Sanofi Aventis US LLC v. United States HHS ( 2023 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
Nos. 21-3167, 21-3379
_______________
SANOFI AVENTIS U.S. LLC,
Appellant in No. 21-3167
v.
UNITED STATES DEPARTMENT OF HEALTH AND HU-
MAN SERVICES; SECRETARY, UNITED STATES DE-
PARTMENT OF HEALTH AND HUMAN SERVICES;
GENERAL COUNSEL, UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES; HEALTH RE-
SOURCES SERVICES ADMINISTRATION; ADMINIS-
TRATOR OF THE HEALTH RESOURCES SERVICES
ADMINISTRATION,
Appellants in No. 21-3379
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3:21-cv-00634)
Chief District Judge: Honorable Freda L. Wolfson
_______________
Nos. 21-3168, 21-3380
_______________
NOVO NORDISK INC.; NOVO NORDISK PHARMA, INC.
Appellants in No. 21-3168
v.
UNITED STATES DEPARTMENT OF HEALTH AND HU-
MAN SERVICES; SECRETARY, UNITED STATES DE-
PARTMENT OF HEALTH AND HUMAN SERVICES;
GENERAL COUNSEL, UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES; HEALTH RE-
SOURCES SERVICES ADMINISTRATION; ADMINIS-
TRATOR OF THE HEALTH RESOURCES SERVICES
ADMINISTRATION,
Appellants in No. 21-3380
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3:21-cv-00806)
Chief District Judge: Honorable Freda L. Wolfson
_______________
No. 22-1676
_______________
ASTRAZENECA PHARMACEUTICALS LP
v.
SECRETARY, UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES; GENERAL COUN-
SEL, UNITED STATES DEPARTMENT OF HEALTH
AND HUMAN SERVICES; ADMINISTRATOR OF THE
HEALTH RESOURCES AND SERVICES ADMINISTRA-
TION; UNITED STATES DEPARTMENT OF HEALTH
2
AND HUMAN SERVICES; HEALTH RESOURCES AND
SERVICES ADMINISTRATION,
Appellants.
_______________
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1:21-cv-00027)
District Judge: Honorable Leonard P. Stark
_______________
Argued: November 15, 2022
Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges
(Filed: January 30, 2023)
_______________
Noel J. Francisco [ARGUED]
Brett A. Shumate
JONES DAY
51 Louisiana Avenue, N.W.
Washington, DC 20001
Toni-Ann Citera
Rajeev Muttreja
JONES DAY
250 Vesey Street
13th Floor
New York, NY 10281
Counsel for Sanofi (Nos. 21-3167, 21-3379)
Ashley C. Parrish [ARGUED]
John D. Shakow
3
KING & SPALDING
1700 Pennsylvania Avenue, N.W.
Suite 900
Washington, DC 20006
Nicole E. Bronnimann
KING & SPALDING
1100 Louisiana Street
Suite 4100
Houston, TX 77002
Israel Dahan
KING & SPALDING
1185 Avenue of the Americas
New York, NY 10036
Counsel for Novo Nordisk (Nos. 21-3168, 21-3380)
Allon Kedem [ARGUED]
Jeffrey L. Handwerker
Sally L. Pei
Stephen K. Wirth
ARNOLD & PORTER KAYE SCHOLER
610 Massachusetts Avenue, N.W.
Suite 1121
Washington, DC 20001
Counsel for AstraZeneca (No. 22-1676)
Daniel J. Aguilar [ARGUED]
UNITED STATES DEPARTMENT OF JUSTICE
CIVIL DIVISION
Room 7266
950 Pennsylvania Avenue, N.W.
Washington, DC 20530
Counsel for the Government (Nos. 21-3167, 21-3379, 21-
3168, 21-3380, 22-1676)
4
_______________
OPINION OF THE COURT
_______________
BIBAS, Circuit Judge.
Statutory silences, like awkward silences, tempt speech.
But courts must resist the urge to fill in words that Congress
left out. The Department of Health and Human Services claims
that drug makers must deliver certain discounted drugs wher-
ever and to whomever a buyer demands. But the relevant law
says nothing about such duties. So HHS’s efforts to enforce its
interpretation against the drug makers here are unlawful.
I. BACKGROUND
A. Congress enacted Section 340B
The federal government dominates the healthcare market.
Through Medicare and Medicaid, it pays for almost half the
annual nationwide spending on prescription drugs. See Cong.
Budget Off., Prescription Drugs: Spending, Use, and Prices 8
(2022). It uses that market power to get drug makers to subsi-
dize healthcare. Under Section 340B, drug makers that want to
take part in Medicare or Medicaid must offer their drugs at a
discount to certain healthcare providers. 42 U.S.C. §§ 256b,
1396r-8(a)(1), (5). These providers, called “covered entities,”
typically care for low-income and rural persons. Section 340B
helps providers do that. First, it gives them extra revenue from
serving insured patients: they turn a profit when insurance
companies reimburse them at full price for drugs that they
bought at the 340B discount. Second, it enables them to give
5
uninsured patients drugs at little or no cost. See Gov’t Account-
ability Off., Drug Pricing: Manufacturer Discounts in the
340B Program Offer Benefits, but Federal Oversight Needs
Improvement 17–18 (GAO-11-836, Sept. 2011).
Congress enacted Section 340B as part of the Veterans
Health Care Act of 1992 and amended it in 2010 as part of the
Affordable Care Act. Pub. L. No. 102-585, § 602, 106 Stat.
4943, 4967; Pub. L. No. 111-148, tit. VII.B, §§ 7101–02, 124
Stat. 119, 821–27 (both codified at 42 U.S.C. § 256b).
It has three basic parts: (1) a cap on drug makers’ prices,
(2) restrictions on covered entities, and (3) compliance mech-
anisms.
1. Price cap on drug makers. Central to this appeal are two
provisions requiring drug makers to sell their drugs at or below
a price cap. First, Section 340B directs the Secretary of HHS
to sign an agreement with each drug maker capping prices “for
covered outpatient drugs … purchased by a covered entity.” 42
U.S.C. § 256b(a)(1). This is known as the “purchased by” re-
quirement. The second requirement is the “shall offer” provision:
Each such agreement … shall require that the manufac-
turer offer each covered entity covered outpatient drugs
for purchase at or below the applicable ceiling price if
such drug is made available to any other purchaser at
any price.
Id.
2. Covered-entity restrictions. Section 340B also subjects
participating covered entities to two restrictions. First, it bans
duplicate discounts: covered entities cannot get the 340B
6
discount on drugs already subject to a Medicaid rebate.
§ 256b(a)(5)(A)(i). Second, it bans diversion: covered entities
can sell 340B drugs to only their own patients. § 256b(a)(5)(B).
3. Compliance mechanisms. Though Section 340B’s sub-
stantive requirements and restrictions are few, its compliance
provisions are many. See, e.g., § 256b(d). For instance, drug
makers and the Secretary of HHS can audit covered entities.
§ 256b(a)(5)(C). And the statute specifies punishments for vi-
olators: drug makers and covered entities can be fined, and
covered entities can be kicked out of the program.
§ 256b(d)(1)(B)(vi), (d)(2)(B)(v)(I)–(II).
B. HHS issued guidance on contract pharmacies
When Congress first enacted Section 340B, few covered
entities had pharmacies in house. So covered entities sought to
contract with outside pharmacies to distribute 340B drugs for
them. Covered entities using contract pharmacies would still
order and pay for the drugs, but they would be shipped directly
to the pharmacies. In 1996, HHS issued guidance saying that
covered entities could use one contract pharmacy each. 61 Fed.
Reg. 43,549 (Aug. 23, 1996). Then, in 2010, HHS issued new
guidance, saying that covered entities could use an unlimited
number of contract pharmacies. 75 Fed. Reg. 10,272 (Mar. 5,
2010).
After the 2010 guidance, the use of contract pharmacies
skyrocketed. Their number increased twentyfold.
C. Drug makers rebelled
This explosion worried drug makers. They thought that
contract pharmacies were driving up duplicate discounting and
7
diversion. So, in 2020, they responded, adopting policies to
limit the use of contract pharmacies. Here is a summary of the
three drug makers’ policies at issue:
2020 Distribution Policy
1. Covered entities may use an in-house
pharmacy.
2. If they do not have an in-house pharmacy,
Sanofi they may use one contract pharmacy.
3. If they agree to provide claims data, they
may use an unlimited number of contract
pharmacies.
1. Covered entities may use an in-house
pharmacy.
Novo 2. If they do not have an in-house pharmacy,
Nordisk they may use one contract pharmacy.
3. They may use multiple contract pharma-
cies at Novo Nordisk’s discretion.
1. Covered entities may use an in-house
Astra- pharmacy.
Zeneca 2. If they do not have an in-house pharmacy,
they may use one contract pharmacy.
D. HHS reacted
HHS responded with the three actions at the center of this
litigation.
1. The Advisory Opinion. First, in December 2020, HHS
released an Advisory Opinion declaring that Section 340B
8
unambiguously requires drug makers to deliver 340B drugs to
an unlimited number of contract pharmacies. HHS Off. Gen.
Couns., Advisory Opinion 20-06 on Contract Pharmacies Un-
der the 340B Program (Dec. 30, 2020), https://perma.cc
/L7W2-H597. HHS reasoned that 340B drugs are “purchased
by” a covered entity no matter how they are distributed. Id. at 1–
3. So, it argued, the “situs of delivery … is irrelevant.” Id. at 3.
2. Violation Letters. Five months later, HHS sent Violation
Letters to the drug makers. These letters said their policies
were unlawful and ordered them to rescind those policies and
reimburse covered entities for any overcharges.
Though the Advisory Opinion relied mainly on Sec-
tion 340B’s “purchased by” language, the Violation Letters re-
lied solely on Section 340B’s “shall offer” language. But their
conclusions were the same: drug makers must deliver dis-
counted drugs to an unlimited number of contract pharmacies.
3. The Administrative Dispute Resolution Rule. When
Congress amended Section 340B back in 2010, it told HHS to
set up a process through which drug makers and covered enti-
ties could resolve Section 340B–related disputes. § 256b(d)(3).
But HHS dawdled. It did not issue a notice of proposed rule-
making until 2016. 81 Fed. Reg. 53,381 (Aug. 12, 2016). And
after accepting comments on the proposed Administrative Dis-
pute Resolution (ADR) Rule, HHS seemed to abandon it. In
2017, in a regulatory publication called the Unified Agenda, it
listed the proposed rule as withdrawn. 340B Drug Pricing Pro-
gram; Administrative Dispute Resolution Process, RIN 0906-
AA90 (Spring 2017), https://perma.cc/ADX3-QUEJ (noting
“NPRM Withdrawn” on “08/01/2017”).
9
But that would not be the last of the proposed rule. In 2020,
HHS revived it. The agency said that it had just “paus[ed] ac-
tion on the proposed rule” rather than withdrawing it. 85 Fed.
Reg. 80,632, 80,633 (Dec. 14, 2020). It then responded to the
four-year-old comments and issued a final ADR Rule. Id. at
80,633–42, 80,644–46.
After we heard this appeal, HHS proposed a new rule to
revise the 2020 ADR Rule’s procedures. 87 Fed. Reg. 73,516(Nov. 30, 2022). But for now, the 2020 Rule remains in force.
E. Procedural history
1. AstraZeneca won in Delaware. Not long after the Advi-
sory Opinion was issued, AstraZeneca sued in the District of
Delaware to invalidate it. That Court held that the Advisory
Opinion was arbitrary and capricious because it wrongly called
Section 340B unambiguous. AstraZeneca Pharms. LP v.
Becerra, 543 F. Supp. 3d 47, 58–62 (D. Del. 2021). Unsure of
“the precise relief to be granted,” the Court asked for the par-
ties’ views. Id. at 62. Instead, HHS rescinded the Advisory
Opinion. Finding that rescission did not moot the issue, the
Court vacated the Advisory Opinion. AstraZeneca Pharms. LP
v. Becerra, 2021 U.S. Dist. LEXIS 122049, at *3–5 (D. Del.
June 30, 2021).
During the lawsuit, HHS also sent AstraZeneca a Violation
Letter, ordering it to stop restricting delivery to contract phar-
macies. AstraZeneca Pharms. LP v. Becerra, 2022 WL
484587, at *3 (D. Del. Feb. 16, 2022). The Court likewise va-
cated the Violation Letter because it rested on the same flawed
premise that Section 340B was unambiguous and wrongly
10
called HHS’s position consistent between 1996 and 2010. Id.at *5–6, 9.
2. But the government won in New Jersey. Things played
out differently for Sanofi and Novo Nordisk in the District of
New Jersey. That Court held that their challenge to the Advi-
sory Opinion was moot. Sanofi-Aventis U.S., LLC v. HHS, 570
F. Supp. 3d 129, 159 n.31 (D.N.J. 2021). And although it
agreed with the District of Delaware that Section 340B was
ambiguous, it mostly upheld the Violation Letters. Relying
largely on the statute’s purpose and legislative history, it con-
cluded that Section 340B requires delivery to at least one con-
tract pharmacy. Id. at 193–202. Yet rather than decide whether
it also requires delivery to an unlimited number of contract
pharmacies, the Court remanded to the agency for further con-
sideration. Id. at 203–06. Finally, it upheld the ADR Rule, re-
jecting a challenge to the agency’s notice-and-comment pro-
cess. Id. at 161–67.
A flurry of appeals from both District Court proceedings is
now before us. From the District of Delaware, HHS has ap-
pealed. From the District of New Jersey, Sanofi and Novo
Nordisk have appealed and HHS has cross-appealed.
We review the District Courts’ rulings de novo. See Eid v.
Thompson, 740 F.3d 118, 122 (3d Cir. 2014). And we review
the underlying agency actions for whether they were “arbitrary,
capricious, an abuse of discretion, or otherwise not in accord-
ance with law.” Id. (quoting 5 U.S.C. § 706(2)(A)).
11
II. THE GOVERNMENT MAY NOT ENFORCE ITS READING
OF THE STATUTE AGAINST THESE DRUG MAKERS
A. The drug makers’ challenge to the Advisory
Opinion is not moot
We start with the government’s half-hearted suggestion that
the dispute over the Advisory Opinion is moot. It is not.
Though HHS rescinded the Opinion after it lost in Delaware, it
has “not altered its position” on the use of contract pharmacies.
Solar Turbines Inc. v. Seif, 879 F.2d 1073, 1079 (3d Cir. 1989).
It still says that drug makers must deliver their drugs to an un-
limited number of contract pharmacies. And it still takes en-
forcement actions in line with that view. “We will understand-
ably be skeptical of a claim of mootness when a defendant
yields in the face of a court [ruling] and assures us that the case
is moot because the injury will not recur, yet maintains that its
conduct was lawful all along.” Hartnett v. Pa. State Educ. Ass’n,
963 F.3d 301, 306 (3d Cir. 2020). That is what happened here.
True, by rescinding the Advisory Opinion, HHS obviated
vacating it. Cf. United States v. Texas, No. 22-58 (U.S. argued
Nov. 29, 2022) (considering vacatur as a remedy under the
APA). But we can still enjoin HHS from reverting to the Ad-
visory Opinion’s interpretation of Section 340B. United States
v. W. T. Grant Co., 345 U.S. 629, 633 (1953) (“[T]he court’s
power to grant injunctive relief survives discontinuance of the
illegal conduct.”). Thus, the dispute is not moot.
12
B. Section 340B does not require delivery to an
unlimited number of contract pharmacies
Both the Advisory Opinion and the Violation Letters say
Section 340B requires drug makers to deliver drugs to an un-
limited number of contract pharmacies. As the parties agree,
HHS lacks rulemaking authority here, so its reading does not
merit Chevron deference. See Christensen v. Harris Cnty., 529
U.S. 576, 587 (2000). Nor does it merit Skidmore deference.
The agency’s reading is “entitled to respect …, but only to the
extent that” it has “the power to persuade.” Id. (internal quota-
tion marks omitted). As we explain below, “we find unpersua-
sive the agency’s interpretation of the statute.” Id. So it de-
serves no deference.
1. The text is silent about delivery. We turn to the statutory
text. The parties focus on Section 340B’s “shall offer” provi-
sion. If drug makers make drugs available to anyone at any
price, they must “offer” those drugs to “covered entities” at a
discount. 42 U.S.C. § 256b(a)(1). Nowhere does Section 340B
mention contract pharmacies.
Nor does the word “offer” imply that the offeror must de-
liver goods wherever and to whomever the buyer demands.
“Offer” means to “present[ ] something for acceptance.” Offer,
Black’s Law Dictionary (11th ed. 2019). Even if drug makers
limit where they will deliver drugs, they still present the drugs
for covered entities’ acceptance. And the drug makers’ deliv-
ery conditions do not prevent any covered entity from accept-
ing these offers. Each can still buy and dispense unlimited dis-
counted drugs by having them delivered to an in-house or con-
tract pharmacy.
13
By contrast, one could argue that if a drug maker barred all
use of contract pharmacies, it would not “present” discounted
drugs “for acceptance” by all covered entities. A covered entity
that lacks an in-house pharmacy and cannot use a contract
pharmacy might have no way to dispense the drugs and so
could not in practice “accept” them. But that situation is not
before us. Under the three drug makers’ policies at issue, all
covered entities can still use the Section 340B program.
Though the covered entities cannot squeeze as much revenue
out of it as they once could, drug makers need not help them
maximize their 340B profits.
Section 340B’s “purchased by” language likewise says
nothing about delivery. § 256b(a)(1). HHS reasoned that be-
cause discounted drugs are “purchased by” a covered entity no
matter where they are delivered, drug makers must deliver
them wherever a covered entity demands, whether that be “a
neighborhood pharmacy” or “the lunar surface.” HHS Off.
Gen. Couns., Advisory Opinion 2–3. But that is one giant leap
from the text. The “purchased by” provision imposes only a
price term for drug sales to covered entities, leaving all other
terms blank. See § 256b(a)(1). HHS suggests that covered enti-
ties get to fill in those blanks so long as they foot the bill. But
when Congress’s words run out, covered entities may not pick
up the pen. Plus, Congress’s use of the singular “covered en-
tity” in the “purchased by” language suggests that it had in
mind one-to-one transactions between a covered entity and a
drug maker without mixing in a plethora of pharmacies.
No other language in Section 340B requires delivery to an
unlimited number of contract pharmacies. Still, HHS says that
the drug makers’ policies are “not permit[ted]” just because
14
Section 340B does not “expressly prohibit[ ]” them. HHS Resp.
Br. 33 (internal quotation marks omitted). But that logic is “ex-
actly backwards.” Christensen, 529 U.S. at 588. Unless Section
340B “prohibits” drug makers from adopting their policies,
HHS cannot show that they have violated Section 340B. Id.(emphasis in original). Because Section 340B “contains no
such prohibition,” the drug makers’ policies are lawful. Id.
2. Structural clues confirm that the statute does not require
unlimited delivery. Several structural clues confirm our reading
of Section 340B. To start, “Congress knew how to” grant cov-
ered entities permission to contract with third parties for distri-
bution. State Farm Fire & Cas. Co. v. United States ex rel.
Rigsby, 580 U.S. 26, 36 (2016); Rotkiske v. Klemm, 140 S. Ct.
355, 361 (2019). A subsection elsewhere in Section 340B in-
structs HHS to set up a program under which “covered entities
may enter into contracts with prime vendors for the distribution
of covered outpatient drugs.” § 256b(a)(8). Congress could
have included similar language for contract pharmacies but did
not.
Congress also knew how to impose delivery-related re-
quirements. That same subsection provides that if covered en-
tities “obtain[ ] drugs directly from a manufacturer, the manu-
facturer shall be responsible for the costs of distribution.” Id.
Again, Congress could have similarly required drug makers to
deliver their drugs to certain places. And again, it chose not to.
What is more, Section 340B’s statutory neighbor includes
language along the lines of what the government asks us to in-
sert into Section 340B. Pub. L. No. 102-585, § 603(a)(1), 106
Stat. 4943, 4971 (codified at 38 U.S.C. § 8126). That
15
neighboring provision was enacted as part of the same Veter-
ans Health Care Act of 1992, and it started on the very page of
the Act where Section 340B ended. It regulates the prices that
federal agencies pay for drugs. Like Section 340B, it directs
the Secretary of HHS to enter agreements with drug makers to
sell “covered drug[s]” at discounted prices. 38 U.S.C.
§ 8126(a)(2). But unlike Section 340B, it expressly contem-
plates drug makers selling discounted drugs through contract
pharmacies. Id. § 8126(a)(2), (h)(3)(A)(ii). Discounts apply to
drugs “purchased under depot contracting systems,” including
those delivered through “a commercial entity operating under
contract with [the] agency.” Id. Congress added that specific
language there but not here. We presume that it did so inten-
tionally. Barnhart v. Sigmon Coal Co., 534 U.S. 438, 452
(2002).
The government’s reading would also put drug makers in a
legal bind. Some drugs are so risky that the Food and Drug
Administration requires drug makers to develop programs for
their safe use. See, e.g., 21 U.S.C. § 355-1. Drug makers often
comply by limiting distribution to a few pharmacies that are
specially trained to educate and monitor patients. The govern-
ment now says that such limits are illegal under Section 340B.
Perhaps there is a costly, complex way to comply with both
requirements, but this tension is another strike against the gov-
ernment’s reading. Leaving drug makers discretion on delivery
is not only more consistent with Section 340B’s text, but also
more consistent with this other statutory requirement.
Finally, Section 340B’s compliance measures do not im-
plicitly preclude delivery limits. Recall that the drug makers
say their restrictions were driven by concerns about contract
16
pharmacies’ compliance. In response, the government cor-
rectly notes that Section 340B already has extensive compli-
ance measures. See, e.g., § 256b(a)(5)(C)–(D), (d)(2). So, it
reasons, drug makers may not tack on measures of their own.
That misses the mark. The statute directs its compliance provi-
sions at covered entities, not contract pharmacies. For instance,
it authorizes audits of only “covered entit[ies].” See
§ 256b(a)(5)(C). So the government’s inference that drug mak-
ers cannot limit the use of contract pharmacies “go[es] beyond
the category to which the negative implication pertains.” An-
tonin Scalia & Bryan A. Garner, Reading Law 108 (2012)
(negative-implication canon). In short, the statutory structure
supports the drug makers, not the government.
3. Neither drafting history nor legislative purpose compels
a different result. With no textual or structural hook for its po-
sition, the government grasps at drafting history and legislative
purpose. Neither calls for a different outcome.
Take drafting history. When enacting Section 340B, Con-
gress also considered a bill that would have required discounts
on drugs “purchased and dispensed by, or under a contract en-
tered into for on-site pharmacy services with,” a covered entity.
S. Rep. No. 102-259, at 2 (1992). Section 340B kept the “pur-
chased by” language but dropped the rest. § 256b(a)(1). So, the
government reasons, Congress must have meant for drug mak-
ers to give discounts on all drugs “purchased by” covered enti-
ties, no matter how they are dispensed.
But drawing inferences from unenacted drafting history is
“perilous.” District of Columbia v. Heller, 554 U.S. 570, 590
(2008); see Ramos v. Louisiana, 140 S. Ct. 1390, 1400 (2020).
17
Just so here. Congress could have omitted the language about
on-site pharmacies because it did not want any contract phar-
macy involved in the 340B program. With that language gone,
it might have thought that the language letting a covered entity
dispense 340B drugs was unnecessary: of course covered enti-
ties are allowed to dispense drugs that they buy. In other words,
the same cutting-room scrap can support “opposite infer-
ence[s].” Ramos, 140 S. Ct. at 1400.
Finally, the government argues that letting drug makers
limit the use of contract pharmacies would thwart Congress’s
purpose in enacting Section 340B. When it was passed, few
covered entities had in-house pharmacies, so most could not
have accessed the discounted drugs without contract pharma-
cies. But this argument does not get the government where it
needs to go. Congress might have expected that a covered en-
tity without its own in-house pharmacy could instead use one
contract pharmacy. But that is a far cry from the government’s
current position that covered entities may use an unlimited
number of contract pharmacies.
So the Violation Letters and Advisory Opinion are unlaw-
ful. These three drug makers’ restrictions on delivery to con-
tract pharmacies do not violate Section 340B. And we will en-
join HHS from enforcing against them its reading of Section
340B as requiring delivery of discounted drugs to an unlimited
number of contract pharmacies. That will give them complete
relief. We conclude by considering the ADR Rule.
III. THE ADR RULE IS LAWFUL
Only Sanofi challenges the ADR Rule. It says the Rule vi-
olated the APA’s notice and comment requirements because it
18
rested on a proposed rule that, in a 2017 publication, HHS
listed as withdrawn. The government responds that it never
withdrew the rule, but just “paus[ed] action on” it. 85 Fed. Reg.
at 80,633.
The APA does not mention withdrawing proposed rules.
Nor has the Supreme Court. So we are reluctant to give with-
drawal separate legal significance under the APA. Rather,
marking a rule as withdrawn seems to be just a message about
an agency’s intent.
Sanofi argues that if an agency later changes its mind, it
must start over. But nothing in the APA says that. Instead, all
the APA requires of an agency before publishing a final rule is
(1) putting a notice of proposed rulemaking in the Federal Reg-
ister, (2) accepting comments on that proposal, and (3) consid-
ering those comments. See 5 U.S.C. § 553(b)–(c). Though HHS
listed the rule as withdrawn, that did not negate that HHS had
taken the required steps: the public knew about the proposed
rule and had a chance to comment on it, and the agency con-
sidered those comments. The APA prescribes the “maximum
procedural requirements that an agency must follow in order to
promulgate a rule.” Little Sisters of the Poor Saints Peter &
Paul Home v. Pennsylvania, 140 S. Ct. 2367, 2385 (2020) (in-
ternal quotation marks omitted). No more was needed.
Still, Sanofi complains that it was caught off guard by the
ADR Rule’s promulgation. Our dissenting colleague echoes
this concern. But the APA already accounts for blindsiding.
For instance, it requires an agency to publish a final rule thirty
days before it takes effect. 5 U.S.C. § 553(d). Again, HHS did
that. We cannot require something more.
19
Even if an agency had the power to effectively nullify the
prior notice and comments, we think it would require some-
thing more than what happened here. The proposed rule was
marked as withdrawn in the Unified Agenda, which is pub-
lished semiannually by the Office of Information and Regula-
tory Affairs to lay out the executive branch’s plans. But that
publication was not created as part of the APA. Instead, its ex-
press purpose is to “help[ ] agencies comply with their obliga-
tions” under various other statutes and executive orders. See 86
Fed. Reg. 41,166, 41,167-68. It would be odd if agencies could
nullify past steps taken to comply with the APA in a publica-
tion that has little if anything to do with the APA.
Plus, the Unified Agenda says it does “not create a legal
obligation on agencies … to confine their regulatory activities
to those regulations that appear within it.” See id. at 41,167.
This disclaimer should have put the drug makers on notice that
the agency was not binding itself simply by listing the rule as
withdrawn there. And though there was a long delay between
the notice of proposed rulemaking and finalizing the rule, such
delays do happen. See, e.g., 85 Fed. Reg. 49,240, 49,243 (Aug.
13, 2020) (promulgation nearly five years after notice of pro-
posed rulemaking); 85 Fed. Reg. 13,312, 13,314 (Mar. 6, 2020)
(promulgation nearly four years after notice of proposed rule-
making). Ultimately, Sanofi’s complaints ring hollow.
* * * * *
Legal duties do not spring from silence. Congress never
said that drug makers must deliver discounted Section 340B
drugs to an unlimited number of contract pharmacies. So by
trying to enforce that supposed requirement, the government
20
overstepped the statute’s bounds. And HHS did not violate the
APA by purporting to withdraw the proposed ADR Rule before
later finalizing it.
21
Sanofi Aventis US LCC v. United States HHS, et al.
Case Nos. 21-3167, 21-3168, 21-3379, 21-3380, 22-1676
AMBRO, Circuit Judge, dissenting in part.
I join my colleagues in all but Part III. Because HHS
took multiple actions alerting the public it had withdrawn its
notice of proposed rulemaking (“NPRM”) outlining an
administrative dispute resolution (“ADR”) process, I would
vacate the final ADR Rule and remand for HHS to issue a new
NPRM.
The usual process by which an agency promulgates a
binding final rule is as follows. It publishes an NPRM in the
Federal Register that includes “the terms or substance of the
proposed rule or a description of the subjects and issues
involved.” 5 U.S.C. § 553(b)(3). It then allows for comments
by “giv[ing] interested persons an opportunity to participate in
the rule making through submission of written data, views, or
arguments.” Id. § 553(c). Finally, and only after considering
the comments submitted, the agency may publish the final rule.
Id.
The process for deciding not to promulgate a final rule
after it is proposed is less clear. Neither the APA nor the
Supreme Court has set out procedures for withdrawing an
NPRM. Usual practice is to publish a notice of withdrawal in
the Federal Register. See, e.g., 83 Fed. Reg. 60,804 (Nov. 27,
2018) (HHS withdrawal of proposed rule); 84 Fed. Reg. 37,821(Aug. 2, 2019) (same). That said, because the APA’s notice-
1
and-comment requirements are meant to “ensure fairness to
affected parties,” Council Tree Commc’ns, Inc. v. F.C.C., 619
F.3d 235, 250 (3d Cir. 2010) (quoting Int’l Union, United Mine
Workers v. Mine Safety & Health Admin., 407 F.3d 1250,
1259-60 (D.C. Cir. 2005)), I propose a practical rule: Some
agency actions short of formal notice in the Federal Register
should constitute withdrawal because they make any
reasonable person believe the proposed rule would not take
effect.
Here, HHS took multiple actions indicating it had
withdrawn the NPRM for the ADR process. To start, HHS
removed it from the Unified Agenda. More specifically, the
website of the Office of Information and Regulatory Affairs
(“OIRA”) displays the NPRM as “Withdrawn” as of August 1,
2017, and identifies the stage of rulemaking as “Completed
Action,” which is a term used to describe “rulemakings that are
being [w]ithdrawn or ending their lifecycle with a regulatory
action that completes the rulemaking.” OIRA, About the
Unified Agenda, https://bit.ly/2OYh3FZ (last visited Oct. 26,
2022). Further, in March 2020 an official from the Health
Resources and Services Administration, an agency within HHS
that operates the 340B program, stated that it did “not plan to
move forward on issuing [an ADR] regulation due to the
challenges with enforcement of guidance.” SJA 788. And
ultimately, when HHS issued the final ADR Rule in December
2020, it did so under a new Regulatory Identification Number
(“RIN”). Compare 85 Fed. Reg. 80,632 (RIN 0906-AB26),
with 81 Fed. Reg. 53,381 (RIN 0906-AA90). Even if HHS
thought it paused consideration of the proposed ADR Rule
temporarily, the agency’s words and actions put the public on
notice that it withdrew the proposal.
2
Any one of these facts alone may not be sufficient to
constitute a withdrawal of the NPRM. But when an agency
consistently takes the position for three years that it will not
turn that proposed rule into a final rule, the public should be
able to take what the agency says at face value.
As a result, I respectfully dissent in part. I would vacate
the final ADR Rule and remand to allow HHS to publish a new
NPRM, which HHS has done since we heard argument in this
appeal. See 87 Fed. Reg. 73,516 (Nov. 30, 2022).
3