ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEES
STEVE CARTER MICHAEL B. MCMAINS
Attorney General of Indiana MATTHEW W. FOSTER
McMains Foster & Morse, P.C.
DAVID L. STEINER Indianapolis, Indiana
Deputy Attorney General
Indianapolis, Indiana ATTORNEYS FOR AMICI CURIAE
AmHealth (Evansville), Inc., et al.
J. MICHAEL GRUBBS
THOMAS F. SHEA
JODY L. DEFORD
Barnes & Thornburg
SUPREME COURT OF INDIANA
INDIANA FAMILY AND SOCIAL SERVICES ) ADMINISTRATION, et al., ) ) Appellants (Defendants ), ) )v. ) No. 49S00-0112-CV-647
May 28, 2002
Faced with a sizeable projected financial shortfall, Indianas Medicaid administrators adopted both emergency
and permanent rules to pay pharmacies a dollar less per prescription dispensed and
reduce their drug reimbursement rate by three percent. These measures would save
the State $825,000 per month.
A group of retail drug companies, pharmacy trade associations, and individual Medicaid recipients
(collectively Walgreens) obtained a preliminary injunction preventing these rules from taking effect.
For reasons explained below, we reverse the order granting the preliminary injunction.
To address this shortfall, Gifford explored various cost containment measures. Among other
things, she recommended reducing the drug dispensing fee from four dollars to two
dollars and decreasing the pharmacy reimbursement rate from ninety to eighty-seven percent of
the average wholesale price (AWP).
On April 1, 2001, FSSA published a proposed permanent rule reflecting these reductions,
and on April 23
rd it conducted a public hearing. Based upon the
hearing and input provided by members of the pharmacy community, FSSA revised the
proposed rule to reflect a three dollar dispensing fee.
The Attorney Generals office received the final rule on July 10, 2001, and
approved it on August 24
th. Governor Frank OBannon signed the rule on
August 28th, and the Secretary of States office accepted it for filing on
August 29th, with a designated effective date of September 28, 2001.
While the permanent rule was still in the pipeline, FSSA adopted an emergency
rule to put the cost containment measures in as soon as possible because
of the fiscal crisis. (T.R. at 56.) On August 20, 2001,
State Budget Director Betty Cockrum exercised recently-enacted statutory authority and directed FSSA to
adopt emergency rules to limit Medicaid expenditures to the amount of the legislative
See P.L. 291-2001 § 48. FSSA officials signed an emergency
rule that was substantively identical to the permanent rule, and notified Medicaid providers
that the new rates would become effective on August 27, 2001.
Walgreens obtained a temporary restraining order to delay implementation of the emergency rule
and sought an injunction against implementation of both rules. Following a hearing,
the trial court granted the preliminary injunction on October 9
We accepted jurisdiction over the ensuing appeal without prior consideration by the Court
of Appeals, to expedite a resolution.
See Ind. Appellate Rule 56(A).
To obtain a preliminary injunction, the moving party has the burden of showing
by a preponderance of the evidence the following:
1) [movants] remedies at law were inadequate, thus causing irreparable harm pending resolution of the substantive action; 2) it had at least a reasonable likelihood of success at trial by establishing a prima facie case; 3) its threatened injury outweighed the potential harm to appellant resulting from the granting of an injunction; and 4) the public interest would not be disserved.
Id. (citations omitted); T.H. Landfill Co., Inc. v. Miami County Solid Waste Dist., 628 N.E.2d 1237, 1238 (Ind. Ct. App. 1994). If the movant fails to prove any of these requirements, the trial courts grant of an injunction is an abuse of discretion. Boatwright v. Celebration Fireworks, Inc., 677 N.E.2d 1094, 1096 (Ind. Ct. App. 1997).
The trial court held that FSSA violated several procedural requirements in adopting the
permanent and emergency rules. Having found statutory violations that demonstrated a likelihood
of success, the court relied on a per se rule under which the
other elements of the standard injunction analysis were presumed.
This Court has indicated that a relaxed standard may sometimes be applied for clear, uncontested unlawful conduct. Schrenker v. Clifford, 270 Ind. 525, 529, 387 N.E.2d 59, 61 (1979). But because parties are relieved of several showings usually necessary to obtain injunctive relief, this relaxed standard is only proper when it is clear that [a] statute has been violated. Union Township Sch. Corp. v. State ex rel. Joyce, 706 N.E.2d 183, 192 (Ind. Ct. App. 1998).
In prior Indiana decisions employing the relaxed standard, the per se rule has
been used to enjoin activity that is clearly unlawful and against the public
interest, such as the practice of medicine without a license.
se rule has never been used to permit a private party to enjoin
State action based on an alleged procedural deficiency in promulgating rules. A
private assertion of public interest will rarely justify enjoining State conduct when it
is based only on a procedural challenge and a prima facie case.
Here, there is no question that FSSA has legal authority to revise Medicaid
dispensing fees and reimbursement rates. The question is whether it went about
the task appropriately. The rules at issue may or may not have
been properly promulgated (as we discuss further below), but the action itself is
one the statute allows.
Absolving Walgreens from proving irreparable injury and a balance of harm in its
favor was error. We therefore proceed to review the standard proofs necessary
for obtaining injunctive relief.
Walgreens initial burden was to demonstrate that remedies at law were inadequate, thus
causing irreparable harm pending resolution of the substantive action.
Tilley, 725 N.E.2d
at 153-54 (citations omitted). If an adequate remedy at law exists, injunctive
relief should not be granted. A party suffering mere economic injury is
not entitled to injunctive relief because damages are sufficient to make the party
whole. Xantech Corp. v. Ramco Indus., Inc., 643 N.E.2d 918, 921-22 (Ind.
Ct. App. 1994).
The crux of Walgreens argument is that a reduction in dispensing fees and reimbursement rates will cause a handful of pharmacies to close. Plaintiff Ralph Anderson testified that he owns two Bedford pharmacies: a retail pharmacy that offers prescription home delivery, among other services, and an institutional pharmacy that does not conduct business directly with the public. Anderson said the institutional pharmacy would likely close and speculated that the other might as well. See footnote (T.R. at 212, 227-28.)
Also, a CVS spokesman testified that some of the 268 CVS pharmacies located
in Indiana will ultimately have to be closed as a result of the
Medicaid cuts. (T.R. at 254, 256, 259.) He cited only three
definite instances, and further testified that closing stores was part of the ordinary
course of business and that customers of the closed stores always find alternative
providers. (T.R. at 259, 267-68, 270-72, 277.)
Walgreens failed to identify any injury beyond purely economic injury, which is not enough to justify injunctive relief. We conclude that post-trial damages would adequately compensate for any injuries should Walgreens prevail at trial. Moreover, the potential harm from the estimated one hundred million dollar State Medicaid deficit outweighs Walgreens potential injury.
Notwithstanding . . . any other law, or any rule, if the budget
director makes a determination at any time during either fiscal year of the
biennium that Medicaid expenditures to date are at a level that may cause
total expenditures for the year to exceed total Medicaid appropriations for the year,
the budget director may, after review by the budget committee, direct the secretary
to adopt emergency rules to the Medicaid program to decrease expenditures that have
risen significantly to limit Medicaid expenditures to the Medicaid appropriations in this act.
Adjustments under this subsection may not:
violate a provision of federal law; or
jeopardize the states share of federal financial participation;
applicable to the state appropriations contained in the biennial budget for Medicaid assistance and Medicaid administration.
P. L. 291-2001 § 48 (emphasis added). See footnote
The legislature explicitly provided that this statute would supplant all others. Therefore, if the statutes provisions were met, the emergency rule is valid.
Walgreens argues that FSSA did not satisfy the statutes requirement of review by
the budget committee, so the emergency rule is invalid. Director Gifford testified
that in June 2001 she presented the budget committee with a summary of
all pending cost containment rules and advised them of the likelihood of emergency
action. (T.R. at 62.) Gifford said the committee members listened to
my information and asked questions and that there was discussion about among
the members of the budget committee about the [dispensing fee and reimbursement rate]
(T.R. at 68, 104.) Gifford also gave budget
committee members a handout summarizing the status of Medicaid cost containment proposals.
(T.R. at 104, Def. Exh. A.)
Walgreens offered testimony by two budget committee members, Senators Vi Simpson and Robert
Meeks. Senator Simpson testified that only formal agenda items are reviewed by
the committee and that if we dont want to review something, we just
dont put it on the agenda.
(T.R. at 186.) Senator Simpson
acknowledged that the committee discussed the proposed AWP reimbursement and dispensing fee cuts.
(T.R. at 188.)
The words of the statute do not bear out Walgreens argument that FSSA
can act only after the budget committee lists its proposals for review as
a separate item on the agenda. Public Law 291-2001 § 48 assures
budget committee members advance notice of agency actions and creates an opportunity for
the members to participate in the deliberations. It does not, however, condition
FSSAs authority to act on approval by the committee, as certain other statutes
Here, Gifford told the committee about the specifics and urgency of these anticipated
measures, and committee members had an opportunity to express their views. This
appears to comply with the straightforward language of the statute.
We conclude that P.L. 291-2001 § 48 authorized the procedure followed in adopting the emergency rule, and that budget committee review was sufficient. The trial courts findings and conclusions to the contrary were therefore clearly erroneous. Based on this conclusion, we need not address Walgreens other statutory challenges to the emergency rule.
To expedite resolution of this dispute, we address one practical consideration that neither
party has raised: how long an emergency rule under P.L. 291-2001 §
48 may remain in effect. Section 48 is silent on this point,
so we rely on the time frame in the general statute on emergency
rules, Ind. Code Ann. § 4-22-2-37.1(g) (West 2001). Under this statute, emergency
rules may generally remain in effect for ninety days after they are accepted
for filing and may be extended by re-adoption for one additional ninety-day period.
Id. Here, the clock will begin to run when the temporary
injunction is lifted and the emergency rule goes into effect.
1. The Survey Statutes. Walgreens bases part of its challenge on
Ind. Code Ann. §§ 12-15-31-1 through 4 (West 2001), which said:
Sec. 1. Not later than October 1 of each year, the office [of Medicaid Policy and Planning] shall conduct a survey of pharmacy providers to assess the appropriate level of dispensing fees to be paid to providers for prescribed drugs.
Sec. 2. A survey under section 1 of this chapter must include an evaluation of dispensing fees in other states and the policies of the federal Health Care Financing Administration (HCFA).
Sec. 3. A dispensing fee shall be evaluated based upon the following information concerning the costs of pharmacy operation:
Professional services data.
Sec. 4. If an adjustment is made following a survey conducted under section 1 of this chapter, the secretary shall commence the rulemaking process under IC 4-22-2 to make the adjustment not later than November 1 of the year in which the survey was conducted.
The General Assembly repealed this statute, effective approximately April 29, 2001. See P.L. 291-2001 § 211. This was after the proposed rule was published and the public hearing held, but before the rule was finalized and submitted to the Attorney General.
The trial court held that FSSAs failure to conduct a survey violated the
statute because the repeal was effective only prospectively. The court reasoned that
the repeal did not release Defendants previously incurred obligation to conduct the dispensing
fee survey because the requirement remain[ed] in force under Ind. Code § 1-1-5-1,
which says repeal of any statute shall not have the effect to release
or extinguish any penalty, forfeiture, or
liability incurred under such statute. Ind.
Code Ann. § 1-1-5-1 (West 2001) (emphasis added).
We do not agree that the term liability, in this context, encompasses rule-making
procedural requirements. Moreover, the statute merely established a deadline
if [a dispensing
fee] adjustment is made following [an annual] survey. Ind. Code § 12-15-31-4
(emphasis added). The statute did not, by its own terms, preclude the
action taken here, which was an adjustment made independently of this annual market
2. Administrative Rules Oversight Committee (AROC) Review. Walgreens argues that FSSAs
failure to obtain pre-adoption AROC review invalidates the rule. Indiana Code Ann.
§ 4-22-2-46 (West 2001) requires AROC to carry out a program to review
each rule adopted under this chapter if its fiscal impact exceeds $500,000.
The review covers economic impact, compliance with legislative intent, extent of any unfunded
mandate, and compliance with Ind. Code Ann. § 4-22-2-19.5 (see discussion below).
Ind. Code § 4-22-2-46.
Contrary to Walgreens argument and the trial courts conclusion, this statute plainly governs
only the conduct of AROC, which is not a party to this action.
FSSA did not violate the statute by adopting the rule without AROCs
3. Standards for Rules. Ind. Code Ann. § 4-22-2-19.5 (West 2001) says, in part:
(a) To the extent possible, a rule adopted under this article .
. . shall comply with the following:
Minimize the expenses to:
regulated entities that are required to comply with the rule
persons who pay taxes or pay fees for government services affected by the rule; and
consumers of products and services of regulated entities affected by the rule.
Achieve the regulatory goal in the least restrictive manner.
Walgreens argues that FSSA did not even attempt to meet this requirement.
FSSA counters that this is a very flexible standard, and correctly points out
that while the statute requires minimiz[ing] the expenses to regulated entities, this rule
did not affect pharmacy expenses at all. Ind. Code § 4-22-2-19.5(a)(1)(A); (Appellants
Br. at 22.). Rather, it reduced their revenues.
We agree that to the extent possible affords the agency broad latitude in
exercising judgment, and that this rule did not alter the pharmacies compliance expenses.
Moreover, this Medicaid cost containment strategy furthered both of the other objectives
stated in Ind. Code § 4-22-2-19.5(a)(1)(B) and (C), i.e., minimizing costs to taxpayers
and to Medicaid recipients. We therefore conclude that FSSAs failure to offer
evidence of any formal analysis to satisfy this statute does not invalidate the
4. Payments to Providers Statute. Indiana Code Ann. § 12-15-13-2(a) (West
2001) requires that payments to Medicaid providers be (1) consistent with efficiency, economy,
and quality of care; and (2) sufficient to enlist enough providers so that
care and services are available under Medicaid, at least to the extent that
such care and services are available to the general population in the geographic
Gifford worked with an outside consulting firm in deciding what cuts to propose
and in assessing whether the cuts would leave Medicaid rates more comparable to
non-Medicaid rates. (T.R. at 30.) As we observed above, Walgreens offered
testimony only that a handful of pharmacies around Indiana would close as a
result of these cuts and that some special services could be eliminated.
The record indicates that alternative providers would be available and that FSSA has
committed to take appropriate steps to ensure access and a quality of care
consistent with that offered to the general public.
On the other side of the coin, revising Medicaid rates so they are
more commensurate with private sector rates is consistent with economy and efficiency, as
the statute requires. FSSA has therefore met its burden of demonstrating compliance
with this statutory requirement.
5. Advice of Medical Staff. Indiana Code Ann. § 12-15-21-2 (West 2001) says, The secretary shall, with the advice of the office[ of Medicaid Policy and Planning]s medical staff, adopt rules under IC 4-22-2 and consistent with . . . the federal Social Security Act. See footnote Indiana Code Ann. § 12-15-21-3 (West 2001) also requires adoption of Medicaid rules, including those establishing limitations that are consistent with medical necessity concerning the amount, scope, and duration of the services and supplies to be provided.
Walgreens argues that FSSA did not prove that Gifford consulted with the doctor
on the Offices medical advisory panel,
but Gifford said that the doctor participated
in discussions and later testified unequivocally that the Offices medical advisory committee reviewed
(T.R. at 50, 99-100.) Furthermore, these rules did not
eliminate any medically necessary supplies and only potentially eliminated some services that the
program does not guarantee, such as home delivery. We therefore hold that
the trial court committed clear error in concluding that FSSA violated these statutes.
6. Fiscal Analysis. Indiana Code Ann. § 4-22-2-28(b) (West 2001) requires that after an agency has preliminarily adopted any rule with an estimated economic impact on regulated entities exceeding $500,000, it must submit the proposed rule to the Legislative Services Agency (LSA) so that LSA can prepare a fiscal analysis on the effect of compliance on the state and the regulated entities. The analysis must include an estimate of the proposed rules economic impact and a quantification of any unfunded mandate. Id. The agency shall consider the fiscal analysis as part of the rulemaking process. Id.
FSSA concedes that this was not done, but argues that this requirement only
applies to rules that create unfunded mandates. This reading contradicts the explicit
statutory language that requires an estimate of the economic impact of the proposed
and a determination concerning the extent to which the proposed rule creates
an unfunded mandate . . . . Ind. Code § 4-22-2-28(b) (emphasis
added). FSSA also argues that the exclusive focus of the statute is
increased regulatory burdens on businesses, and that this rule does not create such
a burden. Again, however, nothing in the statutory language supports such a
We agree with the trial court, therefore, that FSSA should have obtained an
LSA fiscal analysis.
The question then becomes, what is the proper remedy. Per Indiana
Code Ann. § 4-22-2-44 (West 2001), A rulemaking action that does not conform
with this chapter is invalid, and a rule that is the subject of
a noncomplying rulemaking action does not have the effect of law until it
is adopted in conformity with this chapter. Before the permanent rule may
take effect, therefore, FSSA must obtain LSAs fiscal analysis.
Because the requirement does not attach until after preliminary adoption, FSSA need not
go all the way back to square one. Rather, once it has
obtained and properly considered an LSA fiscal analysis, it may resubmit the proposed
rule to the Attorney Generals office and proceed toward permanent adoption should it
IV. Public Interest