04-001828RX The Florida Retail Federation, Inc. vs. Agency For Health Care Administration Status: Closed DOAH Final Order on Monday, July 19, 2004.

Summary: Rule challenge dismissed for lack of jurisdiction, or as moot, in light of recently enacted statutes largely superceding the rule in question. The rule`s definition of "usual and customary" constitutes a valid exercise of delegated legislative authority.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE FLORIDA RETAIL FEDERATION, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 04 - 1828RX

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

F INAL ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing on June 17, 2004, in

Tallahassee, Florida.

APPEARANCES

For Petitioner: Cynthia S. Tunnicliff, Esquire

Brian A. Newman, Esquire

Pennington, Moore , Wilkinson,

Bell & Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302 - 2095

For Respondent: Debora E. Fridie, Esquire

David W. Nam, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

T he issue in this case is whether the methodology that

Respondent uses to determine the amounts payable to pharmacies

for p rescription drugs dispensed to Medicaid beneficiaries

constitutes an invalid exercise of delegated legislative

authority on the ground that the methodology in question, which

is incorporated by reference in Florida Administrative Code Rule

59G - 4.250, enlar ges, modifies, or contravenes the specific

provisions of law implemented.

PRELIMINARY STATEMENT

Case History

On May 19, 2004, Petitioner, The Florida Retail Federation,

Inc., filed its Petition For Invalidity of a Rule with the

Division of Administrative H earings ("DOAH"), initiating the

instant proceeding. Petitioner alleged that Respondent Agency

for Health Care Administration has been reimbursing pharmacies

for prescription drugs covered under the Florida Medicaid

Program pursuant to a methodology that contravenes the

controlling statutes and hence is an invalid exercise of

delegated legislative authority.

The undersigned conducted a formal hearing on June 17,

2004, within the time period specified in Section 120.56(1),

Florida Statutes (2003). Both sid es appeared through counsel.

Petitioner presented four witnesses who appeared in person

at the hearing: Scott Dick, Vice President of Government

Affairs and Member Services for the Florida Retail Federation;

Sybil Richard, Bureau Chief, Medicaid Pharmacy Services; Jerry

Wells, Pharmacy Program Manager for the Florida Medicaid

Program; and David H. Kreling, Ph.D., who was accepted without

objection as an expert in the area of Medicaid reimbursement

and, more specifically, on the meaning of certain terms of art

referenced in various Medicaid regulations. In addition,

Petitioner offered seven exhibits, numbered 1 through 7, which

were received in evidence. (Petitioner's Exhibits 2 and 3 are

the depositions of Ms. Richard and Mr. Wells, respectively.

This te stimony was taken into evidence subject to specific

objections that were subsequently overruled.)

Respondent called one witness, its Pharmacy Program Manager

Mr. Wells. Respondent also asked that official recognition be

taken of various state and federal statutes and regulations and

some state session laws. This was done without objection.

The final hearing transcript was filed on June 23, 2004.

Each party thereafter timely filed a Proposed Final Order.

Pending Motions

The following motions, which wer e filed after the final

hearing, remain pending and require a ruling: Petitioner's

Motion to Strike Respondent's Proposed Findings of Fact;

Respondent's Motion to Dismiss Petition; and Respondent's Motion

to Correct Errors in Official Transcript. Having considered

these matters, it is hereby ORDERED that:

1. Petitioner's Motion to Strike Respondent's Proposed

Findings of Fact is denied.

2. Respondent's Motion to Dismiss is denied.

3. The Motion to Correct Errors in Official Transcript is

granted, to the e xtent that a copy of the motion, which contains

a list of errata, will be attached to the final hearing

transcript.

Official Recognition

After the final hearing and before the deadline for filing

proposed final orders, the undersigned determined sua sponte that

it might be appropriate to take official recognition of the file

in Sheraton Bal Harbour Association, Ltd. v. Florida Department

of Revenue , DOAH Case No. 03 - 2441RX, as a means of shedding light

on the brief, per curiam opinion issued in Department o f Revenue

v. Sheraton Bal Harbour Ass'n, Ltd. , 864 So. 2d 454 (Fla. 1st DCA

2003), where the court held that DOAH does not have jurisdiction

to entertain a rule challenge to a rule that no longer exists.

At a telephone conference on July 2, 2004, the part ies were

informed that the undersigned was inclined officially to

recognize the foregoing file, and that each party would have the

opportunity to (a) present information relevant to the propriety

of taking official recognition; and (b) offer argument and

s upporting authorities for the purpose of showing that the

matters recognized would be instructive or inapposite, as the

case may be. The parties were directed to file their respective

papers concerning these subjects no later than July 12, 2004,

which the y did.

It turned out that neither party believes the court's

decision in Sheraton is pertinent to this case. The undersigned

disagrees, for reasons that will be discussed elsewhere in this

Final Order. That said, the undersigned ultimately did not base

any findings of fact or conclusions of law herein on DOAH's file

in Case No. 03 - 2441RX. Nevertheless, because the undersigned

reviewed the file, it is hereby made a part of the record, via

official recognition.

Statutory Citations

Unless otherwise indic ated, citations to the Florida

Statutes refer to the 2003 Florida Statutes. Notwithstanding,

citations to the 2003 Florida Statutes will sometimes include

the statute - year, for emphasis.

FINDINGS OF FACT

The Parties

1. Medicaid is a cooperative federal - s tate program in

which Florida participates in partnership with the national

government. Medicaid provides medically necessary health care ——

including, relevantly, prescription drugs —— to lower income

persons. In addition to shouldering administrative and

r egulatory responsibilities, Florida partially funds the Florida

Medicaid Program, contributing about 42 percent of the money

budgeted for the program's operation in this state. Federal

funds make up the balance.

2. Respondent Agency for Health Care Admin istration (the

"Agency") is the state agency charged with administering the

Medicaid Program in Florida. (At the federal level, the Centers

for Medicare and Medicaid Services of the U.S. Department of

Health and Human Services, known collectively as "CMS, " is the

agency authorized to administer Medicaid.)

3. Among other things, the Agency is responsible for

reimbursing Medicaid providers in accordance with state and

federal law, subject to specific appropriations. In this

connection, the Agency is author ized and required to prescribe,

by rule, reimbursement methodologies. The Agency is permitted

to publish such methodologies in policy manuals and handbooks,

provided the latter are incorporated by reference in duly

promulgated rules.

4. Petitioner, The F lorida Retail Federation, Inc. (the

"Federation"), is a trade association whose members include all

or most of the major drugstore chains doing business in Florida.

These drugstore chains, which include Walgreen's, CVS, Eckerd's,

Albertson's, Publix, Winn - Dixie, Target, and Wal - Mart,

participate in the Federation's Chain Drugstore Council, which

is the only organization in this state representing the

interests of drugstore chains.

5. Members of the Federation's Chain Drugstore Council

operate more than 2, 500 separate pharmacies, each of which is an

enrolled Medicaid provider of prescription drugs. Given that

there are approximately 4,000 pharmacy - providers participating

in the Florida Medicaid Program, the Federation represents a

significant percentage of the enrolled pharmacies.

6. The Federation advocates on behalf of its members

before the Florida Legislature and the state regulatory

agencies. Medicaid funding is one of the organization's top

priorities. The Federation brought the instant proceeding

because it believes that the Medicaid Program has been under -

reimbursing its members based on a methodology that contravenes

the applicable Florida statutes.

The Disputed Rule

7. The Medicaid reimbursement methodology for prescribed

drugs is set forth i n the Florida Medicaid Prescribed Drugs

Services Coverage, Limitations, and Reimbursement Handbook, July

2001 (the "Handbook), which Handbook was incorporated by

reference in, and hence adopted via Section 120.54(1)(i)1.,

Florida Statutes, as, Florida Admi nistrative Code Rule 59G -

4.250. The methodology, which will be referred to hereafter as

the "Reimbursement Rule," limits the amount that the Medicaid

Program will pay for prescription drugs, as follows:

Reimbursement for covered drugs dispensed by

a licen sed pharmacy that has been approved

to be an eligible provider, or a physician

filling his own prescriptions if there is no

licensed pharmacy within a ten mile radius

of his office, shall not exceed the lowest

of:

• Average Wholesale Price (AWP) minus 13 .25

per cent of the drug, (also known as the

Estimated Acquisition Cost or EAC) plus the

dispensing fee;

• W holesaler Acquisition Cost (WAC) plus 7

per cent plus the dispensing fee;

• F ederal Upper Limit (FUL) price plus the

dispensing fee;

• T he Sta te Maximum Allowable Cost (SMAC)

plus a dispensing fee established by the

state on certain categories of drugs not

reviewed by CMS (formerly HCFA); or

• A mount billed by the pharmacy, which

cannot exceed the pharmacy’s average charge

to the public (non - M edicaid) in any calendar

quarter, for the same drug, quality, and

strength. This average is known as the

pharmacy’s usual and customary charge for

the prescription.

8. By its plain terms, the Reimbursement Rule (a) requires

that five separate methods fo r determining reimbursement be

applied with respect to each prescription and (b) mandates that

the maximum allowable payment for each prescription be the

lowest dollar amount resulting from the application of these

five methods to the claim at hand. 1 For ease of reference, the

five separate methods enumerated in the Reimbursement Rule will

be referred to collectively as the "Limits." Individually, the

Limits will be called the "First Limit," "Second Limit," etc.,

with the numerical adjective corresponding to the order in which

the Reimbursement Rule lists the respective Limits. (Thus, for

example, the First Limit is the one based on average wholesale

price; the Fourth Limit references the state maximum allowable

cost.) 2

9. The Reimbursement Rule was pro mulgated to implement two

statutes in particular. One of these was Section 409.908,

Florida Statutes, which provided in pertinent part as follows:

A provider of prescribed drugs shall be

reimbursed the least of the amount billed by

the provider, the provi der's usual and

customary charge, or the Medicaid maximum

allowable fee established by the agency,

plus a dispensing fee.

§ 409.908(14), Fla. Stat. (2003). The other was Section

409.912, Florida Statute, which directed, in relevant part, that

"[r]eimburs ement to pharmacies for Medicaid prescribed drugs

shall be set at the average wholesale price less 13.25 percent."

§ 409.912(40)(a)2., Fla. Stat. (2003).

The Challenge

10. The Federation filed its Petition for Invalidity of

Rule ("Petition") on May 19 , 2004, initiating the instant

proceeding. The Petition describes a straightforward objection

to the Reimbursement Rule, namely that the prescribed Limits

include methods for determining reimbursement in addition to

"average wholesale cost less 13.25 perc ent," which latter,

according to the Petition, constitutes the exclusive method for

reimbursing pharmacies, pursuant to Section 409.912(40)(a)2.,

Florida Statutes (2003). Thus, the Federation alleged, only the

First Limit is permissible; the rest are unau thorized, and the

Reimbursement Rule enlarges, modifies, or contravenes Section

409.912(40)(a)2. for using them, making the Reimbursement Rule

an invalid exercise of delegated legislative authority pursuant

to Section 120.52(8)(c), Florida Statutes.

11. As this proceeding progressed, the Federation's

position became a bit more complicated. Forced to deal with

Section 409.908(14), Florida Statutes (2003), which was not

mentioned in the Petition, the Federation effectively conceded

(assuming it ever disp uted) that "amount billed" and "usual and

customary charge" are statutorily authorized methods for

calculating reimbursement, in addition to discounted average

wholesale price. Unable as a result to argue that the Fifth

Limit should be rejected in toto , t he Federation claimed instead

that the Reimbursement Rule's definition of "usual and customary

charge" enlarges, modifies, or contravenes the use of that term

in Section 409.908(14), Florida Statutes (2003).

12. On this point, the Federation presented ex pert

testimony at hearing that "usual and customary charge" is a term

of art used in the industry to mean the amount a pharmacy

charges cash paying customers who have no insurance coverage for

the prescription in question. The Reimbursement Rule's

definit ion, in contrast, does not restrict the scope of "usual

and customary charge" to uninsured customers, but rather

requires that charges to all non - Medicaid customers be taken

into account in determining the average charge that equals

"usual and customary ch arge." Because private insurers and HMOs

typically negotiate discounts not available to uninsured

consumers, the inclusion of amounts charged to insured customers

in the equation for calculating "usual and customary charge," à

la the Reimbursement Rule, i s likely to produce, in most

instances, a lower "usual and customary charge" than would

obtain were charges to insured customers excluded from the

calculation. The Federation argues that the legislature

intended "usual and customary charge" to have the mo re generous

technical meaning that the industry ascribes to it, and

therefore that the Reimbursement Rule enlarges, modifies, or

contravenes the specific law implemented by giving the term a

different, more parsimonious meaning.

13. Confronting Section 4 09.908(14) also compelled the

Federation to argue that, while the section imposes (and hence

enables the Agency to implement) limits on reimbursement in

addition to discounted average wholesale price, the reference

therein to "the Medicaid maximum allowabl e fee established by

the agency" as an alternative reimbursement limit nevertheless

cannot be construed as authority for the adoption of a

methodology that would result in reimbursement at less than the

least of (a) the amount billed by the provider, (b) t he

provider's "usual and customary charge" (as the Federation would

define that term), or (c) average wholesale cost less 13.25

percent. In this regard, the Federation asserts that Section

409.908(14) and Section 409.912(40)(a)2. —— which might at first

b lush appear to be inconsistent with one another —— can easily be

harmonized by construing "Medicaid maximum allowable fee

established by the agency" to mean "average wholesale price less

13.25 percent."

The Agency's Defense of Reimbursement Rule

14. The Ag ency's arguments in support of the Reimbursement

Rule can be reduced to two principal propositions. First, the

Agency insists that if it were to reimburse pharmacies for all

prescribed drugs at average wholesale price less 13.25 percent,

the resulting pay ments, in the aggregate, would exceed federal

limits on reimbursement, for reasons that need not detain us

here. Exceeding federal limits, the Agency asserts, could cause

CMS to take adverse action against the Florida Medicaid Program,

perhaps putting at risk Florida's continued receipt of federal

matching funds.

15. Second, the Agency contends that Section

409.912(40)(a)2., Florida Statutes (2003), which requires that

reimbursement be set at the average wholesale price less 13.25

percent, does not est ablish a floor (as the Federation

maintains) but rather, when read in conjunction with Section

409.908(14), Florida Statutes (2003), prescribes another

potential ceiling in addition to the pharmacy's actual charge,

"usual and customary charge," and "the Me dicaid maximum

allowable fee established by the agency," which are the other

potential ceilings pursuant to Section 409.908(14). Under this

interpretation of the statutes, application of the Reimbursement

Rule always produces the Medicaid maximum allowabl e fee

established by the Agency —— a statutorily authorized limit —— and

if that fee happens in a given situation to be less than the

discounted average wholesale price, so be it.

The New Statutory Methodology

16. The 2004 Legislature amended Sections 409.9 08(14) and

409.912(40)(a)2., Florida Statutes (2003), enacting a bill

(House Bill No. 1843) that was signed by the governor while this

case was pending, on May 28, 2004. See Laws of Florida, Ch.

2004 - 270, §§ 12 and 17. The relevant statutory amendments t ook

effect on July 1, 2004, id. at § 25, which was shortly after the

final hearing in this case —— and prior to the date of this Final

Order.

17. As amended, Section 409.908(14), Florida Statutes

(2004), reads in relevant part as follows, with the recentl y

added language underlined:

A provider of prescribed drugs shall be

reimbursed the least of the amount billed by

the provider, the provider's usual and

customary charge, or the Medicaid maximum

allowable fee established by the agency,

plus a dispensing fe e. The Medicaid maximum

allowable fee for ingredient cost will be

based upon the lower of: average wholesale

price (AWP) minus 15.4 percent, wholesaler

acquisition cost (WAC) plus 5.75 percent,

the federal upper limit (FUL), the state

maximum allowable c ost (SMAC), or the usual

and customary (UAC) charge billed by the

provider.

18. As amended, Section 409.912(40)(a)2., Florida Statutes

(2004), provides in pertinent part as follows, with the newly

added language underlined and recently deleted langua ge stricken

through:

Reimbursement to pharmacies for Medicaid

prescribed drugs shall be set at the lesser

of: the average wholesale price (AWP) minus

15.4 percent, the wholesaler acquisition

cost (WAC) plus 5.75 percent, the federal

upper limit (FUL), the state maximum

allowable cost (SMAC), or the usual and

customary (UAC) charge billed by the

provider the average wholesale price less

13.25 percent .

19. Collectively, Sections 409.908(4) and

409.912(40)(a)2., Florida Statutes (2004), will be referred to

hereafter as the "New Statutory Methodology."

CONCLUSIONS OF LAW

I. Jurisdiction

20. Before addressing the merits of the Federation's rule

challenge, a pair of interrelated (perhaps indistinguishable)

jurisdictional issues must be examined. The first of these

issues is whether the Reimbursement Rule is still an "existing"

rule for purposes of Section 120.56, Florida Statutes, given the

recent enactment of the New Statutory Methodology. If the

Reimbursement Rule is an existing rule, then the second que stion

is whether this rule challenge was rendered moot on July 1,

2004, when the New Statutory Methodology took effect.

A. Is the Reimbursement Rule An "Existing" Rule?

21. As the First District Court of Appeal recently made

clear, DOAH is without juri sdiction to entertain a challenge to

a repealed rule, because "section 120.56, Florida Statutes[,]

does not authorize a rule challenge to a rule that is no longer

in existence." Department of Revenue v. Sheraton Bal Harbour

Ass'n, Ltd. , 864 So. 2d 454 (Fl a. 1st DCA 2003). In the instant

case, the Agency has not repealed the Reimbursement Rule, and so

Sheraton is at least superficially distinguishable on that

basis. This distinction might not make a difference, however,

if the general principle announced in Sheraton applies in rule

challenges involving rules that no longer exist for reasons

other than repeal.

22. In assessing Sheraton 's reach, it is significant that

formal administrative repeal via Section 120.54(3), Florida

Statutes, is not the only way for a rule to cease to exist. A

rule expires by operation of law, for example, upon the repeal

of the statute that authorized the rule. See Christo v. State

Dept. of Banking and Finance , 649 So. 2d 318, 321 (Fla. 1st

DCA), rev. dismissed , 660 So. 2d 712 (Fla. 1995)(repeal of

statute implemented by rule results in automatic expiration of

rule); accord , Canal Ins. Co. v. Continental Cas. Co. , 489 So.

2d 136, 138 (Fla. 2d DCA 1986). The undersigned concludes

without hesitation that DOAH would not have juri sdiction, under

the holding of Sheraton , to hear a rule challenge directed to a

rule that had "expired" in consequence of the repeal of the

rule's enabling statute, regardless whether the rule itself had

been repealed by agency action. (Administrative rep eal, in that

situation, would be merely a formality.) For that reason, then,

it is concluded that the general principle announced in

Sheraton —— that rules no longer in existence cannot be

challenged —— extends beyond Section 120.56 proceedings involving

rule s that have been formally repealed. Sheraton , in short,

cannot be dismissed as inapposite simply because the

Reimbursement Rule has not been repealed administratively.

23. Here, though, the statutes authorizing the

Reimbursement Rule, like the Reimburs ement Rule itself, have not

been repealed, and hence the Reimbursement Rule has not

automatically expired by operation of law pursuant to the

principle just mentioned. However, there is another legal

principle whose operation causes a rule to become inope rative,

namely:

An administrative rule or regulation is

operative and binding on those coming within

its terms from its effective date until it

is modified or superseded by subsequent

legislation or by subsequent[ly adopted]

regulations . . . .

Hulmes v. Division of Retirement, Dept. of Admin. , 418 So. 2d

269, 270 (Fla. 1st DCA 1982), pet. rev. denied , 426 So. 2d 26

(Fla. 1983). When a rule is superseded by legislation enacted

after the rule's effective date, the rule loses all force and

effect immediatel y upon such legislation's becoming law.

Florida Dept. of Revenue v. A. Duda & Sons, Inc. , 608 So. 2d

881, 884 (Fla. 5th DCA 1992), rev. denied , 621 So. 2d 431 (Fla.

1993)(rule relied upon by taxpayer had been superseded by

statutory amendment in 1987 and thus was without "force or

effect" in 1988 at time of relevant transactions, despite fact

that rule was not amended to conform to statute until 1989).

24. A rule that has no force or effect because it has

been modified or superseded by statute is, like a repealed rule,

no longer in existence in any meaningful sense. Thus, it is

concluded, on the authority of Sheraton , that such a rule, to

the extent of the statutory modification or supersession, cannot

be challenged.

25. The next question, then, is w hether the New Statutory

Methodology has modified or superseded the Reimbursement Rule.

Because the New Statutory Methodology employs the same five

Limits as the Reimbursement Rule, albeit with some modifications

( e.g. a higher discount on average wholesa le price (15.4 percent

vs. 13.25 percent) and a lower markup on wholesaler acquisition

cost (5.75 vs. 7.0 percent)), the short and simple answer is

"yes." To be more precise, the New Statutory Methodology

supersedes the Reimbursement Rule (in all but perh aps one

respect, which will be discussed anon), because the New

Statutory Methodology is complete in itself, capable of

implementation without reference to the Reimbursement Rule. As

of July 1, 2004, the Agency need look no further than the New

Statutory Methodology for authoritative direction regarding the

reimbursement of Medicaid providers for prescription drugs.

26. The only aspect of the Reimbursement Rule that

arguably has not been supplanted by the New Statutory

Methodology is the definition of "usual and customary charge" as

set forth in the Reimbursement Rule. Recall that the New

Statutory Methodology, like the Reimbursement Rule, establishes

the provider's "usual and customary charge" as the Fifth Limit.

Unlike the Reimbursement Rule, howeve r, the New Statutory

Methodology does not define "usual and customary charge" (just

as Section 409.908(14), Florida Statutes (2003), also did not

define "usual and customary charge"). The definition of "usual

and customary charge" set forth in the Reimbur sement Rule is not

inconsistent with the New Statutory Methodology and could

continue to be used by the Agency as the operative definition of

that still - relevant (and as - yet not statutorily defined) term.

27. It is concluded, therefore, that the Reimbu rsement

Rule's definition of "usual and customary charge" has not been

superseded by, but rather subsists in the face of, the New

Statutory Methodology. In all other respects, the New Statutory

Methodology has superseded and replaced the Reimbursement Rul e.

28. Consequently, as of July 1, 2004, the Reimbursement

Rule has been without force or effect, with the exception of the

definition of "usual and customary charge," which latter is,

accordingly, the only part of the Reimbursement Rule that is

still in existence and subject to challenge. The rest of the

Reimbursement Rule, being "no longer in existence," is now

outside DOAH's jurisdiction under Section 120.54, Florida

Statutes. See Sheraton , 864 So. 2d at 454.

29. To the extent the instant rule challenge is based on

objections unrelated to the Reimbursement Rule's definition of

"usual and customary charge," it must be dismissed for want of

jurisdiction.

B. Is This Rule Challenge Moot?

30. Let us assume for argument's sake that, contrary to

the foregoing conclusion, DOAH was not largely divested of

jurisdiction in this case, pursuant to the holding in Sheraton ,

when the New Statutory Methodology took effect on July 1, 2004.

The question would yet remain whether the New Statutory

Methodology has rendered this action moot, as the Agency

maintains.

31. As an initial matter, it is immaterial to the question

of mootness that the Reimbursement Rule has not been repealed

and can still be found in the Handbook. The proposed rules

under attack in NAAC P, Inc. v. Florida Board of Regents , 29 Fla.

L. Weekly D1461a, 2004 WL 1359507, ___ So. 2d ____ (Fla. 1st DCA

June 18, 2004), likewise had not been repealed and could still

be found in the Florida Administrative Code, and the court

nevertheless dismissed t he rule challenge as moot because

intervening events had made it impossible for the court to grant

"effectual relief" to the petitioners. 2004 WL 1359507, *5

(when newly created constitutional board invested with

regulatory jurisdiction over state univers ity system adopted, as

its own, rules originally proposed by state agency formerly

having such jurisdiction, pending challenge to agency's proposed

rules became moot, because constitutional board's rules —— which

cannot be challenged under the Administrative Procedure Act ——

would remain in effect even if agency's rules were invalidated).

The pertinent question is whether it is possible for the

Federation to obtain effective relief in this Section 120.56

proceeding. If the answer is "no," then this cause is m oot and

must be dismissed.

32. The relief available in a rule challenge is a

declaration by the administrative law judge that "all or part of

a rule [is] invalid." § 120.56(3)(b), Fla. Stat. Such a

declaration has the following effect: "The rule or pa rt thereof

declared invalid shall become void when the time for filing an

appeal expires." Id. Note that the statute does not authorize

the administrative law judge to declare the invalid rule void ab

initio .

33. In State Bd. of Optometry v. Florida S oc. of

Ophthalmology , 538 So. 2d 878 (Fla. 1st DCA 1989), the court

examined Section 120.56(3), Florida Statutes (1988), the

predecessor of the statute quoted above, 3 and pronounced that

rules could be invalidated only on a prospective basis. Wrote

the co urt:

I t is apparent that the statutory scheme in

chapter 120 for invalidating agency rules

contemplates that once a rule . . . has been

issued and acted or relied upon by the

agency or members of the public in

conducting the business of the agency, the

rul e will be treated as presumptively valid,

or merely voidable, and must be given legal

effect until invalidated in a section 120.56

rule challenge proceeding. . . . The

statutory scheme is obviously intended to

avoid the chaotic uncertainty that would

nec essarily flow from retroactively

invalidating agency action taken in reliance

on the presumed validity of its rule prior

to a proper rule challenge proceeding

holding the rule invalid. Applying the

theory underlying section 120.56(3) to this

case, we hold that rule 21Q - 10.001, which

was held invalid by the hearing officer and

our opinion, will become void and

ineffective as of the date the decision of

this court becomes final.

Id. at 889; see also City of Palm Bay v. State Dept. of Transp. ,

588 So. 2d 624 , 628 (Fla. 1st DCA 1991).

34. Based on Section 120.56(3)(b) and State Bd. of

Optometry , which make clear that an administrative decision

invalidating a rule cannot be applied retroactively, the

undersigned concludes that for a party to be granted effecti ve

relief in a rule challenge, that party must be in a position to

benefit from prospective (future) agency or judicial action

taken without resort to the disputed rule, which prospective

action cannot include the reversal of past final agency action

taken in compliance with the disputed, but presumptively valid,

rule. 4

35. Given that, it becomes necessary to decide whether the

Federation's members could possibly benefit from the prospective

(as opposed to the retroactive) application of a decision

partia lly invalidating the Reimbursement Rule, as the Federation

seeks. When questions involving the subject of retroactivity

arise, as here, the analysis should focus initially on

identifying the triggering event that "locks in" the applicable

law. This is im portant to know because applying a law that did

not exist on the date of the triggering event would constitute a

retroactive application of such law, whereas applying a law that

was in existence as of the triggering event would not be a

retroactive applica tion, even if the triggering event had its

genesis in events transpiring before the existence of the law in

question. In other words, one needs to know what the triggering

event is to determine what would constitute a retroactive

application of current la w to a particular dispute.

36. In relation to this case, if there were a possibility

that a relevant triggering event could occur after a partial

invalidation of the Reimbursement Rule would become final, and

if the law governing such event would be the partially

invalidated Reimbursement Rule, then application of the

partially invalidated Reimbursement Rule would be "prospective"

from the standpoint of this proceeding —— and the potential for

granting effective relief herein would exist.

37. As for tri ggering events, several possibilities come

to mind: (a) date of service; (b) submission of the claim; (c)

payment of the claim; and (d) final agency or court action on a

disputed claim. The undersigned believes that (a) is the proper

trigger, because the Agency and the providers should know with

certainty, at the time covered drugs are dispensed, the

methodology for determining how much the Medicaid Program will

reimburse the providers for those drugs. Of course, if date of

service were the trigger, then the Federation could not possibly

obtain effective relief in this proceeding (with one exception

to be discussed). This is because, first, the partial

invalidation of the Reimbursement Rule could not become final,

if at all, until after the New Statutory Methodology began

governing claims, which means that all post - invalidation dates

of service necessarily would give rise to claims reimbursable

under the New Statutory Methodology rather than the

Reimbursement Rule (or a partially invalidated Reimbursement

Rule). And second, it would be impermissible to apply a

partially invalidated Reimbursement Rule to claims not

controlled by the New Statutory Methodology ( i.e. claims arising

from dates of service occurring before July 1, 2004), for that

plainly would c onstitute a retroactive invalidation of the

challenged rule.

38. Even assuming, however, that the applicable

methodology does not "lock in" on the date of service but

instead attaches at some later point in time, then the trigger

(however defined) can st ill only occur, for any given claim,

either (a) before July 1, 2004; or (b) on or after July 1, 2004.

No decision in this case can have any effect on the

reimbursement of claims whose triggers occurred before July 1,

2004, because the Reimbursement Rule g overned such claims, and

agency action taken in reliance on the Reimbursement Rule cannot

be undone retroactively (that is, after the triggering event) in

consequence of a rule challenge. See State Bd. of Optometry ,

538 So. 2d at 889. At the same time, h owever, no decision in

this case can have any effect on the reimbursement of claims

whose triggers occurred (or will occur) on or after July 1,

2004, because the New Statutory Methodology governed (or will

govern) such claims. 5

39. In sum, then, it is co ncluded that (with one small

exception to be addressed) there is no possibility that a

triggering event could occur after a partial invalidation of the

Reimbursement Rule would become final, where the law governing

such event would be the partially invalid ated Reimbursement

Rule. Hence there is but a very limited potential for granting

effective relief in this case, which accordingly is moot except

for that small possibility.

40. The one issue as to which effective relief might yet

be granted concerns th e Reimbursement Rule's definition of

"usual and customary charge." As stated in the previous

section, the definition of "usual and customary charge" set

forth in the Reimbursement Rule is not inconsistent with the New

Statutory Methodology and indeed coul d continue to be used by

the Agency as the operative definition of that term, which is

used (but not defined) in the New Statutory Methodology. Thus,

the Federation's members are in a position to benefit from

prospective agency or judicial action taken wi thout resort to

the Reimbursement Rule's "usual and customary charge"

definition, should it be deemed invalid.

41. Consequently, to the extent that the Federation has

challenged the Reimbursement Rule's definition of "usual and

customary charge," this action still presents a live

controversy, notwithstanding that the New Statutory Methodology

became law pendente lite . All of the Federation's other

objections to the Reimbursement Rule, however, were rendered

moot when the New Statutory Methodology took effect on July 1,

2004.

II. Standing

42. Throughout this litigation, the Agency has insisted

that the Federation lacks standing to maintain this rule

challenge. The Federation, therefore, was required to prove

standing or face dismissal. See State Dept . of Health and

Rehabilitative Services v. Alice P. , 367 So. 2d 1045, 1052 (Fla.

1st DCA 1979)(burden is upon petitioner to prove standing, when

standing is resisted).

43. Because the Administrative Procedure Act was designed

in part to expand public ac cess to the activities of agencies,

it has long been recognized that a trade or professional

association is entitled to bring a rule challenge in a purely

representative capacity provided it demonstrates "that [1] a

substantial number of its members, altho ugh not necessarily a

majority, are substantially affected by the challenged rule, [2]

that the subject matter of the rule is within the association's

general scope of interest and activity, and [3] that the relief

requested is of the type appropriate for a trade association to

receive on behalf of its members." See NAACP, Inc. v. Florida

Bd. of Regents , 863 So. 2d 294, 298 (Fla. 2003)(citing Florida

Home Builders Ass'n v. Department of Labor & Employment Sec. ,

412 So. 2d 351, 352 - 53 (Fla. 1982))(emphasis removed; bracketed

numbers added).

44. The Agency contends that only a small number ( i.e. 33)

of the Federation's 9,000 or so members are substantially

affected by the Reimbursement Rule, and that 33 is not a

"substantial number" relative to 9,000. Whi le this sounds

facially plausible, the Agency's argument plays down the fact

that the 33 members in question include all (or most) of the

major drugstore chains in the state. This group of members,

which includes Walgreen's, CVS, Eckerd's, Albertson's, Pu blix,

Winn - Dixie, Target, and Wal - Mart, in turn operates more than

2,500 drugstores in Florida, each of which is an enrolled

Medicaid provider. Considering that there are approximately

4,000 pharmacies participating in the Florida Medicaid Program,

the Fe deration's members obviously are a key provider

constituency. It is concluded that the Federation has met the

"substantial number" test.

45. The Agency also contends that the Federation's

affected members have not suffered real and immediate harm as a

re sult of the Reimbursement Rule, because (the Agency argues)

under the Reimbursement Rule's definition of "usual and

customary charge," the Agency could have paid providers even

less than they were actually reimbursed prior to July 1, 2004,

had the Agency p roperly limited providers to usual and customary

charges as the Reimbursement Rule requires. (The Agency, in

other words, takes the position that it erroneously applied its

own Reimbursement Rule.)

46. This argument is not persuasive. First, the

Federat ion's position, which it attempted to prove at hearing,

is that if "usual and customary charge" is a statutorily

authorized limit (a point which the Federation initially

disputed but since seems to have conceded), then the

Reimbursement Rule's definition o f "usual and customary charge"

is invalid. As the Agency's argument makes clear, there can be

no question that the Federation's members are substantially

affected by the Reimbursement Rule's definition of "usual and

customary charge."

47. Second, the F ederation satisfied the "substantially

affected" test by demonstrating that its members are directly

regulated by the Reimbursement Rule. See Coalition of Mental

Health Professionals v. Department of Professional Regulation ,

546 So. 2d 27, 28 (Fla. 1st DC A 1989).

48. Finally, as the Florida Supreme Court recently

confirmed, the associational standing test does not require, in

a rule challenge, a showing of "immediate and actual harm," but

rather that the disputed rule has a "substantial effect" on a

subst antial number of the association's members. NAACP, Inc. ,

863 So. 2d at 300. The Federation has made the requisite

showing of "substantial effect."

49. The Agency does not contest the Federation's

satisfaction of the remaining elements of the associati onal

standing test. It is concluded that the Federation does have

standing to maintain this rule challenge on behalf of its

members.

III. The Definition of "Usual and Customary Charge"

50. The Reimbursement Rule defines the term "usual and

customary ch arge" to mean "the pharmacy's average charge to the

public (non - Medicaid) in any calendar quarter, for the same

drug, quality, and strength." The Agency understands the "non -

Medicaid public" to include not only persons without insurance

coverage who gener ally pay full price, but also private insurers

and HMOs, which typically pay a discounted price reflecting

their negotiating leverage.

51. The Federation maintains that the term "usual and

customary charge," though ambiguous, has a technical meaning as

u sed in the "industry" (apparently the insurance industry),

namely the amount a pharmacy charges to a cash paying customer

who has no coverage for the prescription. The Federation argues

that the legislature intended for the term "usual and customary

charg e" to have this so - called technical meaning, and hence that

the Reimbursement Rule enlarges, modifies, or contravenes, the

laws being implemented.

52. The Federation has not persuaded the undersigned,

however, that its preferred definition of the term is the only

acceptable meaning of "usual and customary charge" as used in

Section 409.908(14), Florida Statutes (2003), or in the New

Statutory Methodology. Rather, the Federation has articulated

an acceptable, maybe even the most widely accepted, definitio n ——

which is insufficient to show that the Reimbursement Rule

enlarges, modifies, or contravenes the specific provisions of

law implemented.

53. Further, because the purpose of Section 409.908(14) is

to control Medicaid costs by imposing limits on reimburs ement,

it seems unlikely that the legislature intended "usual and

customary charge" to mean, as the Federation would have it, the

price customarily paid by those in the weakest bargaining

position —— essentially "sticker price." In contrast, the

Reimburseme nt Rule's definition, as the Agency interprets it,

takes account of negotiated discounts, and hence is likelier

actually to result in a meaningful limit on reimbursement. It

is concluded, therefore, that the Reimbursement Rule's

definition of "usual and c ustomary charge" comports with the

intent and purposes of the statute.

54. While the foregoing conclusions should compel a

decision in the Agency's favor, there is some evidence that

gives the undersigned pause. At hearing, the Agency's Pharmacy

Program Manager for the Medicaid Program opined that it would be

"difficult for pharmacies to stay in business" if the Agency

were to enforce the Reimbursement Rule's definition of "usual

and customary charge." He even went so far as to characterize

such enforce ment as "punitive." The undersigned presumes that

the legislature would not have intended to impose a limit so

onerous that it would threaten to put pharmacies out of

business.

55. Upon reflection, though, the undersigned cannot

believe that the Reimb ursement Rule's definition of "usual and

customary charge" would be so draconian in practice. For one

thing, for any given drug, the disputed definition logically

should produce a limit that is somewhat higher than the lowest

price the pharmacy accepts fo r that drug. Unless pharmacies are

using Medicaid to heavily subsidize the discounts given to

private insurers (and there is no evidence here of that), it is

hard to see (and there is no persuasive evidence showing) why

pharmacies would be ruined if Medic aid reimbursed them at rates

somewhat higher than those paid by private insurers.

56. For another, there is no evidence demonstrating that

pharmacies must participate in the Medicaid Program to stay in

business. Thus, the undersigned reasons that if the Agency were

to set reimbursement levels so low that pharmacies could not

make a profit, then, instead of going out of business, the

pharmacies would simply stop participating in the Medicaid

Program, until such time as increased reimbursement levels made

participation economically feasible again.

57. Ultimately, then, despite some troubling testimony,

the undersigned concludes that the Reimbursement Rule's

definition of "usual and customary charge" is consistent with

the statute's use of that term and fa lls within the range of

permissible interpretations of the statute. Accordingly, the

definition does not enlarge, modify, or contravene the specific

provisions of law implemented; it is, rather, a valid exercise

of delegated legislative authority. See Bo ard of Podiatric

Medicine v. Florida Medical Ass'n , 779 So. 2d 658, 660 (Fla. 1st

DCA 2001)(rule definition that was consistent with statute and

within range of permissible interpretations did not enlarge,

modify, or contravene statute and thus was valid e xercise of

delegated legislative authority); Florida Institutional Legal

Services, Inc. v. Florida Dept. of Corrections , 579 So. 2d 267,

269 (Fla. 1st DCA), rev. denied , 592 So. 2d 680 (Fla. 1991)

(rule definition that comported with intent and purposes of

statute was not clearly erroneous and thus could not be declared

invalid).

ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is ORDERED that:

1. To the extent this rule challenge is based on

objections unrelated to the Reimbursemen t Rule's definition of

"usual and customary charge," it is dismissed for lack of

jurisdiction.

2. Alternatively, this action is dismissed as moot, except

to the extent the challenge concerns the Reimbursement Rule's

definition of "usual and customary char ge."

3. The Reimbursement Rule's definition of "usual and

customary charge" constitutes a valid exercise of delegated

legislative authority.

DONE AND ORDERED this 19th day of July, 2004, in

Tallahassee, Leon County, Florida.

_________________________ __________

JOHN G. VAN LANINGHAM

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 19th day of July, 2004.

ENDNOTES

1 / Logically, to ensure that reimbursement is always equal to

the lowest dollar amount calculable under the five prescribed

methods requires that all f ive methods be applied to every

claim.

2 / The Fifth Limit actually comprises two methods: amount

billed and "usual and customary charge." For simplicity's sake,

however, and following the convention of the Reimbursement Rule,

the undersigned will treat the Fifth Limit as a single limit.

3 / The wording of § 120.56(3), Fla. Stat. (1987), differed

slightly, but not materially, from that of § 120.56(3)(b), Fla.

Stat. (2003).

4 / There are, to be sure, some cases supporting a contrary

conclusion. In Moul trie v. Florida Dept. of Corrections , 496

So. 2d 191 (Fla. 1st DCA 1986), for example, the court held that

an inmate who had been assessed damages pursuant to a Department

of Corrections rule as punishment for damaging state property

had standing to challe nge the rule, even though the damages had

already been collected in full. The court observed: "If the

inmate prevails on his rule challenge he may be entitled to a

refund or restoration of the funds to his inmate account." Id.

at 193.

In Austin v. Depa rtment of Health and Rehabilitative

Services , 495 So. 2d 777 (Fla. 1st DCA 1986), the court affirmed

an order upholding the validity of a rule that required

applicants for public assistance to cooperate with the agency,

on pain of sanctions, in identifying , locating, and establishing

the paternity of parents of children for whom public assistance

was sought. In its opinion, the court noted that while the

appeal was pending, the legislature had passed a law codifying

the disputed rule. The court found that this recent legislation

had not rendered the case moot, however, because "if [the] court

chose to invalidate the rule, the appellants and others affected

by the rule could seek relief from the sanctions allowed by the

rule for the six - month period between [the rule's effective

date] and [the effective date of the newly enacted law]. Id. at

778 n.2.

Maybe it is possible to square Moultrie and Austin with the

first district's later decisions in State Bd. of Optometry and

City of Palm Bay , but to the unders igned the earlier cases

appear to authorize the very retroactive invalidation of rules ——

and consequent chaotic uncertainty —— that was deemed

impermissible in State Bd. of Optometry . It is therefore

concluded that, to the extent Moultrie and Austin conflict with

State Bd. of Optometry , they are no longer good law.

5 / The undersigned takes for granted that any claim whose

trigger falls on or after July 1, 2004, must be reimbursed in

accordance with the New Statutory Methodology, even if the claim

had its ge nesis in events occurring before July 1, 2004. This

is because once the New Statutory Methodology became effective,

it began operating to the exclusion of any possibly conflicting

rules or policies that might subsequently emerge. Cf. , e.g. ,

Broward Child ren's Center v. Hall , 859 So. 2d 623, 627 (Fla. 1st

DCA 2003)(when rule and statute directly conflict, the latter

controls); accord , Carver v. State Div. of Retirement , 848 So.

2d 1203, 1206 (Fla. 1st DCA 2003) .

COPIES FURNISHED:

Cynthia S. Tunnicliff, Esquire

Brian A. Newman, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

215 South Monroe Street, Se cond Floor

Post Office Box 10095

Tallahassee, Florida 32302 - 2095

Debora E. Fridie, Esquire

David W. Nam, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308

Alan L evine, Secretary

Agency for Health Care Administration

Fort Knox Building, Suite 3116

2727 Mahan Drive

Tallahassee, Florida 32308

Valda Clark Christian, General Counsel

Agency for Health Care Administration

Fort Knox Building, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

Scott Boyd, Executive Director/General Counsel

Joint Administrative Procedures Committee

120 Holland Building

Tallahassee, Florida 32399 - 1300

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Fin al Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original notice of appeal with the Clerk of th e

Division of Administrative Hearings and a copy, accompanied by

filing fees prescribed by law, with the District Court of

Appeal, First District, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed.