                                                                            FILED
                            NOT FOR PUBLICATION                              MAR 03 2010

                                                                         MOLLY C. DWYER, CLERK
                     UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS




                            FOR THE NINTH CIRCUIT



INDEPENDENT LIVING CENTER OF                      No. 09-55692
SOUTHERN CALIFORNIA, INC.; et al.,
                                                  D.C. No. 2:09-cv-00382-CAS-
             Plaintiffs - Appellees,              MAN

  v.
                                                  MEMORANDUM *
DAVID MAXWELL-JOLLY, Director of
Department of Health Care Services of the
State of California,

             Defendant - Appellant.



                   Appeal from the United States District Court
                       for the Central District of California
                   Christina A. Snyder, District Judge, Presiding

                      Argued and Submitted January 19, 2010
                               Pasadena, California

Before: REINHARDT, W. FLETCHER and M. SMITH, Circuit Judges.

       Plaintiffs-Appellees Independent Living Center of Southern California, Inc.,

et al. sought a preliminary injunction in the district court to enjoin AB 1183’s five

percent Medi-Cal reimbursement rate reduction as to providers of pharmacy


        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
services. As the facts and procedural history are familiar to the parties, we do not

recite them here except as necessary to explain our decision. We affirm the district

court’s grant of the preliminary injunction.

      For the reasons discussed in Cal. Pharms. Ass’n v. Maxwell-Jolly, No. 09-

55532, slip op. at 3331-3361 (9th Cir. Mar. 3, 2010) (California Pharmacists II),

we reject the Director’s contention that the State legislature was not required to

study the impact of the five percent rate reduction on the statutory factors of

efficiency, economy, quality, and access to care, prior to enacting AB 1183.

      The primary issue in this appeal is whether the legislature actually conducted

the requisite analysis prior to enacting AB 1183. At oral argument, the Director

called our attention to a December 2007 Survey of Dispensing and Acquisition

Costs of Pharmaceuticals in the State of California, which was prepared for the

Department by the accounting firm Myers and Stauffer LC (the Myers and Stauffer

Study). The Director referenced the Myers and Stauffer Study in its briefing

before the district court, but only to support the argument that the Department had

sufficiently considered the § 30(A) factors prior to implementing the five percent

rate reduction. However, for the reasons we explained in California Pharmacists

II, slip op. at 3349-3355, any analysis performed by the Department was




                                           2
inadequate because the Department did not retain the discretion not to implement

the rate reductions based on a § 30(A) analysis.

      On appeal, the Director argues that the legislature also considered the Myers

and Stauffer Study, because it appears in the “Comments” column of the May 30,

2008 agenda released by the Assembly Budget Subcommitee No. 1 on Health and

Human Services. That comment reads: “Dec. 2007 Myers and Stauffer study

found that current Medi-Cal drug pricing averages around 5 percent over cost.”

The Director did not argue in his briefing, either here or in the district court, that

the citation to the Myers and Stauffer Study in the May 2008 agenda satisfied §

30(A)’s requirements. However, the Director presented the agenda to the district

court as part of AB 1183’s legislative history, and the district court held that the

legislative history shows no indication that the § 30(A) factors were considered.

We have held that the district court’s finding on that issue was not clearly

erroneous. See California Pharmacists II, slip op. at 3349.

      In any event, for two additional reasons, we reject the Director’s reliance on

the Myers and Stauffer Study to satisfy the requirement that the legislature

“stud[ied] the impact of the contemplated rate change(s) on the statutory factors

prior to setting rates, or in a manner that allow[ed] those studies to have a

meaningful impact on rates before they [were] finalized.” California Pharmacists


                                            3
II, slip op. at 3360-61 (emphasis omitted). First, the one-sentence citation to the

May 30, 2008 agenda does not show adequate consideration of the § 30(A) factors.

Second, while the Myers and Stauffer Study provides a detailed discussion of

costs, it is bereft of any analysis of the remaining § 30(A) factors—efficiency,

economy, quality, and access to care. See California Pharmacists II, slip op. at

3360 (holding that the State must consider costs and study the impact of the rate

change on the statutory factors). Indeed, the Myers and Stauffer Study notes

several times that it is only a cost study, and recommends that the Department

conduct additional analysis in light of those costs. See, e.g., Myers and Stauffer

Study at 79 (“There are several factors that should be considered in determining an

appropriate pharmacy reimbursement formula for Medi-Cal. These factors include

dispensing costs . . . , drug acquisition costs and market dynamics . . . balanced

with the need to maintain sufficient access to services for Medi-Cal recipients

throughout the state.”); id. (“Myers and Stauffer recommends that the Department

of Health Services evaluate its pharmacy participation level as well as any

additional data sources available for tracking complaints about recipient access to

services.”); id. at 81 (“The cost survey performed by Myers and Stauffer reports

aggregate historical costs of dispensing as observed in the current provider

community but does not determine if the costs observed are reflective of providers


                                           4
operating in the most efficient manner possible.”); id. (“An evaluation of the

dispensing fee should also consider issues of access to services, reimbursement

rates prevalent in the marketplace from other third party payers and payment rates

that promote incentives for provider efficiency.”). Accordingly, we affirm the

district court’s holding concerning Plaintiffs’ likelihood of success on the merits

because the State did not study the impact of the five percent rate reduction on the

statutory factors prior to enacting AB 1183, or in a manner that allowed those

studies to have a meaningful impact on rates before they were finalized. See

California Pharmacists II, slip op. at 3360-61.

      Nor did the district court abuse its discretion in finding that Plaintiffs

demonstrated irreparable harm. After considering both parties’ evidence, the

district court concluded that the Director failed to refute Plaintiffs’ showing of

irreparable harm. The district court concluded that even if, on average, pharmacies

would be compensated above their acquisition costs, the Director had not refuted

Plaintiffs’ showing that many brand and generic drugs would be reimbursed at a

level below cost, limiting Medi-Cal patients’ access to those drugs. The district

court noted that because many single-source drugs are protected from competition

by patents, there are no available generic alternatives. The court also concluded

that if pharmacies are forced to curtail services or go out of business, existing


                                           5
customers would not have access to other pharmacies, especially since home-

delivery services would end. It further noted that independent pharmacies

represent thirty-three percent of the licensed community pharmacies in California

and that they would be severely impacted by the reductions.

      Contrary to the Director’s argument, the district court did not disregard the

Director’s evidence, and the Director cannot rely solely on asking this court to re-

weigh the evidence presented to the district court. Indep. Living Ctr. of S. Cal.,

Inc. v. Maxwell-Jolly, 572 F.3d 644, 658 (9th Cir. 2009). The district court’s

conclusion that Plaintiffs would suffer irreparable harm was not clear error.

      The district court also did not abuse its discretion in determining that the

balance of hardships tipped decidedly in Plaintiffs’ favor. See California

Pharmacists II, slip op. at 3360.

      For these reasons and those we provided in California Pharmacists II, slip

op. at 3331-61, we affirm the district court’s grant of a preliminary injunction.

AFFIRMED.




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