A case now pending before the Texas Supreme Court between the Texas Health and Human Services Commission (“HHSC”) and the National Association of Chain Drug Stores, Inc. (“NACDS”) has important implications for Medicaid reimbursement for pharmacies in Texas. This case will be especially consequential for pharmacies that accept prescription discount cards, raising questions about how U&C prices should be reported when PBMs automatically apply these discounts—sometimes without the pharmacy’s knowledge or consent.
Background: Medicaid Reimbursement and the “Usual and Customary” Price
HHSC oversees the reimbursement of pharmacies that dispense medications to Medicaid recipients. These reimbursements are partially determined by the “usual and customary” (“U&C”) prices that pharmacies report to the state. U&C prices reflect the amount a consumer would pay for medications at a retail pharmacy when not using insurance.
NACDS’s Challenge to HHSC’s Rule Changes
NACDS contends that HHSC unlawfully revised its rules by bypassing the notice-and-comment process required under the Texas Administrative Procedure Act (“APA”). Specifically, NACDS challenges several updates to the Texas Vendor Drug Program Pharmacy Provider Procedural Manual (“Manual”), including:
- Section 2.1: Now requires pharmacies to report an advertised discount price as the U&C price, regardless of whether it is the “most frequently charged” price or whether the Medicaid recipient qualifies for the discount.
- Sections 5.4 and 5.5: Expand the definition of “discount” to include (1) pharmacy discount membership program prices offered or advertised to the general public, and (2) third-party discount plan prices that are offered, advertised, or adjudicated to the general public. The expansion of the “discount” definition to encompass prices from widely available membership programs and third-party discount cards represents a seismic shift in how U&C prices are calculated. This change could dramatically lower reported U&C prices, potentially reducing Medicaid reimbursement rates for pharmacies and impacting their financial viability.
- Sections 5.4 and 5.5: Introduce a new category for membership programs with a “nominal membership fee,” treating these as available to the “general public” for U&C purposes.
- Review Period Requirement: Pharmacies would be required to use a “reasonable time period”—generally presumed to be between 30 and 90 days—when reviewing past pricing data. Previously, pharmacies often determined U&C prices based on same-day transactions.
- Section 2.1.1: Adds a requirement that pharmacies must determine the U&C price on a “per unit” basis, regardless of the quantity dispensed.
HHSC argues that its actions amounted only to the issuance of new “guidance” in response to changing market conditions, rather than formal rulemaking.
NACDS argues that even if HHSC believes the manual updates, modernizing the U&C regulation, and bringing Texas into alignment with federal standards are beneficial objectives, these should have been pursued through the formal rulemaking process. This process is designed to ensure transparency and public participation, including public notice and an opportunity for stakeholders to comment on proposed changes.
NACDS stressed that Texas businesses have the right to participate in the rulemaking process whenever agencies enact substantial changes that affect entire industries. In this case, pharmacies were not given the opportunity to provide input or feedback on the changes.
Court Decisions and the Path Forward
The trial court initially sided with the state, granting summary judgment in favor of HHSC. However, the Seventh Court of Appeals reversed this decision, ruling in favor of NACDS. The appellate court recognized that the Manual updates introduced several substantial changes, including new requirements for advertising, reporting prices related to membership programs, and handling third-party payers.
Pharmacies participating in the Texas Medicaid program should closely monitor the outcome of this case, as it may significantly affect their reimbursement practices, particularly for transactions involving prescription discount cards. The new rules could create uncertainty when PBMs automatically apply discount cards, sometimes without the pharmacy’s knowledge, raising complex compliance questions.
How Frier Levitt Can Help
Frier Levitt represents pharmacies across the country in matters related to Medicaid reimbursement and offers comprehensive guidance and support throughout the rulemaking process in multiple states.
The firm’s attorneys have deep experience navigating the complex and ever-changing landscape of Medicaid regulations at both the state and federal levels. They help pharmacies understand and comply with Medicaid billing requirements, address reimbursement disputes, and respond to audits or investigations initiated by Medicaid agencies or their contractors.
When a state opens the notice-and-comment period for proposed regulations, it is essential for pharmacies to engage actively by submitting feedback and expressing concerns about rules that could affect their business operations. By participating in this process, pharmacies help ensure their interests are taken into account. Contact us to speak with an attorney about how your pharmacy can influence regulatory changes in your state.
Frier Levitt provides strategic, industry-focused legal counsel tailored to your needs. Contact our team today to learn how we can help you.
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