After Indiana’s Medicaid program cut pharmacy dispensing fees through an emergency regulation, a state pharmacy trade association and others (the “Plaintiffs”) sued to block such fee cuts. Despite previously granting a Temporary Restraining Order (TRO) prohibiting the Medicaid program from making such fee cuts, the Southern District of Indiana recently reversed course in a decision vacating the TRO and refusing to grant a preliminary injunction that would continue to block the fee cuts.

At issue was Indiana’s decision to decrease the dispensing fee paid to all 1,391 Indiana pharmacies participating in the Medicaid program from $4.90 to $3.00 per prescription through an emergency rule effective July 1, 2011. According to the Plaintiffs, the fee reduction would force many small pharmacies to close and limit Medicaid beneficiaries’ access to prescription drugs.

In its order declining to issue a preliminary injunction, the court first determined that the Plaintiffs could bring suit under a theory that the dispensing fee reduction violated a federal statute obligating states to ensure the “efficiency, economy and quality of care” provided through a state’s Medicaid program. A pending Supreme Court case, however, will soon answer whether private groups like the Plaintiffs may even bring claims seeking to enforce that section of the federal Medicaid statute once and for all. If the Supreme Court finds that private Plaintiffs may not bring suit under this section of the federal Medicaid statute, the Plaintiffs’ case will likely be thrown out.

Next, the court determined that Indiana could implement the dispensing fee cut prior to approval from the Centers for Medicare and Medicaid Services (CMS), despite the fact that some courts in other jurisdictions prohibit state Medicaid program modifications without CMS approval. If, however, CMS disapproves of the dispensing fee reduction, the court noted that “the strength of Plaintiffs’ case for success on the merits would be greatly improved.”

Finally, despite the Plaintiffs’ claims that the dispensing fee reduction could decrease Medicaid beneficiaries’ ability to access Medicaid-participating pharmacies, the court chose to evaluate the “actual post-implementation results” of the dispensing fee reduction. The court’s wait-and-see approach resulted from the fact that neither the Plaintiffs nor the state could provide any reliable evidence on whether pharmacies would close and whether Medicaid beneficiaries would lose access to prescription drugs as a result of the dispensing fee reduction.