Pharm. Research & Mfrs. of Am. v. U.S. Dep't of Health & Human Servs., Civil Action No.: 14–1685 (RC)

CourtU.S. District Court — District of Columbia
Writing for the CourtRUDOLPH CONTRERAS, United States District Judge
Parties Pharmaceutical Research and Manufacturers of America, Plaintiff, v. United States Department of Health and Human Services, et al., Defendants.
Decision Date14 October 2015
Docket NumberCivil Action No.: 14–1685 (RC)

138 F.Supp.3d 31

Pharmaceutical Research and Manufacturers of America, Plaintiff,
v.
United States Department of Health and Human Services, et al., Defendants.

Civil Action No.: 14–1685 (RC)

United States District Court, District of Columbia.

Signed October 14, 2015


138 F.Supp.3d 32

Jeffrey L. Handwerker, Arnold & Porter LLP, Washington, DC, for Plaintiff.

Jean–Michel Voltaire, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT.

RUDOLPH CONTRERAS, United States District Judge

I. INTRODUCTION

The Court previously vacated a Final Rule promulgated by the Secretary of the Department of Health and Human Services ("HHS") that addressed the circumstances in which an orphan drug must be offered at a discounted price pursuant to section 340B of the Public Health Service Act ("PHSA"). The Court concluded that HHS lacked the statutory authority to promulgate that rule. See Pharm. Research & Mfrs. of Am. v. U.S. Dep't of Health & Human Servs., 43 F.Supp.3d 28, 42–45 (D.D.C.2014) (hereinafter "PhRMA"). HHS has since issued an interpretive rule (the "Interpretive Rule") identical in substance to the vacated Final Rule that sets forth the "manner in which section 340B(e) of the PHSA will be interpreted and implemented by HHS." A.R. 680. The plaintiff, Pharmaceutical Research and Manufacturers of America ("PhRMA") again challenges HHS's action, contending that the Interpretive Rule contravenes section 340B's plain language. HHS has moved for summary judgment arguing that the Interpretive Rule does not constitute a final agency action sufficient to state a claim and that, in any event, its reading of the statute is at least entitled to deference under Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944) because it "reasonably balances Congress's concerns with maintaining incentives for

138 F.Supp.3d 33

the development of drugs for orphan diseases with providing the newly covered 340B entities with discounts sufficient to make participation in the program beneficial." Defs.' Mem. Supp. Summ. J. at 3, ECF No. 14–1. PhRMA has cross-moved for summary judgment and argues that the Interpretive Rule is a final agency action subject to immediate challenge and that the rule conflicts with the statute's plain language. Because the Court concludes that the Interpretive Rule is a final agency action and that the Interpretive Rule contravenes the plain language of section 340B(e), the Court will deny HHS's motion for summary judgment and grant PhRMA's motion for summary judgment.

II. FACTUAL & STATUTORY BACKGROUND

This case involves the intersection of two intricate statutory schemes: the Orphan Drug Act and the 340B Program. Both are designed, in large part, to ensure greater access to medications for certain populations. In its prior memorandum opinion in this dispute, the Court described the statutory schemes implicated in this case and the Court assumes familiarity with that discussion. See PhRMA, 43 F.Supp.3d at 31–33.

A. The Orphan Drug Act

The Orphan Drug Act involves the designation and marketing of drugs—called orphan drugs—to treat rare diseases or conditions.1 Orphan drugs are so-named because, absent the financial and marketing incentives Congress has provided to pharmaceutical manufacturers for the development of such drugs, efforts to invest, research, and otherwise manufacture those drugs would likely be abandoned. Congress passed the Act after concluding that "because so few individuals are affected by any one rare disease or condition, a pharmaceutical company which develops an orphan drug may reasonably expect the drug to generate relatively small sales in comparison to the cost of developing the drug and consequently to incur a financial loss." Act of Jan. 4, 1983, Pub.L. No. 97–414, § 1(b)(4), 96 Stat.2049, 2040. For that reason, the Orphan Drug Act provides several incentives to those pharmaceutical manufacturers that develop orphan drugs, including: a seven-year market exclusivity period during which no drugs, other than the designated orphan drug, can be licensed or approved "for such disease or condition," 21 U.S.C. § 360cc(a) ; a tax credit for the clinical testing expenses incurred during the orphan drug's development, see 26 U.S.C. § 45C ; research grants for that clinical testing, see 21 U.S.C. § 360ee ; and an exemption from the fees otherwise applicable to new drug applications, see 21 U.S.C. § 379h(a)(1)(F).

The Orphan Drug Act permits the Secretary of Health and Human Services (the "Secretary") to designate a drug as an orphan drug. According to statute, "[t]he manufacturer or the sponsor of a drug may request the Secretary to designate the drug as a drug for a rare disease or condition." 21 U.S.C. § 360bb(a)(1). The statute further instructs that, if the Secretary finds that the drug "is being or will be investigated for a rare disease or condition" and the approval, certification or licensure of that drug "would be for use for

138 F.Supp.3d 34

such a disease or condition," the Secretary "shall designate the drug as a drug for such disease or condition." Id. The Food and Drug Administration, an agency within HHS, oversees the designation and approval of orphan drugs. See PhRMA, 43 F.Supp.3d at 41 n. 11 (citing 21 C.F.R. § 316.1(a) (regulation promulgated by the FDA implementing the orphan-drug related sections of the Federal Food, Drug, and Cosmetic Act and providing "procedures to encourage and facilitate the development of drugs for rare diseases or conditions")); see also 21 U.S.C. § 393(d)(2).

A drug's designation as an orphan drug may not overlap entirely with its use. Drugs that carry an orphan designation "can also be used to treat non-rare diseases or conditions." PhRMA, 43 F.Supp.3d at 30 (discussing, for example, Prozac, which commonly treats depression but is designated as an orphan drug to treat autism and body dysmorphic disorder ). And a drug may be designated as an orphan drug even if that drug is also approved to treat a different disease or condition that does not qualify for orphan-drug designation. See 21 C.F.R. § 316.23(b). Nor does the designation of a drug as an orphan drug in and of itself afford a pharmaceutical manufacturer with the ability to market the drug in the United States. That a drug has been awarded an orphan designation "does not alter the standard regulatory requirements and process for obtaining marketing approval." Exclusion of Orphan Drugs for Certain Covered Entities Under 340B Program, 78 Fed.Reg. 44,016, 44,017 (July 23, 2013). Indeed, according to HHS "a large majority of drugs with orphan designations do not have approval to be marketed in the United States" at all. Id.

B. The 340B Program and the 2010 Extension

The second statutory scheme, section 340B of the Public Health Services Act, "imposes ceilings on prices drug manufacturers may charge for medications sold to specified health facilities." Astra U.S.A., Inc. v. Santa Clara Cnty., Cal., 563 U.S. 110, 131 S.Ct. 1342, 1345, 179 L.Ed.2d 457 (2011) ; see generally 42 U.S.C. § 256b. The program was first enacted as part of the Veterans Health Care Act of 1992, see PhRMA, 43 F.Supp.3d at 31, and is managed by the Health Resources Services Administration ("HRSA"), an agency within HHS, see Astra, 131 S.Ct. at 1345. In order for a pharmaceutical manufacturer's products to be covered under the 340B Program, and therefore eligible for reimbursement from Medicaid, manufacturers are required to enter into a Pharmaceutical Pricing Agreement with the Secretary calculating a specified ceiling price that covered entities must pay for the manufacturer's drugs. See 42 U.S.C. § 256b(a). A manufacturer must offer drugs "for purchase at or below the applicable ceiling price" to any entity covered by the 340B Program "if such drug is made available to any other purchaser at any price." Id.

In setting ceiling prices for covered drugs, section 340B is designed to "stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services." H.R.Rep. No. 102–384, pt. 2, at 12 (1992). Many of the eligible health care facilities are "providers of safety net services to the poor." Astra, 131 S.Ct. at 1345. As initially enacted in 1992, the covered entities included health care facilities receiving certain federally-funded grants, state-operated AIDS drug purchasing assistance programs, black lung clinics, Native Hawaiian health centers, and urban Indian organizations, among other entities. See 42 U.S.C. § 256b(a)(4)(A)–(L) ; see also Veterans Health Care Act of 1991, Pub.L. No. 102–585, Title VI, § 602(a), 106 Stat.

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4943, 4967–68. Disproportionate share hospitals (those hospitals that serve indigent populations) are also included as covered entities. See 42 U.S.C. § 256b(a)(4)(L).

As part of the Patient Protection and Affordable Care Act ("ACA") Congress added a significant number of new...

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    • United States
    • United States District Courts. United States District Court (Columbia)
    • February 22, 2019
    ...in declarations attached to their motion papers. See Pharm. Research & Manufacturers of Am. v. U.S. Dep't of Health & Human Servs. , 138 F.Supp.3d 31, 45–46 (D.D.C. 2015) (looking to "sworn declarations" of regulated entities to assess whether an agency action had "an immediate and signific......
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    ...is ‘final.’ " Id. (quoting Pharm. Research and Manufacturers of America v. United States Department of Health and Human Services , 138 F.Supp.3d 31, 41 (D.D.C. 2015) ).To determine if an agency's interpretive rule or guidance is sufficiently final to warrant pre-enforcement review, the cour......
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    • United States District Courts. United States District Court (Columbia)
    • September 25, 2018
    ...and capricious agency action under the APA. Cf., e.g. , Pharm. Research & Mfrs. of Am. v. U.S. Dep't of Health & Human Servs. , 138 F.Supp.3d 31, 54 (D.D.C. 2015) (finding that agency had violated the APA in issuing an interpretive rule that was "contrary to the plain language of the statut......
  • Philip Morris USA Inc. v. U.S. Food & Drug Admin., Civil No. 15-cv-1590 (APM)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • August 16, 2016
    ...Reform Ass'n v. Occupational Safety & Health Admin., 738 F.3d 387, 395 (D.C.Cir.2013) ; see Pharm. Research & Mfrs. of Am. v. US HHS , 138 F.Supp.3d 31, 41 (D.D.C.2015) ("Admittedly, interpretive rules, guidance policies, and other general agency statements that lack the force of law ‘gener......
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9 cases
  • Am. Bar Ass'n v. U.S. Dep't of Educ., Civil Action No. 16-2476 (TJK)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • February 22, 2019
    ...in declarations attached to their motion papers. See Pharm. Research & Manufacturers of Am. v. U.S. Dep't of Health & Human Servs. , 138 F.Supp.3d 31, 45–46 (D.D.C. 2015) (looking to "sworn declarations" of regulated entities to assess whether an agency action had "an immediate and signific......
  • Am. Acad. Pediatrics v. Food & Drug Admin., Case No.: PWG-18-883
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Maryland)
    • May 15, 2019
    ...is ‘final.’ " Id. (quoting Pharm. Research and Manufacturers of America v. United States Department of Health and Human Services , 138 F.Supp.3d 31, 41 (D.D.C. 2015) ).To determine if an agency's interpretive rule or guidance is sufficiently final to warrant pre-enforcement review, the cour......
  • Otay Mesa Prop., L.P. v. U.S. Dep't of the Interior, No. 13-cv-0240 (KBJ)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • September 25, 2018
    ...and capricious agency action under the APA. Cf., e.g. , Pharm. Research & Mfrs. of Am. v. U.S. Dep't of Health & Human Servs. , 138 F.Supp.3d 31, 54 (D.D.C. 2015) (finding that agency had violated the APA in issuing an interpretive rule that was "contrary to the plain language of the statut......
  • Philip Morris USA Inc. v. U.S. Food & Drug Admin., Civil No. 15-cv-1590 (APM)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • August 16, 2016
    ...Reform Ass'n v. Occupational Safety & Health Admin., 738 F.3d 387, 395 (D.C.Cir.2013) ; see Pharm. Research & Mfrs. of Am. v. US HHS , 138 F.Supp.3d 31, 41 (D.D.C.2015) ("Admittedly, interpretive rules, guidance policies, and other general agency statements that lack the force of law ‘gener......
  • Request a trial to view additional results
1 books & journal articles
  • The Future of Administrative Law
    • United States
    • Environmental Law Reporter Nbr. 47-3, March 2017
    • March 1, 2017
    ...qualiied as inal agency action; Pharm. Research & Manufacturers of Am. v. United States Dep’t of Health & Human Servs. (HHS), 138 F. Supp. 3d 31, 32 (D.D.C. 2015). Judge Rudolph Contreras applied Sackett to hold an HHS interpretive rule to be a inal agency action subject to challenge as arb......

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