Pharmaceutical Research and Mfrs. of America v. Walsh - 538 U.S. 644 (2003)
OCTOBER TERM, 2002
PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA v. WALSH, ACTING COMMISSIONER, MAINE DEPARTMENT
OF HUMAN SERVICES, ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
No. 01-188. Argued January 22, 2003-Decided May 19,2003
A State participating in Medicaid must have a medical assistance plan approved by the Secretary of Health and Human Services (HHS). In response to increasing Medicaid expenditures for prescription drugs, Congress enacted a cost-saving measure in 1990 that requires drug companies to pay rebates to States on their Medicaid purchases. States have since enacted supplemental rebate programs to achieve additional cost savings on Medicaid purchases and purchases for other needy citizens. The purpose of the "Maine Rx" Program is to reduce prescription drug prices for state residents. Under the program, Maine will attempt to negotiate rebates with drug manufacturers. If a company does not enter into a rebate agreement, its Medicaid sales will be subjected to a "prior authorization" procedure that requires state agency approval to qualify a doctor's prescription for reimbursement. Petitioner, an association of nonresident drug manufacturers, challenged the program before its commencement date, claiming that it is pre-empted by the Medicaid Act and violates the negative Commerce Clause. Without resolving any factual issues, the District Court entered a preliminary injunction preventing the statute's implementation, concluding, inter alia, that any obstacle, no matter how modest, to the federal program's administration is sufficient to establish pre-emption. The First Circuit reversed.
Held: The judgment is affirmed. 249 F.3d 66, affirmed.
JUSTICE STEVENS delivered the opinion of the Court with respect to Parts I, II, III, and VI, concluding that petitioner has not carried its burden of showing a probability of success on the merits of its Commerce Clause claims. Its arguments-that the rebate requirement constitutes impermissible extraterritorial regulation and that it discriminates against interstate commerce in order to subsidize in-state retail sales-are unpersuasive. Unlike the price control statute invalidated in Baldwin v. G. A. F. Seelig, Inc., 294 U. S. 511, and the price affirma-
tion statute struck down in Healy v. Beer Institute, 491 U. S. 324, Maine Rx does not regulate the price of any out-of-state transaction by its express terms or its inevitable effect. Nor does Maine Rx impose a disparate burden on out-of-state competitors. A manufacturer cannot avoid its rebate obligation by opening production facilities in Maine and would receive no benefit from the rebates even if it did so; the payments to local pharmacists provide no special benefit to competitors of rebatepaying manufacturers. West Lynn Creamery, Inc. v. Healy, 512 U. S. 186, distinguished. pp. 668-670.
JUSTICE STEVENS, joined by JUSTICE SOUTER, JUSTICE GINSBURG, and JUSTICE BREYER, concluded in Parts IV and VII:
(a) The answer to the question before the Court-whether petitioner's showing was sufficient to support the District Court's injunctionwill not determine the validity of Maine's Rx Program since further proceedings may lead to another result. Moreover, the Secretary may view Maine Rx as an amendment to its Medicaid Plan that requires his approval before becoming effective. As the case comes to this Court, the question is whether there is a probability that Maine's program was pre-empted by the federal statute's mere existence. Therefore, there is a presumption that the state statute is valid, and the question asked is whether petitioner has shouldered the burden of overcoming that presumption. pp. 660-662.
(b) At this stage of the litigation, petitioner has not carried its burden of showing a probability of success on the merits of its claims. P.670.
JUSTICE STEVENS, joined by JUSTICE SOUTER and JUSTICE GINSBURG, concluded in Part V that petitioner's showing is insufficient to support a finding that the Medicaid Act pre-empts Maine's Rx Program insofar as it threatens to coerce manufacturers into reducing their prices on non-Medicaid sales. Petitioner claims that the potential interference with Medicaid benefits without serving any Medicaid purpose is prohibited by the federal statute. However, petitioner must show that Maine Rx serves no such goal. In fact, Maine Rx may serve the Medicaidrelated purposes of providing benefits to needy persons and curtailing the State's Medicaid costs. While these purposes would not provide a sufficient basis for upholding the program if it severely curtailed Medicaid recipients' prescription drug access, the District Court erred in assuming that even a modest impediment to such access would invalidate the program. The Medicaid Act gives States substantial discretion to choose the proper mix of amount, scope, and duration limitations on coverage as long as care and services are provided in the recipients' best interests. Alexander v. Choate, 469 U. S. 287, 303. That a State's decision to curtail Medicaid benefits may have been motivated by a state