1st Cir. Preemption Case re Duals in Puerto Rico
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The Court of Appeals for the First Circuit ruled, on the merits, that a Puerto Rico law regarding providers of prescription medication for residents eligible for both Medicaid and Medicare (“dual eligible” beneficiaries) was not preempted by either Medicaid or Medicare law. The First Circuit reversed an injunction issued by the district court requiring the Puerto Rico Medicaid director to permit First Medical Health Plan, Inc., a health insurance provider, to participate in the Puerto Rico prescription drug program for dual eligible beneficiaries. First Medical Health Plan, Inc. v. Vega-Ramos, 2007 WL 529907 (1st Cir. Feb. 22, 2007). The three judges on the panel were appointed by Reagan, Bush I, and Bush II.
Under the Medicare Modernization Act of 2003 (MMA), prescription drug coverage for dual eligible beneficiaries who reside in the states is no longer covered by Medicaid but rather is covered by Medicare Part D instead. However, the MMA does not prohibit territory Medicaid programs from paying for prescription drug costs for dual eligible beneficiaries. Instead, the MMA authorizes each territory to seek approval from the Secretary of Health and Human Services to implement a plan to provide full prescription drug coverage for its dual eligible population, and once the plan is approved, the federal government increases the territory’s Medicaid allotment to help pay for this assistance. 42 U.S.C. § 1395w-114(a)(3)(F); 42 U.S.C. § 1396u-5(e).
The Puerto Rico Medicaid program received approval from the Secretary for “Medicare Platino,” a prescription drug plan which extends drug coverage to the dual eligible population in Puerto Rico by contracting with Medicare managed care plans (Medicare Advantage plans) that offer Part D coverage. However, the court explained, under Puerto Rico Law 72, Puerto Rico would “not allow any Medicare Advantage plan to join Medicare Platino if the plan owned or operated health facilities that could provide covered services to a Medicare Platino covered beneficiary. See 24 P.R. Laws Ann. § 7033(c). That is, under Puerto Rico law, [the Medicaid program] could not permit a Medicare Advantage plan to join Medicare Platino if the plan could engage in self-dealing.”
First Medical was rejected by the Puerto Rico Medicaid program for participation in Medicare Platino, because First Medical owns health care facilities that could provide covered services to Medicare Platino beneficiaries. The district court issued a preliminary injunction holding that Puerto Rico Law 72 was preempted by the MMA provision which states that “standards established by [Medicare] supersede any State law or regulation (other than State licensing laws of State laws relating to plan solvency) with respect to [Medicare Advantage] plans which are offered by a Medicare Advantage Organization under … Part” C of Medicare. 42 U.S.C. § 1395w-26(b)(3).
The First Circuit reversed and vacated the preliminary injunction. The court agreed with Puerto Rico that “Medicare Platino is not a Medicare program but rather is a Medicaid program.” (Emphasis in original.) Thus, the Puerto Rico law was not a standard for operating a Medicare Advantage plan but rather was “a permissible eligibility requirement for an entity wishing to participate in a Puerto Rico Medicaid program.” As a result, the Puerto Rico law was not preempted by the Medicare law’s standards for Medicare Advantage plans operating under Medicare.
First Medical argued, in the alternative, that the Puerto Rico law was preempted by the Medicaid Act. The federal Medicaid statute states that “in addition to any other authority, a State may exclude any individual or entity [from participating in its Medicaid program] for any reason for which the Secretary could exclude the individual or entity from participation in” Medicare. 42 U.S.C. §1396a(p). First Medical argued that this statute prohibited any basis for exclusion from participation in Medicaid that does not exist under Medicare.
The First Circuit rejected the provider’s interpretation of the Medicaid law. The court stated:
The [Medicaid] statute expressly grants states the authority to exclude entities from their Medicaid programs for reasons that the Secretary could use to exclude entities from participating in Medicare. But it also preserves the state’s ability to exclude entities from participating in Medicaid under “any other authority.” The legislative history clarifies that this “any other authority” language was intended to permit a state to exclude an entity from its Medicaid program for any reason established by state law.”
(Emphasis in original.)
The court dismissed First Medical’s complaint and awarded Puerto Rico costs.