Ipsen Biopharmaceuticals, Inc. v. Hargan ( 2020 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
IPSEN BIOPHARMACEUTICALS, INC.,
Plaintiff,
v.
No. 16-cv-2372 (DLF)
ALEX M. AZAR II, in his official capacity as
Secretary of Health and Human Services, et
al.,
Defendants.
MEMORANDUM OPINION
Ipsen Biopharmaceuticals, Inc. (Ipsen) brought this lawsuit in 2016 against the Secretary
of Health and Human Services 1 under the Administrative Procedure Act, 5 U.S.C. § 551 et seq.
(the APA). Ipsen alleges that the Center for Medicare and Medicaid Services (CMS), a sub-
agency within the Department of Health and Human Services (HHS), interpreted Title XIX of
the Social Security Act, 42 U.S.C. § 1396 et seq. (the Medicaid Act), in a manner that was
arbitrary, capricious, or not in accordance with law. Before the Court are Ipsen’s Renewed
Motion for Summary Judgment, Dkt. 33, and the Secretary’s Renewed Cross-Motion for
Summary Judgment, Dkt. 34. Because the Court concludes that CMS’s interpretation was
neither contrary to law nor arbitrary and capricious, the Court will deny Ipsen’s Renewed Motion
for Summary Judgment and grant the Secretary’s Renewed Cross-Motion for Summary
Judgment.
1
Sylvia Burwell was Secretary of Health and Human Services when Ipsen filed its complaint,
but Alex M. Azar II has since taken that position and is automatically substituted as the
defendant in this case under Rule 25(d) of the Federal Rules of Civil Procedure.
I. BACKGROUND
A. Statutory and Regulatory Framework
This case implicates the relationship between two federal statutes administered by
sub-agencies of HHS: the Medicaid Act, which is administered by CMS, and the Food, Drug,
and Cosmetic Act, 21 U.S.C. § 301 et seq. (the FDCA), which is administered by the Food and
Drug Administration (FDA). Ipsen claims that certain provisions of the FDCA render its product
a new drug for purposes of calculating its rebate obligations under the Medicaid Act. The
relevant statutory and regulatory provisions are as follows.
1. Medicaid Act
Congress created Medicaid in 1965 when it added Title XIX to the Social Security Act.
Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644, 650 (2003). “Medicaid, as everyone
knows, is a cooperative state-federal program designed to provide medical assistance to poor
people.” Indiana Family & Soc. Servs. Admin. v. Thompson, 286 F.3d 476, 477 (7th Cir. 2002).
The program operates by providing federal financial assistance to states that reimburse certain
medical costs for the needy. Pharm. Research, 538 U.S. at 650.
The Medicaid Act sets forth the circumstances under which drug manufacturers may
obtain Medicaid coverage for their drug products. Principally, to obtain coverage for any of its
drugs, “the manufacturer must have entered into and have in effect a rebate agreement . . . with
the Secretary.” 42 U.S.C. § 1396r-8(a)(1). Under these rebate agreements, drug manufacturers
agree to pay rebates to the states to help the states cover the costs of providing Medicaid
coverage for the manufacturer’s drugs. Id. § 1396r-8(b)(1)(B).
The amount of the rebate that manufacturers must pay is established by statute and
contains two components: the basic rebate and the additional rebate. Id. § 1396r-8(c)(1), (c)(2).
2
At issue in this case is the additional rebate. For the type of drug in question, the additional
rebate consists of the difference between the average manufacturer price of the drug for that
rebate period and the average manufacturer price of the drug, adjusted for inflation, for “the first
full calendar quarter after the day on which the drug was first marketed,” multiplied by the total
number of units of the drug for which the state made payment over the course of a given rebate
period. Id. § 1396r-8(c)(2)(A), (c)(2)(B). The “average manufacturer price” (AMP) for the “first
full calendar quarter” in which the drug is marketed is known as the “base date AMP.”
To put that in layman’s terms, the additional rebate fully compensates the state for any
amount, in excess of the inflation rate, by which the manufacturer increases the price of a drug
after it first comes to market. The “base date AMP” is important because it provides the baseline
from which a drug manufacturer’s price increases, and therefore its rebate obligations to the
states, are calculated. A higher “base date AMP” means lower rebate obligations for the
manufacturer, because the net increase in the price of the drug is correspondingly lower. To the
extent that manufacturers increase the prices of their drugs over time, a later-in-time base date
will correspond to a higher “base date AMP,” and thus a lower rebate obligation.
Various definitions contained in the Medicaid Act bear on the statutory question at issue
here. First, the Medicaid rebate requirement applies independently to each “covered outpatient
drug,” 42 U.S.C. § 1396r-8(a), and a “covered outpatient drug” is defined, as relevant here, as “a
drug . . . which is approved for safety and effectiveness as a prescription drug under section 505
or 507 of the Federal Food, Drug, and Cosmetic Act or which is approved under section 505(j) of
such Act,” 42 U.S.C. § 1396r-8(k)(2).
Second, the additional rebate provision described above applies specifically to “single
source drug[s]” and “innovator multiple source drug[s].” 42 U.S.C. § 1396r-8(c)(2)(A). As
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relevant here, the Medicaid Act defines “single source drug” as “a covered outpatient drug . . .
which is produced or distributed under a new drug application approved by the Food and Drug
Administration,” id. § 1396r-8(k)(7)(iv), and an “innovator multiple source drug” as “a multiple
source drug that is marketed under a new drug application approved by the Food and Drug
Administration,” id. § 1396r-8(k)(7)(ii). The Medicaid Act’s implementing regulations further
specify that an “innovator multiple source drug” is a “multiple source drug that was originally
marketed under an original new drug application (NDA) approved by FDA,” and that a “single
source drug” is “a covered outpatient drug that is produced or distributed under an original NDA
approved by FDA and has an approved NDA number issued by FDA.” 42 C.F.R. § 447.502.
2. Food, Drug, and Cosmetic Act
The FDCA sets forth various requirements for the approval of new drugs. The Act
defines “new drug” in relevant part to mean “[a]ny drug . . . the composition of which is such
that such drug is not generally recognized, among experts qualified by scientific training and
experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under
the conditions prescribed, recommended, or suggested in the labeling thereof.” 21 U.S.C.
§ 321(p). It then imposes a general requirement that “[n]o person shall introduce or deliver for
introduction into interstate commerce any new drug, unless an approval of an application filed
pursuant to subsection (b) or (j) is effective with respect to such drug.” Id. § 355(a). 2
Section 505(b) provides that persons seeking approval of such new drugs “may file with
the Secretary an application with respect to any drug subject to the provisions of subsection (a).”
Id. § 355(b)(1). Any such application must contain various pieces of information specified by
2
Section 505(j) of the FDCA refers to the process for filing an abbreviated new drug application
(aNDA), which applies to generic drugs. See 21 U.S.C. § 355(j). Because the drug product at
issue here is not generic, the statutory provisions regarding aNDAs are not relevant to this case.
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statute, including, for example, “full reports of investigations which have been made to show
whether or not such drug is safe for use and whether such drug is effective in use,” “a full list of
the articles used as components of such drug,” and “a full statement of the composition of such
drug.” Id. § 355(b)(1)(A), (b)(1)(B), (b)(1)(C).
An application submitted under section 505(b)(1) of the FDCA is referred to as a “new
drug application” (NDA). 21 C.F.R. § 314.3. The FDCA’s implementing regulations provide, in
21 C.F.R. § 314.50, extensive requirements beyond those imposed in the statute itself that the
NDA must meet to obtain FDA approval. See id. The regulations also define “new drug
application” as “the application described under § 314.50, including all amendments and
supplements to the application.” Id. § 314.3.
The implementing regulations establish a separate process that applies when a
manufacturer wishes to make “[s]upplements and other changes to an approved NDA.” 21
C.F.R. § 314.70. Under that process, “the applicant must notify FDA about each change in each
condition established in an approved NDA beyond the variations already provided for in the
NDA,” and must “describe the change fully.” Id. § 314.70(a).
Certain “major changes” to an approved NDA require the manufacturer to submit a
“supplemental new drug application” (sNDA) and obtain FDA’s approval of that sNDA “prior to
distribution of the product made using the change.” Id. § 314.70(b). Those “major changes” are
defined as “any change in the drug substance, drug product, production process, quality controls,
equipment, or facilities that has a substantial potential to have an adverse effect on the identity,
strength, quality, purity, or potency of the drug product as these factors may relate to the safety
or effectiveness of the drug product.” Id. “Major changes” include things like “[c]hanges that
may affect drug substance or drug product sterility assurance,” id. § 314.70(b)(2)(iii), or
5
“[c]hanges in a drug product container closure system that controls the drug product delivered to
a patient,” id. § 314.70(b)(2)(vi).
“Moderate changes,” defined as changes with a “moderate potential to have an adverse
effect on the identity, strength, quality, purity, or potency of the drug product as these factors
may relate to the safety or effectiveness of the drug product,” also require submission of a
sNDA. But the manufacturer need only submit the application “at least 30 days prior to
distribution,” and need not obtain FDA’s approval prior to marketing “the drug product made
using the change.” Id. § 314.70(c). “Minor changes” do not require submission of a sNDA at
all; the manufacturer need only document them in its next annual report. Id. § 314.70(d).
B. Factual Background
Ipsen sells Somatuline Depot (Somatuline), an injectable drug product available in three
strengths (60 mg, 90 mg, and 120 mg). Dkt. 1 (Compl.) ¶ 40; Administrative Record (A.R.) 35.
Ipsen received FDA approval of its NDA for Somatuline on August 30, 2007. Compl. ¶ 40; see
A.R. 35. The FDA approved Somatuline for the treatment of acromegaly, a condition involving
excessive growth of the hands, feet, and face as a result of excessive growth hormone production
during adulthood. A.R. 35; Compl. ¶ 41.
Since 2007, Ipsen has supplemented its NDA for Somatuline 16 times. See U.S. Food &
Drug Administration, Drugs@FDA: FDA Approved Drug Products: Somatuline Depot,
https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm?event=overview.process&ApplNo=0
22074 (last accessed May 14, 2020) (listing sNDA approval dates for Somatuline). The changes
described in these sNDAs range from changes to Somatuline’s dosing regimen, to its
manufacturing process, to its efficacy for new indications, to its labeling. See id.
6
Two of these sNDAs are at issue in this case. First, on October 28, 2014, the FDA
approved a sNDA for Somatuline that “propose[d] changes to the drug substance and drug
product manufacturing processes, and to the drug product container closure system, which
include[d] addition of a sharps protection system to the syringe to help prevent needle stick
injury after use.” A.R. 40. The sNDA also proposed changes that would harmonize the syringe
dimensions for the three dosage strengths of Somatuline, as well as corresponding changes to the
labeling and the healthcare provider instructions for use. Id.; Compl. ¶ 44.
Second, on December 16, 2014, the FDA approved another sNDA for Somatuline, this
time “for a new indication for the treatment of patients with unresectable, well- or
moderately-differentiated, locally advanced or metastatic gastroenteropancreatic neuroendocrine
tumors (GEP-NETs) to improve progression-free survival.” A.R. 76. Ipsen claims that it spent
$80 million conducting efficacy trials for this new indication. Compl. ¶ 47. Somatuline was the
first drug approved by FDA for this indication, which provides a novel therapy for certain cancer
patients. Id. ¶ 48. FDA granted Ipsen three years of exclusive marketing privileges in light of
the clinical data that Ipsen had produced in support of this new indication. Id. ¶ 49.
On January 7, 2015, Ipsen sent CMS a letter indicating its intent to establish an
independent base date AMP for purposes of its Medicaid rebate obligations. A.R. 1. Ipsen’s
letter informed CMS that Ipsen was “poised to launch” a new drug product, in three strengths,
that it planned to call Somatuline Depot with Enhanced Device (Somatuline ED), and argued that
the three strengths of Somatuline ED “should be considered ‘new products’ entitled to baseline
AMPs separate and distinct from those” of the original Somatuline drug. Id.
In support of this argument, Ipsen explained that “Somatuline ED has two separate FDA
approvals (supplemental NDAs) distinct from the NDA under which Somatuline [Depot] came to
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market (one for the new device and a second for the new indication).” A.R. 3. Ipsen noted that
“[t]hese supplemental applications required independent investment, analysis and approval of the
delivery mechanism and of the additional indication as well as other changes to the original
product.” Id. Finally, the letter informed CMS that Ipsen intended to begin calculating its
Medicaid rebate obligations for Somatuline ED based on “new baseline AMPs in the first full
quarter following launch, likely the second quarter of 2015,” and that Ipsen would “proceed with
this approach absent CMS instruction to the contrary.” Id. 4.
CMS responded on July 2, 2015, by an email from Wendy Tuttle, a Health Insurance
Specialist with CMS’s Pharmacy Division. A.R. 6–7. Tuttle acknowledged the various
enhancements that Ipsen had made to Somatuline, but concluded that “these factors do not meet
the criteria for the establishment of new base date AMPs for the three strengths of Somatuline
ED.” Id. 6. She explained that “[s]ections 1927(c)(2)(A) and (B) of the [Medicaid Act] specify
that the baseline data is established for each dosage form and strength of the drug.” Id.
(emphasis in original). Accordingly, Tuttle rejected the argument that the Somatuline ED
products approved under the two sNDAs discussed above should have their own base date
AMPs, “because the final dosage form and strengths of each have remained the same.” Id.
“Upon our review of the information listed with FDA for the three strengths of Somatuline
Depot, which are all approved under the same NDA number 022074,” she concluded, “we
believe that the baseline information for each strength of Somatuline ED should be the same as
the baseline data for the correlating strength of the original Somatuline Depot.” Id.
On September 21, 2015, Ipsen’s lawyers wrote to the General Counsel of HHS,
requesting a meeting to discuss Ipsen’s “entitlement” to unique base date AMPs for its
Somatuline ED products. A.R. 9. The letter first noted that Ipsen had “conducted extensive and
8
costly research to support significant improvements to its Somatuline products.” Id. 10. It then
argued that CMS’s determination that Ipsen was not entitled to unique base date AMPs for
Somatuline ED violated the Medicaid Act because Somatuline ED constituted a distinct “covered
outpatient drug” under that statute. Id. 11–20. Specifically, Ipsen argued that the definition of
“covered outpatient drug” in section 1927 of the Medicaid Act specifically referenced the
FDCA’s framework for the approval of new drugs, id. 12–14, and that Somatuline ED
constituted a “new drug” under that framework, id. 14–20. Accordingly, the letter concluded,
“CMS . . . should reconsider its decision reflected in the July 2, 2015 email and should approve
Ipsen’s request to establish new base date AMPs for its Somatuline ED product.” Id. 21.
CMS responded by a letter dated August 3, 2016 from Dr. John Coster, Director of
CMS’s Pharmacy Division. 3 A. 33–34. Coster acknowledged that “section 1927(k)(2) of the
Act defines a ‘covered outpatient drug’ based on FDA approval,” but stated that CMS had found
“no indication that Congress intended that FDA approval status be used for determining whether
a drug qualifies as a new drug for the purposes of price reporting for the [Medicaid rebate
program].” Id. 33–34. Coster noted that the Medicaid Act provides that baseline data should be
established for each dosage form and strength of the drug, and concluded that “[t]he reasons for
requiring a new approval for a drug that has new marketing authority do not require different
Medicaid pricing policies when the dosage form and strength are not changed.” Id. 34. Because
the “new” Somatuline ED products had the same dosage form and strengths as the original
Somatuline products, and because all of these versions of Somatuline had been approved under
3
Dr. Coster’s letter copied the General Counsel of HHS and Ipsen’s General Counsel for North
America. A.R. 34.
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the same NDA number, Coster reaffirmed CMS’s denial of Ipsen’s request for new base date
AMPs. Id.
With regard to the relevance of the sNDAs that FDA had approved for Somatuline ED,
Coster concluded, “[c]onsistent with the statutory language, we consider a sNDA which contains
the same ‘route number’ with an extension (indicating that it is a supplement to the NDA) to be
approved under the same NDA, and such products should not have separate baseline data.”
Coster cited CMS’s previous conclusion to that effect in Manufacturer Release No. 26, which
stated that “baseline information, such as Market Date and Baseline AMP[,] MUST follow the
NDA of the product.” Id. (emphasis in original). Finally, Coster acknowledged the
enhancements that Ipsen had made to Somatuline, but concluded that “these are not factors
included in the statutory criteria for determining whether a drug qualifies as a new drug for the
purposes of price reporting for the [Medicaid rebate program],” and thus the changes did “not
warrant establishment of new base date AMPs for the three strengths of Somatuline ED.” Id.
C. Procedural History
Ipsen filed its complaint on December 5, 2016. Compl. Ipsen claims that CMS’s
determination that Ipsen was not entitled to establish unique base date AMPs for Somatuline ED
violated the APA’s prohibition on agency action that is “arbitrary, capricious, an abuse of
discretion or otherwise not in accordance with law.” See 5 U.S.C. § 706(2)(A). Ipsen argues
that CMS’s determination was “contrary to law and in excess of CMS’s authority” because the
relevant provision of the Medicaid Act defines “covered outpatient drug” with reference to the
FDCA, and Somatuline ED constituted a “new drug” under the relevant FDCA provisions.
Compl. ¶ 75. Ipsen also argues that CMS’s determination was “arbitrary and capricious”
because CMS had drawn an arbitrary distinction between drug approvals obtained via NDAs and
10
those obtained via sNDAs, and because CMS had failed to meet the requirements of reasoned
decisionmaking. Id. ¶ 76, 77.
The parties filed cross-motions for summary judgment. See Dkt. 13 (Ipsen); Dkt. 16
(Secretary). On September 24, 2018, the Court denied Ipsen’s motion for summary judgment
and granted the Secretary’s cross-motion for summary judgment. Dkt. 23 (Order). The Court
concluded that CMS’s letter to Ipsen did not constitute “final agency action” subject to judicial
review under the APA. Dkt. 24 (Mem. Op.) at 13; see 5 U.S.C. § 704 (providing for judicial
review of “final agency action for which there is no other adequate remedy in a court”).
On December 3, 2019, the D.C. Circuit reversed. Ipsen Biopharm., Inc. v. Azar, 943 F.3d
953, 959 (D.C. Cir. 2019). The D.C. Circuit concluded that CMS’s letter had resulted in an
“increased risk of prosecution and penalties” for Ipsen and therefore did constitute final agency
action under the Supreme Court’s decision in Bennett v. Spear, 520 U.S. 154 (1997). Ipsen, 943
F.3d at 957; see Bennett, 520 U.S. at 178 (“final agency action” is “one by which rights or
obligations have been determined, or from which legal consequences will flow” (internal
quotation marks and citation omitted)). The D.C. Circuit thus reversed the grant of summary
judgment to the Secretary and remanded for further proceedings. Ipsen, 943 F.3d at 959.
On remand, the Court afforded the parties the opportunity for supplemental briefing. See
Minute Order of Feb. 10, 2020. Having received and considered supplemental briefs from both
parties, the Court will now consider the merits of the parties’ renewed cross-motions for
summary judgment. See Dkt. 33 (Ipsen); Dkt. 34 (Secretary).
II. LEGAL STANDARDS
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate
if the moving party “shows that there is no genuine dispute as to any material fact and the
11
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Anderson v.
Liberty Lobby Inc., 477 U.S. 242, 247–48 (1986). A “material” fact is one that could affect the
outcome of the lawsuit. See Liberty Lobby, 477 U.S. at 248; Holcomb v. Powell, 433 F.3d 889,
895 (D.C. Cir. 2006). A dispute is “genuine” if a reasonable jury could determine that the
evidence warrants a verdict for the nonmoving party. See Liberty Lobby, 477 U.S. at 248;
Holcomb, 433 F.3d at 895. In reviewing the record, the court “must draw all reasonable
inferences in favor of the nonmoving party, and it may not make credibility determinations or
weigh the evidence.” Reeves v. Sanderson Plumbing Prods., 530 U.S. 133, 150 (2000).
Under the APA, a reviewing court shall “hold unlawful and set aside” any aspect of a
final agency action that is “arbitrary [and] capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). In an APA challenge to final agency action,
summary judgment “serves as the mechanism for deciding, as a matter of law, whether the
agency action is supported by the administrative record and otherwise consistent with the APA
standard of review.” Sierra Club v. Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006). In other
words, “the entire case . . . is a question of law” and the district court “sits as an appellate
tribunal.” Am. Biosci., Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001) (footnote and
internal quotation marks omitted).
Arbitrary and capricious review is “fundamentally deferential—especially with respect to
matters relating to an agency’s areas of technical expertise.” Fox v. Clinton, 684 F.3d 67, 75
(D.C. Cir. 2012) (alteration adopted and internal quotation marks omitted). A court “is not to
substitute its judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm
Mut. Auto. Ins., 463 U.S. 29, 43 (1983). Rather, its review is limited to whether the agency
“relied on factors which Congress has not intended it to consider, entirely failed to consider an
12
important aspect of the problem, offered an explanation for its decision that runs counter to the
evidence before the agency, or is so implausible that it could not be ascribed to a difference in
view or the product of agency expertise.” Agape Church v. FCC, 738 F.3d 397, 410 (D.C. Cir.
2013) (quoting State Farm, 463 U.S. at 43). Courts determine only whether the agency
“examine[d] the relevant data and articulate[d] a satisfactory explanation for its action including
a ‘rational connection between the facts found and the choice made.’” State Farm, 463 U.S. at
43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)).
In conducting this inquiry, a court does “not look at the agency’s decision as would a
scientist, but as a reviewing court exercising [its] narrowly defined duty of holding agencies to
certain minimal standards of rationality.” Am. Trucking Ass’ns v. Fed. Motor Carrier Safety
Admin., 724 F.3d 243, 249 (D.C. Cir. 2013) (alteration adopted and internal quotation marks
omitted); see also Chem. Mfrs. Ass’n v. EPA, 28 F.3d 1259, 1263 (D.C. Cir. 1994) (describing
the standard as “indulgent”). It is well established that a court “may not supply a reasoned basis
for the agency’s action that the agency itself has not given.” Bowman Transp., Inc. v. Arkansas-
Best Freight Sys., Inc., 419 U.S. 281, 285 (1974). However, it is also well established that an
agency’s decision need not “be a model of analytic precision to survive a challenge.” Dickson v.
Sec’y of Def., 68 F.3d 1396, 1404 (D.C. Cir. 1995). “Even an agency ‘decision of less than ideal
clarity’ should be upheld ‘if the agency’s path may be reasonably discerned.’” Anacostia
Riverkeeper, Inc. v. Jackson, 798 F. Supp. 2d 210, 222 (D.D.C. 2011) (quoting State Farm, 463
U.S. at 43).
The APA mandates that courts must “review the whole record or those parts cited by a
party” when reviewing an agency’s action. 5 U.S.C. § 706. The Court’s review is therefore
confined to the administrative record, which “includes all materials compiled by the agency that
13
were before the agency at the time the decision was made.” James Madison Ltd. by Hecht v.
Ludwig, 82 F.3d 1085, 1095 (D.C. Cir. 1996) (internal citations and quotation marks omitted).
The party challenging an agency’s action as arbitrary and capricious bears the burden of proof.
Pierce v. SEC, 786 F.3d 1027, 1035 (D.C. Cir. 2015).
III. ANALYSIS
Ipsen makes two arguments against CMS’s decision not to update its base date AMPs for
Somatuline. First, Ipsen argues that CMS’s interpretation of the statutory and regulatory
provisions that govern the Medicaid rebate program is contrary to law. Ipsen Mot. for Summ. J.
at 15–20. Second, Ipsen argues that CMS’s decision not to update its base date AMPs for
Somatuline was arbitrary and capricious. Id. at 20–28. The Court will consider each of these
arguments in turn.
A. Contrary to Law
1. Chevron Deference
As a threshold matter, the parties dispute whether CMS's interpretation is entitled to
Chevron deference. See, e.g., Ipsen Mot. for Summ. J. at 13; CMS Cross-Mot. for Summ. J. at
15. An agency’s interpretation is entitled to Chevron deference where “Congress [has] delegated
authority to the agency generally to make rules carrying the force of law” and “the agency
interpretation claiming deference was promulgated in the exercise of that authority.” United
States v. Mead Corp., 533 U.S. 218, 226–27 (2001). “Interpretations such as those in opinion
letters—like interpretations contained in policy statements, agency manuals, and enforcement
guidelines, all of which lack the force of law—do not warrant Chevron-style
deference.” Christensen v. Harris County, 529 U.S. 576, 587 (2000).
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For three principal reasons, the interpretation of the Medicaid Act articulated in CMS’s
letter to Ipsen is not entitled to Chevron deference. First, CMS declined to promulgate its
interpretation pursuant to any formal administrative procedures. While agency interpretations
announced in informal adjudication may sometimes receive Chevron deference, CMS’s failure to
employ “those ‘relatively formal administrative procedure[s]’ that ‘tend[] to foster the fairness
and deliberation that should underlie a pronouncement’ of legal interpretation weighs against the
application of Chevron deference.” Fogo De Chao (Holdings) Inc. v. U.S. Dep’t of Homeland
Sec., 769 F.3d 1127, 1136-37 (D.C. Cir. 2014) (quoting Mead, 533 U.S. at 230); see also FEC v.
Nat’l Rifle Ass’n, 254 F.3d 173, 185 (D.C. Cir. 2001) (“[v]irtually every relevant post-
Christensen decision has declined to give Chevron deference to just this type of informal agency
action,” namely, a letter issued “pursuant to informal agency procedures”). Second, CMS's letter
to Ipsen demonstrates on its face that it was not “intended to have general applicability and the
force of law,” as it was “singularly focused on” one regulated entity and “did not purport to set
policy for future . . . determinations.” Kaufman v. Nielsen, 896 F.3d 475, 484 (D.C. Cir. 2018)
(internal quotation marks omitted). Indeed, CMS did not even release the letter publicly and,
accordingly, other regulated parties do not even have access to it. Third, CMS’s letter was not
issued by the head of CMS, but instead by a mid-level agency official. See id. at 484–85. Taken
together, these factors strongly suggest that the interpretation of the Medicaid Act articulated in
CMS’s non-public letter to Ipsen was not “promulgated in the exercise of [CMS’s rulemaking]
authority,” Mead, 53 U.S. at 227, and that Chevron deference therefore does not apply.
In urging the opposite conclusion, CMS relies heavily on the factors set forth in Barnhart
v. Walton, 535 U.S. 212 (2002), namely, “the interstitial nature of the legal question, the related
expertise of the Agency, the importance of the question to administration of the statute, the
15
complexity of that administration, and the careful consideration the Agency has given the
question over a long period of time.” Id. at 222. To begin with, these are not the exclusive
factors for determining whether Chevron deference applies to an agency’s interpretation. See id.
(“In this case . . . [these five factors] all indicate that Chevron provides the appropriate legal lens
through which to view the legality of the Agency interpretation here at issue.” (emphasis
added)). Even those D.C. Circuit cases that have explicitly applied the Barnhart factors have
also weighed other considerations that place greater emphasis on the procedural means and
context of the agency’s interpretation than on the nature of the statutory question itself. See, e.g.,
Kaufman, 896 F.3d at 484 (applying the Barnhart factors but also considering whether the
agency interpretation was “clearly intended to have general applicability and the force of law”
(quoting Fox, 684 F.3d at 78)). In any event, not all of the Barnhart factors support the
application of Chevron deference here because CMS’s two-page letter to Ipsen does not evidence
“careful consideration . . . over a long period of time.” Barnhart, 535 U.S. at 222. To the
contrary, the letter suggests a one-off explanation of CMS’s understanding of the statute,
articulated in an informal context that does not indicate that CMS “intended [it] to have general
applicability and the force of law.” Fox, 684 F.3d at 78.
For the foregoing reasons, CMS’s interpretation does not merit Chevron deference.
Absent such deference, the Court will “proceed to determine the meaning of [the Medicaid Act]
the old-fashioned way,” Miller v. Clinton, 687 F.3d 1332, 1342 (D.C. Cir. 2012), by tackling the
interpretive question head-on and determining the best reading of the statute for itself.
2. The Merits
On the merits of the statutory question at issue, CMS interprets the relevant provisions to
allow manufacturers to establish new base date AMPs for a given drug under two circumstances.
16
First, the Medicaid Act itself states that the amount of the rebate is calculated “with respect to
each dosage form and strength of a single source drug or an innovator multiple source drug.” 42
U.S.C. § 1396r-8(c)(2)(A) (emphasis added). According to the explicit command of the statute,
if the manufacturer obtains approval for a new dosage form or strength of a drug, it is
automatically entitled to establish a new base date AMP corresponding to that particular dosage
form or strength of the drug. Absent those circumstances, CMS argues, the manufacturer may
establish new base date AMPs only upon obtaining FDA approval of a new NDA pursuant to
section 505 of the FDCA. That is because, under CMS’s interpretation, only such approval gives
rise to a new “covered outpatient drug” under the terms of the Medicaid Act. See id. § 1396r-
8(k)(2). CMS’s letters to Ipsen articulate this interpretation of the relevant provisions. See A.R.
34 (manufacturer is not entitled to establish new base AMPs where the new drug products “have
the same dosage form and strengths of the original . . . products” and were “approved under the
same NDA”).
Several pieces of evidence from the statutory and regulatory framework demonstrate that
CMS’s interpretation of the relevant provisions is the best one. First and most importantly, the
interpretation follows straightforwardly from the text of the Medicaid Act. The Act’s rebate
requirement applies to all “covered outpatient drugs,” see 42 U.S.C. § 1396r-8(a), and the Act
defines “covered outpatient drug” as “a drug . . . which is approved for safety and effectiveness
as a prescription drug under section 505” of the FDCA, id. § 1396r-8(k)(2). Pursuant to section
505(b) of the FDCA, Ipsen submitted a NDA for Somatuline in October 2006, see A.R. 35, and
the FDA approved that NDA on August 30, 2007, see id. 40. Once Ipsen obtained FDA
approval of the Somatuline NDA, Somatuline became “a drug . . . which is approved for safety
and effectiveness as a prescription drug under section 505” of the FDCA. 42 U.S.C. § 1396r-
17
8(k)(2). Therefore, subsequent changes to Somatuline approved via supplemental filings did not
establish a new “covered outpatient drug” for purposes of the Medicaid Act because the
underlying product—Somatuline—already satisfied the condition that it be “approved for safety
and effectiveness . . . under section 505” of the FDCA. Id.
Furthermore, the additional rebate calculation provision at issue applies to two particular
types of covered outpatient drugs—“single source drug[s]” and “innovator multiple-source
drug[s],” see id. § 1396r-8(c)(2)(A) —and the Medicaid Act’s definitions of those terms further
support CMS’s interpretation. The Act defines “single source drug” as “a covered outpatient
drug . . . which is produced or distributed under a new drug application approved by [FDA],” id.
§ 1396r-8(k)(7)(iv), and an “innovator multiple source drug” as “a multiple source drug that is
marketed under a new drug application approved by [FDA],” id. § 1396r-8(k)(7)(ii). The
specific references in both definitions to a “new drug application” support CMS’s conclusion
that Somatuline, the subject of the original NDA that FDA approved in 2007—and not its
multiple, subsequent, merely improved iterations—is the relevant unit for purposes of Ipsen’s
rebate calculation. The Medicaid Act’s implementing regulations further buttress that
conclusion. The regulatory definitions for both of the above-referenced categories of drugs
specifically reference “an original new drug application (NDA) approved by FDA,” 42 C.F.R.
§ 447.502 (emphasis added), and the definition of a “single-source drug” is even linked to “an
approved NDA number issued by FDA,” id. These definitions further undermine the notion that
subsequent changes to an original NDA—such as those approved through the sNDA process—
could establish a new drug for purposes of calculating Ipsen’s additional-rebate liability.
Finally, the contrast between NDAs and sNDAs makes clear that only the former (absent
a change to the dosage form or strength of the drug) can give rise to a new “covered outpatient
18
drug” for purposes of Medicaid rebate calculations. Just as the name suggests, sNDAs are
supplements to preexisting drug applications that FDA has already approved. That is clearly
reflected in the FDCA’s implementing regulations defining and authorizing sNDAs, which
establish a separate approval process that applies whenever a manufacturer wishes to make
“[s]upplements and other changes to an approved NDA.” 21 C.F.R. § 314.70 (emphasis added).
The entire sNDA process therefore presumes that there is an existing NDA to supplement. And
the changes that require a manufacturer to submit a sNDA are those that might adversely affect
various characteristics “of the drug product as these factors may relate to the safety or
effectiveness of the drug product.” Id. § 314.70(b) (emphasis added). The sNDA requirement,
therefore, also assumes that there is an existing drug that might be adversely affected by the
proposed changes. In light of these provisions, while Ipsen might be correct to argue that sNDAs
are “approved for safety and effectiveness . . . under section 505” of the FDCA, 42 U.S.C.
§ 1396r-8(k)(2), a sNDA does not establish a unique “drug . . . approved for safety and
effectiveness . . . under section 505,” id. (emphasis added), because it merely adds to a
preexisting drug. For the above reasons, CMS’s interpretation of the statutory framework is the
best one: absent a change to the drug’s dosage form or strength, a new drug for Medicaid rebate
purposes is defined by the FDA’s approval of a new drug application under section 505 of the
FDCA. 4
4
While the Court adopts CMS’s interpretation without affording it the benefit of deference, the
Court notes for the record the consistency of this interpretation with CMS’s practice of treating
NDA approval as determinative of base date information for Medicaid rebate calculation
purposes. See, e.g., A.R. 91 (“Baseline information, such as Market Date and Baseline AMP
MUST follow the NDA of the product.” (emphasis in original)). Moreover, while no other court
has squarely addressed this issue before now, this Court has previously speculated that the
unchallenged nature of CMS’s approach in this general arena “might be because the statute is
clear.” Mallinkcrodt ARD LLC v. Verma, et al., 19-cv-1471 (TFH), Dkt. 46 (Mem. Op.) at 22.
19
Ipsen poses many objections to CMS’s interpretation, but all are ultimately unavailing.
First, Ipsen argues that “the [Medicaid] Act makes clear that Congress intended that CMS look
to the existing FDCA regime” when administering the Medicaid rebate program. Ipsen Mot. for
Summ. J. at 15. It is true that the Act frequently directs CMS to the FDCA or FDA regulations
in administering Medicaid, but the Act does so only in specific circumstances delineated in the
statutory text. See, e.g., 42 U.S.C. § 1396r-8(a)(3)(A)(ii) (requiring payment for a drug only if
FDA has given the drug a particular rating); id. § 1396r-8(e)(4) (setting a reimbursement limit
for certain drugs that FDA has rated “therapeutically and pharmaceutically equivalent” to other
drugs). The Medicaid Act does not adopt the entire FDCA wholesale, and this case deals with a
particular provision of the Medicaid Act that refers to “a drug which is approved for safety and
effectiveness as a prescription drug under section 505” of the FDCA. 42 U.S.C. § 1396r-8(k)(2).
For the reasons described above, CMS correctly interpreted that provision to refer to a drug
approved under section 505 pursuant to an original NDA, and not to subsequent, altered versions
of a preexisting drug where changes from the original version were approved by supplements to
the original NDA.
Second, Ipsen points to the FDCA’s “Definitions” section, which defines the term “new
drug,” in relevant part, to mean “[a]ny drug . . . the composition of which is such that such drug
is not generally recognized, among experts qualified by scientific training and experience to
evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions
prescribed, recommended, or suggested in the labeling thereof.” 21 U.S.C. § 321(p). This
provision favors Ipsen because the language of the definition seemingly links the standard for a
“new drug” to the proven safety and effectiveness of the conditions of use listed on the product’s
label, and some of the changes for which Ipsen obtained approval by sNDA—most notably,
20
Somatuline’s new indication for the treatment of GEP-NETs—did require changes to those
conditions of use. Nevertheless, this definition does not overcome CMS’s interpretation of the
overall statutory and regulatory scheme for several reasons.
First and most importantly, the Medicaid Act—the ultimate authority on the question of
Ipsen’s entitlement to new base date AMPs for Somatuline—does not incorporate this definition
from the FDCA. Instead, the Medicaid Act defines “covered outpatient drug” as “a drug . . .
which is approved for safety and effectiveness as a prescription drug under section 505” of the
FDCA. 42 U.S.C. § 1396r-8(k)(2) (emphasis added). For the reasons described above, that
means that a distinct “drug” for Medicaid rebate purposes is defined by FDA’s approval of a
distinct NDA pursuant to section 505.
Moreover, Ipsen’s reliance on the definition of “new drug” in the FDCA proves too
much. An enormous number of potential changes to a drug product would require a
manufacturer to obtain FDA approval for changes to the conditions of use listed on a drug
product’s label. Some such changes—for example, changes to the recommendations for patient
monitoring, 21 C.F.R. § 201.57(a)(10), or the recommended use by specific populations, id.
§ 201.57(a)(13)—would surely not automatically entitle a manufacturer to declare a “new drug”
for Medicaid rebate purposes. But taking the FDCA’s definition of “new drug” as the ultimate
basis for a manufacturer’s entitlement to new base date AMPs would require precisely that
result.
Furthermore, relying on the FDCA’s definition of a “new drug” in determining a
manufacturer’s eligibility for new base date AMPs would render at least one aspect of the
Medicaid Act mere surplusage. Recall that the Act specifically directs manufacturers to establish
new base date AMPs for each distinct “dosage form” and “strength” of a drug. See 42 U.S.C.
21
§ 1396r-8(c)(2). But changes to “dosage form” and “strength” would plainly establish a “new
drug” under the FDCA’s definition, and therefore, under Ipsen’s argument, would already
establish new base date AMPs absent that provision of the Medicaid Act. If Ipsen were correct
that the Medicaid Act incorporates the FDCA’s definition of “new drug” wholesale, then the
Medicaid Act’s specific references to “dosage form” and “strength” would be unnecessary. “It is
. . . a cardinal principle of statutory construction that we must give effect, if possible, to every
clause and word of a statute.” Williams v. Taylor, 529 U.S. 362, 404 (2000) (internal quotation
marks omitted). The references to “dosage form” and “strength” in the Medicaid Act’s rebate-
calculation provisions therefore suggest that Congress did not intend CMS to rely on the FDCA’s
definition of “new drug” when calculating manufacturers’ rebate obligations under those
provisions. In short, taking into account the fact that the Medicaid Act does not incorporate the
FDCA’s definition of “new drug,” as well as the inconsistency of that definition with other
features of the statutory and regulatory scheme at issue here, CMS interpreted the relevant
provisions correctly notwithstanding that definition.
Third, Ipsen objects that CMS’s position—that approval of a NDA, but not a sNDA,
entitles the manufacturer to set new base date AMPs—is “arbitrary” and “untethered” to any
statutory provision. See, e.g., Mot. for Summ. J. at 20 (“It is an utterly arbitrary distinction given
that a manufacturer is legally permitted to proceed via either avenue.”). For the reasons stated
above, CMS’s position is not untethered to statute, but is instead required by section 1396r-8 of
the Medicaid Act and section 505 of the FDCA. To the extent Ipsen finds the significance of a
FDA-approved NDA “arbitrary,” its quarrel is with Congress, not CMS. Moreover, Ipsen is
wrong to the extent that it suggests that CMS’s interpretation would prevent manufacturers from
resetting their base date information for substantial changes approved via sNDA while permitting
22
them to do so for trivial changes approved via NDA. See, e.g., Dkt 31 (Ipsen Suppl. Reply.) at 4.
Under CMS’s interpretation, a new NDA (absent changes to the drug’s dosage form or strength)
is necessary, but not always sufficient, to establish new base date information for Medicaid
rebate purposes. Minor changes approved via NDA—to the extent that FDA regulations even
permit such approvals—might well fail to establish a new “covered outpatient drug” under
certain circumstances. Cf. Dkt. 32 (CMS Sur-Reply) at 3 n.1 (“[T]here is no evidence in the
record of how the FDA would treat an application to make changes to an existing drug product
where the manufacturer submits a new NDA but could permissibly have submitted a
supplemental NDA.”).
Fourth, Ipsen argues that it should be entitled to reset its base date AMPs for Somatuline
because the research it conducted to establish Somatuline’s new indication for GEP-NETs
entitled it to three years of “new drug product exclusivity” under the FDCA. See, e.g., Mot. for
Summ. J. at 16. As a result, for the next three years, FDA will not approve another drug
manufacturer’s application based on the same clinical trials that Ipsen conducted to support
Somatuline’s new indication. See 21 U.S.C. 355(c)(3)(E)(iii). This argument does not
undermine CMS’s interpretation. To begin with, the phrase “new drug product exclusivity” is a
term used by Ipsen, not by the actual statutory provision that entitles Ipsen to that benefit. See
id. Moreover, the fact that Congress conferred this particular benefit upon drug manufacturers in
order to incentivize the substantial investments necessary to approve a drug for a new indication
does not mean that Congress also intended to incentivize such investments by reducing
manufacturers’ Medicaid rebate obligations to the states. To the contrary, if anything, the
inclusion of an express provision granting “new drug product exclusivity” to manufacturers in
23
Ipsen’s position suggests that Congress did not impliedly provide additional incentives elsewhere
in the statutory scheme.
Fifth, Ipsen points to recent amendments to the Medicaid Act that alter the rebate
calculation for “a drug that is a line extension of a single source drug or an innovator multiple
source drug that is an oral solid dosage form.” 42 U.S.C. § 1396r-8(c)(2)(C). Under these
amendments, in effect, the manufacturer’s rebate liability for the new “line extension” reverts to
the highest additional rebate of the original drug product. See id. Congress added these
provisions to the Act in order to prevent drug manufacturers from “avoid[ing] incurring
additional rebate obligations by making slight alterations to existing products, sometimes called
line extensions.” S. Rep. No. 111-89 (2009). According to Ipsen, these amendments reveal
Congress’s background understanding that under the Medicaid Act, “modifications to existing
drugs . . . are generally considered new products for purposes of reporting AMPs to CMS.” Id.
Because Congress chose to alter this background principle explicitly for “line extension[s]” of
drugs in “oral solid dosage form,” 42 U.S.C. § 1396r-8(c)(2)(C), Ipsen contends, that principle
remains in place for injectable drugs like Somatuline. See Mot. for Summ. J. at 19–20.
But the “line-extension amendments” are not inconsistent with CMS’s interpretation. For
one thing, the amendments prevent manufacturers from making minor changes to existing drugs
through the NDA (rather than sNDA) process, and then claiming entitlement to new base date
AMPs on that basis. As discussed above, that remains at least a potential loophole under CMS’s
interpretation of the statutory scheme, one that the line-extension amendments have definitively
closed for “oral solid dosage form” drugs. For another, the amendments appear to be aimed at
“extended release formulations” of preexisting drugs, see 42 U.S.C. § 1396r-8(c)(2)(C) (defining
“line extension” as “a new formulation of the drug, such as an extended release formulation”),
24
which typically involve changes to the dosage form or strength of a drug. Given the clear terms
of the Medicaid Act requiring new base date information for a new dosage form or strength of a
drug, see id. § 1396r-8(c)(2)(A), those changes would also entitle a manufacturer to new base
date AMPs under CMS’s interpretation. In these circumstances, too, the line-extension
amendments prevent that outcome for new versions of “oral solid dosage form” drugs. Thus, the
amendments do not reveal a baseline statutory principle that contradicts CMS’s theory.
More generally, the Supreme Court has “frequently cautioned that it is at best treacherous
to find in congressional silence alone the adoption of a controlling rule of law.” United States v.
Wells, 519 U.S. 482, 496 (1997) (quoting NLRB v. Plasterers’ Local Union No. 79, 404 U.S.
116, 129–30 (1971) (internal quotation marks omitted); see also Burns v. United States, 501 U.S.
129, 136 (1991) (“[A]n inference drawn from congressional silence certainly cannot be credited
when it is contrary to all other textual and contextual evidence of congressional intent.”). Given
the broader statutory context described in detail above, Ipsen relies too heavily on a contestable
inference from a statutory provision that ultimately does not even address the type of drug
(injectable) at issue in this dispute.
Finally, Ipsen points to two of CMS’s own regulatory releases. As Ipsen interprets these
items, both demonstrate that a new national drug code (NDC) can establish a new “drug” for
Medicaid rebate purposes or otherwise entitle a manufacturer to establish new base date
information even absent FDA’s approval of a new NDA. 5 First, Ipsen points to a CMS
regulation that defines “bundled sale” as “any arrangement regardless of physical packaging
5
It is worth noting, at the outset, that this theory is expressly contradicted by the great weight of
CMS’s regulatory output, which repeatedly establishes that “[b]aseline information, such as
Market Date and Baseline AMP MUST follow the NDA of the product” and “does NOT follow
the NDC of the product.” A.R. 91–92 (CMS Release No. 26); see also id. 100 (Release No. 38)
(same); id. 110 (Release No. 48) (same).
25
under which the rebate, discount, or other price concession is conditioned upon the purchase of
the same drug [or] drugs of different types (that is, at the nine-digit national drug code (NDC)
level).” 42 C.F.R. § 447.502. Ipsen argues that if “drugs of different types” are defined by new
NDCs, rather than FDA-approved NDAs, Ipsen should be allowed to reset its base date
information without obtaining the latter form of approval. But Ipsen relies much too heavily on
the phrase “drugs of different types,” which is not defined in the regulation and does not
preclude the possibility that several “drugs of different types,” in the context of a “bundled sale,”
may nonetheless constitute a single “covered outpatient drug” for Medicaid rebate purposes. See
42 U.S.C. § 1396r-8(k)(2).
Ipsen also relies on CMS Release No. 48, which states that when a company “buys a
product, changes something . . . and applies for an ANDA, the NDC that reflects the product
under the new ANDA has history start over for itself.” A.R. 110. An aNDA—a required form
of approval for generic drugs that is not at issue in this litigation—is approved under section
505(j) of the FDCA, and the Medicaid Act explicitly provides that approval under that section
gives rise to a new “covered outpatient drug.” 42 U.S.C. § 1396r-8(k)(2). Therefore, Release
No. 48 is consistent with the express terms of the Medicaid Act and does not contradict CMS’s
interpretation. In short, these two regulatory items provide little, if any, support for Ipsen’s
challenge to CMS’s interpretation.
In sum, CMS has offered the best interpretation of a complex statutory and regulatory
scheme: absent a change to the dosage form or strength of a drug, id. § 1396r-8(c)(2)(A), or
FDA’s approval of a new NDA (or aNDA) under section 505 of the FDCA, see id. § 1396r-
8(k)(2), a given drug product remains the same “covered outpatient drug” under the Medicaid
Act and the drug manufacturer is not entitled to reset base date AMPs for the product.
26
Accordingly, the Court will reject Ipsen’s argument that CMS’s interpretation of the relevant
provisions is contrary to law.
B. Arbitrary and Capricious
Ipsen also argues that CMS’s ultimate decision—that Ipsen would not be allowed to reset
its base date AMPs for Somatuline—was arbitrary and capricious. See 5 U.S.C. § 706(2)(A).
Arbitrary-and-capricious review asks whether the agency “relied on factors which Congress has
not intended it to consider, entirely failed to consider an important aspect of the problem, offered
an explanation for its decision that runs counter to the evidence before the agency, or is so
implausible that it could not be ascribed to a difference in view or the product of agency
expertise.” Agape Church, 738 F.3d at 410 (quoting State Farm, 463 U.S. at 43). The agency’s
decision need not “be a model of analytic precision to survive a challenge,” Dickson, 68 F.3d at
1404, and “[e]ven an agency ‘decision of less than ideal clarity’ should be upheld ‘if the
agency’s path may be reasonably discerned,’” Anacostia Riverkeeper, Inc., 798 F. Supp. 2d at
222 (quoting State Farm, 463 U.S. at 43).
Ipsen argues, first and most strenuously, that CMS acted arbitrarily and capriciously
because it failed to adequately justify its decision. Ipsen Mot. for Summ. J. at 21–24. In
particular, Ipsen argues, CMS relied exclusively on the fact that Somatuline ED shared the same
dosage form and strengths as the original Somatuline, while failing to consider the more nuanced
statutory question of whether Somatuline nonetheless constituted a new “covered outpatient
drug.” But in Coster’s August 3, 2016 letter, CMS acknowledged and responded to Ipsen’s
statutory argument. In that letter, CMS reasoned that “[c]onsistent with the statutory language,
we consider a sNDA which contains the same ‘route number’ with an extension (indicating that
it is a supplement to the NDA) to be approved under the same NDA, and such products should
27
not have separate baseline data.” A.R. 34. The agency further explained that “[t]he reasons for
requiring a new approval for a drug that has new marketing authority [i.e., a sNDA] do not
require different Medicaid pricing policies when the dosage form and strength are not changed.”
Id. 34. These statements surpass the lenient arbitrary-and-capricious threshold for agency
decisionmaking. While the agency certainly could have engaged in a more robust statutory
analysis, “[e]ven an agency ‘decision of less than ideal clarity’ should be upheld ‘if the agency’s
path may be reasonably discerned,’” Anacostia Riverkeeper, 798 F. Supp. 2d at 222. CMS’s
path can be reasonably discerned here, as the agency considered the statutory text and concluded
that the approval of a sNDA for a preexisting drug would not suffice to establish a new drug for
Medicaid rebate purposes absent a change to the drug’s dosage form or strength. 6
Ipsen also argues that CMS failed to provide Ipsen with fair notice of its interpretation.
Ipsen Mot. for Summ. J. at 25–27. At the outset, this argument is difficult to accept given that
Ipsen’s initial letter to CMS requesting permission to establish new base date AMPs articulated
the agency’s interpretation accurately and precisely. See A.R. 2 n.5 (“CMS has often stated that
the baseline AMP ‘follows the NDA, not the NDC.’ The releases are very specific about
following the NDA, and a supplemental NDA is distinct from an NDA.” (citation omitted)
6
CMS’s reliance on the statutory text, as demonstrated by the above quotations, also answers
Ipsen’s criticism that CMS unduly relied on the purportedly inapposite CMS Release No. 26,
which states that “[b]aseline information, such as Market Date and Baseline AMP MUST follow
the NDA of the product” and “does NOT follow the NDC of the product.” A.R. 91–92
(emphasis in original). CMS’s decision to deny Ipsen’s request ultimately derived from CMS’s
interpretation of the overall statutory framework governing Medicaid rebate calculations. While
CMS cited Release No. 26 in support of that decision, its decision did not hinge on that release.
In any event, Release No. 26 is not inapposite to the statutory question at issue, as Ipsen
contends. See Ipsen Mot. for Summ. J. at 21–23. While Release No. 26 addresses a technically
distinct factual situation—where one company purchases a FDA-approved drug from another
company—it articulates a general principle that base date information “follows the NDA of the
product,” A.R. 91, and CMS reasonably viewed that principle as extending more broadly to
encompass the circumstances presented by Ipsen’s changes to Somatuline.
28
(emphasis in original)). The administrative record therefore belies any suggestion that Ipsen was
caught unaware when it discovered CMS’s view.
In any event, CMS provided notice of its interpretation in multiple public releases prior to
its decision on Ipsen’s particular case. See A.R. 91 (Release No. 26) (“Baseline information,
such as Market Date and Baseline AMP MUST follow the NDA of the product”); id. 100
(Release No. 38) (“Baseline information . . . MUST follow the NDA of the product”); id. 105
(Release No. 43) (similar) (“[P]rovide information such as . . . Market Date (of the NDA) . . .”);
id. 110 (Release No. 48) (“History follows the NDA, NOT the NDC of the product”). While
these releases addressed different factual circumstances than those at issue in this dispute, they
nevertheless consistently articulated the general principle that base date information would
“follow the NDA” of the drug—and Ipsen recognized the potential applicability of that principle
in its initial letter to CMS, see id. 2 n.5. This degree of notice adequately discharged CMS’s
obligations under the lenient standards of the APA.
Next, Ipsen points to other instances in which manufacturers sought to obtain CMS’s
approval to update the base date AMPs for their drugs. In some of those cases, CMS consulted
with FDA about whether the modifications at issue sufficed to establish a new drug. See, e.g.,
A.R. 123–25. Ipsen argues that CMS’s failure to consult FDA in the same manner regarding the
changes to Somatuline rendered CMS’s decision arbitrary and capricious. But Ipsen’s argument
concerns CMS’s internal deliberative processes, and CMS is not obligated to employ the same
deliberative processes in each case, so long as each decision is supported by the information
before it. See Fox, 684 F.3d 67, 74–75. In pressing its argument to the contrary, Ipsen relies
heavily on Wilhelmus v. Geren, 796 F. Supp. 2d 157 (D.D.C. 2011). But Wilhelmus concerned
an agency’s failure to distinguish its own on-point precedent, which required remand because it
29
violated the agency’s obligation to reach similar results for similarly situated parties. Id. at 162–
63. Wilhelmus says nothing about an agency’s obligation to employ the same deliberative
processes in every case. And Ipsen has not alleged that it is similarly situated to any
manufacturers for whom CMS reached a different result.
Finally, Ipsen repackages two of its arguments against CMS’s legal interpretation as
arbitrary-and-capricious claims. First, Ipsen, argues that CMS acted arbitrarily and capriciously
because it failed to consider its own contrary guidance purportedly contained in CMS Release
No. 48 and in 42 C.F.R. § 447.502, the regulation defining the term “bundled sale.” Ipsen Mot.
for Summ. J. at 22–23. For the reasons described above, these provisions have little to no
significance to the interpretive question before the agency. But in any event, Ipsen waived any
argument based on these two provisions by failing to raise them prior to its opening brief. See
Coburn v. McHugh, 679 F.3d 924, 929 (D.C. Cir. 2009) (quoting United States v. Tucker Truck
Lines, Inc., 344 U.S. 33, 37 (1952)) (referencing the “hard and fast rule of administrative law,
rooted in simple fairness, that issues not raised before an agency are waived and will not be
considered by a court on review”).
Second, Ipsen argues that CMS’s decision relied on a “substantively arbitrary” distinction
between NDAs and sNDAs, Ipsen Mot. for Summ. J. at 25, and that therefore CMS has failed to
articulate a “rational connection between the facts found and the choice made.” State Farm, 463
U.S. at 43. This argument fails for the reasons stated above in response to Ipsen’s legal
“arbitrariness” argument. In short, CMS’s decision has a sound basis in the applicable statutory
scheme: sNDAs reflect changes to preexisting “covered outpatient drugs” that have already been
“approved for safety and effectiveness as a prescription drug under section 505” of the FDCA.
30
42 U.S.C. § 1396r-8(k)(2)(A)(i). Any arbitrariness that Ipsen sees in the resulting significance of
NDAs (as opposed to sNDAs) is therefore attributable to Congress, not CMS.
CONCLUSION
For the foregoing reasons, the Court will grant CMS’s Renewed Motion for Summary
Judgment and deny Ipsen’s Renewed Cross-Motion for Summary Judgment. A separate order
consistent with this decision accompanies this memorandum opinion.
________________________
DABNEY L. FRIEDRICH
United States District Judge
June 19, 2020
31