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From Health Law Daily, August 27, 2014

Statutory fee only fit fee-for-service system, MCOs off the hook 

By Melissa Skinner, JD

A statute requiring the New Mexico Human Services Department (HSD) to pay pharmacists a specified fee for generic drugs was found only to be applicable in the fee-for-service context. As such, managed care organizations (MCOs) who pay pharmacists directly in a managed care system are not held to that statutory fee according to the Supreme Court of New Mexico. The decision reversed the holding of the New Mexico Court of Appeals, which found that the statutory fee applied to both fee-for-service and managed care systems (Starko, Inc. v New Mexico Human Services Dept., August 25, 2014, Maes, P).

Medicaid in New Mexico. Previously, in New Mexico, Medicaid was administered as a fee-for-service system in which HSD “directly provided Medicaid services to eligible recipients,” and “directly paid medical services providers, including pharmacists, from public funds.” According to the court, the state of New Mexico, which was motivated at least in part by cost-saving goals, decided to create an alternative to the fee-for-service system in the form of a managed care system. In the new system, the state contracts with MCOs, which are private organizations, “to deliver health care services to program participants for a fixed fee per Medicaid beneficiary,” and, in turn, the MCO negotiates contracts with providers such as pharmacists.

Section 27-2-16(B).Section 27-2-16(B) of the New Mexico Statutes specifically required that HSD “pay participating pharmacists the wholesale cost of the generic brand plus a dispensing fee of at least three dollars sixty-five cents ($3.65).” This provision was adopted while the fee-for-service system was still the only system in place in New Mexico.

Claims. Starko, Inc., and Jerry Jacobs represented a certified class of pharmacists and, in this matter, brought suit against the HSD department and certain MCOs claiming that pharmacists should be reimbursed at the statutorily proscribed for Medicaid beneficiaries’ drugs regardless of whether a fee-for-service or managed care system was in place. The court of appeals agreed with that argument and found that the fee should be applied to MCOs that contract with pharmacists.

Application of fee to MCOs. The New Mexico Supreme Court reversed the finding of the Court of Appeals and specifically found that Section 27-2-16(B) did not apply to MCOs, and instead, would only apply in scenarios in which the fee-for-service system still is in place. While the class of pharmacists claimed that the statute adopting the alternative, managed care system could be read in conjunction with the Section 27-2-16(B), the court noted that it does not necessarily follow that the two statutes should be applied together. Moreover, the court highlighted the motives behind adopting the managed care alternative when analyzing the legislative intent of whether both provisions should be read to apply the fee to MCOs. In that light, the court also noted that “as in this case, where lowering costs is a substantial concern, creating a new system but importing the old cost model is antithetical to the goals contemplated by the new system.” As such, the court reversed the holding of the court of appeals.

The case number is 33,382.

Attorneys: Gary K. King, Attorney General, for New Mexico Human Services Department. John Bennett Pound (John B. Pound, LLC) and Edward R. Ricco (Rodey, Dickason, Sloan, Akin & Robb, PA) for Presbyterian Health Plan, Inc. Lisa Mann (Modrall, Sperling, Roehl, Harris & Sisk, PA) for Cimarron Health Plan, Inc. Charles R. Peifer (Peifer, Hanson & Mullins, PA) for Starko, Inc.

Companies: New Mexico Human Services Department; Medical Assistance Division of the New Mexico Human Services Department; Presbyterian Health Plan, Inc.; Cimarron Health Plan, Inc.; Starko, Inc.

MainStory: TopStory CaseDecisions ManagedCareNews MedicaidNews DrugBiologicalNews GenericDrugNews MedicaidPaymentNews NewMexicoNews

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