Allergan, Inc. v. Sebelius ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
ALLERGAN, INC.,
Plaintiff,
v. Civil Case No. 13-00264 (RJL)
SYLVIA MATHEWS BURWELL,
in her oyj”zcz'al capacity as Secretary
of Health and Human Services,l
FILED
MAR312o1s
éS/%/§\-/\JL/&/%/&/\/
Defendant.
lg~ _Clerk_ u_s mistrial-a sanarupn.~y
MEMO NDUM OPINION ('U"l-‘? 'OF |hf»’ lll$lrlc! rif Cn|umhin
(Mar¢h f, 2016) [Di134 F.3d
393, 398 (D.C. Cir. 1998) (noting the "cardinal principle of interpretation" requiring a
court to "construct a statute so that no provision is rendered inoperative or superfluous,
void or insignificant" (internal quotation marks omitted)). To the contrary, the statutory
regime clearly contemplates the reported ASP data for a single biological product may be
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associated with different NDCs, packaging, labeling, and identifiers, as is the case with
BOTOX and BOTOX Cosmetic.
Allergan contends that BOTOX and BOTOX Cosmetic are distinct biological
products, but its arguments presume the conclusion Allergan seeks to prove. lt is
undisputed that the reporting provision applies only to "drugs or biological products for
which payment may be made" under Medicare Part B. SSA § l927, 42 U.S.C. § l396r-8.,
Because payment may not be made under Medicare for BOTOX Cosmetic, Allergan
argues, it need not disclose ASP data for BOTOX Cosmetic. Pl.’s Mem. in Supp. of its
Opp’n to the Gov’t’s Mot. for Sum1n. J. ("Pl.’s Opp’n") 4 [Dkt. # 35].3 Not so fast.
Section l862(a)(lO) of the SSA bars reimbursement for cosmetic procea’ures, not the use
of certain brands or NDCs that are FDA-approved for cosmetic uses. 42 U.S.C.
§ l395y(a)(l0) (excluding expenses for "cosmetic surgery" (emphasis added)).
OnabotulinumtoxinA is a biological product reimbursable under Medicare. See Def.’s
Mem. 8-9 (doctors request Medicare reimbursement using HCPCs, and an injection of
onabotulinumtoxinA has a single HCPC, ]0585, assigned for that procedure). Because
BOTOX and BOTOX Cosmetic are the same biological product reimbursable under
Medicare_onabotulinumtoxinA~Allergan must report all ASP data for that
biological product.
3 Plaintiff makes the same argument with regard _to the reimbursement provision, section l847A
of the SSA, which applies only to "drugs and biologicals that are described in [SSA
§ 1842(0)(1)(€)]," which, in turn, applies only to those "drugs or biological products for which
payment may be made" under Medicare Part B, 42 U.S.C. § l395u(o)(l)(C). See Pl.’s Opp’n l5_.
l4
B. Allergan Challenges Final Agency Action.
The government reasserts the argument from its Motion to Dismiss that Allergan
has not challenged final agency action, but fails to provide a basis for the Court to depart
from its prior ruling. .The government again contends that Allergan lacks a cause of
action because judicial review under the APA is limited to final agency action and, in its
opinion, the 2012 email from CMS that plaintiffs challenge in this suit does not constitute
final agency action. See Def.’s Mem. 2l-22. HHS previously moved to dismiss for lack
of subject matter jurisdiction and failure to state a claim under Federal Rules of Civil
Procedure l2(b)(l) and l2(b)(6). See Me1n. Op. & Order l, Mar. l7, 20l5 [Dkt. # 23]. l
denied that motion and found jurisdiction under APA § l0(c), 5 U.S.C. § 704, because
Allergan’s claim, concerning HHS actions pursuant to SSA § l927(b)(3), 42 U.S.C.
§ l396r-8(b)(3), was neither barred by the statutory preclusion of certain claims
concerning SSA § l847A, 42 U.S.C. § l395w-3a, nor subject to the mandatory
administrative remedies in SSA § l847A. Ia’. at 2-5. l also found that Allergan’s
complaint adequately stated a claim under APA § l0(c) by challenging "final agency
action" taken by HHS. Id. at 5-6. While l had to accept Allergan’s allegations as true at
the 1notion-to-dismiss phase, the factual record has not changed since that point and the
contents ofthe 2012 email remain undisputed. A.R. 28-32; Ans. il 37 [Dkt. # 25].
The 2012 email, in my judgment, constitutes final agency action reviewable under
the APA. See 5 U.S.C. § 704 (limiting review to "final agency agency"). Finality
requires satisfaction of two criteria: "[Hirst, the action must mark the consummation of
the agency’s decisionmaking process . . . [a]nd second, the action must be one by which
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rights or obligations have been determined, or from which legal consequences will flow."
Bennett v. Spear, 520 U.S. 154, 177-78 (1997) (citation and internal quotation marks
omitted). In other words, agency action is final when it is "definitive" and has "direct
and immediate effect on the day-to-day business of the part[y] challenging the action."
Cz``ba-Gez``gy Corp. v. EPA, 801 F.2d 430, 436 (D.C. Cir. 1986) (providing the applicable
framework for analyzing the finality of pre-enforcement agency action) (internal
quotation marks and alterations omitted). "Definitiveness" is satisfied when there is "no
' ambiguity" in the statement, nor any indication it is "subject to further agency
consideration or possible modification." Id. at 437. The 2012 email satisfies the Ciba-
Gez'gy finality requirements because it unequivocally stated the agency’s position_that
BOTOX Cosmetic is subject to ASP reporting obligations; did not allude to future
modification_no future changes in agency policy were suggested; and required
"immediate compliance" with the agency’s stated position-referring to penalties. See
Mem. Op. & Order 5-6, Mar. 17, 20l5. Until the 2012 email, "Allergan ha[d] received
conflicting advice from CMS" regarding whether to report ASP data for BOTOX
Cosmetic, "without a clear explanation" regarding the shift in position after the notice-
and-com1nent rulemaking in 2006. Pl.’s Mot. Ex. 3, May 16, 2012 Pinkston-Shu1tz
Ltr. 1. The 2012 email, by comparison, was not "purely informational" and did not
"restate" the position set forth in the 2006 preamble, see Ina'ep. Equip. Dealers 'Ass ’n v.
EPA, 372 F.3d 420, 427 (D.C. Cir. 2004), but rather commanded immediate compliance
by finally and firmly resolving the issue, providing a legal explanation for its decision,
and referring to mandatory penalties should Allergan fail to comply.
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CONCLUSION
For all of the foregoing reasons, the Court DENIES plaintiffs Motion for
Summary Judgment and GRANTS defendant’s Motion for Summary Judgment. An
Order consistent with this decision accompanies this Mernorandum Opinion.
RICHARD ON
United States District Judge
for Su1nm. J. ("Def.’s Mem.") 7. Beginning in 1989, Allergan received FDA approval
under that BLA to market onabotulinumtoXinA as "BOTOX" for a number of therapeutic
uses. Pl.’s Mem. 2.' In 2002 the FDA approved Allergan’s supplement to its BLA for
onabotulinumtoxinA to be marketed as "BOTOX Cosmetic" for the treatment of Wrinkles
("glabellar lines"). See z``d.; Def.’s Reply Me1n. in Supp. of Mot. for Summ. J. ("Def.’s
Reply") 6-7 [Dkt. # 36]. The approval letter provided,. in relevant part, "The Supplement
to your License Application, for Botulinum Toxin Type A to include the indication of
treatment of glabellar lines, has been approved. Under this approval, Botulinum Toxin
type A will be marketed and labeled for this indication as BOTOX COSMETIC." Ltr.
from Karen L. Goldenthal, M.D., HHS (Apr. l2, 2002), at l, available at
http://WWW.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/HowDrugsareDeve1
opedandApproved/ApprovalApplications/TherapeuticBiologicApplications/ucmO88278.p
df (emphasis added). OnabotulinumtoxinA is the sole active ingredient in the same
formulation in both BOTOX and BOTOX Cosmetic. Pl.’s Mem. 3; Administrative
Record ("A.R.") at l60. BOTOX and BOTOX Cosmetic have different packaging and
labels, and Allergan develops, manages, and markets BOTOX and BOTOX Cosmetic in
separate divisions of the co1npany. Pl.’s Mem. 3; Def.’s Reply l. Because BOTOX
Cosmetic is approved only for cosmetic treatment, it is not currently eligible for payment
under Medicare. Pl.’s Mem. 2-3; A.R. at 29.
Drug manufacturers like Allergan must regularly provide the FDA with lists of all
drugs they manufacture, prepare, propagate, compound, or process for commercial
distribution. See 21 U.S.C. § 360. Manufacturers report their drugs to the FDA using
3
National Drug Codes ("NDCs"), ten-digit numbers that indicate the labeler, product, and
trade package size. See 2l C.F.R. § 207.35(b)(2)(i)-(ii). Depending on the dose size,
BOTOX is associated with three NDCs. Def.’s Mem. 8. Similarly, BOTOX Cosmetic is
associated with two. Id.
B. Medicare Part B Reporting Requirements.
Title XVIII of the SSA, colloquially known as the Medicare Act, establishes a
federally subsidized health insurance program to be administered by the Secretary of
HHS. Medicare has five parts: Part A_Hospital Insurance Benefits; Part B_
Supplementary Medical Insurance Benefits; Part C_Medicare+Choice Progra1n; Part
D_Voluntary Prescription Drug Benefit Program; and Part E-Miscellaneous
Provisions. See 42 U.S.C. § l395 et seq. This case deals with Part B, a voluntary
supplemental insurance program that provides coverage for various medical and
healthcare services including a limited number of outpatient prescription drugs, including
injectable drugs furnished incident to a physician’s services. See 42 U.S.C. § l395k(a).
Doctors request Medicare reimbursements using Healthcare Com1non Procedure Codes
("HCPCs"). See 45 C.F.R. § l62.l0O2(a)(5)(i), (b)(l), (c)(l); see also 42 C.F.R.
§ 424.32. The injection of onabotulinumtoxinA has a single HCPC, ]0585, which is the
code assigned for that procedure. Def.’s Mem. 8-9.
With the passage of the Medicare Prescription Drug, Improvement, and
l\/lodernization Act of 2003 ("Medicare Modernization Act"), Congress altered the
calculation formula for Medicare reimbursements, see Pub. L. No. 108-173, ll7 Stat.
2065 (2003), apparently in order to avoid overcharges caused by price discrimination, see
4
H.R. Rep. No. 108-39l, at 582 (2003) (Conf. Rep.) (finding drugs’ average wholesale
prices ("AWPs"), to which reimbursement was tied, "do not reflect the discounts that
manufacturers and wholesalers customarily offer to providers and physicians" and thus
"AWPs for many Medicare-covered products far exceed the acquisition cost paid by
suppliers and physicians"). Under the new statute, drug manufacturers participating in
Medicare must report "by National Drug Code . . . [an] average sales price [‘ASP’] (as
defined in [42 U.S.C. § l395w-3a])," 42 U.S.C. § l396r-8(b)(3)(A), for any "drug or
biological for which payment may be made" under Medicare, z``a’. § l395u(o)(l).
Participating manufacturers who fail to report such data are subject to a $10,000 per day
late fee, and could lose their eligibility to participate in Medicare and Medicaid after
ninety days. See z``d. § l396r-8(b)(3)(C)(i); z``d. § l396r-8(a)(l).
HHS uses the ASP data to calculate a "volume-weighted average of the average
sales prices," ia’. § l395w-3a(b)(6)(A), "for all National Drug Codes assigned to such
drug or biological product," z``a’. § l395w-3a(b)(4). Medicare will reimburse 106% of the
volume-weighted average price "for the billing and payment code for a drug or
biological." Ia’. § l395w-3a(b)(l). HHS is specifically instructed to determine the
reimbursement amount "without regard to any special packaging, labeling, or identifiers
on the dosage form or product or package . . . ." Ia’. § l395w-3a(b)(5).
C. Allergan’s Challenge to Reporting Data for BOTOX Cosmetic.
In 2004 Allergan reported the newly required ASP data for BOTOX, but not for
BOTOX Cosmetic. See Pl.’s Mem. 4; see also Pl.’s Mot. Ex. 4, May 13, 2004 Baldo-
Hibshman, Minawala Email [Dkt. # _30-5] (A.R. at 34). The Centers for Medicare &
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Medicaid Services ("Cl\/IS")-the federal agency wi_thin HHS that, inter alz'a, administers
the Medicare program-requested the missing data via email, Allergan objected, and
CMS-reversed its position, agreeing with Allergan that BOTOX Cos1netic was "not
subject to the ASP reporting requirements." See Pl.’s Mem. 4; see also Pl.’s Mot. Ex. 5,
June 14, 2004 Baldo-Hibshman, Minawala E1nail 2 [Dkt. # 30-6] (A.R. at 37).
Pursuant to HHS’s authority to make "such regulations as may be necessary to
carry out the administration" of Medicare, 42 U.S.C. § l395hh, CMS conducted a round
of notice-and-comment rulemaking in 2006. In the preamble to the final rules, CMS
responded to a comm``enter’s question as follows:
With respect to whether a manufacturer may exclude sales for
noncovered uses from its calculation of the ASP for an NDC
and whether NDCs that are labeled for cosmetic or other
typically noncovered use (for example, contraception) are
exempt from the ASP reporting requirements, we believe the
statute provides no such exclusion.
Miscellaneous Medicare Progra1n Rules, 7l Fed. Reg. 69,624, 69,675 (Dec. l, 2006). In
response to subsequent inquiries from Allergan, Pl.’s Mot. Ex. 6, Feb. 9, 2007 Ingram-
Warren Ltr. l [Dkt. # 30-7] (A.R. at 43), CMS told Allergan that, based on the response
to the comment``, Allergan was now obligated to report ASP data for BOTOX Cosmetic,
Pl.’s Mot. EX. 7, Mar. 28, 2007 Warren-lngram Ltr. l [Dkt. # 30-8] (A.R. at 46).
Allergan reported the data to avoid potential noncompliance penalties, Pl.’s Mot. Ex. 8,
Radensky Decl. {Hl 2-3 [Dkt. # 30-9], but elevated the challenge in a letter to the HHS
Office of General Counsel ("OGC"), Pl.’s Mot. EX. 3, May 16, 2012 Pinkston-Shultz Ltr.
l-5 [Dkt. # 30-4] (A.R. at 28-32). After a meeting with Allergan in August 20l2, CMS
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responded to Allergan via e1nail stating BOTOX Cosmetic ASP data was subject to the
reporting requirement. Pl.’s Mot. EX. 9, Nov. 7, 20l2 Hoffman-Zimmerman Email l
[Dkt. # 30-10] (A.R. at l). CMS explained it "interpreted the term ‘biological product’_
as used in [42 U.S.C. § l395w-3a(b)(4)]_to mean all iterations of a biologic under the
same Biologics License Application," z``a’., and provided a link to a 2007 guidance '
document explaining the "inulti-step process" through which CMS identifies "‘biological
products’ subject to payment under [42 U.S.C. § l395w-3a]," Pl.’s Mot. Ex. l0, 2007
HHS Guidance 2 [Dkt. # 30-l l] (A.R. at 24). The email also referred to penalties
associated with a manufacturer’s failure to submit ASP data, set forth in subsection
l927(b)(3)(C) of the SSA. Pl.’s Mot. EX. 9, Nov. 7, 2012 Hoffman-Zimmerman Email l.
Allergan then brought this action challenging HHS’s decision. See generally
Compl. On May l5, 2015, following this Court’s denial of defendant’s motion to dismiss
the instant case, plaintiff filed a Motion for Summary Judgment, contending that section
1927 of the SSA does not require Allergan to disclose ASP data for Botox Cosmetic.
Defendant timely opposed, contending that the SSA requires Allergan to report the ASP
for every National Drug Code and brand name assigned to a biological product and for
which payment may be made under Medicare Part B.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56(a), summary judgment is warranted "if
the movant shows that there is no genuine dispute as to any material fact." Fed. R. Civ.
P. 56(a). On a summary judgment motion challenging final agency action under the
APA, the Court’s review is limited to the administrative record. See e.g., C0e v.
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McHugh, 968 F. Supp. 2d 237, 239 (D.D.C. 2013). Whereas "the role ofthe agency [is]
to resolve factual issues," the sole "function of the district court i_s to determine whether
or not as a matter of law the evidence in the administrative record permitted the agency to
make the decision it did." Sz``erra Club v. Maz'nella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006)
(citation and internal quotation marks omitted). The court must determine "whether the
agency acted within the scope of its legal authority, . . . explained its decision, . . . relied
[on facts that] have some basis in the record, and . . . considered the relevant factors."
Funa’foz/Anz'mals v. Babbitt, 903 F. Supp. 96, 105 (D.D.C. 1995). "Summaryjudgment
is an appropriate mechanism for resolving cases involving administrative rulemaking on
the record, particularly where, as here, the case turns chiefly on issues of statutory
construction." Incz’iv. Refer_cnce Servs. Grp., Inc. v. FTC, 145 F. Supp. 2d 6, 22 (D.D.C.
2001), aff’d sub nom., Trans Union LLC v. FTC, 295 F.3d 42 (D.C. Cir. 20()2).
ANALYSIS
Plaintiff seeks judgment declaring the HHS Secretary acted arbitrarily and
capriciously or contrary to law in violation of section 1()(e)(2)(A) of the APA by
interpreting sections 1847A and 1927 of the SSA to require that plaintiff report average
sales price of BOTOX Cosmetic to CMS. See generally Compl. Specifically, plaintiff
alleges the Secretary’s interpretation is arbitrary and capricious or contrary to the SSA
because section 1927 (1) allows the government to collect ASP data only for products
covered by Medicare, and Medicare cannot pay for BOTOX Cosmetic, and (2) limits the
scope of ASP reporting to drugs or biologicals for which payment amount is established
under l847A, which also is limited to products covered by Medicare. Id. 1111 41-53.
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Confronted with statutes administered by an agency, the court will first "employ
traditional tools of statutory construction," Chevron, US.A., Inc. v. Nczt. Res. Def
Council,.]nc., 467 U.S. 837, 843 n.9 (1984), to determine "whether Congress has spoken
directly to the precise question at issue," z'a’. at 842. This inquiry begins with the ordinary
meaning of the text of the statute. See Ransom v. FIA Card Servs., N.A., 562 U.S. 6l, 69
(20l l); Um``tea’ States v. Brown, 58 F. Supp. 3d ll5, ll9 (D.D.C. 2014). However, the
court must examine "the words of a statute . . . in their context and with a view to their
place in the overall statutory scheme." FDA v. Brown & Wz'llz``amson Tobacco Corp., 529
U.S. 120, 133 (2000) (internal quotation marks o1nitted). The court may also choose to
examine the legislative history, see z``d. at l47, or the purposes of the statute, see Bell Atl.
Tel. C0s. v. FCC, l3l F.3d l044, lO49 (D.C. Cir. l997). Ifthe statute is clear, "that is
the end of the matter" and the court "must give effect to the unambiguously expressed
intent of Congress." Chevron, 467 U.S. at 842-43.
If congressional intent on "the precise question at issue" is not apparent, the court
will often defer to any "permissible construction of the statute" offered by the agency, z'd.
at 843, even if it is inconsistent with the agency’s prior interpretation, see Nat’l Cable &
Telecomms. Ass ’n v. BFancz'XInternel Servs., 545 U.S. 967, 981 (20()5). At this phase the
court will not substitute its own judgment, Chevron, 467 U.S. at '844, but rather will
uphold any realistic interpretation of the language and is faithful to the statutory purpose,
see GTE Serv. Corp. v. FCC, 205 F.3d 4l6, 421 (D.C. Cir. 20()()). This level of deference
is appropriate when circumstances imply "that Congress would expect the agency to be
able to speak with the force of law." Um'ted States v. Meaa’ Corp., 533 U.S. 218, 229
9
(20()1). lf the agency was not meant to speak with the force of law, the court will give
the agency’s position "respect," see Christensen, 529 U.S. at 587, and defer only in
proportion to "the thoroughness evident in its consideration, the validity of its reasoning,
its consistency with earlier and later pronouncements, and all those factors which give it
the power to persuade," Skidmore v. Swif‘ & C0., 323 U.S. 134, 140 (l944).
A. Allergan Must Report All Sales of OnabotulinumtoxinA as One Bi0l0gical
Product.
l begin with the threshold issue of whether the statute is clear that Allergan must
report all sales of onabotulinumtoxinA as one biological product. I conclude it is.z
Because this case requires the interpretation of a statute administered by an
agency, see 42 U.S.C. § l395hh, I begin my analysis at Chevron step one under which l
must employ "traditional tools of statutory construction" to check for a clear expression
of congressional intent, 467 U.S. at 843 n.9. This inquiry begins, of course, with the
ordinary meaning of the text of the statute. See Ransom, 562 U.S. at 69. The reporting
provision at issue provides that drug manufacturers participating in Medicare must report
an "average sales price [‘ASP’] (as defined in [42 U.S.C. § l395w-3a]) . . . by National
Drug Code," SSA § 1927 [42 U.S.C. § l396r-8(b)(3)(A)], for any "drug or biological for
which payment may be made" under Medicare, ia’. § l395u(o)(l). In other ‘words, a drug
manufacturer must report ASP data for every NDC assigned to a biological product for
which payment may be made under Medicare Part B. Allergan argues that BOTOX and
2 Because the statute is clear, "that is the end of the matter," Chevron, 467 U.S. at 842, and l do
not delve into legislative history or any deference due to the agency’s interpretation.
lO