Nursing Home and Pharmacy Litigation Update

For more information about this blog post, please contact Khaled J. KleleRyan M. MageeLabinot Alexander BerlajolliBrianna J. Santolli, or Daniel J. Parziale.

Nursing Homes May Seek Payment Based on Agreement to Apply for Medicaid

On November 23, 2020, the Appellate Division held that a law preventing a nursing home from requiring a third‑party guarantee of payment as a condition of admission does not bar a claim by a nursing home against the children of a resident who signed an admission agreement pledging to apply for Medicaid on the resident’s behalf. Pine Brook Care Ctr. v. D'Alessandro, A‑3197‑18T1, 2020 WL 6852609 (N.J. Super. Ct. App. Div. Nov. 23, 2020).

In this case, Pine Brook Care Center brought a collections matter against the daughters of resident Michael D’Alessandro, claiming Michael’s daughters were personally liable for sums related to his nursing home care. At the time of his admission, Michael’s daughters advised the nursing home that that they would not use a third-party service to apply for Medicaid benefits for Michael, but instead, agreed to file the application themselves. The daughters signed Michael’s admission agreement with the nursing home, but Michael was not approved for Medicaid benefits until two years after entering the nursing home. The nursing home sued for sums predating Michael’s Medicaid coverage, but the trial court granted the daughters’ motion for summary judgment, finding that a state law prohibiting the nursing home from requiring a third‑party guarantee of payment as a condition of admission precluded the nursing home’s claims.

The nursing home appealed to the Appellate Division. The Appellate Division reversed the trial court’s ruling. The Appellate Division held that the state law relied on by the trial court does not prohibit a nursing home from requiring that an individual enter into an agreement other than a guarantee of payment, and that the statute does not immunize individuals from personal liability based on contractual obligations undertaken that are not proscribed by law or that are founded on alleged tortious conduct.

The Appellate Division’s opinion can be found here.

SCOTUS Says That States May Regulate Pharmacy Benefit Managers

The Supreme Court of the United States unanimously ruled that states can regulate pharmacy benefit managers (“PBMs”). The Court upheld an Arkansas state law that governed reimbursement rates that PBMs must pay to pharmacies.

Specifically, the Arkansas state law requires PBMs to reimburse the pharmacies at or above their wholesale costs paid for generic drugs, and also prevents them from paying their own drug stores more than what is paid to other pharmacies. Arkansas (with 45 other states) argued that the PBMs have been unduly profiting from the spread between what they pay pharmacies and what they charge health plans for drugs. The Pharmaceutical Care Management Association – the trade group for PBMs such as CVS/Caremark, OptumRX, and Express Scripts – argued that the federal Employee Retirement Income Security Act of 1974 preempted state laws such as the one Arkansas passed in 2015. 

The Supreme Court, however, found that the Arkansas state law did not preempt federal law, because it did not regulate benefits, drug prices, and plan administration, or discriminate among those covered.

Most Favored Nation Rule Blocked

On November 27, 2020, the Center for Medicare & Medicare Services (“CMS”) published its Most Favored Nation (“MFN”) Model Interim Final Rule that sought to lower the amount paid for 50 high‑cost Medicare Part B drugs to the lowest price that drug manufacturers receive in similar countries. The MFN Model was supposed to operate beginning January 1, 2021 and continue for seven years until December 31, 2027. The rule, however, was blocked by a federal court in Maryland, holding that CMS did not follow the Administrative Procedure Act in issuing the rule. The federal court’s ruling is only a temporary restraint, so the new Biden Administration will have to try to uphold the rule or revoke it. The case is Association of Community Cancer Centers, et al. v. Alex M. Azar II, et al., Case No. 8:20‑cv‑03531, in the U.S. District Court for the District of Maryland, and the Federal Court’s Order and Memorandum can be found here.