Southwest Pharmacy Solutions, Inc. v. Texas Health & Human Services Commission
408 S.W.3d 549
| Tex. App. | 2013Background
- American Pharmacies (a cooperative of mostly small, independent Texas pharmacies) challenged HHSC rules (Subchapter J) implementing SB 7, which "carved in" outpatient pharmacy benefits into Texas Medicaid managed care (MMC).
- HHSC adopted rules to implement MMC pharmacy benefits but did not set or require minimum reimbursement rates for pharmacies under MMC; MCOs (and PBMs) negotiate payments with pharmacies under capitation contracts.
- American Pharmacies sued seeking declaratory relief (UDJA and APA) alleging HHSC had a statutory duty to set pharmacy reimbursement rates in MMC, that HHSC failed to comply with Gov’t Code §2006.002 (small‑business impact analysis), and that HHSC acted ultra vires.
- Trial court granted HHSC’s plea to the jurisdiction, finding American Pharmacies lacked a justiciable interest, HHSC had no MMC rate‑setting duty, HHSC substantially complied with §2006.002, and the commissioner did not act ultra vires.
- The court of appeals affirmed: it construed the Medicaid statutes and rules in context, deferred to HHSC where reasonable, and held that MMC’s capitation model and SB 7’s purpose foreclosed a state duty to set provider rates in MMC.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HHSC is statutorily required to set pharmacy reimbursement rates under MMC | HHSC’s duties under Tex. Gov’t Code §531.021 and Tex. Hum. Res. Code §32.028 (and related provisions) require rulemaking to set "medical assistance payments," which include MMC pharmacy payments | Statutory scheme and SB 7 carve pharmacy into MMC; chapter 32 rate‑setting applies to fee‑for‑service (payments made by HHSC), not MMC capitation contracts between HHSC and MCOs; agency interpretation is reasonable and consistent with federal MMC framework | Held for HHSC: no statutory duty to set MMC pharmacy rates; agency interpretation reasonable and entitled to deference |
| Whether HHSC complied with Gov’t Code §2006.002 (small business impact) when adopting Subchapter J | HHSC failed to adopt legal, feasible less‑onerous alternatives (e.g., mandate fee‑for‑service rates in MMC) and improperly rejected alternatives as infeasible/illegal | HHSC prepared economic impact statement and considered alternatives; alternatives proposed by plaintiff would defeat SB 7’s purpose or are legally/infeasible given federal rules and MMC structure | Held for HHSC: substantial compliance with §2006.002; alternatives plaintiff wanted would not achieve rule purpose |
| Whether American Pharmacies has a justiciable interest/standing to challenge Subchapter J under UDJA and APA | Economic injury from MMC and Subchapter J gives American Pharmacies standing to seek declaratory relief and to challenge the rulemaking | Economic losses flow from legislative ‘‘carve in’’ (SB 7) and private MMC contracts; Subchapter J does not prevent participation in Medicaid; no right to pre‑carve‑in fee rates under MMC contracts | Held for HHSC: American Pharmacies failed to allege a justiciable interest; no standing under UDJA/APA to invalidate Subchapter J |
| Whether the commissioner acted ultra vires by implementing MMC without rate‑setting for pharmacies | Commissioner exceeded authority by not prescribing reimbursement standards/rates for MMC pharmacy benefits | Commissioner reasonably construed statutes, implemented SB 7 consistent with MMC and federal law, and did not exceed authority | Held for HHSC: no ultra vires action; commissioner acted within discretion |
Key Cases Cited
- Heckman v. Williamson Cnty., 369 S.W.3d 137 (Tex. 2012) (standard for plea to the jurisdiction and subject‑matter jurisdiction review)
- Texas Citizens for a Safe Future & Clean Water v. Railroad Comm’n, 336 S.W.3d 619 (Tex. 2011) (deference to agency statutory interpretation when reasonable)
- Texas Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217 (Tex. 2004) (standards for plea to the jurisdiction; when evidence may be considered)
- Public Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201 (Tex. 1991) (deference to agency interpretation of its own rules unless plainly erroneous)
- Hawkins v. El Paso First Health Plans, Inc., 214 S.W.3d 709 (Tex. App.—Austin 2007, pet. denied) (explaining capitation/managed‑care financing distinctions)