[ Previous Page]  [ Home Page ]

The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6011

November 25, 1981

CONSTITUTIONAL LAW:

US Const, Am XIV

Const 1963, art 1, Sec. 17

MONOPOLIES AND UNFAIR TRADE:

Purchase of eyeglasses by state through a single supplier

SOCIAL SECURITY:

Medicaid--purchase of eyeglasses through a single supplier

SOCIAL SERVICES, DEPARTMENT OF:

Authority to enter into contract for purchase of eyeglasses through a single supplier

The Department of Social Services is authorized to implement a cost containment program for the purchase of eyeglasses through a single supplier for Medicaid recipients.

The volume purchasing program of eyeglasses through a single supplier does not violate the Due Process Clauses of the United States and Michigan Constitutions.

The volume purchasing program of eyeglasses through a single supplier does not violate the Social Security Act.

The volume purchasing program through a single supplier by the Department of Social Services as part of its medical assistance program does not violate the antitrust laws.

Honorable Juanita Watkins

State Representative

State Capitol

Lansing, Michigan

You have requested my opinion on several questions pertaining to the Department of Social Services' program for volume purchasing of eyeglasses for Medicaid recipients. Under this cost containment program, the Department of Social Services provides eyeglasses to Medicaid recipients through a single manufacturer who has agreed to supply the eyeglasses frames and lenses of all Medicaid recipients who are eligible to receive eyeglasses from the Department of Social Services, according to fixed specifications, terms and conditions set by the state. The contractor was selected through a competitive bidding process conducted by the Department of Management and Budget and the Department of Social Services in which the lowest qualified bidder was awarded the contract. The Medicaid recipient remains free to select the ophthalmologist or optometrist participating in the program for the eye examination and the optician participating in the program for the selection of one of thirty-six eyeglass frames and fitting of the frames.

First you have asked whether the Department of Social Services has exceeded its statutory or rulemaking authority in implementing this volume purchasing program. Pursuant to the Social Welfare Act, 1939 PA 280 as amended, Sec. 105, MCLA 400.105; MSA 16.490(15), the Michigan Department of Social Services is authorized to administer the medical assistance (Medicaid) program under Title XIX of the Federal Social Security Act, 79 Stat 343 et seq (1965), 42 USC 1396 et seq. Under the Social Welfare Act, 1939 PA 280, Sec. 109, MCLA 400.109; MSA 16.490(19), the Department of Social Services is authorized to determine what medical and health services will be provided to Medicaid recipients. In 1939 PA 280, Sec. 10; MCLA 400.10; MSA 16.410, the Legislature has provided in pertinent part:

'The state department is designated as the state agency to cooperate with the federal government in the administration of the social security act . . ., including title 19 and any amendments thereto or supplemental thereof. . . . The department may cooperate with the proper departments or agencies of the federal government and with all other departments or agencies of the state and local governments . . . under these provisions and the rules promulgated pursuant thereto. . . . The director with the approval of the governor, may cooperate with the federal government, or any of its agencies or instrumentalities, in handling the welfare and relief problems and needs of the people of this state, to the extent authorized by the laws of this state. The director may adopt any plan required or desirable to participate in the distribution of federal moneys or the assistance of the federal government, and may accept on behalf of the state any allotment of federal moneys. . . . The director may . . . enter into any agreement or agreements with federal, state, or local units of government or private agencies necessary to enable the state or such units to participate in any plan the director deems desirable for the welfare of the people of this state.

For the purpose of assuring full federal approval of the activities of the department and local departments with respect to the operation of a plan, the director may do all things reasonable and proper to conform with federal requirements pertaining to methods and standards of administration . . .'

The appropriations act for the Department of Social Services for the fiscal year ending September 30, 1981, 1980 PA 315, Sec. 75, specifically requires the Department of Social Services to enter into a contract to provide eyeglasses for Medicaid recipients. Identical language is also contained in 1981 PA 35, Sec. 44, the Department of Social Services appropriations act for the fiscal year beginning October 1, 1981. Since the Legislature has expressly mandated that the Department of Social Services contract for the provision of eyeglasses for Medicaid recipients, and has not required the department to adopt rules before the program may be implemented, no rules are necessary to carry out this mandate of the Legislature.

It is my opinion, therefore, that the Department of Social Services acted within its statutory authority when it implemented a cost containment program for the volume purchasing of eyeglasses for Medicaid recipients.

You have also asked whether the volume purchasing program violates the due process clauses of the federal and state constitutions, US Const, Am XIV and Const 1963, art 1, Sec. 17, by interfering with the 'right to do business.' The issue raised by your question arises out of the fact that only one manufacturer will be supplying the eyeglasses for Medicaid recipients, whereas, in the past, a number of manufacturers and distributors were involved. Thus, it must be determined whether suppliers who previously provided eyeglasses for Medicaid recipients have been deprived of a property right without due process of law, because they will no longer be supplying their products to recipients under the Medicaid program.

Before it may be decided whether a person has been deprived of property without due process of law, it must be determined whether such person possesses a property interest which is entitled to constitutional protection. In Board of Regents of State Colleges v Roth, 408 US 564, 577; 92 S Ct 2701, 2709; 33 L Ed 2d 548, 561 (1972), the United States Supreme Court stated:

'To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined. It is a purpose of the constitutional right to a hearing to provide an opportunity for a person to vindicate those claims.

'Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law-rules or understandings that secure certain benefits and that support claims of entitlement to those benefits. . . .'

In the instant situation, former eyeglass suppliers had no more than a desire or, at most, no more than a unilateral expectation of continuing to do business with Medicaid recipients. No contractual or statutory requirement exists which establishes any entitlement on the part of eyeglass manufacturers or suppliers to participate in future business such as the Medicaid program.

As observed in OAG 1979-1980, No 5649, p 600 (February 1, 1980), no former provider reimbursed under the Medicaid program 'has a statutory right in the continuation of such reimbursement which could rise to constitutional dimensions.' This conclusion is supported by the decision of the United States Court of Appeals for the Sixth Circuit in Green v Cashman, 605 F2d 945 (6th Cir 1979) in which the court stated:

'[We] do not find in the statute authorizing Medicare and Medicaid any legislative intention to provide financial assistance to providers of care for their own benefit. Rather, the statute is designed to aid the patients and clients of such facilities. Other courts have expressed the same point of view in similar situations. See Case v Weinberger, 523 F2d 602, 607 (2d Cir. 1975); Paramount Convalescent Center v Department of Health Care Services, 16 Cal 3d 489, 496-97, 125 Cal. Rptr. 265, 269, 542 P.2d 1, 5, (1975) . . ..'

It is my opinion, therefore, that the Department of Social Services' Medicaid volume purchasing program does not violate the provisions of the Due Process Clauses of the United States and Michigan Constitutions.

You have also asked whether the department's volume purchasing program violates Section 1902(a)(23) of the Social Security Act, 81 Stat 903 (1968), 42 USC 1396a(a)(23). That section provides, in pertinent part:

'A State plan for medical assistance must-

(23) [p]rovide that any individual eligible for medical assistance (including drugs) may obtain such assistance from any institution, agency, community pharmacy, or person, qualified to perform the service or services required . . . who undertakes to provide him such services; . . ..'

It should be noted that the United States Department of Health and Human Services (formerly the Department of Health, Education and Welfare) (hereinafter referred to as HHS), which administers the medical assistance program at the federal level, is in the process of promulgating regulations which would make the volume purchasing of eyeglasses one of two mandatory alternatives for states which provide eyeglasses as a covered medical assistance benefit. In its comments on these proposed regulations, published in 44 Fed Reg 30382 (1979), HHS addressed the question of whether a volume purchasing program such as Michigan's would violate Section 1902(a)(23) of the Social Security Act, supra, and concluded that it would not. To this effect, HHS said:

'We want to make clear that, though [a volume purchase plan] may not appeal to States for political or economic reasons, legally it is a viable option. Some commenters suggested that it was in violation of the Medicaid statutory provision guaranteeing Medicaid recipients freedom of choice of health care providers. We do not believe this is true. . . .

Freedom of choice is a concept which exists for the benefit of recipients, not for the benefit of providers or suppliers. As long as a Medicaid agency does not deny any choices that recipients have, volume purchasing is permissible. The State is free to require that Medicaid providers obtain their products from designated suppliers that have agreed to furnish the products at contract prices. The State is also free to retain title to the supplies (e. g., durable medical equipment) and either store them in a centralized warehouse or arrange with the manufacturer to ship them to Medicaid providers.'

Since the Medicaid recipient is free to select the provider of ophthalmologic, optometric or optician services, there is no curtailment of the right to choose and no violation of the Social Security Act, Sec. 1902(a)(23), supra.

It is my opinion, therefore, that the Department of Social Services' volume purchasing program for eyeglasses does not violate the Social Security Act, Sec. 1902(a)(23), supra.

Finally, you have asked whether the Department's volume purchasing program violates antitrust laws if 'only large optical houses may compete in the bidding' for the Medicaid contract. It is my understanding, from representations of the Department of Management and Budget, that bidding for the contract in question was not limited to large optical houses and, in fact, 42 suppliers from Michigan and elsewhere were contacted and invited to submit bids.

The United States Supreme Court has held that the federal antitrust laws, 15 USC 1, et seq, may not be applied against the state where 'the challenged action is 'an act of government' by the state as 'sovereign'.' City of Lafayette v Louisiana Power & Light Co, 435 US 389; 98 S Ct 1123; 55 L Ed 2d 364 (1978). See also, California Retail Liquor Association v Midcal Aluminum, Inc, 445 US 97; 100 S Ct 97; 63 L Ed 2d 233 (1980); Bates v State Bar of Arizona, 433 US 350; 97 S Ct 2691; 53 L Ed 2d 642 (1977); Goldfarb v Virginia State Bar, 421 US 773; 95 S Ct 2004; 44 L Ed 2d 572 (1975); Parker v Brown, 17 US 341; 63 S Ct 307; 87 L Ed 2d 315 (1943). The Department of Social Services' administration of a state-wide welfare program such as the medical assistance program clearly involves essential 'acts of government by the state as sovereign.'

It is my opinion, therefore, that the volume purchasing program instituted by the State as part of its medical assistance program does not violate the antitrust laws.

Frank J. Kelley

Attorney General

[ Previous Page]  [ Home Page ]