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
Indianapolis, Indiana

INDIANA FAMILY AND SOCIAL SERVICES    )
ADMINISTRATION, et al.,                 )
                                        )
    Appellants (Defendants              ),            )
                                        )

          

    Faced with a sizeable projected financial shortfall, Indiana’s 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). See footnote

    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 General’s office received the final rule on July 10, 2001, and approved it on August 24 th. Governor Frank O’Bannon signed the rule on August 28th, and the Secretary of State’s 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 appropriation. 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 th.

    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) [movant’s] 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 court’s 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. See footnote The “per 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). See footnote

    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 state’s 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 statute’s provisions were met, the emergency rule is valid.

Walgreens argues that FSSA did not satisfy the statute’s 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] reductions.” See footnote (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 don’t want to review something, we just don’t put it on the agenda.” See footnote (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 FSSA’s authority to act on approval by the committee, as certain other statutes do. See footnote

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. See footnote

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 court’s 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:
Operational data.
Professional services data.
Overhead data.
Profit 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 FSSA’s 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 review process.

2. Administrative Rules Oversight Committee (AROC) Review. Walgreens argues that FSSA’s 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 court’s 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 AROC’s review.

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 FSSA’s failure to offer evidence of any formal analysis to satisfy this statute does not invalidate the permanent rule.

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 area.”

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 Office’s medical advisory panel, See footnote but Gifford said that the doctor participated in discussions and later testified unequivocally that the Office’s medical advisory committee reviewed the proposal. See footnote (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 rule’s 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 rule 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 narrow construction.

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 LSA’s 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 General’s office and proceed toward permanent adoption should it so choose.