summum ius summa iniuria. --Cicero (2) The political outcry over prescription drug costs has been one of the most vociferous in recent memory. From tales depicting renegade seniors sneaking cheap prescriptions of Vioxx out of Tijuana across the border, (3) to the promises of reduced prices made by front-runners during the 2000 Presidential election, (4) the calls for lower drug prices have been forceful and demanding. This war for lower-priced pharmaceuticals fought by consumers, interest groups and politicians against the pharmaceutical industry itself has recently developed yet another front. The latest battle is over Medicaid. (5) The new victims are the poor.

Presently, federal statutory provisions in the Medicaid program provide relief from high drug prices through a mandatory rebate mechanism. (6) Federal law requires pharmaceutical manufacturers to rebate their drugs sold to Medicaid recipients at a minimum level of 15.1 percent of the average manufacturer's price of those drugs. (7) In addition to the mandatory rebate, federal law provides for the discretionary provision of prior authorization by which the states may serve the best interests of their Medicaid recipients in a cost-effective manner. (8) The federal Medicaid program allows states to condition prescription of a covered drug on special prior authorization of that drug with a state official. (9) Both the mandatory rebate and prior authorization provisions serve to balance access and cost in an attempt to provide necessary care for the indigent. (10)

In the face of mounting pressure over rising drug prices, several states sought to expand the federal rebate and prior authorization provisions in order to further reduce pharmaceutical prices for Medicaid beneficiaries. (11) The most legally controversial of these state programs has been the "Maine Rx Program" ("Maine Program"). (12) Under the Maine Program, the Commissioner of the Maine Department of Human Services negotiates to obtain rebates above and beyond those required by federal law with pharmaceutical manufacturers. (13) Although these rebates are voluntary, those non-compliant manufacturers are subject to prior authorization for their particular noncomplying drugs. (14) Thus, Maine in effect uses the prior authorization as an incentive or a leverage device for extracting supplemental rebates from manufacturers for its citizens. (15)

With the advent of the Maine Program in May 2000, controversy ensued. The Pharmaceutical Research and Manufacturers of America ("PhRMA") quickly filed suit in the District Court of Maine (16) arguing: (1) the prior authorization provision was preempted by federal Medicaid law; and (2) the mandatory rebate provision was an extraterritorial regulation in violation of the dormant commerce clause of the Constitution. (17) PhRMA asserted that the use of prior authorization as a leverage device ran contrary to the clear congressional intent limiting the use of prior authorization to curbing over-prescription of unnecessary medication. (18) Therefore, PhRMA contended, federal Medicaid law governing prior authorization and the congressional intent behind that provision should preempt the Maine Program. PhRMA also argued that the supplemental state rebate provision under the Maine Program unconstitutionally regulated transactions between manufacturers and wholesalers that took place wholly out-of-state. (19) As a result, PhRMA asserted that such an extraterritorial regulation violated the dormant commerce clause. (20) In Pharmaceutical Research & Manufacturers of America v. Commissioner, Maine Department of Human Services, the District Court of Maine agreed with PhRMA on both the preemption and dormant commerce clause claims. (21) On appeal, however, the First Circuit in Pharmaceutical Research & Manufacturers of America v. Concannon (22) reversed on both points of law and upheld the Maine Program. The Supreme Court, realizing the significance of the dispute, granted certiorari in June of 2002. (23)

The Maine Program presents a novel method for dealing with high prescription drug prices for Medicaid recipients and the public at large. Due to the potential of such a programs to cut Medicaid costs, other states have watched and continue to follow closely the litigation over the Maine Program as they attempt to formulate similar statutes. (24) Thus, the legality of the Maine Program may be of great consequence for many states and their strategies in combating escalating pharmaceutical prices. (25) Since the Maine Program and other similar programs that tie supplemental rebates to prior authorization may serve as revolutionary statutory models for the rest of the nation, (26) assessing the constitutionality of such statutes and the litigation arising under the Maine Program is of tremendous importance. (27) In particular, the most salient legal issues regarding preemption and the dormant commerce clause require attention.

The Supremacy Clause of the Constitution (28) provides the doctrinal basis for preemption claims. Pursuant to the Supremacy Clause, any state law running contrary to Acts of Congress must yield to those federal acts. (29) Preemption claims normally fit into one of three categories: express, (30) implied field, (31) and implied conflict preemption. (32) Implied conflict preemption is the relevant preemption claim in the case of a Medicaid dispute over a prior authorization state statute. (33)

Since the conflict is implicit in implied conflict cases, ascertainment of congressional intent is of paramount importance in assessing these claims. (34) A mere fragment or a strained inference depicting congressional intent is not enough to preempt a state law. (35) The presumption is against preemption, (36) and only when congressional intent is shown to be "clear and manifest" will that presumption be rebutted and preemption found. (37)

Due to the integral role of congressional intent in implied conflict preemption cases, the interpretive devices used to ascertain intent may be crucial to the discovery of Congress's clear and manifest purposes. Consequently, whether a judge is committed to a textualist or a purposive paradigmatic framework (38) may result in the use of widely varying legislative materials and ultimately result in different findings regarding preemption. (39) Similarly, the nature of the statute involved may lend guidance as to the discovery of true congressional intent and a finding for preemption. (40) For example, in the case of Medicaid, the statute embodies a delicate balance of compromises between medical professionals, patients, manufacturers, federal legislators, and state interests. (41) Therefore, identifying the inherent nature of the statute at hand may provide guidance to a judge seeking to interpret that statute in a manner consonant to the underlying nature and the corresponding purpose behind the various legislative compromises.

In addition to the preemption issue, programs like Maine's come under constitutional attack as violations of the dormant commerce clause. The dormant commerce clause forbids states from unduly burdening interstate commerce even in the absence of specific congressional regulation. (42) Courts analyze state statutes under varying levels of scrutiny corresponding to the degree a statute facially discriminates against out-of-staters. (43) Of pertinence to this Note are two specific categories of laws: laws that regulate extraterritorially (44) and laws that are facially neutral. (45)

The preemption and dormant commerce clause issues serve as the largest stumbling blocks in the passage of statutes like the Maine Program. Clearing these constitutional hurdles is necessary before such programs can become a reality and a long-lasting solution to high prescription drug prices. This Note contends that these constitutional hurdles cannot be cleared. Part I argues that the state prior authorization statutes are preempted by federal Medicaid law. Part II then contends that the state prior authorization statutes violate the dormant commerce clause of the Constitution because they regulate extraterritorially and alternatively fail under a dormant commerce clause balancing test. (46) This Note concludes that state prior authorization statutes, such as the Maine Program, are unconstitutional devices that also fail to provide an appropriate remedy for high prescription drug prices.

1. THE STRONG MEDICINE OF PREEMPTION

   In examining prior authorization statutes, such as the Maine Program, the key issue in the preemption context is ascertaining congressional intent. If the state statutes "stand[] as ... obstacle[s]" in the accomplishment of federal objectives, then courts must find such statutes preempted under implied conflict preemption standards. (47) Determining congressional intent is not, however, an easy task. Moreover, seemingly multiple expressions of congressional intent confound and confuse the inquiry in light of varying interpretive theories. (48) This Part argues that, subsequent to a court adopting a more paradigmatic and politically contextual approach in searching for congressional intent, the prior authorization statutes will be deemed to run contrary to that congressional intent and preempted...