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April 7, 1978

Joseph A. CALIFANO, Jr., et al., Defendants

The opinion of the court was delivered by: GESELL


 GESELL, District Judge.

 Plaintiff manufactures Librium SM, the formerly patented form of chlordiazepoxide hydrochloride ("chlordiazepoxide"), a prescription drug used in the treatment of anxiety, tension, and other psychologically damaging diseases. Several other drug manufacturers now produce and supply chlordiazepoxide in generic form or under other brand names, but as recently as June 1977 Librium SM accounted for 99% of all sales of the drug. Defendants are the Secretary of Health, Education, and Welfare and two other HEW officials: the Administrator of the Health Care Financing Administration and the Chairman of the Pharmaceutical Reimbursement Board ("Board"). *fn1"

 Over a year ago, defendants, acting through the Board, began to consider establishing by regulation a ceiling price over which no reimbursement would be made for purchases of chlordiazepoxide under Medicare, Medicaid, and other programs administered by HEW. On February 24, 1978, after administrative proceedings and purporting to act pursuant to 42 U.S.C. §§ 1395u(b)(3), 1396b(i)(1) (Supp. V 1975) and 45 C.F.R. §§ 19.1-.6 (1976), defendants propounded Maximum Allowable Costs ("MACs") for three dosages of the drug. 43 Fed.Reg. 7714 (1978). The levels set are significantly lower than the price plaintiff charges for Librium SM, but do not exceed the known price set by any other manufacturer of chlordiazepoxide. On March 17, 1978, plaintiff sued to enjoin preliminarily and permanently operation of the MACs, which are due to become effective on April 10, 1978, and for declaratory relief. An opposition was filed and arguments heard.

 The conditions warranting issuance of a preliminary injunction in this jurisdiction are well known. The moving party must demonstrate (1) a likelihood of success on the merits; (2) that absent such relief it will be irreparably injured; (3) that issuance of a stay would not substantially harm other parties interested in the proceedings; and (4) that the public interest lies with issuance. Washington Metropolitan Area Transit Commission (WMATC) v. Holiday Tours, Inc., 182 U.S.App.D.C. 220, 222, 559 F.2d 841, 843 (1977); Virginia Petroleum Jobbers Ass'n v. FPC, 104 U.S.App.D.C. 106, 110, 259 F.2d 921, 925 (1958). The merits of this case concern the validity of the Board's determination, as a necessary precondition to issuance of the MACs, that chlordiazepoxide is "widely and consistently available" at or below MAC prices in all localities and at all dosages for which a MAC is adopted. 42 U.S.C. § 1395u(b)(3) (Supp. V 1975); 45 C.F.R. § 19.5 (1976). Plaintiff contends that defendants applied an erroneous and overbroad interpretation of the standard, that in reaching their determination defendants relied on evidence not properly within the administrative record, and that even this improper evidence, viewed under the erroneous standard, does not support a finding that the drug is "widely and consistently available" at MAC prices. Any one of plaintiff's arguments, if correct, would suffice to vitiate the MACs set. All raise substantial questions.

 The dispute over the interpretation of the standard centers around the question of whether a drug must be on pharmacy or warehouse shelves in sufficient quantities at the MAC price to be "widely and consistently available" or whether it suffices to show substantial evidence that should the MAC be adopted, the drug would soon be readily obtainable by suppliers. Unfortunately there is little in the legislative history to suggest the meaning Congress ascribed to the standard when it was included in the Social Security Amendments of 1972, Pub.L.No. 92-603, 92d Cong., 2d Sess. (1972), and defendants' interpretations have not been consistent. There is evidence, however, that the standard was not intended to allow HEW to create a new market by imposing a MAC when existing production and distribution lines do not already suffice to supply the drug in sufficient quantities at the MAC price. See 40 Fed.Reg. 32289 (1975). The Court's review thus far of the evidence before the Board indicates a strong likelihood that immediate implementation of MACs for chlordiazepoxide would have just this effect.

 Even assuming that the more liberal standard applies, the Board may have committed serious error by soliciting and considering improper evidence. The Board's regulations provide that the MAC determination be made "[after] considering the written comments, the presentations made at any public hearing and any other evidence included as a part of the hearing record." 45 C.F.R. § 19.6(i) (1976). Two hearings were held regarding chlordiazepoxide, and plaintiff was the only manufacturer to testify or submit information at either. After the second hearing, the Board, acting ex parte, contacted three other manufacturers of the drug to inquire about inventory and projected production. The evidence obtained admittedly was considered by the Board, see 43 Fed.Reg. 7715 (1978), and plaintiff, who only learned of the ex parte information after final adoption of the MACs, claims that the decision was thus rendered void, citing Home Box Office, Inc. v. FCC, 185 U.S. App. D.C. 142, 567 F.2d 9 (D.C. Cir.), cert. denied, 434 U.S. 829, 98 S. Ct. 111, 54 L. Ed. 2d 89 (1977). Whether or not plaintiff will prevail on this question requires a determination, first, of whether the information so gained can in any way be considered to be "part of the hearing record," and if so, of the extent to which the information thus garnered "may have materially influenced the action ultimately taken." Action for Children's Television v. FCC, 183 U.S. App. D.C. 437, 564 F.2d 458, 476 (D.C. Cir. 1977). These are serious questions.

 Whether or not the Board had before it sufficient evidence to warrant a finding of wide and consistent availability, even under its own interpretation of that standard and considering all of the questionable evidence, is also highly questionable. Defendants' own advisory committee, after holding a hearing, recommended against establishing any MACs for chlordiazepoxide, finding that it is not "widely and consistently available." In the face of this and defendants' own recognition that "[chlordiazepoxide] HCL shows a very low overall penetration by products other than the leading brand (99%)," which admittedly sells at a price far exceeding the MAC limit, the evidence as to the production and distribution projections of competitors, the amount of delay before supplies could be fully stocked, and indeed even the willingness of other producers to supply adequate amounts at the MAC price is very small indeed. The Court's doubts are only bolstered by defendants' failure to accompany the final notice establishing the MACs with any more than the most conclusory rationalization of its action. Apparently lacking is substantial evidence of the "reasoned decisionmaking" that has so often been mandated by the United States Court of Appeals for the District of Columbia Circuit. See National Ass'n of Food Chains, Inc. v. ICC, 175 U.S.App.D.C. 346, 356, 535 F.2d 1308, 1318 (1976); see also Portland Cement Ass'n v. Ruckelshaus, 158 U.S.App.D.C. 308, 335, 486 F.2d 375, 402 (1973), cert. denied, 417 U.S. 921, 94 S. Ct. 2628, 41 L. Ed. 2d 226 (1974). On this motion for preliminary relief it is not appropriate to determine finally the sufficiency of the evidence of the legitimacy of the procedures and interpretations followed by the Board. It suffices to conclude that plaintiff has established a significant likelihood of success on the merits.

 The remaining factors also favor preliminary relief. If the order goes into effect, plaintiff will suffer loss of sales and good will for which it would have no right of recourse, and thus its injury will be irreparable. The loss is admittedly economic, but since no "adequate compensatory or other corrective relief will be available at a later date," it is not one of the "'mere' economic injuries which under Virginia Petroleum Jobbers are insufficient to warrant a stay." Virginia Petroleum Jobbers Ass'n v. FPC, 104 U.S.App.D.C. at 110, 259 F.2d at 925; WMATA v. Holiday Tours, Inc., 182 U.S.App.D.C. at 222, 559 F.2d at 843 n. 2. Issuance of a preliminary injunction - especially one of the short duration contemplated here - will not substantially harm defendants, who have proceeded at a leisurely pace in promulgating the MACs. Nor is there any indication that it will have any substantially harmful effect on other manufacturers, who have manifested no interest at all in the entire proceedings. The public interest on the one hand supports lower prices for drugs; but on the other hand it requires a continuous and adequate supply of chlordiazepoxide for which eligible purchasers can be reimbursed. There is a significant probability that this latter condition cannot be met, and for this reason, together with the other considerations discussed above, the preliminary injunction must issue. The Court issues the injunction with the understanding of all sides that the case must proceed expeditiously to final resolution. Defendants have labored long in an endeavor which, if done properly, is in the highest public interest. They have already filed a motion to dismiss. Plaintiff agrees that review shall be upon the record, which has been submitted, and therefore there is no need for evidentiary or discovery proceedings. To facilitate resolution, the following dates are set: April 17, 1978: Plaintiff's opposition and, if de- sired, cross-motion for summary judgment to be filed; April 28, 1978: Defendants' reply and, if neces- sary, opposition to cross-motion to be filed; May 5, 1978: Plaintiff's reply, if any, to be filed. May 5 at 2:00 P.M.: Oral argument on motions.


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