On May 19, 2003, the Supreme Court in Pharmaceutical Research and Manufacturers of America v. Walsh affirmed a court of appeals decision allowing for the implementation of the Maine Act to Establish Fairer Pricing for Prescription Drugs.' The Maine program attempted to leverage the considerable market power of the Medicaid program to force drug companies to offer the state a discount on pharmaceuticals. The state in turn would pass the savings on to its uninsured residents. Manufacturers that refused to negotiate a discount with the state would face the prospect of their products being available to Maine Medicaid recipients only with prior authorization, resulting in a considerable loss of market share for these manufacturers.

The Walsh case permits states to use the market power they wield through their Medicaid programs to make prescription drugs more affordable to their residents, albeit subject to some constraints. The Court decisively rejected a broad constitutional challenge to the Maine program based on the prohibition against state interference with interstate commerce. Had this challenge succeeded, it would have put at risk a wide range of state pharmaceutical programs. The badly splintered Court left unclear, however, the precise conditions under which states may use their Medicaid market power to benefit residents not covered by Medicaid. The Court established only that the Pharmaceutical Research and Manufacturers of America (PhRMA), the trade association that brought he case, had not yet proven that the Maine program violated the Medicaid statute by imposing a state requirement lacking a "Medicaid purpose." The Court also suggested that states might do well to consult the Department of Health and Human Services (HHS) before proceeding with Medicaid-related drug programs.