The opinion of the court was delivered by: William C. Conner, District Judge:
Plaintiffs Sutphin Pharmacy, Inc. ("Sutphin"), Columbus
("Columbus") and 103rd Street Drug, Inc. ("103rd Drug"), and
Empire State Pharmaceutical Society, Inc. ("Empire") bring this
action under 42 U.S.C. § 1983 for injunctive relief and damages
against Cesar A. Perales, individually and as Commissioner of New
York State Department of Social Services (the "Department").
Plaintiffs also seek to enjoin the Department from further
implementing its Electronic Medicaid Eligibility Verification
System ("EMEVS") pursuant to Title 18 N.Y.C.R.R. Part 514.
This action was commenced by service of a summons and complaint
on defendant on December 3, 1990. Subsequently, by Order to Show
Cause for a Temporary Restraining Order and a Preliminary
Injunction, returnable December 17, 1990, plaintiffs sought to
enjoin defendant, during the pendency of the action, from further
implementing and using the EMEVS. At the hearing on December 17,
1990, the parties agreed to a trial on the merits to commence the
following day. Accordingly, this Court held a non-jury trial on
December 18, 1990 and received post-trial memoranda on behalf of
the parties thereafter. This opinion incorporates the Court's
findings of fact and conclusions of law pursuant to Fed. R.Civ.P.
Plaintiffs Sutphin and Columbus are pharmacies located in New
York City that participate in the New York State Medicaid
program. Plaintiff Empire is a state-wide professional society of
pharmacists who own retail pharmacies in New York State, the
majority of which are located in New York City. As Medicaid
providers, plaintiffs supply the pharmaceutical needs of Medicaid
recipients and submit reimbursement claims therefor directly to
the Department. Plaintiffs' Memorandum, at 4.
In an effort to reduce fraud and paperwork and process Medicaid
claims more efficiently, the Department introduced the EMEVS on
August 1, 1990, pursuant to 18
N YC.R.R. Part 514.*fn1 The EMEVS requires certain Medicaid
providers, as designated by the Department, to verify eligibility
for all Medicaid recipients prior to providing any services.*fn2
In order to guarantee reimbursement from Medicaid, designated
providers are instructed to access the EMEVS through a Medicaid
Eligibility Terminal (a "MET") to solicit authorization for the
services requested.*fn3 In the case of a participating pharmacy,
the MET is used to ensure that a Medicaid recipient who is
seeking to have a prescription filled is both Medicaid eligible
and authorized by a physician or like provider to receive a
particular drug in the prescribed quantity. The METs are
furnished by the Department.*fn4
The EMEVS was designed to flag defective claims. The system
"pends" a claim or withholds payment of the claim for review (a)
when the claim submission is incomplete, (b) when the claim is
being adjudicated in some other administrative process, or (c)
when it is being reviewed by a medical professional. Transcript,
at 100-01. Rather than denying a claim outright and thereby
forcing a provider to resubmit a claim, the EMEVS "recycles" a
pending claim so that it might be checked again later against
more recent information placed on the system. Such information
might presumably include a recent "posting" of required services
that may not have been in the system at the time a pharmacy
attempted to "clear" a prescription. As a matter of policy, a
potentially defective claim is "pended" for 30 days. Transcript,
at 97, 101.
Plaintiffs also offered the testimony of Mr. James Marinos, a
partner in ten pharmacies, including plaintiff Sutphin Pharmacy.
Mr. Marinos testified that his pharmacies never engaged in the
practice of retroactive eligibility verification for Medicaid
prescriptions. Transcript, at 57. He informed the Court that the
claims denied or "pended" by the Department ". . . have been
running about 40 percent since September " and has proven
to be damaging to his business. Transcript, at 59. Mr. Marinos
admitted having based his testimony on accumulated monthly
reports and acknowledged that his data were based on the dollar
total of claims "pended" and not the number of claims.
Transcript, at 64.
In addition to the testimony of Mary Alice Brankman, referred
to above, defendant offered the testimony of Raymond Burkitt,
director of MMIS (Medicaid Management Information System) with
the New York State Department of Social Services. Mr. Burkitt
demonstrated the use of the EMEVS and showed the Court how a MET
could be used to obtain authorization on a retroactive basis.
Transcript, at 162. Mr. Burkitt also provided the Court with
relevant statistics indicating that of the 600,000 claims
processed for payment to pharmacies by Medicaid on a weekly
basis, approximately 599,000 claims are processed using the EMEVS
system in less than 10 days. For those claims requiring a
resubmission or manual payment for a variety of reasons, Mr.
Burkitt testified that processing time was 2 to 3 weeks.
Transcript, at 169-170.
Plaintiffs allege that the Department's implementation of the
EMEVS constitutes a violation of the equal protection clause of
the Fourteenth Amendment to the Constitution in that all Medicaid
providers are not being treated equally with respect to the
application of 18 N.Y.C.R.R. 514.*fn7 Specifically, plaintiffs
claim that the statute is being implemented on a selective basis
to pharmacies, as opposed to other provider types, in New York
City and that pharmacies in other regions of New York State are
not being subjected to the regulation on an ...