Plaintiffs' reply brief in support of motion for permanent injunction opposing government’s motion to dismiss

THE AMERICAN HOSPITAL ASSOCIATION, et al., Plaintiffs, -v- ALEX M. AZAR II, in his official capacity as the Secretary of Health and Human Services, et al., Defendants. Case No. 18-cv-2084 (RC)

On the merits, this is a straightforward case of statutory construction. Subclause (I) of Subsection (t)(l4)(A)(iii) of the Medicare Act, 42 U.S.C. § 1395/(t)(l4)(A)(iii)(I), directs the Secretary to use acquisition costs to calculate the reimbursement rate for separately payable drugs if data are available that meet the rigorous statistical standards of the statute. See Pls.' Mem., ECF No. 2-1, at 22-24. Acquisition cost data meeting this standard are not, and have never been, available. Am. Hosp. Ass 'n v. Azar, 895 F.3d 822, 824 (D.C. Cir. 2018). Thus the Secretary's only authority to set the reimbursement rates for separately payable drugs is under Subclause (II) of Paragraph (14)(A)(iii), which requires that the rate be set at average sales price (ASP) plus 6%. This rate may be adjusted, but, as the Secretary acknowledges, the reduction at issue here was imposed to better align the reimbursement with acquisition costs; it was not a refinement or adjustment to average sales price. See Defs.' Mem., ECF No. 15, at 37. Moreover, under Amgen Inc. v. Smith, 357 F.3d 103, 111 (D.C. Cir. 2004), CMS's near-30% cut in reimbursements is not an "adjustment" within the meaning of the statute. In any event, Paragraph (14)(E) of Subsection 1395/(t) demonstrates that the only permissible adjustments are to the 6% portion of allowable reimbursements which covers overhead and related expenses, such as pharmacy services and handling costs, which is the only circumstance for which CMS has previously used its Subclause (II) adjustment authority. Finally, CMS may not use the adjustment authority to undermine the 340B Program, which it essentially acknowledges was its intent here.

On preclusion, this Circuit requrres "clear and convmcmg evidence that Congress intended to preclude the suit." Amgen, 357 F.3d at 111. Although Paragraph (12) of the OPPS statute expressly precludes review of numerous specific decisions under enumerated paragraphs of the statute, no provision of Paragraph (12) references Paragraph (14), which is the authority invoked by CMS for the action challenged here. In the absence of any provision that expressly precludes judicial review, HHS has offered strained arguments that preclusion is required by three separate provisions of Paragraph (12), one of which it did not identify until oral argument in the D.C. Circuit. Even if its statutory arguments had some validity, and they do not, HHS has plainly not satisfied the D.C. Circuit's "clear and convincing evidence" standard. In any event, even if review of agency action under Paragraph ( 14) were precluded, the Court would still need to determine whether CMS acted outside its authority under that Paragraph (14). Amgen, 357 F.3d at 112-13. CMS's lack of authority for the action that it took means both that judicial review is not precluded and that Defendants lose on the merits.

HHS continues to raise arguments that Plaintiffs must fully exhaust all administrative review procedures and that the challenged decisions are committed to agency discretion, but those arguments fare no better. HHS concedes that Plaintiffs have now presented claims for payment to the Secretary, and it does not dispute that any further review would be futile. Moreover, the boundaries of HHS's statutory authority dictate that the challenged decision is not committed to agency discretion.

This is the third occasion on which the parties have fully briefed all the issues in this case. There are no factual disputes to be resolved and HHS has had more than an ample opportunity to brief the legal issues in this case. The Court should reach the merits and enter final judgment in favor of Plaintiffs.