The U.S. Supreme Court’s confused decision on an effort by the state of Maine to use the federal Medicaid program as leverage to force drug manufacturers to give other Maine residents a discount on prescription drug prices makes one wonder why the high court took the case. The decision was so fractured, with four separate concurring opinions, that it yields no usable principle.
The bottom line is that Maine can continue experimenting with its essentially extortionary program. Maine found legal cover for the program this way:
Previous court decisions prevent states from interfering with interstate commerce by imposing outright price controls on goods produced out of state. So Maine piggybacked on a 1990 congressional act that required drug companies to pay rebates to states on their Medicaid purchases.
The “Maine Rx” program was to negotiate similar rebates for all Maine residents. It included a big stick: Companies that didn’t set up a rebate program would find their Medicaid sales subject to a “prior authorization” process that lets a state agency decide whether a doctor’s prescription qualifies for reimbursement. Both patients and drug companies have found such red tape extremely onerous.
A federal district court found the program unconstitutional because it interfered with interstate commerce. The First Circuit appeals court reversed the ruling but kept the injunction in place until the Supreme Court could handle it. The Supreme Court has now punted, but it did lift the injunction.
So now Maine will be able to use the Medicaid program as leverage to force drug companies to reduce prices that have been increased, to large degree, by government over-regulation. It tries to solve a problem created by too much government control with yet more government control. Like most price controls (direct or indirect), it will have the effect of reducing supply.
Maine’s program is pernicious and counterproductive, but is it unconstitutional or illegal? Justice Sandra Day O’Connor, joined by William Rehnquist and Anthony Kennedy, thought so, because it imposes a burden on Medicaid recipients while having no Medicaid-related purpose. But Justices John Paul Stevens, David Souter and Ruth Ginsburg thought the program was just jim-dandy, while Antonin Scalia, Clarence Thomas and Stephen Breyer thought it wasn’t the court’s job to resolve the matter. But no majority rationale emerged.
So Maine will start to implement its program. It will probably be challenged on different legal grounds, but judges will have no coherent guidance from the Supreme Court as to how to deal with the issues.
All in all, a pathetic Supreme Court performance.