N.M. Stat. § 27-2-16 (2026)

A. Subject to the availability of state funds, the authority may provide assistance to
aged, blind or disabled persons in the amounts consistent with federal law to enable the
state to be eligible for medicaid funding. Persons shall be determined to be aged, blind
or disabled according to rules of the authority.

   B. If drug product selection is permitted by Section 26-3-3 NMSA 1978,
reimbursement by the medicaid program shall be limited to the wholesale cost of the
lesser expensive therapeutic equivalent drug generally available in New Mexico plus a
reasonable dispensing fee of at least three dollars sixty-five cents ($3.65).
History: 1953 Comp., § 13-17-18, enacted by Laws 1974, ch. 31, § 1; 1982, ch. 26, §
2; 1984, ch. 27, § 1; 2024, ch. 39, § 74.

                                    ANNOTATIONS

Cross references. — For medical assistance programs generally, see 27-2-12 NMSA
1978.

For programs for persons with special medical needs generally, see Chapter 27, Article
4 NMSA 1978.

The 2024 amendment, effective July 1, 2024, substituted the health care authority for
the human services department in complying with federal law to maintain eligibility for
medicaid funding; and substituted each occurrence of "human services department"
with "health care authority".

Subsection B of Section 27-1-16 does not apply to New Mexico’s managed health
system or to managed care organizations. Starko, Inc. v. N.M. Human Servs. Dep’t,
2014-NMSC-033, rev'g 2012-NMCA-053, 276 P.3d 252.

Subsection B of Section 27-2-16 NMSA 1978 applies to managed care
organizations and the medicaid managed care program. Starko, Inc. v. Presbyterian
Health Plan, Inc., 2012-NMCA-053, 276 P.3d 252, cert. granted, 2012-NMCERT-003.

Subsection B of Section 27-2-16 NMSA 1978 creates a private right of
enforcement against managed care organizations. Starko, Inc. v. Presbyterian Health
Plan, Inc., 2012-NMCA-053, 276 P.3d 252, cert. granted, 2012-NMCERT-003.

Subsection B applies whenever a substitution is possible. — Subsection B of
Section 27-2-16 NMSA 1978 applies whenever a pharmacist has the discretion to issue
a lesser expensive drug that is the therapeutic equivalent to the prescribed drug even if
a substitution does not occur. Starko, Inc. v. Presbyterian Health Plan, Inc., 2012-
NMCA-053, 276 P.3d 252, cert. granted, 2012-NMCERT-003.

Statutory rights not waived by entering into managed care contracts. — Where, in
a class action, pharmacists sued to enforce their rights to reimbursement under
Subsection B of Section 27-2-16 NMSA 1978; when the state converted the medicaid
program from a fee-for-service program to a managed care program, pharmacists were
required to enter into new contracts with managed care organizations; the new
contracts required the organizations to reimburse pharmacists at the current and
applicable medicaid reimbursement rates which were less than the required rates under
Subsection B; pharmacists who refused to participate in the new contracts were
terminated from the active provider list by the human services department [health care
authority department]; and when the state converted the medicaid program to a
managed care program, pharmacists sought a temporary restraining order to determine
the effect of entering into the new contracts and pursuant to the court’s order, the
department entered into provider contracts with the organizations which provided that
the new contracts with pharmacists did not waive pharmacists’ statutory rights to sue
under Subsection B, pharmacists did not waive their statutory rights to sue pursuant to
Subsection B by entering into the new contracts. Starko, Inc. v. Presbyterian Health
Plan, Inc., 2012-NMCA-053, 276 P.3d 252, cert. granted, 2012-NMCERT-003.

Reduction of reimbursement rates without federal approval. — Where, in a class
action, pharmacists sued to enforce their rights to reimbursement under Subsection B of
Section 27-2-16 NMSA 1978, alleging that the human services department [health care
authority department] failed to reimburse pharmacists in accordance with medicaid
legislation for drug ingredient costs; from January 1, 1991 through June 30, 1997, the
department reimbursed pharmacists at the rate of the average wholesale price, minus
ten and one-half percent; effective June 30, 1997, the department reduced the
ingredient cost to the average wholesale price, minus twelve and one-half percent;
federal approval of the reduction, which was necessary, was given in April 1998,
retroactive to January 1, 1998; and pharmacists claimed that the department did not
have authority to reduce the reimbursement rate during the six-month period prior to
federal approval, the federal statute did not require prior approval of state plans,
retroactive approval was sufficient, and pharmacists did not have a cause of action
against the department for reimbursement for the six-month period when
reimbursement rates had been reduced without federal approval. Starko, Inc. v.
Presbyterian Health Plan, Inc., 2012-NMCA-053, 276 P.3d 252, cert. granted, 2012-
NMCERT-003.

Breach of contract claim against the Human Services Department [health care
authority department]. — Where, in a class action, pharmacists sued to enforce their
rights to reimbursement under Subsection B of Section 27-2-16 NMSA 1978; when the
state converted the medicaid program from a fee-for-service program to a managed
care program, the human services department [health care authority department]
entered into provider contracts with managed care organizations that required the
organizations to provide medical care and pharmacy services, explicitly incorporated all
applicable statutes, and provided that contracts between the organizations and
pharmacists would not waive pharmacists’ statutory rights to sue pursuant to
Subsection B; Subsection B's requirement that pharmacists be reimbursed with the
average wholesale price, plus a reasonable dispensing fee when pharmacists dispense
lesser expensive, therapeutic equivalent drug, was a term of the provider agreements
and pharmacists could bring a breach of contract action against the department for the
medicaid program’s failure to reimburse pharmacists in accordance with Subsection B.
Starko, Inc. v. Presbyterian Health Plan, Inc., 2012-NMCA-053, 276 P.3d 252, cert.
granted, 2012-NMCERT-003.

Unjust enrichment claim against managed care organizations. — Where, in a class
action, pharmacists sued to enforce their rights to reimbursement under Subsection B of
Section 27-2-16 NMSA 1978; the human services department [health care authority
department] entered into provider contracts with managed care organizations that
required the organizations to pay pharmacists in accordance with Subsection B; and
pharmacists alleged that the department paid the organizations in compliance with the
statute and that the payments were partially retained by the organizations, pharmacists
stated a claim in equity for unjust enrichment. Starko, Inc. v. Presbyterian Health Plan,
Inc., 2012-NMCA-053, 276 P.3d 252, cert. granted, 2012-NMCERT-003.

Class certification was proper. — Where, in a class action, pharmacists sued the
human services department [health care authority department] and managed care
organizations to enforce pharmacists’ rights to reimbursement under Subsection B of
Section 27-2-16 NMSA 1978; the department entered into provider contracts with the
organizations to provide medical care and pharmacy services; the organizations entered
into contracts with pharmacists to provide pharmacy services; the number of pharmacist
who were class members was between two and three hundred; the pharmacists were
widely dispersed across the state; the relationship of each pharmacist to the department
and the organizations and the facts necessary to decide the case as to each class
member were essentially the same; each class member sought an interpretation of
Subsection B that required either the department or the organizations to pay; there was
no evidence that the interests of any individual class member were contrary to those of
the entire class; to prevail, each class member needed a holding on all critical issues
common to all class members; judicial resources would be saved by certification; the
number of class members was manageable; and the damages of each class member
could be calculated in a similar manner, the court did not abuse its discretion in finding
that the requirements of Paragraph A of Rule 1-023 NMRA were met. Starko, Inc. v.
Presbyterian Health Plan, Inc., 2012-NMCA-053, 276 P.3d 252, cert. granted, 2012-
NMCERT-003.

No denial of due process. — Where human services department [health care authority
department] executives contracted with managed care organizations in such a way that
resulted in pharmacists being paid a dispensing fee of less than the statutory amount of
$3.65, the pharmacists were not denied due process by the state because the
pharmacists were being paid the dispensing fee under contracts the pharmacists
voluntarily entered into with the managed care organizations and because the violation
of the substance of the state law is not a violation of a procedural guarantee. Starko,
Inc. v. Gallegos, 2006-NMCA-085, 140 N.M. 136, 140 P.3d 1085, cert. denied, 2006-
NMCERT-007, 140 N.M. 279, 142 P.3d 360.

Am. Jur. 2d, A.L.R. and C.J.S. references. — 79 Am. Jur. 2d Welfare Laws §§ 15, 32
to 41, 43.

Residence required for purpose of old-age assistance, 43 A.L.R.2d 1427.

What constitutes "disability" within federal Social Security Act, 77 A.L.R.2d 641.

Use of medical-vocational guidelines (20 CFR Part 404, Subpart P, Appendix 2) in
determining disability of social security benefits claimant, 60 A.L.R. Fed. 796.

81 C.J.S. Social Security and Public Welfare §§ 94 to 112.
27-2-17. Custodian of funds.
   The authority is designated as the custodian of all money received by the state,
which the authority is authorized to administer, from any appropriations made by the
congress of the United States for the purpose of cooperating with the several states in
the enforcement and administration of the provisions of the federal Social Security Act
and all money received from any other source for the purposes set forth in Chapter 27
NMSA 1978. The authority is authorized to receive such money, provide for its proper
custody and make disbursements of it under such rules as the authority may prescribe.

History: Laws 1937, ch. 18, § 10; 1941 Comp., § 73-110; 1953 Comp., § 13-1-10;
1978 Comp., 27-2-17; 2024, ch. 39, § 75.

                                     ANNOTATIONS

Cross references. — For the federal Social Security Act, see 42 U.S.C. § 301 et seq.

The 2024 amendment, effective July 1, 2024, provided that the health care authority is
the custodian and administrator of all money received by the state for the purpose of
enforcing and administering the provisions of the federal Social Security Act; substituted
each occurrence of "state department" and each occurrence of "state board of public
welfare" with "authority" throughout the section; after "designated as custodian" deleted
"subject to the provisions of Section 21 of this act"; after "which the" deleted "state
board of public welfare" and added "authority"; and after "set forth in" deleted "this act"
and added "Chapter 27 NMSA 1978".

Am. Jur. 2d, A.L.R. and C.J.S. references. — 79 Am. Jur. 2d Welfare §§ 15, 32 to 41,
50, 67, 103, 111 to 113.

Unemployment or other unusual conditions, power of state or municipality to appropriate
funds or incur indebtedness, in excess of poor funds, for relief of distress due to, 87
A.L.R. 371.

81 C.J.S. Social Security and Public Welfare §§ 2, 6, 9, 94 to 112, 116.

27-2-18 to 27-2-20. Repealed.
                                     ANNOTATIONS

Repeals. — Laws 1998, ch. 8, § 28 and Laws 1998, ch. 9, § 28, repealed 27-2-18
through 27-2-20 NMSA 1978, amended by Laws 1963, ch. 220, § 1, relating to
application for public assistance, effective February 18, 1998. For provisions of former
sections, see the 1997 NMSA 1978 on NMOneSource.com.