Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 1 of 27 PageID #: 2945
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
`
`ASTRAZENECA PHARMACEUTICALS LP,
`
`Plaintiff,
`
`v.
`
`C.A. No. 21-27 (LPS)
`
`ADMINISTRATIVE PROCEDURE ACT
`REVIEW OF AGENCY DECISION
`
`XAVIER BECERRA, in his official capacity
`as Secretary of the U.S. Department of Health
`and Human Services;
`
`DANIEL J. BARRY, in his official capacity as
`Acting General Counsel of the U.S.
`Department of Health and Human Services;
`
`DIANA ESPINOSA, in her official capacity as
`Acting Administrator of the Health Resources
`and Services Administration;
`
`U.S. DEPARTMENT OF HEALTH AND
`HUMAN SERVICES; and
`
`HEALTH RESOURCES AND SERVICES
`ADMINISTRATION,
`
`Defendants.
`
`PLAINTIFF’S OPENING BRIEF IN SUPPORT OF ITS
`MOTION FOR SUMMARY JUDGMENT
`
`

`

`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 2 of 27 PageID #: 2946
`
`TABLE OF CONTENTS
`
`C.
`
`D.
`
`LEGAL AND FACTUAL BACKGROUND ................................................................................. 2
`A.
`The 340B Program Caps Drug Prices for Enumerated Covered Entities ............... 2
`B.
`HRSA Issues Guidance Permitting Unlimited Contract Pharmacy
`Arrangements, Opening the Door to Profiteering and Undermining the
`340B Program’s Integrity ....................................................................................... 3
`AstraZeneca Updates Its Contract Pharmacy Policy to Remedy Program
`Abuses ..................................................................................................................... 5
`The HHS General Counsel Issues an Advisory Opinion Requiring
`Pharmaceutical Manufacturers to Honor Unlimited Contract Pharmacy
`Arrangements .......................................................................................................... 6
`HRSA Promulgates ADR Procedures to Impose Liability on
`Manufacturers for Failing to Follow the Advisory Opinion’s Approach to
`Contract Pharmacies ............................................................................................... 7
`AstraZeneca Files Suit to Challenge the Unlawful Advisory Opinion ................... 8
`F.
`LEGAL STANDARD ..................................................................................................................... 8
`ARGUMENT .................................................................................................................................. 9
`I.
`The Advisory Opinion Is Contrary to the 340B Statute Itself ............................................ 9
`II.
`The Advisory Opinion Is Arbitrary and Capricious ......................................................... 13
`III.
`The Advisory Opinion Impermissibly Affects Substantive Rights .................................. 16
`CONCLUSION ............................................................................................................................. 20
`
`E.
`
`i
`
`

`

`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 3 of 27 PageID #: 2947
`
`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`Am. Bioscience, Inc. v. Thompson,
`269 F.3d 1077 (D.C. Cir. 2001) .................................................................................................8
`
`Am. Hosp. Ass’n v. HHS,
`No. 20-cv-8806, 2021 WL 616323 (N.D. Cal. Feb. 17, 2021) ..................................................3
`
`Appalachian Power Co. v. EPA,
`208 F. 3d 1015 (D.C. Cir. 2000) ..............................................................................................19
`
`Astra USA, Inc. v. Santa Clara Cty.,
`563 U.S. 110 (2011) .................................................................................................................13
`
`Azar v. Allina Health Servs.,
`139 S. Ct. 1804 (2019) .............................................................................................................20
`
`Bennett v. Spear,
`520 U.S. 154 (1997) .................................................................................................................19
`
`CSI Aviation Servs. v. DOT,
`637 F.3d 408 (D.C. Cir. 2011) .................................................................................................17
`
`Eli Lilly & Co. v. Cochran,
`No. 21-cv-81, 2021 WL 981350 (S.D. Ind. Mar. 16, 2021) ................................................8, 17
`
`Encino Motorcars, LLC v. Navarro,
`136 S. Ct. 2117 (2016) .............................................................................................................14
`
`Frisby v. HUD,
`755 F.2d 1052 (3d Cir. 1985)...................................................................................................13
`
`Gen. Elec. Co. v. EPA,
`290 F.3d 377 (D.C. Cir. 2002) .................................................................................................18
`
`Her Majesty the Queen v. EPA,
`912 F.2d 1525 (D.C. Cir. 1990) ...............................................................................................19
`
`Ipsen Biopharm., Inc. v. Azar,
`943 F.3d 953 (D.C. Cir. 2019) .................................................................................................20
`
`Larry Grant Constr. v. Mills,
`956 F. Supp. 2d 93 (D.D.C. 2013) ...........................................................................................15
`
`ii
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 4 of 27 PageID #: 2948
`
`Mendoza v. Perez,
`754 F.3d 1002 (D.C. Cir. 2014) ...................................................................................17, 18, 19
`
`Michigan v. EPA,
`576 U.S. 743 (2015) .................................................................................................................13
`
`Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co.,
`463 U.S. 29 (1983) ...................................................................................................................16
`
`Nat’l Gypsum Co. v. EPA,
`968 F.2d 40 (D.C. Cir. 1992) ...................................................................................................15
`
`Nat’l Latino Media Coal. v. FCC,
`816 F.2d 785 (D.C. Cir. 1987) .................................................................................................17
`
`NVE, Inc. v. HHS,
`436 F.3d 182 (3d Cir. 2006)...............................................................................................13, 14
`
`PhRMA v. HHS,
`138 F. Supp. 3d 31 (D.D.C. 2015) .............................................................................3, 9, 17, 19
`
`PhRMA v. HHS,
`43 F. Supp. 3d 28 (D.D.C. 2014) .....................................................................................2, 3, 17
`
`Sackett v. EPA,
`566 U.S. 120 (2012) .................................................................................................................20
`
`Shalala v. Guernsey Mem’l Hosp.,
`514 U.S. 87 (1995) ...................................................................................................................18
`
`Soccer Ctrs., LLC v. Zuchowski,
`No. 17-cv-1024, 2017 WL 4570290 (D.N.J. Oct. 13, 2017) .....................................................8
`
`Star Enter. v. EPA,
`235 F.3d 139 (3d Cir. 2000).....................................................................................................18
`
`U.S. Army Corps of Eng’rs v. Hawkes Co.,
`136 S. Ct. 1807 (2016) .......................................................................................................19, 20
`
`Univ. of Med. & Dentistry of N.J. v. Corrigan,
`347 F.3d 57 (3d Cir. 2003).......................................................................................................19
`
`WaveDivision Holdings, LLC v. Highland Capital Mgmt., L.P.,
`49 A.3d 1168 (Del. 2012) ..................................................................................................13, 15
`
`iii
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`

`

`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 5 of 27 PageID #: 2949
`
`Statutes
`
`5 U.S.C.
`§ 553(b) ....................................................................................................................................17
`§ 553(b)(A) ..............................................................................................................................17
`§ 553(c) ....................................................................................................................................17
`§ 706(2) ....................................................................................................................................20
`§ 706(2)(A) ................................................................................................................................9
`§ 706(2)(C).................................................................................................................................9
`§ 706(2)(D) ................................................................................................................................9
`
`38 U.S.C. § 8126(h)(3)(A) .............................................................................................................10
`
`42 U.S.C.
`§ 256b.........................................................................................................................................1
`§ 256b(a)(1) .................................................................................................................3, 6, 9, 12
`§ 256b(a)(4) .................................................................................................................3, 6, 9, 11
`§ 256b(a)(6) .............................................................................................................................11
`§ 256b(d)(1)(B)(i) ....................................................................................................................11
`§ 256b(d)(1)(B)(vi)(III) .....................................................................................................11, 20
`§ 256b(d)(2)(B)(iv) ..................................................................................................................10
`§ 256b(d)(3)(A) ........................................................................................................................11
`§ 256b(d)(3)(B)(vi) ..............................................................................................................6, 10
`§ 1320a-7b(b)(3)(C) .................................................................................................................10
`
`Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 7102(a), 124
`Stat. 826 (2010) ..........................................................................................................................7
`
`Veterans Health Care Act, Pub. L. 102-585, 106 Stat. 4943 (1992) ...............................................2
`§ 603(a)(1) ...............................................................................................................................10
`
`Regulations
`
`42 C.F.R. § 10.20 .......................................................................................................................7, 19
`
`81 Fed. Reg. 53,381 (Aug. 12, 2016)...............................................................................................7
`
`Executive Branch Materials
`
`U.S. Gov. Accountability Office, GAO-11-836, Drug Pricing: Manufacturer
`Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs
`Improvement (2011), https://www.gao.gov/assets/330/323702.pdf ..........................................5
`
`U.S. Gov. Accountability Office, Drug Discount Program: Federal Oversight of
`Compliance at 340B Contract Pharmacies Needs Improvement (June 2018),
`https://www.gao.gov/assets/700/692697.pdf .........................................................................4, 5
`
`iv
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 6 of 27 PageID #: 2950
`
`Legislative Materials
`
`Letter from S. Judiciary Comm. to HRSA Adm’r (Mar. 27, 2013),
`https://bit.ly/3dvnDfK ................................................................................................................5
`
`S. Rep. No. 102-259 (1992) .......................................................................................................3, 12
`
`Other Authorities
`
`Berkeley Research Grp., For-Profit Pharmacy Participation in the 340B Program
`(Oct. 2020), https://bit.ly/3owtUwa .......................................................................................4, 5
`
`Black’s Law Dictionary (11th ed. 2019)..........................................................................................9
`
`v
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 7 of 27 PageID #: 2951
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`The 340B Drug Pricing Program, 42 U.S.C. § 256b (Section 340B), speaks clearly: Drug
`
`manufacturers must “offer” their outpatient medications at discounted rates to certain healthcare
`
`facilities, called “covered entities,” that cater to underserved populations. AstraZeneca’s policy,
`
`which continues to offer its drugs to each and every covered entity at the 340B price, does exactly
`
`that. Indeed, AstraZeneca has also gone beyond the statute’s requirements by allowing a covered
`
`entity that lacks an on-site pharmacy to use an off-site one. But AstraZeneca no longer recognizes
`
`an unlimited number of contract arrangements with offsite pharmacies—thus returning to the ap-
`
`proach that HRSA endorsed for most of the 340B program’s lifespan.
`
`Unhappy with the policy choices Congress made in Section 340B, the agency has used a
`
`flawed process to rewrite it. In a recent “Advisory Opinion,” the agency’s general counsel con-
`
`cluded that manufacturers are “obligated” to provide discounts for all contract pharmacy sales
`
`where an agency relationship exists between the pharmacy and the covered entity. AR 1.1 For the
`
`first time, the agency now claims that its view is compelled by “the plain text,” and that any con-
`
`trary approach—including the one it had adopted until 2010—is “linguistic gymnastics.” AR 2-3.
`
`Yet the statute does not require manufacturers to recognize any contract pharmacies, let
`
`alone unlimited contract pharmacies. If Congress had intended discounts to extend to contract
`
`pharmacy purchases, it would have said so; indeed, the statute elsewhere contains precisely the
`
`type of contract-based agency language that Congress omitted from Section 340B. Nor does the
`
`Advisory Opinion provide any basis for its assumption that contract pharmacies are, in fact, agents
`
`(as opposed to independent contractors)—a fact-intensive inquiry that turns on state law.
`
`The Advisory Opinion is not merely wrong as a matter of law, but also arbitrary and capri-
`
`cious. Here, the agency: (1) failed to acknowledge, much less to explain, why it now views the
`
`1 Citations to documents in the administrative record, D.I. 40, are in the form “AR #.”
`
`1
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 8 of 27 PageID #: 2952
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`340B Statute as unambiguously requiring unlimited contract pharmacies, when for most of the
`
`program’s existence it approved use of a single contract pharmacy—and even then, did so only as
`
`a gap-filling measure; (2) based the Opinion on meetings with covered entities and Walgreens, yet
`
`declined to consider manufacturers’ views; (3) assumed, without factual basis, that contract phar-
`
`macies are agents of covered entities; and (4) ignored evidence that use of unlimited contract phar-
`
`macy arrangements has facilitated spikes in unlawful drug diversion and duplicate discounting.
`
`The Advisory Opinion also goes well beyond the scope of HHS’s authority. Section 340B
`
`does not authorize “prophylactic non-adjudicatory rulemaking regarding the 340B program,”
`
`PhRMA v. HHS, 43 F. Supp. 3d 28, 43 (D.D.C. 2014) (Orphan Drug I ), yet the Opinion has all of
`
`the hallmarks of a legislative rule: It is written in mandatory language demanding compliance;
`
`goes well beyond mere textual interpretation; aims to resolve an existing dispute over manufacturer
`
`policies (including AstraZeneca’s); and preordains the outcome of any agency adjudication.
`
`Moreover, the Advisory Opinion substantively affects AstraZeneca’s rights and obliga-
`
`tions, and thus is final agency action under a long line of precedent. It expresses the agency’s
`
`definitive position on a pure question of law. Third parties have already begun to take action
`
`against AstraZeneca in reliance on the Opinion. And AstraZeneca has no administrative avenue
`
`for raising the issue affirmatively; its only other option is to await an enforcement action, brought
`
`either by a covered entity or by HRSA itself. This Court should not wait to declare that the agency
`
`has exceeded its authority and should grant summary judgment in AstraZeneca’s favor.
`
`LEGAL AND FACTUAL BACKGROUND
`
`A.
`
`The 340B Program Caps Drug Prices for Enumerated Covered Entities
`
`In 1992, Congress passed the Veterans Health Care Act (VHCA), Pub. L. 102-585, 106
`
`Stat. 4943, to help “the [Department of Veterans Affairs], Federally-funded clinics, and public
`
`hospitals” purchase prescription drugs for their patients at lower prices. AR 28 (House Report).
`
`2
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 9 of 27 PageID #: 2953
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`Enacted as part of the VHCA, the 340B Program “provides protection from drug price increases”
`
`to certain recipients of federal health care funding—referred to as “covered entities.” AR 29. As a
`
`condition of coverage and reimbursement for its drugs under Medicaid and Medicare Part B, a
`
`manufacturer must enter into a pharmaceutical pricing agreement with HHS in which it must “offer
`
`each covered entity covered outpatient drugs for purchase” at a specified discount price “if such
`
`drug is made available to any other purchaser at any price.” 42 U.S.C. § 256b(a)(1). This is known
`
`as Section 340B’s “must-offer” requirement.
`
`As Section 340B was originally written, the covered entities under the program were
`
`“generally disproportionate share hospitals—hospitals that serve indigent populations.” Orphan
`
`Drug I, 43 F. Supp. 3d at 31. Congress added to the categories of covered entities over time, and
`
`today there are fifteen categories. 42 U.S.C. § 256b(a)(4). Notably, Congress has never included
`
`contract pharmacies in the list. To the contrary, in drafting the VHCA, Congress considered lan-
`
`guage requiring manufacturers to provide discounts for drugs “purchased and dispensed by, or
`
`under a contract entered into for on-site pharmacy services with,” a covered entity. S. Rep. No.
`
`102-259 at 2 (1992) (quoting S. 1729) (emphases added). But that provision was not enacted.
`
`B.
`
`HRSA Issues Guidance Permitting Unlimited Contract Pharmacy Arrangements,
`Opening the Door to Profiteering and Undermining the 340B Program’s Integrity
`
`Congress did not grant HHS or HRSA general rulemaking authority with respect to Section
`
`340B(a), as courts have repeatedly held. See Am. Hosp. Ass’n v. HHS, No. 20-cv-8806, 2021 WL
`
`616323, at *7 (N.D. Cal. Feb. 17, 2021); PhRMA v. HHS, 138 F. Supp. 3d 31, 36 (D.D.C. 2015)
`
`(Orphan Drug II ); Orphan Drug I, 43 F. Supp. 3d at 42. Instead, Congress gave the agency a
`
`“limited, specific, grant of rulemaking authority”—one that does not include “prophylactic non-
`
`adjudicatory rulemaking.” Orphan Drug I, 43 F. Supp. 3d at 41, 43. Yet over the years, HRSA has
`
`issued several “guidance” documents purporting to redefine the program’s scope.
`
`3
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 10 of 27 PageID #: 2954
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`In 1996, HRSA asserted that “eligible covered entities that do not have access to appropri-
`
`ate ‘in-house’ pharmacy services” may enter into an agreement with “one pharmacy contractor per
`
`entity” to provide such services for 340B drugs. AR 376. The 1996 Guidance acknowledged that
`
`“[t]he statute is silent as to permissible drug distribution systems,” AR 370, but stated that HRSA
`
`was offering “necessary program guidance” in view of the “many gaps in the legislation,” AR 371.
`
`In 2010, HRSA issued new guidelines greatly expanding its purported authorization of
`
`contract pharmacies. AR 387. Although the statute’s list of covered entities had not changed, the
`
`2010 Guidance suggested that covered entities must now be permitted to “use multiple pharmacy
`
`arrangements”—that is, an unlimited number of contract pharmacies. Id. Despite criticisms, HRSA
`
`placed no limits on the number of contract pharmacies per covered entity nor on their geographic
`
`location. AR 390.
`
`The 2010 Guidance triggered a surge in contract pharmacies receiving 340B-discounted
`
`drugs. In just seven years, the number ballooned from 1,300 to nearly 20,000. See U.S. Gov. Ac-
`
`countability Office, Drug Discount Program: Federal Oversight of Compliance at 340B Contract
`
`Pharmacies Needs Improvement 2 (June 2018) (2018 GAO Rep.), https://www.gao.gov/assets/
`
`700/692697.pdf. Today, more than 27,000 pharmacies, comprising more than 100,000 contracts,
`
`participate in the 340B program. Berkeley Research Grp., For-Profit Pharmacy Participation in
`
`the 340B Program 4 (Oct. 2020) (BRG Rep.), https://bit.ly/3owtUwa. The majority (75%) are
`
`national, for-profit retail pharmacies; the five largest—CVS, Walgreens, Walmart, Rite-Aid, and
`
`Kroger—account for 60% of all 340B contract pharmacies. 2018 GAO Rep. 20-21.
`
`This boom has been fueled by the prospect of outsized profit margins for major pharmacy
`
`chains and other intermediaries. It works like this: A pharmacy dispenses a drug from its inventory
`
`to a patient, who may have been treated at a 340B entity or at a non-340B entity. But whether that
`
`drug is eligible for the 340B discount is not determined until after the medicine is paid for at a
`
`4
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`

`

`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 11 of 27 PageID #: 2955
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`non-discounted, commercial price by the patient or his health plan. For drugs later determined to
`
`be dispensed to a 340B patient, the wholesaler processes a chargeback reflecting the difference
`
`between the pharmacy’s acquisition price and the 340B price. This gives the pharmacy the discount
`
`even though it also received full payment. The pharmacy may or may not share some of this wind-
`
`fall with the covered entity, but the patient and her insurer have paid full cost. See D.I. 16 ¶ 8.
`
`For-profit pharmacies thus “are reaping sizeable 340B discounts on drugs and then turning
`
`around and upselling them to fully insured patients covered by Medicare, Medicaid, or private
`
`health insurance in order to maximize their spread.” Letter from S. Judiciary Comm. to HRSA
`
`Adm’r 3 (Mar. 27, 2013), https://bit.ly/3dvnDfK. Pharmacy profit margins on 340B brand name
`
`drugs are now a staggering 72%—more than triple regular margins. BRG Rep. 3. But these profits
`
`are often not passed along even to uninsured patients, 2018 GAO Rep. 30, who “pay the full non-
`
`340B price for their prescription drugs at contract pharmacies.” AR 1404 (OIG Rep.).
`
`The explosive growth of contract-pharmacy arrangements has facilitated the very risks that
`
`Congress sought to avoid when it enacted Section 340B. Numerous studies show that contract
`
`pharmacies engage in drug diversion and duplicate discounts; covered entities refuse to self-police;
`
`and HRSA’s oversight has been “inadequate.” U.S. Gov. Accountability Office, GAO-11-836,
`
`Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight
`
`Needs Improvement 21 (2011), https://www.gao.gov/assets/330/323702.pdf; see, e.g., 2018 GAO
`
`Rep. at 45 (criticizing “weaknesses in HRSA’s oversight [that] impede its ability to ensure com-
`
`pliance with 340B Program requirements at contract pharmacies”). The promise of outsized prof-
`
`its, combined with lax federal oversight, has created a perfect storm for abuse.
`
`C.
`
`AstraZeneca Updates Its Contract Pharmacy Policy to Remedy Program Abuses
`
`In the Summer of 2020, AstraZeneca announced that, effective October 1, it would revert
`
`to the approach set forth in HRSA’s 1996 Guidance and would recognize only a single Contract
`
`5
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 12 of 27 PageID #: 2956
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`Pharmacy site for those 340B Covered Entities that do not maintain their own on-site dispensing
`
`pharmacy. AR 1107. AstraZeneca described its new policy to HRSA in several letters and offered
`
`repeatedly to meet to explain further. AR 1075, 1143, 1359. AstraZeneca also asked HRSA to post
`
`on its website a notice to covered entities informing them of the changed policy and how to desig-
`
`nate a contract pharmacy. But HRSA refused. AR 1111, 1144; D.I. 13 ¶ 50. To this day, HRSA
`
`has neither agreed to meet nor posted AstraZeneca’s notice on its website.
`
`D.
`
`The HHS General Counsel Issues an Advisory Opinion Requiring Pharmaceutical
`Manufacturers to Honor Unlimited Contract Pharmacy Arrangements
`
`After months of ignoring AstraZeneca’s repeated meeting requests, HHS’s General Coun-
`
`sel issued the Advisory Opinion on December 30, 2020, setting out HHS’s definitive position on
`
`the contract pharmacy issue. The opinion “conclude[s]” that a manufacturer’s statutory obligations
`
`extend not just to purchases by covered entities, but also by contract pharmacies. AR 1. In HHS’s
`
`view, a manufacturer “is obligated to deliver its covered outpatient drugs to those contract phar-
`
`macies and to charge the covered entity no more than the 340B ceiling price for those drugs”
`
`whenever the pharmacy acts as a covered entity’s “agent.” Id.
`
`Although it purports to be grounded in “the plain text of the statute,” AR 3, the opinion
`
`nowhere reconciles its reading of Section 340B with the simple statutory requirement that covered
`
`entities must “offer” discounted drugs to a “covered entity.” 42 U.S.C. § 256b(a)(1). Nor does it
`
`address that Section 340B specifies fifteen types of healthcare providers that qualify as “covered
`
`entities,” without mentioning contract pharmacies, id. § 256b(a)(4), or that Section 340B carefully
`
`distinguishes in other respects between covered entities and their agents, id. § 256b(d)(3)(B)(vi).
`
`Instead, to the extent the Advisory Opinion engages in any textual analysis at all, it focuses
`
`solely on the phrase “purchased by a covered entity.” AR 2-3. It declares that “[i]t is difficult to
`
`envision a less ambiguous phrase,” AR 2, thereby repudiating (though not acknowledging) prior
`
`6
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`

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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 13 of 27 PageID #: 2957
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`statements that the 1996 Guidance and 2010 Guidance filled “gaps in the legislation,” AR 371.
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`The Opinion asserts that the phrase “purchased by a covered entity” unambiguously requires man-
`
`ufacturers to provide discounted drugs to unlimited contract pharmacies. AR 2. It concludes that
`
`“[t]he situs of delivery, be it the lunar surface, low-earth orbit, or a neighborhood pharmacy, is
`
`irrelevant” to a manufacturer’s Section 340B obligations. AR 3.
`
`E.
`
`HRSA Promulgates ADR Procedures to Impose Liability on Manufacturers for Fail-
`ing to Follow the Advisory Opinion’s Approach to Contract Pharmacies
`
`In 2010, Congress directed HHS, within 180 days of the Affordable Care Act’s enactment,
`
`to establish an administrative dispute resolution (ADR) process for resolving “claims by covered
`
`entities that they have been overcharged for drugs purchased under this section, and claims by
`
`manufacturers … of [statutory] violations.” Pub. L. No. 111-148, § 7102(a), 124 Stat. 826. But it
`
`took HHS nearly six years to issue a Notice of Proposed Rulemaking with suggested ADR proce-
`
`dures, 81 Fed. Reg. 53,381 (Aug. 12, 2016), and then, facing widespread criticism, the agency
`
`withdrew it. See OMB, RIN: 0906-AA90, https://bit.ly/363FZl5. There the matter stayed, until a
`
`group of covered entities filed suit to compel HRSA to promulgate the ADR Rule. Ryan White
`
`Clinics for 340B Access v. Azar, No. 20-cv-2906 (D.D.C. Oct. 9, 2020). Only two months later—
`
`without issuing a new rulemaking notice—HRSA promulgated a final rule setting forth “the 340B
`
`Program’s administrative dispute resolution (ADR) process.” AR 83 (ADR Rule).
`
`The ADR Rule requires creation of an ADR Board composed entirely of HHS officials.
`
`AR 85. Disputes will be heard by a three-member panel drawn from the Board, which is authorized
`
`“to resolve [legal] issues” related to the panel’s own jurisdiction, including “whether a pharmacy
`
`is part of a ‘covered entity.’ ” AR 84. The ADR Rule also empowers panels to award “money
`
`damages” and unspecified “equitable relief ,” by issuing “precedential and binding final agency
`
`decisions.” AR 85. Panel decisions are not subject to further agency review. 42 C.F.R. § 10.20.
`
`7
`
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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 14 of 27 PageID #: 2958
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`The ADR Rule went into effect on January 13, 2021. That same day, several covered enti-
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`ties filed ADR petitions against AstraZeneca, alleging it has violated Section 340B by failing to
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`comply with the Advisory Opinion. The petitioners asked the ADR Panel to impose various sanc-
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`tions against AstraZeneca: ordering it to end its new policy and provide discounted pricing to
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`contract pharmacies; forcing it to refund purchases made at non-discounted prices; and imposing
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`civil monetary penalties for its supposed non-compliance. D.I. 13-1 at 53-56, 71-72.
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`F.
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`AstraZeneca Files Suit to Challenge the Unlawful Advisory Opinion
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`AstraZeneca filed this action on January 12, 2021, D.I. 1, and later amended its Complaint
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`to describe the flawed adoption and substance of the ADR Rule, D.I. 13.2 On March 23, Defendants
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`filed the Administrative Record, D.I. 40, which consists primarily of publicly available materials.
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`Conspicuously absent, however, are any documents addressing the preparation of the Advisory
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`Opinion. And while ignoring AstraZeneca’s repeated requests to meet, Defendants met with two
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`covered entity organizations, AR 1397, 1401-02, both of which moved to intervene in this action,
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`D.I. 33, 37, 38, as well as with Walgreens, a national for-profit pharmacy chain. AR 1353, 1355.
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`LEGAL STANDARD
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`In a challenge brought under the Administrative Procedure Act (APA), “the district judge
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`sits as an appellate tribunal,” and the “ ‘entire case’ on review is a question of law.” Am. Bioscience,
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`Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001). “Summary judgment thus serves as the
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`mechanism for deciding, as a matter of law, whether the agency action is supported by the admin-
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`istrative record and otherwise consistent with the APA standard of review.” Soccer Ctrs., LLC v.
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`Zuchowski, No. 17-cv-1024, 2017 WL 4570290, at *5 (D.N.J. Oct. 13, 2017) (citation omitted).
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`2 Eli Lilly and Company obtained a preliminary injunction barring enforcement of the ADR Rule
`against Eli Lilly. Eli Lilly & Co. v. Cochran, No. 21-cv-81, 2021 WL 981350 (S.D. Ind. Mar. 16,
`2021). The court found the plaintiffs were likely to succeed on the merits of their claim that the
`ADR Rule’s promulgation without notice and comment was unlawful. Id. at *8-*10.
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`8
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`Case 1:21-cv-00027-LPS Document 43 Filed 04/13/21 Page 15 of 27 PageID #: 2959
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`Under the APA, a reviewing court must “hold unlawful and set aside agency action, findings, and
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`conclusions found to be,” among other things: “arbitrary, capricious, an abuse of discretion, or
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`otherwise not in accordance with law”; “in excess of statutory jurisdiction, authority, or limita-
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`tions”; or “without observance of procedure required by law.” 5 U.S.C. § 706(2)(A), (C), (D).
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`ARGUMENT
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`I.
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`The Advisory Opinion Is Contrary to the 340B Statute Itself
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`The must-offer provision requires a manufacturer to “offer” discounted drugs to a “covered
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`entity,” an obligation that the manufacturer fully satisfies by making its medicines available to the
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`covered entity itself. Congress considered—but declined to enact—text that would have expanded
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`a manufacturer’s must-offer obligations to reach contract pharmacy sales. Nothing supports the
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`Advisory Opinion’s assertion that a manufacturer must also make its drugs available to contract
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`pharmacies. The Opinion’s attempt to impose such a requirement is “contrary to the plain lan-
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`guage” of Section 340B and thus “ ‘not in accordance with law.’ ” Orphan Drug II, 138 F. Supp.
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`3d at 47-48 (quoting 5 U.S.C. § 706(2)(A)).
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`A. Section 340B imposes a central duty on a manufacturer: It must enter into an agreement
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`with the HHS Secretary “requir[ing] that the manufacturer offer each covered entity covered out-
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`patient drugs