In a unanimous and concise fashion, the U.S. Supreme Court last week upheld in Astra USA Inc. v. Santa Clara County the federal government’s supremacy over the Medicaid contracting process. The Justice Ginsburg-penned opinion reversed the U.S. Court of Appeals for the Ninth Circuit, holding that neither Section 340B of the Public Health Services Act (PHS Act) nor the Pharmaceutical Pricing Agreement (PPA) signed by Medicaid program participants empower health care facilities to sue drug companies for alleged overcharging. Only the federal HHS Secretary possesses law enforcement powers in such situations, the Court found.
The Court’s ruling obviously has significant direct impacts on Medicaid participants and the pharmaceutical companies who would have been subject to endless federal court challenges had the Ninth Circuit’s decision been upheld. But Astra USA advances several important principles which resonate beyond the immediate case:
The Court Continues to Frown on Implied Private Rights of Action. Section 340B of the PHS Act does not grant third parties such as Santa Clara County law enforcement rights. Santa Clara, supported in the High Court by numerous academic and state attorneys general amici, sought a way around this inconvenient fact by arguing that Congress implied such a litigation right through the PPA requirement. The signing of the PPA created enforceable benefits under federal common law, they asserted. Justice Ginsburg retorted that the non-negotiable PPA form contracts “simply incorporate statutory obligations and record the manufacturers’ agreement to abide by them.” The Court’s refusal to reach out and create a private right of action where the statute at issue was silent on the matter continues a ten-year trend of the Justices frowning upon such implications. As Supreme Court litigator Mark Perry has noted, this trend began in 2001 with Alexander v. Sandoval and became clearer in 2008 with the Stoneridge Inv. Partners v. Scientific-Atlanta decision.
The Court Won’t Create New Lawsuits Contrary to Congress’s Intent. Had the Supreme Court stepped into the shoes of legislators and allowed Medicaid participants to enforce Section 340B, the ruling would have inspired more than just third-party suits against drug manufacturers. It would have sent a message to lower federal courts and state courts that the judiciary can and should craft remedies through private litigation. Implied private rights of action have been such a problem at the state level that civil justice reform advocates have encouraged legislatures to enact statutes that require more transparency when new state laws are passed. Last year, Georgia became the first state to specifically require that new private rights of action be included in legislation, and that courts cannot supercede legislators’ failure to do so through judicial fiat.
The Court in Astra USA explained that Congress not only declined to include third-party litigation as an enforcement mechanism in the PHS Act, it passed on a subsequent opportunity to create a private right when informed that HHS oversight of Medicaid pricing was sorely lacking. Rather than “inviting 340B entities to launch lawsuits in district courts across the country,” Justice Ginsburg wrote, Congress instead strengthened HHS’s enforcement authority. The Court’s refusal to embrace third-party litigation as a way to address alleged overpricing, especially in the current environment of “escalating” health costs, should be noted to any state or federal courts flirting with the creation of implied rights of action.
The Court Understands the Need for Regulatory Uniformity and Litigation’s Corrosive Impact. The contracting rules HHS enforces under the PHS Act are mind-numbingly complex, and the agency’s ability to create and utilize a uniform process is critical for all Medicaid participants, including health care facilities and health product manufacturers. As plaintiffs regularly argue when seeking private rights of action, Santa Clara County claimed that suits like theirs would “spread the enforcement burden.” The federal government, through an amicus brief supporting Astra USA, countered that Congress clearly intended “centralized enforcement” of Section 340B which diffuse private regulation through litigation directly undermines. The Court concurred with the government’s view: “Recognizing the County’s right to proceed in court could spawn a multitude of dispersed and uncoordinated lawsuits by 340B entities.” The PHS Act and the Medicaid program it facilitates are far from the only laws and regulatory programs where a private right of action would undercut uniformity. Astra USA erects a firm roadblock against expanding private enforcement of federal laws and regulations, dashing the hopes of many plaintiffs’ lawyers who saw a gold mine in such third party litigation.