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July 19, 1991


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. 52(a).


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 argued at trial that the EMEVS is being applied in a disparate manner to selected providers in violation of the equal protection clause of the Constitution, and that those providers subject to the regulations are being summarily deprived of their property right to reimbursement on the EMEVS claims without due process.*fn5 Plaintiffs offered the testimony of Mr. Fred Wein, supervising pharmacist at Marben Pharmacy. Mr. Wein testified that while his pharmacy's procedure was to swipe, post and clear every prescription for Medicaid, there were instances where the pharmacy used a MET to reconfirm a recipients' eligibility on a retroactive basis. Transcript, at 11. With reference to past problems with the EMEVS and the claim that about 60 percent of the claims which were "pended" on the October 19, 1990 remittance statement were still pending, Mr. Wein testified that the pendency problem ". . . decreased over the last couple of weeks . . ." and that only a "minimal amount" of his claims are currently being "pended". Transcript, at 27.

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 [1990]" 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.

Both Mr. Burkitt and Mr. Marinos addressed the issue of reimbursement claims made for services provided to nursing home residents. Mr. Marinos explained that plaintiff Sutphin has been denied reimbursement for services rendered in reliance on an EMEVS authorization because the recipient was subsequently found to be a "nursing home resident" and thus ineligible for Medicaid-sponsored prescriptions by the Department.*fn6 Mr. Burkitt testified that each of the nursing home examples raised by Mr. Marinos predated the regulation upon which plaintiffs base their claim. Transcript, at 182. Mr. Burkitt further testified that under the current policy, if a pharmacy provides pharmaceutical service to a nursing home recipient because the recipient's Medicaid card is cleared as eligible on the EMEVS, the claim will initially be denied by the automated system but will be paid off-line, following a inquiry by the Department and further submissions by the provider. Transcript, at 178-9.



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 ...

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