Wellness Pharmacy, Inc. v. Becerra
| Decision Date | 21 September 2021 |
| Docket Number | 20-cv-3082 (CRC) |
| Parties | WELLNESS PHARMACY, INC., et al., Plaintiffs, v. XAVIER BECERRA, SECRETARY OF HEALTH AND HUMAN SERVICES, [1] et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Evoking Victorian apothecary scales and porcelain mortars and pestles, compounded drugs are formulated by pharmacists to create medicines tailored for individual patients. Federal law generally exempts these extemporaneous mixtures from the vast regulatory framework that governs the development and introduction of new drugs, leaving most regulation to the States. Congress has, however, authorized the Food and Drug Administration to exercise its enforcement powers over pharmacies that engage in the interstate distribution of compounded drugs under circumstances that might indicate large-scale drug manufacturing under the guise of compounding. For over twenty years, pharmacies that specialize in compounding and their industry representatives have jousted with FDA over where and how to draw the line between legitimate compounding and disguised new-drug distribution. This case presents the latest skirmish in this decades-old fight.
The plaintiffs here are seven compounding pharmacies located throughout the country. They challenge the recent finalization of a standard Memorandum of Understanding that Congress required FDA to develop in 1997 when it passed Section 503A of the Federal Food, Drug, and Cosmetic Act (“FDCA”). The Final Standard MOU establishes an agreement between individual state pharmacy boards and FDA. The agreement requires States to identify and report information on pharmacies within the State that distribute “inordinate amounts” of compounded drugs interstate, as defined by the MOU. Pharmacies within signatory States may compound drugs exempt from the FDCA's otherwise applicable new-drug laws. Meanwhile pharmacies located in States that do not sign the MOU must comply with a provision of Section 503A known as the five-percent limit, which removes the new-drug exemption for pharmacies that distribute compounded drugs interstate in quantities that exceed five percent of their total prescription orders.
The Final Standard MOU has been years in the making. FDA did not finalize the present MOU until October 2020. In the meantime the agency exercised its discretion not to enforce the five-percent limit, the violation of which could otherwise subject compounding pharmacies to civil and criminal penalties. FDA recently announced that it intends to extend its forbearance until October 2022. Thus, States have another year to decide whether to sign the Final Standard MOU before their pharmacies will be subject to the five-percent limit and its attendant sanctions.
On the same day that FDA noticed the Final Standard MOU, plaintiffs initiated this lawsuit and moved for partial summary judgment. The complaint advances three counts-two allege procedural violations in FDA's development of the MOU and the third alleges that FDA exceeded its statutory authority under Section 503A in defining several key statutory terms. In the procedural counts, plaintiffs allege that FDA violated Section 503A by not developing the Final Standard MOU through regulations and that it violated the Regulatory Flexibility Act by failing to conduct an analysis of the MOU's impact on small pharmacies. In the remaining count, plaintiffs contend that FDA exceeded its statutory authority by defining “distribution” in the MOU to include instances of compounding drugs pursuant to a prescription. Defendants cross-moved for summary judgment, arguing that plaintiffs lack standing to bring this lawsuit and that their claims otherwise fail on the merits.
The Court concludes that plaintiffs have standing and that the Final Standard MOU is a legislative rule and thus subject to the Regulatory Flexibility Act's procedural requirements. It will, accordingly, grant plaintiffs' motion for summary judgment and remand the MOU to the agency to either certify that it will not have a significant economic effect on small businesses or prepare a regulatory flexibility analysis. See 5 U.S.C. §§ 603, 604, 605.
FDA strictly regulates the development and introduction of new drugs through an extensive series of laws contained in the FDCA. For instance, each new drug's manufacturer or sponsor must seek FDA approval for the drug via an application that describes how the drug was manufactured, lists all of the drug's ingredients, and contains “full reports of investigations” into the drug's safety and effectiveness for each intended use. 21 U.S.C. § 355(a), (b). Once approved, a new drug is subject to a comprehensive set of current good manufacturing practices-known as “cGMPs”-that govern everything from the drug's ingredients to the quality of its manufacturing facility. See id. §§ 351(a)(2)(B), 355(e). Additionally, all approved drugs are subject to FDA labeling requirements, which mandate (among other things) that they be labeled with adequate instructions for safe use. See Id. § 352(f)(1).
This case involves the application (or lack thereof) of these laws to compounded drugs. “Drug compounding” refers to “the process by which a pharmacist or doctor combines, mixes, or alters ingredients to create a medication tailored to the needs of an individual patient.” Thompson v. W. States Med. Ctr., 535 U.S. 357, 360-61 (2002). For example, a pharmacist may compound a drug for a patient who would otherwise be allergic to an ingredient in his or her medication. Though a compounded drug qualifies as a “new drug” under the FDCA, see 21 U.S.C. § 321(p), FDA has historically left regulation of compounded drugs to the States, Thompson, 535 U.S. at 362. Over time, however, FDA grew concerned that some pharmacies were compounding drugs at levels that rendered the pharmacies akin to drug manufacturers. Id.
Acting on this concern, in 1992, FDA issued a Compliance Policy Guide (“CPG”) clarifying that “FDA may, in the exercise of its enforcement discretion, initiate enforcement actions against” compounding pharmacies “when the scope and nature of a pharmacy's activity raises the kinds of concerns normally associated with a manufacturer and that results in significant violations of the new drug, adulteration, or misbranding provisions of the Act.” Def. Cross-Mot. for Summ. J., ECF No. 36 (hereinafter, “Def. MSJ”), Ex. A (1992 CPG), at 195. The CPG set forth various factors that the agency would consider when evaluating whether to initiate such an enforcement action. Id. The relevant factors included the frequency with which the pharmacy was compounding copies of FDA-approved drugs, the pharmacy's use of commercialscale manufacturing equipment, and the pharmacy's interstate distribution of an inordinate level of compounded drugs. Id. At the same time, FDA “recogniz[ed] that pharmacists traditionally have extemporaneously compounded . . . reasonable quantities of drugs upon receipt of a valid prescription” and noted that “[t]his traditional activity [was] not the subject of th[e] CPG.” Id. at 193.
Five years later, the 1992 CPG was effectively codified within the FDCA via the Food and Drug Administration Modernization Act. See Pub. L. No. 105-115, 111 Stat. 2296 (1997) (“FDAMA”). Most importantly for present purposes, the FDAMA added Section 503A to the FDCA. See 21 U.S.C. § 353a (“Section 503A”). Section 503A sets forth certain conditions that must be satisfied for compounded drugs to be exempt from the vast regulatory framework that would otherwise govern new drugs. The section begins by providing a general exemption for drugs that are “compounded for an identified individual patient based on the receipt of a valid prescription or a notation[.]” Id. § 353a(a). The statute then imposes additional requirements for such compounded drugs that are distributed interstate. Specifically, a drug may be compounded pursuant to Section 503A's general exemption only if it falls into one of two categories:
Id. § 353a(b)(3)(B). The Court will follow the parties' lead in referring to § 353a(b)(3)(B)(ii) as “the five-percent limit.”
After setting out these two categories, subsection (b)(3) provides that “[t]he Secretary shall, in consultation with the National Association of Boards of Pharmacy [“NABP”], develop a memorandum of understanding for use by the States in complying with subparagraph 353a(b)(3)(B)(i).” Id. Immediately thereafter, § 353a(c)(1), which is entitled “regulations” and subtitled “in general, ” instructs the Secretary to “issue regulations to implement this section.” Id.
Section 503A was to take effect in November 1998. See FDAMA 111 Stat. 2296. That month, FDA announced that it was developing proposed rules to implement the section. See Unified Agenda of Federal Regulatory and Deregulatory Actions, 63 Fed. Reg. 61, 680, 61, 707, 61, 709-10 (...
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