Case 1:22-cv-01986 Document 1 Filed 07/08/22 Page 1 of 55
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`MERCK SHARP & DOHME LLC
`126 East Lincoln Ave.
`P.O. Box 2000
`Rahway, NJ 07065
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`Plaintiff,
`
`
`
`
`
`
`
`v.
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`Civil Action No. _______________
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`U.S. DEPARTMENT OF HEALTH AND
`HUMAN SERVICES
`200 Independence Avenue, SW
`Washington, DC 20201
`
`XAVIER BECERRA, Secretary of Health and
`Human Services
`200 Independence Avenue, SW
`Washington, DC 20201
`
`U.S. HEALTH RESOURCES AND SERVICES
`ADMINISTRATION
`5600 Fishers Lane
`Rockville, MD 20857
`
`CAROLE JOHNSON, Administrator of U.S.
`Health Resources and Services Administration
`5600 Fishers Lane
`Rockville, MD 20857
`
`
`Defendants.
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`
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`COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
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`Plaintiff Merck Sharp & Dohme LLC (“Merck”) brings this lawsuit against Defendants
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`U.S. Department of Health and Human Services (“HHS”), Xavier Becerra, in his official capacity
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`as Secretary of HHS; U.S. Health Resources and Services Administration (“HRSA”), an agency
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`within HHS; and Carole Johnson, in her official capacity as Administrator of HRSA (collectively,
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`“Defendants”), and alleges as follows:
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`INTRODUCTION
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`1.
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`This Administrative Procedure Act (“APA”) suit arises against the backdrop of this
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`Court’s decisions in Novartis Pharms. Corp. v. Espinosa, No. 1:21-cv-01479-DLF and United
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`Therapeutics Corp. v. Espinosa, No. 1:21-cv-01686-DLF, 2021 WL 5161783 (D.D.C. Nov. 5,
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`2021) (“Novartis/UT”), in which this Court vacated and declared unlawful agency actions that are
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`strikingly similar to the agency action challenged here.
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`2.
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`In Novartis/UT, this Court considered the validity of so-called “violation letters”
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`sent by Defendant HRSA to two pharmaceutical manufacturers, Novartis and United Therapeutics.
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`In those letters, which were separately sent but essentially identical to one another, HRSA asserted
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`that certain policies adopted by those manufacturers violated the 340B statute, 42 U.S.C. § 256b,
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`which in broad strokes requires drug manufacturers to offer their “covered outpatient drugs” at
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`deeply discounted prices to certain health care providers (identified and defined in the 340B statute
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`as “covered entities”) as a condition of having the drugs covered under Medicaid and Medicare
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`Part B.
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`3.
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`This Court resolved Novartis/UT by granting declaratory relief to the manufacturers
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`and vacating the violation letters HRSA had sent to them. The Court explained that “[t]he Violation
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`Letters contain legal reasoning that rests upon an erroneous reading of Section 340B.”
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`Novartis/UT, 2021 WL 5161783, at *9. The Court accordingly “declar[ed] that the [manufacturer]
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`plaintiffs’ policies do not violate Section 340B under the positions advanced in the Violation
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`Letters and developed in this litigation. The plain language, purpose, and structure of the statute
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`do not prohibit the manufacturers from imposing any conditions on their offers of 340B-priced
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`drugs to covered entities.” See id.
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`4.
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`Plaintiff Merck respectfully submits that the Court should enter similar relief in this
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`case with respect to a letter that Defendants recently sent to Merck. The letter sent to Merck is
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`identical in all relevant respects to the violation letters invalidated by this Court in Novartis/UT.
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`5.
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`Like the manufacturers in that case, Merck has adopted policies designed to respond
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`to the potential for increased 340B Program noncompliance—such as duplicate discounts and drug
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`diversion—that, as several government reports have found, arises and is at a heightened risk of
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`occurring when covered entities order discounted 340B drugs for shipment directly to third-party
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`pharmacy entities (“contract pharmacies”). Merck has attempted at all stages of its policy
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`development to work collaboratively with HRSA and with covered entities, including through a
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`July 2020 telephone call with HRSA and an initial effort to adopt its 340B Program integrity
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`initiative on a purely voluntary basis. Merck has also worked diligently to communicate with
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`HRSA regarding Merck’s policies and the reasons why they are lawful, necessary, and appropriate,
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`including through written communications to HRSA, each of which unsuccessfully requested a
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`further meeting with HRSA. See Ex. A, C, E, G, I.
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`6.
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`Similar to the policy adopted by United Therapeutics, an aspect of Merck’s
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`initiative involves a request that certain 340B covered entities that wish to use contract pharmacies
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`provide limited claims-level transactional data through a third-party vendor, so that these
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`transactions can be appropriately vetted. Merck regards this approach as consistent with
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`longstanding HRSA guidance, which HRSA has not withdrawn, advising that manufacturers may
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`include conditions with respect to 340B pricing offers “that address customary business practice,
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`request standard information, or include other appropriate contract provisions.” Final Notice
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`Regarding Section 602 of the Veterans Health Care Act of 1992, Entity Guidelines, 59 Fed. Reg.
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`25,110, 25,113–14 (May 13, 1994) (“1994 Guidance”). The provision of claims data is
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`commonplace in the healthcare industry and is routinely used for verifying eligibility for pricing
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`and in connection with payments, rebates, and discounts. Consistent with these common industry
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`practices, Merck, its customers, and its business partners use claims data in a variety of contexts
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`to verify that customers receive the right price or the correct discount or rebate for a transaction.
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`7.
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`The precise information requested depends on the transaction involved, but it
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`frequently involves claims-level data similar to the information requested under Merck’s 340B
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`initiative. As an example, in Merck’s contracts with pharmacy benefit managers and health plans,
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`and especially in the managed care context, Merck requires claims-level data to ensure rebates are
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`accurately and appropriately paid on Merck products. Such data helps Merck confirm important
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`information, such as (among other things) confirming that the utilization is by an eligible health
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`plan member, confirming the specific products and quantity dispensed, confirming whether the
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`products are being purchased directly or indirectly from Merck, and confirming that rebates are
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`not paid on duplicate or multiple claims. In the 340B context, Merck’s initiative facilitates this
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`type of review using a third-party platform called 340B ESPTM. And, as Merck has noted in its
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`correspondence with HRSA and HHS on these matters, a number of agencies, including the HHS
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`Centers for Medicare and Medicaid Services and the HHS Office of Inspector General, have
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`acknowledged that 340B duplicate discounts can be identified and prevented through the use and
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`review of claims-level data. See, e.g., Letter from Phil Rinnander, Executive Director, Finance,
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`Merck, to Alex M. Azar, Secretary, U.S. Department of Health and Human Services, at 1 (Aug. 3,
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`2020) (Ex. B).
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`8.
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`Importantly, and as Merck has repeatedly emphasized to HRSA, Merck’s initiative
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`permits all covered entities to purchase Merck’s covered outpatient drugs at or below the 340B
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`ceiling price, regardless of whether they provide the requested claims-level data for contract
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`pharmacy transactions.
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`9.
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`Merck’s initiative does not affect the many covered entities that do not use contract
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`pharmacies. According to HRSA’s 340B Program website, “[t]he overwhelming majority (82
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`percent) of covered entities do not contract with pharmacies.” HRSA/OPA, 340B Drug Pricing
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`Program: Contract Pharmacy Oversight (Feb. 6, 2014, Date Last Reviewed: Apr. 2017),
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`https://www.hrsa.gov/opa/updates/contract-pharmacy-2014-02-05.html (last visited July 8, 2022).
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`10. Moreover, even among the covered entities that choose to use contract pharmacies,
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`Merck’s current policy only applies to purchases by a confined subset of 340B covered entities:
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`hospital entities and community health center entities (i.e., entities enrolled in the 340B program
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`as a consolidated health center program). And for hospital and community health center covered
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`entities that agree to provide the limited claims-level data that Merck has reasonably requested,
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`Merck’s policy permits them to use unlimited contract pharmacies if they choose to do so, without
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`any numerical or geographic limitations.
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`11.
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`If a hospital or community health center covered entity elects to use contract-
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`pharmacy arrangements and also declines to provide the requested claims-level data, Merck’s
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`policy still permits that covered entity to purchase covered outpatient drugs at or below the 340B
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`ceiling price, consistent with Merck’s commitment to meet its statutory obligation to offer all of
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`its covered outpatient drugs for purchase by all covered entities at or below the 340B ceiling price.
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`Merck’s policy also permits a hospital or community health center covered entity that declines to
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`provide claims-level transactional data to utilize any contract pharmacy that it wholly owns or
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`holds through common ownership, provided that the pharmacy is registered with HRSA as a
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`contract pharmacy of that covered entity. And, if a hospital or community health center covered
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`entity lacks an in-house pharmacy, it may designate a contract pharmacy site of its own choosing
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`and place 340B orders for shipment to that designated contract pharmacy location.
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`12.
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`Notwithstanding that Merck’s policy offers 340B pricing on Merck’s covered
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`outpatient drugs to each and every 340B covered entity, and notwithstanding intervening decisions
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`of this Court and other courts holding other substantively identical violation letters unlawful,
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`Defendants responded to Merck’s policy using the same playbook—and essentially the very same
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`words—that they used against other manufacturers.
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`13.
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`On May 6, 2022, Defendant Carole Johnson sent a letter to Merck (“May 6 Letter”).
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`The May 6 Letter is nearly identical to the violation letters HRSA previously sent to Novartis and
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`United Therapeutics (as well as those violation letters HRSA sent to other manufacturers on May
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`17, 2021 and October 4, 2021).
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`14.
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`The May 6 Letter begins with an assertion that HRSA has reviewed Merck’s policy
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`and “has determined that Merck’s actions have resulted in overcharges and are in direct violation
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`of the 340B statute.” May 6 Letter at 1. Like the prior violation letters, the May 6 Letter asserts
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`the categorical position that the statute forecloses manufacturers from conditioning their 340B
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`pricing offers in any way, stating as follows: “Nothing in the 340B statute grants the manufacturer
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`the right to place conditions on its fulfillment of its statutory obligation to offer 340B pricing on
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`covered outpatient drugs purchased by covered entities. Furthermore, the 340B statute does not
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`permit manufacturers to impose conditions on covered entities’ access to 340B pricing, including
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`the production of claims data.” Id. Like the prior violation letters, the May 6 Letter purports to
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`direct Merck to “immediately begin offering its covered outpatient drugs at the 340B ceiling price
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`to covered entities through their contract pharmacy arrangements,” and to “credit or refund all
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`covered entities for overcharges that have resulted from Merck’s policy.” Id. at 2. Further, like the
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`prior violation letters, the May 6 Letter threatens that civil monetary penalties may be imposed if
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`Merck does not “comply with its obligations under section 340B(a)(1),” as those obligations are
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`(erroneously) described in the letter. Id.
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`15.
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`The May 6 Letter does not acknowledge this Court’s Novartis/UT decision. Nor
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`does it acknowledge the decisions of other district courts that have vacated similar violation letters
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`in whole or in part.1 And the May 6 Letter neither acknowledges nor responds to the reasoning of
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`those decisions. The May 6 Letter is contrary to law and arbitrary and capricious for substantially
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`the same reasons identified by this Court and others in vacating Defendants’ prior violation letters.
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`16. Moreover, while the May 6 Letter generically asserts that “Merck’s actions have
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`resulted in overcharges” and references “complaints HRSA has received from covered entities,”
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`id. at 1, it does not identify any specific instance or amount of any alleged overcharge. HRSA also
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`did not identify any specific alleged overcharge or complaint in any prior communication with
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`Merck. HRSA’s determination that “Merck’s actions have resulted in overcharges” is thus
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`arbitrary and capricious because it failed to identify any factual determination on which the
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`agency’s conclusion rests and, further, is inconsistent with due process because HRSA failed to
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`provide Merck with notice of any specific alleged overcharge or any meaningful opportunity to
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`1 AstraZeneca Pharms. LP v. Becerra, C.A. No. 21-27-LPS, 2022 WL 484587, at *6 (D. Del. Feb.
`16, 2022) (“Because the Violation Letter rests on essentially the same flawed statutory
`interpretation that the Court already rejected, the Violation Letter cannot stand.”), appeal docketed,
`No. 22-1676 (3d Cir. Apr. 15, 2022); id. at *6, *9 (stating, on two separate grounds, that the court
`will vacate and set aside HRSA’s “Violation Letter”); see also Eli Lilly & Co. v. U.S. Dep't of
`Health & Hum. Servs., No. 1:21-cv-00081-SEB-MJD, 2021 WL 5039566, at *1, *24 (S.D. Ind.
`Oct. 29, 2021) (stating that the court is “set[ting] aside and vacat[ing] . . . the May 17 Letter”
`“because HRSA has failed even to acknowledge any change in its position”), appeal docketed,
`Nos. 21-3128 & 21-3405 (7th Cir. Nov. 15, 2021, Dec. 30, 2021); Sanofi-Aventis U.S., LLC v. U.S.
`Dep't of Health & Hum. Servs., CV Nos. CV 21-00634 and 21-00806 (FLW), 2021 WL 5150464,
`at *43 (D.N.J. Nov. 5, 2021) (vacating HRSA’s “Violation Letter” “to the extent that such
`determinations may depend on the number of permissible contract pharmacy arrangements under
`the 340B statute”), appeal docketed, Nos. 21-3167 et al. (3d Cir. Nov. 26, 2021).
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`respond to such an allegation before making its determination that, supposedly, “Merck’s actions
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`have resulted in overcharges.”
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`17.
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`On May 19, 2022, Merck responded to the May 6 Letter. See Letter from Phil
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`Rinnander, Merck, to Carole Johnson, Administrator of HRSA (May 19, 2022) (“May 19, 2022
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`Letter”), Exhibit I. Merck’s response identified numerous legal and factual shortcomings of the
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`May 6 Letter. Among other problems, Merck’s response highlighted that HRSA’s form-letter
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`determination fundamentally misdescribed Merck’s policy and completely failed to acknowledge
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`that, in fact, “Merck’s initiative permits all covered entities to purchase covered outpatient drugs
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`at or below the 340B ceiling price, whether or not they provide claims-level data for contract
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`pharmacy transactions to a third-party platform.” May 19, 2022 Letter at 1, 3–4 (quoting Merck’s
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`April 1, 2022 Letter to HRSA (Exhibit G) at 2). Merck’s response also pointed out HRSA’s failure
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`to identify any specific instance of any alleged overcharge and concomitant failure to provide
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`Merck with any meaningful opportunity to respond to such allegations before HRSA reached its
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`determination in its May 6 Letter that “Merck’s actions have resulted in overcharges” to which
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`civil monetary penalties could supposedly attach. May 6 Letter at 1; see May 19, 2022 Letter at 2–
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`3.
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`18.
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`HRSA has not responded to Merck’s May 19, 2022 Letter, and, unfortunately,
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`Merck has been given no reason to expect that HRSA will consider or respond to that letter, or that
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`litigation with HRSA can otherwise be avoided. Indeed, HRSA’s intent to forge forward with the
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`same approach held unlawful in Novartis/UT is further underscored by a recent posting on HRSA’s
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`website indicating that on June 27, 2022, HRSA sent yet another substantively identical violation
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`letter to yet another manufacturer. See https://www.hrsa.gov/sites/default/files/hrsa/opa/pdf/hrsa-
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`letter-ucb-covered-entities.pdf.
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`19.
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`Accordingly, for the reasons set forth herein, the Court should vacate the May 6
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`Letter because it is arbitrary and capricious, in excess of statutory authority, and inconsistent with
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`due process of law. Merck further requests declaratory relief holding that Merck’s policy does not
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`violate the 340B statute, and thus cannot as a matter of law form the basis of a civil monetary
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`penalty determination, contrary to Defendants’ assertions in the May 6 Letter.
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`JURISDICTION AND VENUE
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`20.
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`This Court has jurisdiction pursuant to 28 U.S.C. § 1331. This action arises under
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`the APA, 5 U.S.C. §§ 701–706.
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`21.
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`This Court has authority to grant declaratory and injunctive relief pursuant to the
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`Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202, and the APA, 5 U.S.C. § 702.
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`22.
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`Venue is proper in this District pursuant to 28 U.S.C. § 1391(e)(1) because this
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`action seeks relief against federal agencies and officials acting in their official capacities, at least
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`one of whom resides in this District, and because a substantial part of the events or omissions
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`giving rise to the claims occurred in this District.
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`PARTIES
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`23.
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`Plaintiff Merck is a corporation organized under the laws of New Jersey, with its
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`principal place of business in Rahway, New Jersey. Plaintiff Merck is a wholly owned subsidiary
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`of Merck & Co., Inc., a global health care company that delivers innovative health solutions
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`through its prescription medicines, vaccines, and biologic therapies.
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`24.
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`Defendant HHS is a department of the United States and oversees the activities of
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`HRSA. HHS’s headquarters are in Washington, DC.
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`25.
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`Defendant Xavier Becerra is the Secretary of HHS. In that capacity, he has ultimate
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`responsibility for activities at HHS, including the actions complained of herein. He is sued in his
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`official capacity.
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`26.
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`Defendant HRSA is an administrative agency within HHS that is responsible for
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`administering the 340B program. It is headquartered in Rockville, Maryland.
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`27.
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`Defendant Carole Johnson is the Administrator of HRSA. In that capacity, she has
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`ultimate responsibility for activities at HRSA, including the actions complained of herein. She is
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`sued in her official capacity.
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`A. The 340B Program
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`FACTUAL BACKGROUND
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`28.
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`Congress established the 340B Program in 1992. See Veterans Health Care Act of
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`1992, Pub. L. No. 102-585 § 602(a), 106 Stat. 4943, 4967 (Nov. 4, 1992) (adding Section 340B to
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`the Public Health Service Act, codified at 42 U.S.C. § 256b).
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`29. Manufacturers of prescription drugs and biologicals, such as Merck, are required to
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`participate in the 340B Program as a condition of having their products covered and reimbursed
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`under state Medicaid programs and the Medicare Part B program. 42 U.S.C. § 1396r–8(a)(1),
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`(a)(5). Manufacturers enter into the 340B Program by signing a form agreement with the HHS
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`Secretary—the Pharmaceutical Pricing Agreement (“PPA”)—that is used nationwide for all
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`manufacturers participating in the program. 42 U.S.C. § 256b(a)(1); see also Astra USA, Inc. v.
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`Santa Clara Cnty., 563 U.S. 110, 113 (2011) (“PPAs are not transactional, bargained-for contracts.
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`They are uniform agreements that recite the responsibilities § 340B imposes, respectively, on drug
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`manufacturers and the Secretary of HHS.”).
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`30.
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`Congress created the 340B Program two years after enacting the Medicaid Drug
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`Rebate Program (“MDRP”), Pub. L. 101-508, § 4401, 104 Stat. 1388 (Nov. 5, 1990), to address
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`an issue that the MDRP had created. Before enactment of the MDRP, manufacturers historically
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`had voluntarily provided significant discounts on prescription medicines to safety-net clinics and
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`other healthcare providers that provide care to large numbers of low-income and uninsured
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`individuals and that also dispense outpatient prescription drugs to their patients. See H.R. Rep. No.
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`102-384(II) at 12-13 (1992), 1992 WL 239341. But the MDRP’s original design created a
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`significant financial disincentive for manufacturers to continue to offer such discounts. The reason
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`was that any such discounts would factor into the MDRP’s “best price” calculation and thus would
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`substantially increase the rebate amounts that the manufacturers would owe to the Medicaid
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`program. Id. Put another way, the practical effect of the MDRP was that manufacturers’ voluntary
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`discounts to safety-net providers triggered drastic increases to manufacturers’ mandatory rebate
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`liability to the states under Medicaid.
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`31.
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`Congress responded through the 340B statute, which expressly exempts discounts
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`provided for sales of covered outpatient drugs to specified types of healthcare providers, known
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`as “covered entities,” from the MDRP “best price” calculations. See 42 U.S.C. § 256b(a)(4); 42
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`U.S.C. § 1396r-8(c)(1)(C)(i)(I), (j)(1)(B). In addition, the 340B statute requires participating
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`manufacturers to charge no more than a statutorily calculated “ceiling price” when their covered
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`outpatient drugs are purchased by a 340B covered entity for use by the covered entity’s patients.
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`42 U.S.C. § 256b(a)(1), (a)(4), (a)(5)(B), (b)(1).
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`32.
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`The 340B statute enumerates the categories of healthcare providers that qualify as
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`“covered entit[ies],” see 42 U.S.C. § 256b(a)(4), generally focusing on “specified Federally-
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`funded clinics and public hospitals that provide direct clinical care to large numbers of uninsured
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`Americans.” H.R. Rep. No. 102-384(II) at 12 (emphasis added). This enumerated list of covered
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`entity types does not include third-party pharmacies. See AstraZeneca Pharms. LP v. Becerra, 543
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`F. Supp. 3d 47, 60 (D. Del. 2021) (“It is hard to believe that Congress enumerated 15 types of
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`covered entities with a high degree of precision and intended to include contract pharmacies as a
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`16th option by implication.”).
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`33.
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`The 340B statute also specifies compliance requirements for covered entities. 42
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`U.S.C. § 256b(a)(5). For example, Congress recognized manufacturers should not be obligated to
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`provide both a 340B discount and a Medicaid rebate on the very same unit of a drug. The 340B
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`statute accordingly “[p]rohibit[s] duplicate discounts or rebates,” specifying that a particular sale
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`of a covered outpatient drug must not be subject to both a 340B discount under the 340B Program
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`and a Medicaid rebate under the MDRP for the same utilization. 42 U.S.C. § 256b(a)(5)(A).
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`34.
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`In addition, the statute expressly prohibits covered entities from “diverting” 340B-
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`discounted covered outpatient drugs, specifying that “a covered entity shall not resell or otherwise
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`transfer the drug to a person who is not a patient of the entity.” 42 U.S.C. § 256b(a)(5)(B).
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`35.
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`The 340B statute also requires covered entities to permit the HHS Secretary and
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`manufacturers participating in the 340B Program to conduct audits of covered entities regarding
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`the entity’s compliance with these statutory prohibitions on duplicate discounts and diversion. 42
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`U.S.C. § 256b(a)(5)(C). To conduct an audit of a covered entity, the statute provides that a
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`manufacturer must “act[] in accordance with procedures established by the Secretary relating to
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`the number, duration, and scope of audits.” Id. HRSA subsequently published guidance concerning
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`audit procedures. Manufacturer Audit Guidelines and Dispute Resolution Process 0905-ZA-19, 61
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`Fed. Reg. 65,406 (Dec. 12, 1996). Those guidelines state, among other provisos, that, before
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`auditing a covered entity, a manufacturer must “establish reasonable cause” to believe that there
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`has been a violation of the statutory prohibition on duplicate discounts or diversion, id. at 65,406
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`& 65,407, and that HRSA will permit a manufacturer-initiated audit to proceed only if HRSA,
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`upon review of “documentation” submitted by the manufacturer, agrees that the “reasonable
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`cause” standard has been met, id. As a result of this and other constraints, manufacturer audits of
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`covered entities are extremely onerous, burdensome, expensive, and time-consuming and, as a
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`result, are rarely conducted. Short of conducting audits, however, HRSA has repeatedly urged
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`manufacturers and covered entities to work together to resolve issues regarding compliance with
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`the 340B statute,2 and HRSA has historically acknowledged that manufacturers may include
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`conditions with respect to providing 340B pricing “that address customary business practice,
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`request standard information, or include other appropriate contract provisions.” 1994 Guidance,
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`59 Fed. Reg. at 25,113–14.
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`36.
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`In 2010, Congress adopted a series of amendments to the 340B statute. The 2010
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`amendments added new categories of “covered entity” types eligible to participate in the 340B
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`Program—none of which included or mentioned pharmacies. Pub. L. 111-148, § 7101, 124 Stat.
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`119, 821 (Mar. 23, 2010) (codified at 42 U.S.C. § 256b(a)(4)). The 2010 amendments also
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`specified that the contracts manufacturers enter into with the HHS Secretary to facilitate
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`participation in the 340B Program “shall require that the manufacturer offer each covered entity
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`covered [outpatient] drugs for purchase at or below the applicable ceiling price if such drug is
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`made available to any other purchaser at any price.” Id. § 7102 (codified at 42 U.S.C. § 256b(a)(1)).
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`At the same time, Congress also added a series of provisions aimed at achieving “[i]mprovements
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`2 See, e.g., 61 Fed. Reg. at 65,408 & 65,410; 340B Drug Pricing Program Ceiling Price and
`Manufacturer Civil Monetary Penalties Regulation, 82 Fed. Reg. 1210, 1228 (Jan. 5, 2017) (stating
`that, “[u]nder current practice, HHS encourages manufacturers and covered entities to work in
`good faith to resolve any pricing discrepancies,” and that “HHS anticipates this practice to
`continue”).
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`in [p]rogram [i]ntegrity,” including provisions focused on compliance for 340B covered entities
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`and for manufacturers participating in the 340B Program. In addition, Congress directed the
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`Secretary to “promulgate regulations to establish and implement an administrative process for the
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`resolution of claims by covered entities that they have been overcharged for drugs purchased under
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`this section, and claims by manufacturers, after the conduct of audits as authorized by subsection
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`(a)(5)(C), of violations of” the statutory duplicate discount and diversion prohibitions, id. (codified
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`at 42 U.S.C. § 256b(d)).
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`37.
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`The 2010 amendments also authorized HHS to impose “civil monetary penalties”
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`(“CMPs”) against a manufacturer that is found to have “knowingly and intentionally charge[d] a
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`covered entity a price for purchase of a drug that exceeds” the statutory 340B ceiling price. 42
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`U.S.C. § 256b(d)(1)(B)(vi), (d)(1)(B)(vi)(III). The statute specifies that the imposition of such
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`CMPs “shall be assessed according to standards established in regulations to be promulgated by
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`the Secretary.” 42 U.S.C. § 256b(d)(1)(B)(vi)(I). The resulting regulations state that HRSA may
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`refer manufacturers to the HHS Office of Inspector General (“OIG”) for CMP proceedings and
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`that HRSA will defer to OIG to determine, on a case-by-case basis, whether a manufacturer has
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`“knowingly and intentionally charge[d] a covered entity a price for purchase of a drug that
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`exceeds” the statutory 340B ceiling price. 82 Fed. Reg. at 1210, 1221–1224 & 1226.
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`38.
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` “Congress placed the [HHS] Secretary (acting through her designate, HRSA) in
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`control of § 340B’s drug-price prescriptions.” Santa Clara Cnty., 563 U.S. at 114. But that grant
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`of authority was limited. Congress did not give HRSA general rulemaking authority over the
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`program. Pharm. Rsch. & Mfrs. of Am. v. U.S. Dep’t of Health & Hum. Servs., 43 F. Supp. 3d 28,
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`45 (D.D.C. 2014) (“PhRMA”). Indeed, Defendants concede in their opening brief on appeal from
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`the Novartis/UT Decision that “Congress gave HHS rulemaking authority with respect to only
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`limited aspects of the 340B Program that do not include contract-pharmacy arrangements.” See
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`Opening Br. for Fed. Defs. at 7, Novartis Pharms. Corp. v. Johnson, Nos. 21-5299 and 21-5304,
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`ECF Doc. No. 1946057 (D.C. Cir. May 9, 2022) (“Johnson Opening Brief”).
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`B. HRSA’s Evolving Contract Pharmacy Guidance
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`39.
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`Although HRSA concededly lacks rulemaking authority with respect to contract-
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`pharmacy arrangements, and notwithstanding that the 340B statute does not mention contract
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`pharmacies at any point, the agency has from time to time published “guidance” reflecting
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`certain—and evolving—views of contract pharmacy arrangements in the 340B Program. As this
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`Court has previously concluded, HRSA’s “position has in fact shifted over time.” Novartis/UT,
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`2021 WL 5161783, at *8.
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`1. 1995: HRSA’s Initial Proposed Contract Pharmacy Guidance
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`40.
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`HRSA issued its initial proposed guidance on “contracted pharmacy services” in
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`1995. Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Contracted
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`Pharmacy Services, 60 Fed. Reg. 55,586 (Nov. 1, 1995). HRSA proposed “a contracted pharmacy
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`service agreement” with certain provisions, which would permit certain covered entities to use a
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`single third-party “contract pharmacy” site when an agreement was signed between the pharmacy
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`and the 340B covered entity. Id. at 55,587. The proposed guidance indicated that the covered entity
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`would be required to purchase the drug, but could use a “ship to-bill to” procedure, whereby the
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`manufacturer would bill the covered entity for the drugs, but ship the drugs to the contracted
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`pharmacy. Id. HRSA proposed that covered entities that lacked an in-house pharmacy would be
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`permitted to contract with a single (i.e., one and only one) pharmacy of the covered entity’s choice.
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`Id. (specifying a “limitation of one pharmacy contractor per facility” and emphasizing that “only
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`one site [may be] used for the contracted services”). The agency also suggested that in the future
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`it would “be evaluating the feasibility of permitting these facilities to contract with more than one
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`site and contractor.” Id.
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`2.
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`1996: HRSA’s Initial Final Guidance On Contract Pharmacies
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`41.
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`In 1996 HRSA issued a “Final [N]otice” with respect to its contract pharmacy
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`guidance. See HRSA, Notice Regarding Section 602 of the Veterans Health Care Act of 1992;
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`Contract Pharmacy Services, 61 Fed. Reg. 43,549 (Aug. 23, 1996) (“1996 Guidance”). The 1996
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`Guidance recognized that some covered entities did not have in-house pharmacies that could be
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`used for dispensing drugs, which, as a result, precluded such entities’ participation in the 340B
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`Program. Id. at 43,550. Seeking to broaden the opportunity for covered entities to participate in
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`the 340B Program, the 1996 Guidance stated that HRSA would permit covered entities lacking an
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`in-house pharmacy to identify a single outside “contract pharmacy” that, if it entered into an
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`agreement with the covered entity, would be permitted to receive 340B-discounted drugs
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`purchased by that covered entity and dispense them to patients of the covered entity. Id. at 43,550
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`& 43,551. HRSA also rejected suggestions that the agency authorize covered entities to use
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`multiple contract pharmacies. Id. at 43,551.
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`42.
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`The 1996 Guidance acknowledged t