Sti Pharma, LLC v. Azar ( 2020 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
STI PHARMA, LLC,
Plaintiff,
v. Civil Action No. 18-1231 (RDM)
ALEX M. AZAR, II, et al.,
Defendants.
MEMORANDUM OPINION
When Congress added outpatient prescription drug coverage to the Medicaid program in
1990, it conditioned payment for prescription drugs on each manufacturer’s agreement to
participate in the Medicaid Drug Rebate Program (“MDRP”). Under the terms of the MDRP, the
percentage of the cost of the drug used to calculate the rebate that drug manufacturers must pay
to participating states is determined, in part, based on which of three categories the drug falls
under: (1) single source, (2) innovator multiple source, or (3) noninnovator multiple source
drugs. 42 U.S.C. § 1396r-8(k)(7)(A)(ii)–(iv) (2012 version).1 This categorization is a matter of
importance to drug manufacturers because the rebate percentage a manufacturer must pay is
higher for a single source or innovator multiple source drug than for a noninnovator multiple
source drug. Id. §§ 1396r-8(c)(1)(A)–(B), 1396r-8(c)(3)(B). There is, in other words, a financial
benefit under the MDRP for those manufacturers who market a noninnovator multiple source
drug—they pay a lower rebate rate to state Medicaid agencies.
1
For reasons explained below, all citations to 42 U.S.C. § 1396r-8 throughout this opinion will
be to the 2012 version of the United States Code unless otherwise noted. The Court will also
include the parenthetical “(2012 version)” where extra emphasis is appropriate.
Plaintiff STI Pharma, LLC (“STI Pharma”) is the manufacturer of Sulfatrim Pediatric
Suspension (“Sulfatrim”). AR 64. Before STI Pharma purchased the rights to market Sulfatrim
in 2011, the drug was categorized as a noninnovator multiple source drug. But, based on what
STI Pharma characterizes as a mistake, STI Pharma altered course and began categorizing the
drug as an innovator multiple source drug, subject to the higher rebate requirement, Dkt. 15-1 at
22, until 2016 when Defendant Centers for Medicare & Medicaid Services (“CMS”) issued a
final rule that now—at least going forward— permits STI Pharma to categorize Sulfatrim as a
noninnovator multiple source drug, AR 61–62. The parties disagree, however, about whether
that categorization constitutes a new rule that CMS adopted as an exercise of its administrative
discretion and that applies only prospectively or whether it represents the best view of the statute
as it existed at all times relevant to this case, meaning that it applies retroactively as well.
The parties’ dispute came to a head after STI Pharma requested that CMS change the
categorization of Sulfatrim to a noninnovator multiple source drug for the period from the fourth
quarter of 2013 through the first quarter of 2016. AR 56. CMS denied that request and denied
STI Pharma’s subsequent request for reconsideration of that determination. AR 61. Unsatisfied
with that decision, STI Pharma brought this suit against the Department of Health and Human
Services and CMS alleging that CMS’s refusal to correct the categorization retrospectively was
arbitrary and capricious, not in accordance with law, and in excess of the agency’s statutory
authority in violation of the Administrative Procedure Act (“APA”), 5 U.S.C. § 701 et seq. Dkt.
1. The parties subsequently filed cross-motions for summary judgment addressing each of STI
Pharma’s claims. Dkt. 15; Dkt. 17.
For the reasons explained below, the Court concludes that, at the relevant times, the
MDRP statute’s noninnovator multiple source drug category is best construed to include
2
duplicate drugs, like Sulfatrim, that were approved under the “paper new drug application”
process that the Food & Drug Administration (“FDA”) used to evaluate certain non-pioneer
drugs before Congress enacted the Hatch-Waxman Amendments in 1984. The Court will,
accordingly, GRANT Plaintiff’s motion for summary judgment, Dkt. 15, and will DENY
Defendants’ cross-motion for summary judgment, Dkt. 17, and will REMAND to CMS for
further proceedings consistent with this opinion.
I. BACKGROUND
A. FDA Drug Approval and the Medicaid Drug Rebate Program
1. New Drug Approval Process
The Federal Food, Drug, and Cosmetic Act (“FFDCA”) requires drug manufacturers to
secure approval from the FDA prior to marketing any new drug, including new generic versions
of existing drugs. 21 U.S.C. § 355(a); see also AstraZeneca Pharm. v. FDA, 850 F. Supp. 2d
230, 233 (D.D.C. 2012). Congress established a streamlined process for bringing new generic
drugs to market in the Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L.
No. 98-417, 98 Stat. 1585 (codified in scattered sections of 21 U.S.C.), often referred to as the
Hatch-Waxman Amendments. AstraZeneca Pharm., 850 F. Supp. 2d at 233. Today, the FDA
approval process typically takes one of two paths: (1) the “new drug application” or “NDA”
process under § 505(b) of the FFDCA, 21 U.S.C. § 355(b), and (2) the “abbreviated new drug
application” or “ANDA” process under § 505(j) of the FFDCA, id. § 355(j). Drug
manufacturers, in turn, have two options under the NDA process: they can either submit
evidence based on their own clinical trials demonstrating the drug’s safety and effectiveness
pursuant to § 505(b)(1), or they can rely on literature produced by others that demonstrates the
drug’s safety and effectiveness pursuant to § 505(b)(2). See Takeda Pharms., U.S.A., Inc. v.
3
Burwell, 78 F. Supp. 3d 65, 71–72 (D.D.C. 2015). Under the ANDA process, drug
manufacturers seeking approval of generic versions of previously approved drugs need not
submit clinical studies proving the drug’s safety or effectiveness but may, instead, demonstrate
that the generic drug is, among other things, the chemical equivalent and bioequivalent of the
relevant previously approved branded drug. Teva Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51,
52 (D.C. Cir. 2005); 5 U.S.C. § 355(j).
Prior to the passage of the Hatch-Waxman Amendments, the FDA employed another
drug approval process called the “paper NDA process.” See Publication of “Paper NDA”
Memorandum, 46 Fed. Reg. 27,396 (May 19, 1981). This process applied in two situations.
First, it applied to
duplicate drug products of post-1962 drugs, i.e., drug products which contained
an active ingredient identical to an already marketed drug product first approved
for marketing after 1962 in the same or closely related dosage form[] and offered
for the same indications as those of the already marketed drug product.
Abbreviated New Drug Application Regulations, 54 Fed. Reg. 28,872, 28,890 (Jul. 10, 1989).2 A
drug manufacturer seeking paper NDA approval for a duplicate drug could submit evidence of
the drug’s pharmaceutical equivalence and bioequivalence to a previously approved drug along
with published reports establishing the safety and effectiveness of that previously approved drug.
See Hoffman-La Roche, Inc. v. Harris, 484 F. Supp. 58, 61–62 (D.D.C. 1979); see also Eli Lilly
& Co. v. Medtronic, Inc., 496 U.S. 661, 676–77 (1990). Second, in some cases, the paper NDA
process also allowed drug manufacturers to secure approval for a pioneer drug based on literature
establishing the safety and effectiveness of the new drug, “supplemented” with additional studies
2
Prior to 1962, the FDA reviewed new drug applications for safety but not effectiveness.
United States v. Rutherford, 442 U.S. 544, 556 (1979) (“[T]he 1962 Amendments incorporated
an efficacy standard into the new drug application procedures.”).
4
conducted by the applicant. See Takeda Pharms., 78 F. Supp. 3d at 71–72; Response to Petition
Seeking Withdrawal of the Policy Described in the Agency’s “Paper” NDA Memorandum of
July 31, 1978, 45 Fed. Reg. 82,052, 82,055 (Dec. 12, 1980) (“FDA has in some cases based its
approval of pioneer NDA’s on published reports supplemented by studies done by the
manufacturers.”).
The FDA abandoned the paper NDA process for duplicate drugs after enactment of the
Hatch-Waxman Amendments because the new statutory scheme subsumed that process. See 54
Fed. Reg. at 28,890 (“Because the 1984 Amendments established a statutory scheme for the
approval of all applications that, before the Amendments, would have been approved under the
paper NDA policy, the agency believes that the policy is no longer necessary.”). Going forward,
the FDA would divide applications with the characteristics of former paper NDAs into two
buckets. Section 505(b)(2) of the new statutory scheme would cover the rare paper NDA for a
novel drug. Section 505(j) of the new statutory scheme provided for ANDAs, which supplanted
the paper NDA process for duplicate drugs. Although similar, the process for approval of a post-
Hatch-Waxman ANDA differs from the pre-Hatch-Waxman process for approval of a duplicate
paper NDA because a paper NDA application required “studies of safety and effectiveness,”
which are not required in the ANDA process. See 54 Fed. Reg. at 28,890. Relevant here, the
FDA resolved to treat future applications with the same characteristics as former duplicate paper
NDAs as ANDAs. Id. (electing to treat “[a]pplications for duplicates of listed drugs eligible for
approval under ANDA’s [as] submitted under [§] 505(j) of the [A]ct rather than under [§] 505(b)
of the [A]ct, even if [the] applications [were] supported by literature reports of safety and
effectiveness”). But it did not set aside paper NDA approvals granted prior to enactment of the
Hatch-Waxman Amendments or convert them into ANDA approvals.
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2. MDRP
“In 1990, Congress created the Medicaid [D]rug [R]ebate [P]rogram . . . to offset
Medicaid costs incurred by the federal government and the states for outpatient drugs provided to
Medicaid recipients.” Council on Radionuclides & Radiopharmaceuticals, Inc. v. Azar, No. 18-
633, 2019 WL 5960142, at *2 (D.D.C. Nov. 13, 2019); see also Astra USA, Inc. v. Santa Clara
Cty., 563 U.S. 110, 114 (2011). The MDRP statute, enacted as part of the Omnibus Budget
Reconciliation Act of 1990, Pub. L. No. 101-508, 104 Stat. 1388, provides that drug
manufacturers must enter into rebate agreements with the Department of Health and Human
Services and must agree to pay rebates to the states in order to receive state Medicaid payments
for covered outpatient drugs. 42 U.S.C. § 1396r-8(a). It also sets forth the terms for such rebate
agreements. Id. § 1396r-8(b); Pharm. Research & Mfrs. v. Walsh, 538 U.S. 644, 652 (2003).
The statute establishes rebate rates for three different categories of drugs: (1) single
source, (2) innovator multiple source, and (3) noninnovator multiple source. 42 U.S.C. § 1396r-
8(c); id. § 1396r-8(k)(7)(A). It requires drug manufacturers to pay higher rebate rates to the
states for drugs falling into the first and second categories than for those falling into the third
category. Compare 42 U.S.C. § 1396r-8(c)(1) & (2) with id. § 1396r-8(c)(3); see also Medicaid
Program; Covered Outpatient Drugs, 81 Fed. Reg. 5,170, 5,196 (Feb. 1, 2016) (“The statute
requires a different rebate formula for single source and innovator multiple source drugs, which
results in higher rebates owed for those drugs than for noninnovator multiple source drugs.”).
Drug manufacturers are required to self-report to CMS regarding the proper classification of the
covered drugs that they market, see id. § 1396r-8(b)(3), and may be penalized for misreporting
the classification, id. § 1396r-8(b)(3)(C)(iii)(I); see also U.S. ex rel. Conrad v. GRIFOLS
Biologicals Inc., No. 07-3176, 2010 WL 2733321, at *2 (D. Md. July 9, 2010) (discussing a
6
claim under the False Claims Act “alleg[ing] that Defendants knowingly and falsely classified
their pharmaceutical products as noninnovators rather than innovators in order to reduce their
quarterly rebate costs”).
Although Congress amended the MDRP statute in relevant respects in 2019, see
Medicaid Services Investment and Accountability Act of 2019, Pub. L. No. 116-16, 133 Stat.
852 § 6(c), all agree that the prior version of statute—which went unchanged in relevant respects
from its enactment in 1990 until the recent amendments in 2019—governs the present dispute.
Compare 42 U.S.C. § 1396r-8 (2012 version) with id. § 1396r-8 (1990 version); see also Dkt.
15-1 at 27 (listing definitions from earlier version of the statute); Dkt. 17 at 8–9 (same). Under
that earlier version of the statute, a “single source drug” was defined as “a covered outpatient
drug which is produced or distributed under an original new drug application approved by the
Food and Drug Administration.” 42 U.S.C. § 1396r-8(k)(7)(A)(iv) (2012 version). A “multiple
source drug” was defined as “a covered outpatient drug . . . for which there [is] at least 1 other
drug product which—(I) is rated as therapeutically equivalent . . . (II) . . . is pharmaceutically
equivalent and bioequivalent . . . and (III) is sold or marketed in the United States during the
period.” Id. § 1396r-8(k)(7)(A)(i). An “innovator multiple source” drug was “a multiple source
drug that was originally marketed under an original new drug application approved by the Food
and Drug Administration.” Id. § 1396r-8(k)(7)(A)(ii). And a “noninnovator multiple source”
drug was defined as “a multiple source drug that is not an innovator multiple source drug.” Id.
§ 1396r-8(k)(7)(A)(iii).
Over the years, the agencies responsible for interpreting and administering the MDRP
statute have issued numerous notices of proposed rulemakings and finalized rules construing the
MDRP statute and its drug categories. In 1995, the Health Care Financing Administration
7
(“HCFA”), CMS’s predecessor agency, published a proposed rule acknowledging that no
relevant statute “define[s] the term ‘original NDA,’” as that term was used in the definitions of
“single source” and “innovator multiple source” drugs. Medicaid Program; Payment for
Covered Outpatient Drugs Under Drug Rebate Agreements with Manufacturers, 60 Fed. Reg.
48,442, 48,453 (Sept. 19, 1995) (proposed rule). HCFA proposed to “interpret [the term] to
comport with [the agency’s] understanding of the intent of the Congress” and, thus, to mean an
“FDA-approved drug or biological application that received one or more forms of patent
protection . . . or marketing exclusivity rights granted by the FDA.” Id. The notice of proposed
rulemaking continued:
Based on the statute, which requires larger rebates for single source and
innovator multiple source drugs, we believe the term “original NDA” was
included in [§§] 1927(k)(7)(A)(ii) and (iv) of the Act for the purposes of
extracting larger rebates from those products that received some form of patent
or marketing protection for a specific period of time . . . than noninnovators that
produce generic drugs with no market protection. We believe the term “original
NDA,” as proposed above, produces this effect.
Id. The proposed rule would have defined a “noninnovator multiple source” drug to include
“[a]ll products approved under an abbreviated new drug application, [or a] paper new drug
application under the FDA’s former “Paper NDA” policy . . . .” Id. at 48,482 (emphasis added).
The proposed rule, however, was never finalized.3 Instead, nearly thirteen years later, in
2007, CMS published a final rule that addressed the definition of an “innovator multiple source”
drug. CMS noted:
By statute, an innovator multiple source drug is a drug that was originally
marketed under an original NDA approved by the FDA. We do not believe that
3
In 2007, CMS explained that, “[d]ue to the time that has elapsed since the publication of the
1995 proposed rule and changes in the prescription drug industry, [it did] not plan to finalize
[certain] provisions of that proposed rule, and any comments on the 1995 proposed rule are
outside the scope of this final rule with comment period.” Medicaid Program; Prescription
Drugs, 72 Fed. Reg. 39,142, 39,143 (July 17, 2007).
8
it would be consistent with the statute to modify the definition to include drugs
marketed under an ANDA. To clarify the distinction between multiple source
drugs approved under an ANDA and multiple source drugs approved under an
NDA, we are adding a definition of noninnovator multiple source drug in this
final rule. Noninnovator multiple source drugs are defined as multiple source
drugs marketed under an ANDA or an abbreviated antibiotic drug application.
In response to comments regarding drugs that entered the market prior to 1962,
we believe these drugs are not classified as innovator multiple source drugs
unless they are marketed under an NDA. Further, we recognize the need to
classify drugs that entered the market prior to 1962 that are not marketed under
an NDA. Therefore, we are further defining noninnovator multiple source drugs
as drugs that entered the market prior to 1962 that were not originally marketed
under an original NDA.
Medicaid Program; Prescription Drugs, 72 Fed. Reg. 39,142, 39,162 (Jul. 17, 2007) (final rule).
CMS also responded to two comments asking that it define the terms “NDA” and “original
NDA.” CMS explained: “We do not see the need to add a definition of NDA in this final rule.
Further, the FDA does not make a distinction between an NDA and an original NDA; therefore,
we view these terms as having the same meaning.” Id. at 39,163.
In February 2012, CMS published a proposed rule in which it acknowledged that
“questions have arisen regarding whether an ‘original NDA’ is the same as an NDA and whether
the drug category may be different if a drug is approved under an NDA.” Medicaid Program;
Covered Outpatient Drugs, 77 Fed. Reg. 5,318, 5,323 (Feb. 2, 2012). CMS “propos[ed] to
clarify that, for the purposes of the [MDRP], an original NDA is equivalent to an NDA filed by
the manufacturer for approval under section 505 of the FFDCA for purposes of approval by the
FDA for safety and effectiveness,” which is to say, not an ANDA. Id. It went on, however, to
state: “In light of this definition, we are proposing to use the term ‘NDA’ when addressing such
application types for brand name drugs and not use the term ‘original NDA’ when referring to
such drugs.” Id. (emphasis added).
9
In its final rule, published in February 2016, CMS asserted: “As currently defined . . . an
innovator multiple source drug means a multiple source drug that was originally marketed under
an original NDA approved by FDA, including an authorized generic drug.”4 Medicaid Program;
Covered Outpatient Drugs, 81 Fed. Reg. 5,170, 5,190 (Feb. 1, 2016). CMS summarized various
comments that had taken issue with CMS’s stated intention to read “original NDA” as the
equivalent of “NDA” and that had pointed out the effects that this construction might have on
generics that were approved under NDAs. Id. at 5,191. CMS then clarified its definitions of the
three drug categories. According to CMS, an “innovator multiple source” drug was
a drug that was initially marketed under an NDA, other than an ANDA,
approved by FDA but is rated therapeutically equivalent to at least one other
product in the FDA’s “Approved Drug Products with Therapeutic Equivalence
Evaluations” (Orange Book) that is sold or marketed in the United States during
the rebate period.
Id. CMS further explained that “the Act defines noninnovator multiple source drugs as multiple
source drugs that are not innovator multiple source drugs, which are typically marketed under an
ANDA, as opposed to an NDA, approved by FDA” and that the “term ‘original NDA’ is
designed typically to mean an NDA (including an NDA filed under [§] 505(b)(1) or (2) of the
FFDCA), other than an ANDA, which is approved by the FDA for marketing.” Id. (emphasis
added). But CMS acknowledged some exceptions to this general pronouncement:
There may be very limited circumstances where, for the purposes of the
[MDRP], certain drugs might be more appropriately treated as if they were
approved under an ANDA and classified as a noninnovator multiple source drug.
For example, . . . certain drugs approved under a paper NDA prior to the
enactment of the Hatch-Waxman Amendments of 1984 or under certain types of
literature-based [§] 505(b)(2) NDA approvals after the Hatch-Waxman
4
An “authorized generic drug” is a generic duplicate drug produced by the same manufacturer
that gained FDA approval of the NDA for the “branded” drug that the generic replicates. See
FTC, Authorized Generic Drugs: Short–Term Effects and LongTerm Impact i–ii (2011),
available at http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf; see also Teva Pharm.
Indus. Ltd. v. Crawford, 410 F.3d 51, 52 (D.C. Cir. 2005).
10
Amendments of 1984 might be more appropriately treated as if they were
approved under an ANDA and classified as a noninnovator multiple source drug,
depending on the unique facts and circumstances of the particular situation.
Id. These drugs, according to CMS, fell into “very narrow exceptions to the rule that drugs
marketed under NDAs . . . , other than ANDAs, should be classified as either single source or
innovator multiple source drugs.” Id. It cautioned that “the narrow exception will not be
considered applicable to drugs marketed under NDAs that were not approved under . . . the paper
NDA process prior to 1984” or in other specific circumstances. Id.
On May 2, 2016, CMS circulated a Medicaid Rebate Program Notice for Participating
Drug Manufacturers, which explained the Final Rule’s “narrow exception” and informed drug
manufacturers how they could go about securing CMS’s approval allowing their drugs to be
classified as noninnovator multiple source drugs. AR 88. “Certain drugs approved under a
paper NDA prior to enactment of the Hatch-Waxman Amendments of 1984” appeared in the
Notice’s list of three “examples of drugs with NDA approvals which might be more
appropriately treated as if they were approved under an ANDA and classified as noninnovator
multiple source drugs.” AR 88–89. The Notice explained that drug manufacturers that wanted
their drugs treated under this “narrow exception” should submit to CMS certain supporting
information, which could include “[i]nformation that indicates the drug never received patent
protection or market exclusivity;” “[i]nformation about the reference drug, if any, that may have
been used for the approval of the drug for which the manufacturer is seeking the narrow
exception;” and “[i]nformation about past or current therapeutic equivalents, if any, for the
drug.” AR 89.
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B. Plaintiff STI Pharma and Sulfatrim Pediatric Suspension
STI Pharma markets Sulfatrim, a drug that gained FDA approval through the paper NDA
approval process in 1983 based on its equivalence to Bactrim Suspension. See AR 58, 72, 74,
77. Bactrim Suspension, in turn, was approved pursuant to an NDA years earlier. See AR 10. A
different company owned the rights to Sulfatrim at the time the FDA approved the drug. See AR
74; Product Details for NDA 017560 Bactrim (Sulfamethoxazole; Trimethoprim); Orange Book:
Approved Drug Products with Therapeutic Equivalents Evaluations, FDA,
https://www.accessdata.fda.gov/scripts/cder/ob/results_product.cfm?Appl_Type=N&Appl_No=0
17560#1754 (last visited March 22, 2020) (noting that Bactrim was approved before January 1,
1982). Plaintiff purchased the right to market Sulfatrim in 2011 from Actavis Mid Atlantic, LLC
(“Actavis”). AR 12. During the period that Actavis marketed Sulfatrim, it categorized the drug
as a noninnovator multiple source drug. Id.
STI Pharma began to market Sulfatrim in 2013. AR 12. It submitted the statutorily
required information about Sulfatrim to CMS and, unlike Actavis, categorized the drug as an
innovator multiple source drug. Id. As a result, STI Pharma paid rebates to the states at the
higher rate that corresponded to innovator multiple source drugs and single source drugs. See 81
Fed. Reg. at 5,196. In February 2016, following the publication of CMS’s 2016 final rule, STI
Pharma asked CMS to reclassify Sulfatrim as a noninnovator multiple source drug under the
“narrow exception” for duplicate drugs originally approved under paper NDAs. AR 64–68.
CMS granted that request prospectively, effective April 1, 2016. AR 61.
Several months later, STI Pharma requested CMS’s permission to apply Sulfatrim’s new
noninnovator multiple source drug status retroactively to the fourth quarter of 2013, when
Plaintiff first began marketing Sulfatrim, through the first quarter of 2016, when the 2016 final
12
rule took effect. AR 56. STI Pharma represented that it had reported Sulfatrim to CMS as an
innovator multiple source drug in error. AR 58 (stating that STI Pharma did so “mistakenly”);
AR 64 (stating that STI Pharma did so “in accordance with STI’s understanding of CMS’s
position during this period”). On August 23, 2017, CMS denied Plaintiff’s request because “the
reporting of Sulfatrim as an [innovator] drug for the period [in question] was correct.” AR 47.
CMS explained that “[t]he Final Rule, which was . . . effective April 1, 2016, established the
narrow exception process to address the limited circumstances where drugs approved under an
NDA might be more appropriately treated as if they were approved under an ANDA and
classified as noninnovator multiple source drugs.” Id. CMS would apply this change only
prospectively because “[a] drug category change pursuant to a narrow exception request approval
does not apply to reporting periods prior to the effective date of the Final Rule because the
narrow exception did not exist before that date.” Id.
In response, STI Pharma requested that CMS reconsider its decision, AR 24, 39, and, in
December 2017, the company requested a meeting with CMS officials, AR 36. That meeting
occurred in early 2018. Id. Days after the meeting, STI Pharma told CMS that it planned to
recalculate the rebates it owed the states for the disputed period to reflect that Sulfatrim was
noninnovator, and not an innovator, multiple source drug. AR 33. The company also indicated
that it planned to request that the states reimburse it for what it believed to be overpayments due
to the alleged misclassification during that period. Id. CMS maintained its position regarding
the proper categorization of Sulfatrim for the 2013–2016 period and told STI Pharma that it
would alert the states that they should carefully review the company’s submissions in order to
detect any underpayments based on the company’s theory that it was entitled to retroactive
recategorization. See AR 31–32.
13
On May 25, 2018, Plaintiff initiated this action. Dkt. 1. It claims that CMS’s refusal to
correct Sulfatrim’s drug classification for the fourth quarter of 2013 to the first quarter of 2016
was arbitrary, capricious, and not in accordance with law (1) because it exceeded the agency’s
authority, and (2) because the agency’s action is unsupported by, and lacks a rational connection
to, the evidence in the administrative record. See id. at 14–15 (Compl. ¶¶ 43–51). It seeks
declaratory, mandamus, and injunctive relief requiring CMS to “take prompt action to correct its
records to reflect Sulfatrim’s [noninnovator] drug status” from the fourth quarter of 2013 to the
first quarter of 2016 and to “inform state Medicaid agencies of this action.” Id. at 16. CMS
filed the administrative record, Dkt. 14, and the parties subsequently cross-moved for summary
judgment, Dkt. 15; Dkt. 17.
Because neither party addressed the Court’s jurisdiction, the Court ordered the parties to
“file . . . short briefs or declarations discussing the basis for STI Pharma’s standing to sue” and
explaining the mechanisms through which a favorable outcome for Plaintiff would redress the
alleged financial injury it suffered. Minute Order (Mar. 9, 2020). On March 18, 2020, the
parties submitted supplemental filings addressing STI Pharma’s standing. Dkt. 24; Dkt. 25.
II. LEGAL STANDARD
“[W]hen a party seeks review of agency action under the APA . . . [t]he ‘entire case’ on
review is a question of law.” Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir.
2001). “[T]he function of the district court is to determine whether or not as a matter of law the
evidence in the administrative record permitted the agency to make the decision it did.” New
Lifecare Hosps. of Chester Cty. LLC v. Azar, 417 F. Supp. 3d 31, 41 (D.D.C. 2019) (quoting
Sierra Club v. Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006)). The Court will grant summary
judgment to the agency if it did not “violate[] the Administrative Procedure Act by taking action
14
that is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’”
Deppenbrook v. Pension Benefit Guar. Corp., 778 F.3d 166, 171 (D.C. Cir. 2015) (quoting 5
U.S.C. § 706(2)). In instances in which there is no factual dispute, the Court’s “analysis is
limited to the validity of the FDA’s interpretation and application of the statute.” AstraZeneca
Pharm. LP v. FDA, 713 F.3d 1134, 1139 (D.C. Cir. 2013).
III. ANALYSIS
A. Subject-Matter Jurisdiction
Although not raised by the parties, the Court has an independent duty to ensure that it has
subject-matter jurisdiction. See Obaydullah v. Obama, 688 F.3d 784, 788 (D.C. Cir. 2012).
“Because standing is an element of the [Article III] case or controversy requirement, a court does
not have subject matter jurisdiction if a plaintiff lacks standing.” Gulf Restoration Network, Inc.
v. Nat’l Marine Fisheries, Serv., 730 F. Supp. 2d 157, 165 (D.D.C. 2010) (citing In re Navy
Chaplaincy, 534 F.3d 756, 759 (D.C. Cir. 2008)). Here, the Court requested that the parties
provide supplemental filings explaining the basis for STI Pharma’s standing and, in particular,
addressing the question how the relief requested in this matter—in effect, recategorization dating
back to 2013—would redress STI Pharma’s alleged injury. Minute Order (Mar. 9, 2020).
The parties agree that STI Pharma has standing to sue and explained that, if the company
prevails, CMS will allow it to “change its drug category retroactively,” and “CMS would then
update the drug category in its drug data reporting database . . . , recalculate the unit rebate
amount (‘URA’) for Sulfratrim, and disseminate the updated URA for Sulfatrim to the states.”
Dkt. 24 at 2; see also Dkt. 25 at 2–3. The states then “reconcile [any rebate] overpayments with
the drug manufacturer” and can “issue a credit upon agreement with the manufacturers about
where the manufacturer would like the credit applied.” Dkt. 24 at 2–3 (second quote quoting 83
15
Fed. Reg. 12,770, 12,776 (Mar. 23, 2018)). Given this scheme, the Court is satisfied that STI
Pharma has standing to sue because “a favorable decision would create ‘a significant increase in
the likelihood that [it] would obtain relief that directly redresses the injury suffered.’” Klamath
Water Users Ass’n v. FERC, 534 F.3d 735, 739 (D.C. Cir. 2008) (quoting Utah v. Evans, 536
U.S. 452, 464 (2002)).
B. Merits
The parties agree in their opening briefs that the familiar framework set forth in Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), governs the present
dispute. See Dkt. 15-1 at 28; Dkt. 17 at 21 (“The parties agree that the Chevron framework
applies to CMS’s action in this case.”). In its reply brief, however, STI Pharma vacillates
between its original position that Chevron applies, Dkt. 19 at 9 (“When analyzed properly under
the familiar framework of Chevron . . . .”), and the view that Chevron is inapposite “because
CMS’s interpretation was announced in a letter to STI”, id. at 17 (citing United States v. Mead
Corp., 533 U.S. 218, 299 (2001)). Defendant’s response to Plaintiff’s equivocal filing maintains
that Chevron governs. See Dkt. 21 at 4 (“Chevron deference therefore applies to CMS’s
reasonable interpretation of the statute.”). Ultimately, this disagreement—if there is one—is
beside the point because the case can and must be decided at Chevron step one, and there is no
difference between the Chevron step one analysis and the analysis the Court would employ in the
absence of an administrative interpretation of the statute.
Under Chevron step one, the Court must first determine “whether Congress has directly
spoken to the precise question at issue.” Chevron U.S.A. Inc., 467 U.S. at 842. “If the intent of
Congress is clear, that is the end of the matter; for the court as well as the agency, must give
effect to the unambiguously expressed intent of Congress.” Id. at 842–43. It is only “[i]f the
16
statutory provision in question is ‘silent or ambiguous with respect to the specific issue,’” that
the Court must proceed to Chevron step two and “determine whether [the agency’s]
interpretation is ‘based on a permissible construction of the statute.’” Nat’l Envtl. Dev. Ass’ns
Clean Air v. EPA, 891 F.3d 1041, 1047 (D.C. Cir. 2018) (quoting Chevron, 467 U.S. at 843).
This case begins and ends with Chevron step one.
“[T]he judiciary,” as Chevron explains, “is the final authority on issues of statutory
construction,” and, as a result, deference does not come into play until after the Court has
exhausted “the traditional tools of statutory interpretation” to determine whether “Congress had
an intention on the precise question at issue.” Chevron, 467 U.S. at 843 n.9. “[O]nly when that
legal toolkit is empty and the interpretative question still has no single right answer can a judge
conclude that” the issue in dispute “is ‘more [one] of policy than of law.’” Kisor v. Wilkie, 139
S. Ct. 2400, 2415 (2019) (internal citation omitted) (addressing Auer deference). In other words,
the Court must consider “the text, structure, history, and purpose” of the statute “in all the ways
it would” have done had the case come before it without the backstop of the agency’s
interpretation. Id.; see also Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581, 600 (2004)
(“[D]eference to [an agency’s] statutory interpretation is called for only when the devices of
judicial construction have been tried and found to yield no clear sense of congressional intent.”);
Mozilla Corp. v. FCC, 940 F.3d 1, 20 (D.C. Cir. 2019) (“[W]e do not apply Chevron reflexively,
and we find ambiguity only after exhausting ordinary tools of judicial craft.”); Fin. Planning.
Assoc. v. SEC, 482 F.3d 481, 487 (D.C. Cir. 2007) (court must consider the “overall statutory
scheme, as well as the problem Congress sought to solve”). If those tools yield a single correct
interpretation of the statute, that ends the matter. Chevron, 467 U.S. at 842.
17
The question of statutory interpretation presented here is whether the pre-2019 version of
the MDRP statute answers the question whether a duplicate drug marketed pursuant to a pre-
Hatch-Waxman paper NDA constituted an “innovator multiple source” or a “noninnovator
multiple source” drug. That is not how CMS would frame the issue; it argues, instead, that “[t]he
precise question here is whether Congress unmistakably intended drugs approved under the
paper NDA approval process to be categorized as noninnovator multiple source drugs.” Dkt. 17
at 23. But that formulation misunderstands Chevron and the role of judiciary in statutory
interpretation. Chevron does not impose an “unmistakability” test but, rather, asks whether “the
text, structure, history, and purpose” of the statute offer a judicially-discernible answer to the
question posed, or whether, instead, Congress explicitly or implicitly left it to the agency to
decide. See Bell Atl. Tel. Cos. v. FCC, 131 F.3d 1044, 1047 (D.C. Cir. 1997) (explaining that
courts must “exhaust the traditional tools of statutory construction” before deferring to the
agency’s reasonable interpretation); Catawba Cty. N.C. v. EPA, 571 F.3d 20, 32–33 (D.C. Cir.
2009) (analyzing statutory text and structure and concluding that “the intent of Congress is
clear”); Chevron, 467 U.S. at 843–44 (discussing explicit or implicit delegations to the agency).
If the Court determines “that the governing statute, read ‘as a whole’, reveal[s] a clear
congressional intent regarding the relevant question,” or that “the text [of the statute] and
reasonable inferences from it give a clear answer,” then the final word on the meaning of the
statute is for the courts, and not the agency. Nat’l Envtl. Dev. Ass’ns Clean Air, 891 F.3d at 1048
(internal citations omitted).
In addressing a question of statutory interpretation, the Court begins with the text of the
statute during the relevant period. See City of Clarksville v. FERC, 888 F.3d 477, 482 (D.C. Cir.
2018). Here, the MDRP statute identified three categories of drugs: (1) “single source drug[s],”
18
(2) “innovator multiple source drug[s],” and (3) “noninnovator multiple source drug[s].”5 42
U.S.C. § 1396r-8(k)(7)(A) (2012 version). A “multiple source drug” was a drug “for which there
[is] at least 1 other drug product which” is equivalent in defined respects. Id. § 1396r-
8(k)(7)(A)(i). A “[s]ingle source drug” was a drug marketed “under an original new drug
application approved by the” FDA. Id. § 1396r-8(k)(7)(A)(iv). An “[i]nnovator multiple source
drug” was a “multiple source drug that was originally markets under an original new drug
application approved by the” FDA. Id. § 1396r-8(k)(7)(A)(ii). And, a “[n]oninnovator multiple
source drug” was a “multiple source drug that is not an innovator multiple source drug.” Id.
§ 1396r-8(k)(7)(A)(iii). According to STI Pharma, Sulfatrim was a “noninnovator multiple
source drug” because the FDA approved the drug based on its equivalence to Bactrim
Suspension and because the FDA approved the NDA for Bactrim Suspension before it approved
the paper NDA for Sulfatrim. Dkt. 15-1 at 21, 31. In other words, Sulfatrim and Bactrim
Suspension are equivalent drugs, and the “original” NDA was granted for Bactrim Suspension—
not Sulfatrim. CMS agrees that this is a permissible reading of the MDRP statute, and, indeed,
that is the interpretation CMS itself adopted in the 2016 Rule. 81 Fed. Reg. at 5,191 (allowing
for duplicate drugs authorized through the paper NDA process to be categorized as
noninnovators). But, in the agency’s view, this is not the only permissible reading of the statute,
and because the statute was ambiguous, it was entitled to—and did in fact—adopt a contrary
reading prior to 2016.6
5
Because the 2019 amendment to the statute has no bearing on this case, the Court will cite to
and discuss the pre-2019 version of the statute for the remainder of this opinion.
6
It is far from clear that CMS did, in fact, adopt a contrary reading of the statute before 2016,
but, given the Court’s conclusion of the plain meaning of the statute, the Court need not reach
that separate question.
19
Two statutory terms inform STI Pharma’s argument—“original NDA” and “innovator.”
In its view, it does not hold the “original NDA” for the drug, and Sulfatrim was not an
“innovator” drug. Because neither of these terms were defined in the statute, the Court must
“start with the assumption that the legislative purpose is expressed by the ordinary meaning of
the words used.” Russello v. United States, 464 U.S. 16, 21 (1983) (quoting Richards v. United
States, 369 U.S. 1, 9 (1962)). As STI Pharma notes, the dictionary defines the term “original” to
mean “not secondary, derivative, or imitative” and “being the first instance or source from which
a copy, reproduction, or translation is or can be made.” Dkt. 19 at 11 (quoting Merriam-
Webster’s Collegiate Dictionary, 10th Ed. (1994)); see also Original, Merriam-Webster’s Third
New International Dictionary (1993) (“original” defined as “constituting a source, beginning, or
first reliance” and “constituting the product or model from which copies are made”). Under that
definition, the paper NDA for Sulfatrim was not an “original” NDA.
The FDA approved Sulfatrim as a duplicate of Bactrim. The documents pertaining to its
approval, which are contained in the administrative record, repeatedly refer to Sulfatrim as a
“generic version of the Bactrim product,” AR 74, and state that its approval was as a “duplicate
NDA for a post 1962 drug [Bactrim],” AR 76; see also AR 80 (referring to Bactrim as the
“reference drug”); AR 81 (“The reference drug will be B[actrim] S[uspension] containing the
same amounts of active ingredient per 5 ml.”). In other words, Sulfatrim was not the “source,”
“beginning,” or “the product or model from which copies are made.” See Original, Merriam-
Webster’s Third New International Dictionary (1993). Rather, Bactrim was.
CMS makes two points in response. First, it argues that
[b]y using “original” as an adjective, Congress made plain that it intended to
differentiate between types of new drug applications. Congress also identified
two types of new drug applications in its definition of “covered outpatient drug,”
20
NDAs (under [§] 505(b) of the FFDCA) and abbreviated NDAs (under section
505(j) of the FFDCA).
Dkt. 17 at 24 (citing 42 U.S.C. § 1396r-8(k)(2)(A)(i)). CMS posits that Congress might have
used the term “original” to invoke the distinction made in the definition of “covered outpatient
drugs,” 42 U.S.C. § 1396r-8(k)(2)(A)(i), between drugs approved under the NDA provision of
the FFDCA, 21 U.S.C. § 355, and those approved under the ANDA provision, id. § 355(j).
The Court is unconvinced.
To begin, “when ‘Congress includes particular language in one section of a statute but
omits it in another section of the same Act, it is generally presumed that Congress acts
intentionally and purposely in the disparate inclusion or exclusion.’” United States v. Papagno,
639 F.3d 1093, 1099 (D.C. Cir. 2011) (quoting Kucana v. Holder, 558 U.S. 233, 249 (2010)).
Congress used the comparatively broad phrase “original new drug application” in defining
“innovator multiple source drug;” it did not reference what CMS characterizes as the “two types
of new drug applications in its definition of ‘covered outpatient drug.’” Dkt. 17 at 24 (quoting
1396r-8(k)(2)(A)(i)). In defining “covered outpatient drugs” in the same statute, Congress
demonstrated that it knew how to reference 21 U.S.C. § 355 (NDAs) and 21 U.S.C. § 355(j)
(ANDAs) when it so chose. See 42 U.S.C. § 1396r-8(k)(2)(A)(i). Even more to the point, the
statutory definition of “covered outpatient drugs” did not distinguish among or classify drugs in
the manner CMS suggests; rather, the definition collected all the various ways that drugs were
lawfully marketed, whether pursuant to an NDA, an ANDA, or a pre-1962 procedure. Id.
§ 1396r-8(k)(2)(A). To be sure, the FFDCA did distinguish between NDAs and ANDAs. But
that distinction did not equate NDAs with “original NDAs” and ANDAs with non-original
NDAs. Had Congress intended to draw the distinction between NDAs and ANDAs that CMS
suggests, it could easily have defined an “noninnovator multiple source drug” to mean a drug
21
marketed under an ANDA. That fact that Congress did not use this well-established
nomenclature speaks volumes.
Second, CMS notes that the dictionary also defines the term “original” to mean “initial,”
Dkt. 17 at 25 (citing Merriam-Webster Dictionary (2019)). CMS argues:
An NDA approved under section 505(b) is the initial drug application for any
new drug . . . . An [ANDA] under section 505(j) is not an original NDA because
it is not the initial NDA. Accordingly, using “original” to distinguish between
those two approval processes is consistent with the dictionary definition of
“original.”
Dkt 17 at 25. CMS goes on to assert that, “[b]efore 1984, Congress recognized only one NDA
approval process, the one set forth under 505(b)” and that, by creating modern ANDAs, the
Hatch-Waxman Amendments created a new, non-initial type of application. Id. at 25–26. From
this, CMS again contends that Congress might have used the word “original” to distinguish
between NDAs and ANDAs. The Court is, again, unpersuaded.
CMS’s first premise is a sound one. The current version of the FFDCA recognizes two
forms of new drug applications—NDAs, which typically require the manufacturer to conduct
extensive studies and trials to prove the safety and effectiveness of the new drug, and ANDAs,
which piggyback on the a previously approved NDA and require the manufacturer to
demonstrate only equivalence and to meet various labeling, chemistry, manufacturing, and
packaging requirements. See Amneal Pharms. LLC v. FDA, 285 F. Supp. 3d 328, 333 (D.D.C.
2018). It is thus true, as a matter of logic, that an ANDA can never be an “original” NDA, and it
is true, as a matter of economics and common practice, that since Congress enacted the Hatch-
Waxman Amendments in 1984, NDAs are invariably the “original” new drug applications for
drugs containing active ingredients not included in a previously approved drug. See 21 U.S.C.
§ 355(j).
22
But that is as far as the logic of CMS’s argument runs. The problem is as follows: Even
if all NDAs were “initial” or “original” new drug applications, and even if no ANDAs were
“initial” or “original” new drug applications, those premises have no bearing on STI Pharma’s
commonsense contention that the paper NDA for Sulfatrim was not the “original” new drug
application for that drug. To use an analogy, it is true that all dogs are mammals and that no
birds are mammals. But those premises tell us nothing about whether insects are mammals. By
the same token, CMS’s description of NDAs and ANDAs tells us nothing about whether pre-
Hatch-Waxman paper NDAs were new drug applications. What matters is that a paper NDA for
a duplicate drug, like Sulfatrim, could not be approved without making reference to a previously
approved—or “original”—new drug application. See Response to Petition Seeking Withdrawal
of the Policy Described in the Agency’s “Paper” NDA Memorandum of July 31, 1978, 45 Fed.
Reg. 82,052, 82,053, 83,057 (Dec. 12, 1980) (noting that the application for the first approved
duplicate paper NDA “was submitted on April 21, 1977,” long after drug manufacturers were
first required to prove safety and effectiveness through NDAs). In other words, Sulfatrim was
not—and could not have been—marketed under “an original new drug application.” It was
marketed under a follow-on application, much like a drug approved under an ANDA.
The MDRP statute’s use of the word “innovator” further confirms that Congress intended
to distinguish between pioneer drugs, like most drugs approved under the post-Hatch-Waxman
NDA process, and follow-on drugs, like ANDAs and paper NDAs for duplicate drugs. The
dictionary defines the verb “innovate” as “to introduce as or as if new.” Merriam-Webster’s
Collegiate Dictionary, (10th ed.1994). Courts have used the word “innovator” interchangeably
with the word “pioneer” in referring to novel, non-generic drugs. See Bristol-Myers Squibb Co.
v. Shalala, 91 F.3d 1493, 1494–95 (D.C. Cir. 1996); AstraZeneca Pharm. v. FDA, 850 F. Supp.
23
2d at 233 (D.D.C. 2012) (“In the United States, new drugs, including ‘generic’ versions of
previously approved ‘pioneer’ or ‘innovator’ drugs, may not be marketed without the FDA’s
approval.”). The dictionary, in turn, defines the adjective “pioneer” as “original, earliest.”
Pioneer, Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-
webster.com/dictionary/pioneer (last accessed Mar. 21, 2020). As STI Pharma notes, this
common understanding of the word “innovator” shows “that Congress did not intend to classify
duplicate generic drugs as innovator multiple source drugs.” Dkt. 15-1 at 31 (emphasis added).
CMS’s reading of the statute, in contrast, would require the Court to construe the phrase
“innovator drugs” to have included drugs, like Sulfatrim, that the FDA approved as “generic
version[s] of” drugs previously approved, AR 74, based on “duplicate NDA[s],” AR 76, relying
on studies conducted using the “reference drug,” AR 81.
CMS responds that the Court should not look to the dictionary definition of “innovate”
because Congress itself defined the phrase “innovator multiple source drug.” Dkt. 17 at 26. It
asserts that only where a word has not been “otherwise defined” in the statute should courts look
to the word’s ordinary meaning. Id. (citing Perrin v. United States, 444 U.S. 37, 42 (1979)).
That is incorrect. As the Supreme Court has observed, “[i]n settling on a fair reading of a statute,
it is not unusual to consider the ordinary meaning of a defined term.” Bond v. United States, 572
U.S. 844, 861 (2014). In Bond v. United States, for example, the Court considered the ordinary
meaning of the defined term “chemical weapon” in rejecting an interpretation of its definition
that “would sweep in everything from the detergent under the kitchen sink to the stain remover in
the laundry room.” Id. at 862; see also Johnson v. United States, 559 U.S. 133, 140 (2010)
(looking to the ordinary meaning of the defined statutory term “violent felony” to aid in
interpretation of the statute). To be sure, had Congress defined the term “innovator drug” to
24
mean the first, second, and third version of the same drug approved by the FDA, CMS would
have a point, and the Court would not be free to give the word “innovator” its well-accepted
meaning. But that is far from what Congress did here. To the contrary, it defined the term to
refer to the “original new drug application,” and it is CMS—and not STI Pharma—that resists
the ordinary meaning of that statutory definition.
Finally, STI Pharma’s reading of the statute—and, for that matter, CMS’s prospective
reading of the statute—is most consistent with the statutory purpose. Congress enacted the
MDRP statute in 1990 “to offset Medicaid costs incurred by the federal government and the
states for outpatient drugs provided to Medicaid recipients.” Council on Radionuclides, 2019
WL 5960142, at *2. “Low-cost generic drugs” presented less of a financial problem than did
higher cost novel drugs still benefiting from the marketing exclusivity provided by the Hatch-
Waxman Amendments. See Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 566 U.S. 399, 405
(2012); see also TorPharm, Inc. v. Thompson, 260 F. Supp. 2d 69, 71 (2003) (noting that patent
owners’ “valuable rights in the pioneer drug could be threatened by the marketing of cheaper,
generic versions of their patented innovations”); Abbott Labs. v. Young, 920 F.2d 984, 985 (D.C.
Cir. 1990) (noting the “greater affordability” of generic drugs). The difference in the rebate rates
for “single source” and “innovator multiple source drugs” as compared to “noninnovator
multiple source drugs” reflects that reality. See GRIFOLS Biologicals Inc., 2010 WL 2733321,
at *2 (“Under the Rebate Program, CMS imposes larger rebate payments on manufacturers of
innovators, which enjoy exclusivity in the market for a period of time, than on manufacturers of
noninnovators, which do not benefit from such exclusivity.” (internal quotations and citations
omitted). Innovator drugs typically demand higher prices and place a disproportionate burden on
the Medicaid program, and it makes sense that Congress intended to alleviate that burden by
25
requiring a higher rebate rate for innovator drugs. It makes no sense, in contrast, to treat
manufacturers of drugs approved pursuant to ANDAs more favorably than those of drugs
approved pursuant to paper NDAs for duplicate drugs.
Although the proposed rule was never finalized, this is just the understanding of the
MDRP statute that HCFA articulated in the 1995, when it first considered implementing
regulations. As HCFA explained:
Based on the statute, which requires larger rebates for single source and
innovator multiple source drugs, we believe the term “original NDA” was
included in sections 1927(k)(7)(A)(ii) and (iv) of the Act for the purposes of
extracting larger rebates from those products that received some form of patent
or marketing protection for a specific period of time. This form of protection
could have been achieved through either some type of patent on the drug or some
type of marketing exclusivity rights granted by the FDA.
....
Exclusivity rights can extend beyond the life of the patent and protect the
manufacturer from competition in one or more specific market areas. Thus, the
innovators of drug products with market protection often benefitted from a lack
of competition and increased profits for a specific period of time. Therefore,
innovators with market protection are required to pay larger rebates than
noninnovators that produce generic drugs with no market protection. We
believe the term “original NDA” . . . produces this effect.
60 Fed. Reg. at 48,453. This analysis may lack legal force, but it is both convincing and
unrebutted by anything CMS now has to offer.
Finally, although the Court need not rely on the legislative history of the relevant version
of the MDRP statute, particularly in light of the clarity of statutory text, that history confirms that
Congress intended to draw a distinction between branded, innovator drugs and follow-on,
generic drugs. According to the Explanatory Material Concerning Committee on Finance
Reconciliation Submission Pursuant to House Concurrent Resolution 310, manufacturers of
“non-innovator multiple-source” or “generic” drugs would be required to pay a rebate equal to a
26
set percentage “of the Average Manufacturer’s Price (AMP),” while manufacturers of “single-
source” or “patented” drugs and “innovatory multiple-source” or “brand-name” drugs with a
“generic equivalent” would be required to pay a higher rebate. 101 Cong. Rec. 30,515 (daily ed.
Oct. 18, 1990). In other words, the rebate was higher for patented and brand-name drugs and
lower for generic drugs. Here, there is no dispute that Sulfatrim was approved by the FDA as “a
generic version of the Bactrim product” that had already been approved by the FDA and
marketed by its manufacturer. See, e.g., AR 74.
* * *
For all of these reasons, the Court concludes that the version of the MDRP statute in
effect during the relevant period is best read to treat duplicate drugs approved pursuant to paper
NDAs as “noninnovator multisource drugs” subject to the lower rebate rate. Although CMS’s
arguments to the contrary are not frivolous, it is not the role of the Court to defer to an agency
merely because it can make an argument or merely because the process of statutory interpretation
requires some work. Rather, if the traditional tools of statutory interpretation—including the
plain meaning of the text and the purpose of the statute—reveal a “single right answer” to the
meaning of the statute, Kisor, 139 S. Ct. at 2415, that ends the matter. This is such a case.
CMS’s decision declining to reclassify Sulfatrim as a noninnovator multiple source drug for the
period from 2013 through 2016 must be set aside as not in accordance with law. 5 U.S.C. §
706(2)(A).
27
CONCLUSION
For the foregoing reasons, the Court will GRANT Plaintiff’s motion for summary
judgment, Dkt. 15, DENY Defendant’s cross-motion for summary judgment, Dkt. 17, and will
REMAND the matter to CMS for further proceedings consistent with this opinion.
A separate order will issue.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: March 23, 2020
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