Amgen, Inc. v. Smith

• Decision Date: 13 February 2004
• Docket Number: No. 03-5046.,03-5046.
• Citation: 357 F.3d 103
• Parties: AMGEN INC., Appellant, v. Dennis G. SMITH, in his official capacity as Acting Administrator, Centers for Medicare & Medicaid Services, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

357 F.3d 103

AMGEN INC., Appellant, v. Dennis G. SMITH, in his official capacity as Acting Administrator, Centers for Medicare & Medicaid Services, et al., Appellees.

No. 03-5046.

United States Court of Appeals, District of Columbia Circuit.

Argued December 12, 2003.

Decided February 13, 2004.

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Appeal from the United States District Court for the District of Columbia (No. 02cv02259).

Jonathan L. Abram argued the cause for appellant. With him on the briefs were Stuart Langbein, William H. Johnson, C. Boyden Gray, Edward C. DuMont, and Andrew R. Varcoe. Louis R. Cohen entered an appearance.

William C. Crenshaw and Anie Elizabeth Wulkan were on the brief for amicus curiae Biotechnology Industry Organization in support of appellant.

Sharon Swingle, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Peter D. Keisler, Assistant Attorney General, Roscoe C. Howard, Jr., U.S. Attorney, Gregory G. Katsas, Deputy Assistant Attorney General, Mark B. Stern and Michael S. Raab, Attorneys, Alex M. Azar II, General Counsel, U.S. Department of Health & Human Services, Henry R. Goldberg, Deputy Associate General Counsel, and Lawrence J. Harder, Supervisory Trial Attorney.

Steven A. Zalesin, Eugene Tillman, and Helen G. Kirsch were on the brief for appellee Ortho Biotech Products LP.

Before: HENDERSON and ROGERS, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

The principal issue on appeal is whether the court has jurisdiction of a complaint filed by Amgen, Inc., the manufacturer of an anemia treatment, Aranesp, challenging an adjustment to the Medicare Part B rate at which the federal government pays hospitals for using its product. The district court dismissed Amgen's complaint for lack of prudential standing. Although we hold that Amgen has prudential standing, we affirm the dismissal of the complaint for lack of jurisdiction.

I.

Title XVIII of the Social Security Act of 1935, 42 U.S.C. § 1395 et seq., establishes the Medicare program, which provides federally funded medical insurance to the elderly and disabled. Part A of the Medicare program provides insurance coverage for inpatient hospital care, home health care, and hospice services. Id. § 1395c. Part B of Medicare is a voluntary program that provides supplemental coverage for other types of care, including outpatient hospital care. Id. §§ 1395j, 1395k. The Medicare program is subject to both fiscal limits and restrictions on administrative and judicial review. We address the former as applied to Amgen in Part I and the latter in Part III.

A component of the Medicare B program is the Outpatient Prospective Payment System ("OPPS"), which pays hospitals directly to provide outpatient services to beneficiaries. To control costs, OPPS, rather than reimbursing providers after-the-fact for their reasonable expenses in any given year, as was done prior to 1997, pays hospitals prospectively for their services in each upcoming year, thus requiring payments for outpatient hospital care to be made based on predetermined rates. See Balanced Budget Act of 1997, Pub.L. No. 105-33, 111 Stat. 251 (1997). As relevant here, OPPS payments governed by 42 U.S.C. § 1395l(t) are calculated through a formula setting payment weights for the provision of certain services (or certain groups of clinically similar services) based on the mean or median costs of providing such services in past years, with adjustments for regional cost variations. Id. at §§ 1395l(t)(2)(C) & (t)(2)(D). Pursuant to amendments to the outpatient prospective payment system in the Balanced Budget Refinement Act of 1999, Pub.L. No. 106-113, 113 Stat. 1501 (1999), the Secretary of the Department of Health and Human Services ("the Secretary") then additionally modifies those resulting payment amounts. Hospitals facing actual costs significantly above their prospective payment amounts receive outlier adjustments. 42 U.S.C. §§ 1395l(t)(2)(E) & (t)(5). Hospitals also receive supplemental payments, called "pass-through" payments, to help cover the cost of providing certain treatments, including new drugs, biologicals and medical devices. Id. § 1395l(t)(6) (hereafter, "§ (t)(6)"). Under § (t)(6), when a drug, biological, or medical device becomes eligible for pass-through status, hospitals providing it to beneficiaries receive supplemental payments equal to 95% of the wholesale cost of the treatment minus whatever amount the hospital would otherwise receive through the prospective payment system, §§ (t)(6)(D)(i) & 1395(u)(o), for a period of two to three years. § 1395l(t)(6)(C). At the end of that period, the treatment is factored into the normal prospective payment system. More generally, the Secretary also has authority, in light of his or her "significant expertise" and "judgment grounded in policy concerns" over Medicare's "complex and highly technical regulatory program," see Tenet HealthSystems HealthCorp. v. Thompson, 254 F.3d 238, 248 (D.C.Cir. 2001) (quoting Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 2387, 129 L.Ed.2d 405 (1994) (internal quotation omitted)), to make "other adjustments as determined to be necessary to ensure equitable payments." 42 U.S.C. § 1395l(t)(2)(E) (hereafter, "§ (t)(2)(E)"). No supplemental funding is available for these three types of adjustments: when the Secretary makes any of the three — outlier adjustments, pass-through adjustments, or other equitable adjustments — any additional projected expenses must be offset by a reduction in all prospective payment rates. § (t)(2)(E). Supplemental pass-through payments are additionally subject to a cap; they may not exceed a fixed percentage of OPPS payments, and must be reduced pro rata in the event they exceed that limit. § (t)(6)(E).

Amgen is the manufacturer of darbepoetin alpha, also known as Aranesp, a relatively recent biological product used to treat anemia in chemotherapy and kidney disease patients. 67 Fed.Reg. 66718, 66758 (Nov. 1, 2002). A similar product, epoetin alpha, was developed in the late 1980s, and is presently marketed both as Amgen's own predecessor product, Epogen, and the product of its competitor (and intervenor here) Ortho Biotech Products, Procrit. Id. Providers are presently compensated for providing epoetin alpha to beneficiaries through the regular prospective payment system. While the parties disagree about the significance of molecular differences between darbepoetin alpha and epoetin alpha, Aranesp differs clinically in that it has a longer half-life, such that many patients require less frequent dosages and therefore fewer hospital visits. Id.

Amgen applied on November 30, 2001, to the Centers for Medicare and Medicaid Services ("CMS") (known prior to July 1, 2001 as the Health Care Financing Administration), which, as relevant here, administers the Medicare Part B program, for transitional pass-through new-drug status so that hospitals would receive supplemental payments for providing Aranesp to Medicare Part B beneficiaries. See § (t)(6)(A)(iv). According to the complaint, in September 2001 and July 2002, respectively, the Federal Drug Administration approved Aranesp for marketing as a treatment for kidney disease-related anemia and for chemotherapy-related anemia. CMS sent Amgen an approval letter on February 5, 2002, and on March 1, 2002, CMS included Aranesp in the reimbursement rates for 2002, to be effective April 1, 2002. 67 Fed.Reg. 9556, 9562 (March 1, 2002). CMS's proposed 2003 OPPS rates, published on August 9, 2002, also included pass-through payments for Aranesp. 67 Fed.Reg. 52092, 52119 (Aug. 9, 2002). The proposed rule stated, however, that the pass-through provisions had "been exceptionally difficult to implement" and that CMS was "actively seeking comment on all aspects of these [proposed] rates," explaining that it was "open to making changes, perhaps significant" to the proposed rates based on comments received. Id. at 52093. Ortho Biotech, the manufacturer of Procrit, submitted comments questioning the pass-through payments for Aranesp in light of its purported similarity to Procrit. 67 Fed.Reg. 66718, 66757 (Nov. 1, 2002). Amgen responded that the two biologicals were not substitutes, and that reimbursement amounts for Aranesp should not be determined in reference to Procrit.

On November 1, 2002, the Secretary published the final rule setting 2003 OPPS rates. 67 Fed.Reg. 66718 (Nov. 1, 2002). Claiming to act pursuant to the authority in § (t)(2)(E) to make "adjustments ... to ensure equitable payments," CMS adjusted payments for Aranesp to the level hospitals would receive under the prospective payment system, effectively eliminating the supplemental pass-through payment for the biological. Id. at 66758. The decision to reduce payments was predicated on the availability of the clinically similar yet cheaper Procrit, and noted that it was not "an equitable or efficient use of Medicare funds to pay for these two functionally equivalent products at greatly different rates." Id. Because no historical cost data were available to calculate Aranesp's reimbursement level under the prospective payment system pursuant to § (t)(2)(C), CMS calculated a reimbursement amount using what it determined to be the equivalent dosage ratio between Procrit and Aranesp. Id. at 66758-59. As an alternative ground for the decision, the final rule stated that Aranesp is not "new" for pass-through purposes under § (t)(6)(A)(iv) because it is "functionally equivalent" to Procrit and Epogen. Id. at 66759.

Amgen sued the Administrator of CMS and the Secretary on the ground that the rule reducing its pass-through payments violated the plain language of the Medicare Act. Amgen argued that under § (t)(6) the Secretary is required to make pass-through payments for new treatments and can only reduce those payments when necessary to...