Maine Court Decision

Health Care Program

NCSL Summary of Court Decision Concerning Maine's Rx Program Legislation

Updated May 30, 2001

On May 16th, the federal circuit court in Boston lifted an injunction imposed by a lower court in October 2000 that had delayed implementation of the Maine Rx Program. The appeals court ruling allows Maine to move ahead with program implementation. This memo provides summary information on the decision.

The Maine Rx program, enacted during the 2000 legislative session, directs the Maine Department of Human Services to negotiate rebate agreements with pharmaceutical manufacturers and then give those rebates to retail pharmacists to allow them to charge uninsured consumers lower prices. The drug products of any non-compliant manufacturer would be subjected to prior authorization requirements in the state's Medicaid program. The Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit against Maine, challenging the legality of the program and asking for an injunction.

PhRMA's suit presented two major arguments. Both were rejected by the appeals court.

PhRMA said that the Rx program makes inappropriate use of the Medicaid prior authorization provisions. PhRMA said that Medicaid prior authorization provisions are intended to foster sound clinical and administrative practices in the Medicaid program, and cannot be used as an incentive or a punishment in connection with other state goals, such as the goal of obtaining rebates. The appeals court said that as long as the state implements prior authorization in accordance with federal rules, "we are not convinced that the Medicaid statute is concerned with the motivation behind imposing prior authorization." (Federal Medicaid prior authorization rules require that Medicaid recipients have access to needed medications and specifically require that responses to prior authorization requests be granted within 24 hours and that beneficiaries receive at least a 72-hour supply of a covered drug in an emergency situation.)

PhRMA said that Maine Rx violates the Commerce Clause by regulating business transactions that occur between the manufacturer and the distributor outside the borders of Maine. The appeals court said that the law is not regulating the price of any out-of-state transaction, "either by its express terms or by its inevitable effect." Maine is not tying the price of its products to out-of-state prices nor is it requiring the rebate be a certain amount dependent on the price in other states, the court said. To PhRMA's argument that the result of the rebate provision will be to affect profits that manufacturers receive from distributors (generally in out of state transactions), the court says: "Simply because the manufacturer's profits might be negatively affected by the Maine Act, however, does not necessarily mean that the Maine act is regulating those profits." The court notes that the state's efforts to negotiate rebates "may become coercive or otherwise inappropriate, but we cannot say so on this ... challenge. This may be an issue that needs to be revisited once the Act takes effect." In response to PhRMA's argument that passage of similar legislation in other states would violate the Commerce Clause, the court says "there is no evidence that adverse effects on interstate commerce will occur if such legislation were passed in other states. The Act is not per se violative of the Commerce Clause."

The ruling concludes by noting "This is a close case but we do not think that ... the State of Maine should be prohibited from putting the Act into play."

A note on this ruling:

While this case is very important, many states, including Maine, are equally interested in a ruling expected soon in a PhRMA challenge to the "Vermont waiver" pharmacy discount approach. Late last year, Health Care Financing Administration (HCFA) approved Vermont's Section 1115 demonstration request to offer drug discounts to uninsured state residents through the state Medicaid program. (Early this year, Maine received approval for a similar program.) Because the discount program, usually called the "Vermont waiver," is set up through Medicaid, manufacturers must provide federally-mandated Medicaid rebates to the state on behalf of discount program participants. These rebates ultimately go to retail pharmacists to compensate them for the price discount they provide to consumers under the program. PhRMA sued the U.S. Department of Health and Human Services (DHHS), arguing that approval by the department of the 1115 waiver was beyond the scope of the DHHS secretary. Arguments are being heard now and a ruling is expected soon.

While both the Maine Rx Program and the "Vermont waiver" rely on manufacturer rebates to pay for discounts to consumers, the Vermont approach is likely to be easier for many states to implement. Maine Rx requires negotiation of rebates, while the Vermont waiver approach extends an existing rebate schedule to a new group. Vermont implemented its waiver earlier this year (a request for an injunction to prohibit implementation was denied) and Maine intends to start its shortly. Maryland enacted legislation this year directing the Medicaid agency to apply for such a waiver.

NCSL's web site includes updated information on discount or rebate legislation currently under consideration among the states.

By Donna Folkemer- Forum for State Health Policy Leadership

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