The opinion of the court was delivered by: Emmet G. Sullivan, United States District Judge.
Plaintiff, Amgen Inc., a company that develops, manufactures and
markets biological products, commenced this action against Thomas
Scully, the Administrator of the Centers for Medicare and Medicaid
Services ("CMS" or "the agency"), and Tommy Thompson, Secretary of the
Department of Health and Human Services ("HHS"). On November 15, 2002,
plaintiff filed a motion for preliminary injunction seeking to enjoin
defendants from implementing one subsection of a final rule promulgated
on November 1, 2002 and scheduled to go into effect on January 1, 2003.
On December 7, 2002, Ortho Biotech Products, LP ("Ortho"), a
pharmaceutical company which manufactures Procrit, the only product on the
market which competes with Amgen's Aranesp, filed a motion to intervene
on behalf of federal defendants. The Court granted the unopposed motion
to intervene*fn1 with respect to standing issues only on December 23,
Without objection from the parties, the Court consolidated plaintiff's
request for injunctive relief with the proceedings on the merits pursuant
to Fed.R.Civ.P. 65(a)(2). Pending before the Court is defendants' motion
to dismiss or, in the alternative, for summary judgment. Upon
consideration of the parties' motions, oppositions, replies and oral
arguments, as well as the statutory and case law governing the issues,
and for the following reasons, the Court concludes that defendants'
motion to dismiss plaintiff's complaint is GRANTED.
Plaintiff challenges the "illegal agency action" that resulted in the
promulgation of a final rule affecting Medicare's hospital Outpatient
Prospective Payment System ("OPPS"). OPPS is the mechanism under which
Medicare reimburses hospitals for the outpatient services that they
furnish to Medicare beneficiaries. Plaintiff alleges that, in its final
rule, CMS, the agency responsible for implementing the Medicare program,
unlawfully singled out Aranesp, Amgen's new product, and eliminated its
statutorily mandated reimbursement status. Plaintiff alleges that the
agency's action was in direct conflict with the "pass-through" statute,
42 U.S.C. § 13951 (t)(6)(C), which permits reductions in
"pass-through" payments only where necessary to maintain total
"pass-through" expenditures within a cap. According to plaintiff, the
statute does not authorize CMS to pick and choose among pass-through
products, imposing cuts on one and not on others.
A. Medicare Outpatient Prospective Payment System
Title XVIII of the Social Security Act of 1935, commonly known as the
"Medicare Act," provides health insurance for individuals 65 years of age
and older, some individuals with disabilities under 65, and individuals
with end-stage renal disease. The program's primary objective is to
ensure that its beneficiaries have access to health care services. Part B
of Medicare is a voluntary program that provides supplemental coverage
for other kinds of care, including treatment through hospital outpatient
In 1997, Congress enacted the Balanced Budget Act of 1997 ("BBA"),
Pub. L. No. 105-33, 111 Stat. 251 (1997), which required the Secretary of
HHS to develop a prospective payment system for hospital outpatient
services ("OPD services"), 42 U.S.C. § 13951 (t). For covered OPD
services, the Secretary is required to develop a classification system
for individual services or groups of related services.
42 U.S.C. § 13951 (t)(2)(A)-(B). In implementing this system, the
Secretary groups outpatient services into classifications called
Ambulatory Payment Classifications ("APCs"). 42 U.S.C. § 419.31. Each
APC is a "package" of related medical services that CMS has determined
should be grouped together and paid as a whole.*fn2 For each such
service or group of services, the Secretary must establish relative
payment weights based on historical data of the median cost of the
service(s) within the APC. 42 U.S.C. § 13951 (t)(2)(C). The amount of
the OPPS payment to a hospital for a particular service is established in
part by multiplying the "conversion factor," the base amount used to
determine payments for all services under OPPS, by the APC relative
weight. 42 U.S.C. § 13951 (t)(3)(C)-(D). A percentage of this figure
is paid by the beneficiary as a copayment and the remainder is the fee
schedule amount for the APC. 42 U.S.C. § 13951 (t)(8).
The statute authorizes the Secretary to make certain adjustments in
determining OPPS payments. 42 U.S.C. § 13951 (t)(2). These include
wage adjustments to reflect differences in the cost of labor, adjustments
for cases with unusually high costs, transitional pass-through payments
for certain innovative drugs, biologicals and devices, and "other
adjustments as determined to be necessary to ensure equitable payments."
42 U.S.C. § 13951 (t)(2)(D), (E). The Secretary updates the groups,
relative payment weights, and wage and other adjustments annually in
order to take into account changes in medical practice, changes in
technology, the addition of
new services, new cost data, and "other
relevant information and factors." 42 U.S.C. § 13951 (t)(2), (9).
The OPPS must be budget neutral by law. In accordance with
42 U.S.C. § 13951 (t)(9)(B), any adjustments made by the Secretary
"may not cause the estimated amounts of expenditures under this part for
the year to increase or decrease from the estimated amount of
expenditures under this part that would have been made if the adjustments
had not been made." See also 42 U.S.C. § 13951 (t)(2)(E).
B. Transitional Pass-Through Payments
In 1999, Congress passed the Balanced Budget Refinement Act of 1999
("BBRA"), Pub. L. No. 106-113, 113 Stat. 1501 (1999), which provides for
additional "transitional pass-through" payments to hospitals that use
certain innovative drugs, biologicals, and devices for outpatient
services. 42 U.S.C. § 13951 (t)(6). The BBRA required CMS to make
pass-through payments for each qualifying product for at least two, and
not more than three, years during which time CMS would collect claims and
charge data for each pass-through item. 42 U.S.C. § 13951 (t)(6)(C).
Generally, once an item no longer qualifies for pass-through payments,
CMS incorporates the cost for that item into the APC for the procedure
with which it is associated.
Under 42 U.S.C. § 13951 (t)(2)(E) and 13951(t)(6)(E), the Secretary
is to provide for transitional pass-through payments in a budget neutral
manner. Thus, if the agency projects that transitional pass-through
payments in the upcoming year will be 2.0 percent of total payments, then
the agency makes a prospective adjustment to the conversion factor for
OPPS payments, a reduction of 2.0 percent, so that the system is budget
neutral. 42 U.S.C. § 13951 (t)(6)(E) places a limit on aggregate
projected pass-through payments as a percentage of total OPPS payments.
For calendar year 2003, the total amount of pass-through payments cannot
be projected to exceed 2.5 percent of total OPPS payments. If the
Secretary estimates before the beginning of the calendar year that total
pass-through payments will exceed the 2.5 percent cap, then the Secretary
shall reduce pro rata the amount of each of the pass-through payments to
ensure that the 2.5 percent limit is not exceeded. The reduction applies
only to the additional transitional pass-through payments that hospitals
receive for using these items, not to the APC fee schedule amount with
which the pass-through item is associated.
Under 42 U.S.C. § 1395 (t)(6)(D)(i), the additional pass-through
payment to hospitals for qualified drugs and biologicals equals the
difference between (1) 95 percent of Average Wholesale Price ("AWP") and
(2) the amount of the APC payment rate that would be associated with the
product if it did not have pass-through status, that is, "the otherwise
applicable Medicare OPD fee schedule (payment) that the Secretary
determines is associated with the drug or biological," (referred to
herein as "the fee schedule payment"). Thus, a hospital using a drug
designated for pass-through status under the OPPS would receive 95
percent of AWP, a portion of which is understood as the fee schedule
payment and the remainder of which can be understood as the "pass through
payment." The co-payment, paid by the beneficiary, is based only on the
In September, 2001, plaintiff sought pass-through status for Aranesp.
A.R. 3735-80. CMS found that pass-through status was warranted for
Aranesp on February 5, 2002, stating that it had "carefully reviewed"
Amgen's submission based on the provisions established in the hospital
OPPS rules published in the Federal Register on April 7, 2000, and
November 13, 2000. A.R. 3781. Aranesp was assigned to APC 734, with an
APC payment rate of $4.74, which was 95 percent of the product's AWP.
See 67 Fed. Reg. 9556, 9562 (Mar. 1, 2002). The first date on which
Aranesp was eligible for pass-through payments was April 1, 2002. A.R.
B. August 9, 2002 Proposed Rule
On July 2, 2002, Ortho, the manufacturer of the older drug Procrit,
suggested to CMS a policy similar to that which CMS would eventually
adopt in the final rule. Ortho suggested that CMS change its
reimbursement policy so as to reimburse Aranesp and Procrit at the same
rate pursuant to CMS' "other adjustment" authority. A.R. 1918-22. In the
alternative, Ortho suggested that CMS eliminate Aranesp's pass-through
status altogether, based on what Ortho characterized as "revised
criteria" for determining "continued eligibility" for pass-through
treatment in 2003 and beyond. A.R. 1922.
Approximately a month later, on August 9, 2002, CMS published a
proposed rule addressing 2003 OPPS payment rates and other policy
changes. 67 Fed. Req. 52,092 (Aug. 9, 2002). The proposed rule addressed
calendar year 2003 Medicare payment rates and policies under the OPPS.
Id. It observed that the outpatient pass-through provisions had been
"exceptionally difficult to implement" and indicated that CMS was
"actively seeking comment on all aspects" of the pass-through rates. Id.
at 52,093. CMS concluded that it was "open to making changes, perhaps
significant, in the final rule based on comments." Id. The proposed rule
did not specify that "revised criteria" might be used to determine
eligibility for pass-through status, as Ortho had suggested weeks
before. Nor did CMS intimate that it might use its "other adjustment"
authority to equate Aranesp's reimbursement level with Procrit's. CMS
proposed to use mechanisms other than imputed acquisition cost ratios to
compute pass-through amounts for a limited number of drugs and
biologicals. For drugs that are new and are substitutes for a single drug
whose cost is recognized in a unique APC, the pass-through amount would
equal the difference between 95 percent of the AWP for the pass-through
drug and the payment rate for the comparable dose of the associated
drug. The payment rate for the comparable dose of the associated drug
also would be used to determine the copayment amount for the pass-through
drug. Id. at 52,118. In the proposed rule, CMS indicated that darbepoetin
alfa, that is, Aranesp, "is a new substitute of epoetin (Procrit)." Id.
at 52,118. Thus, CMS proposed that the pass-through payment for Aranesp
be calculated as the difference between 95 percent of the AWP for Aranesp
and the fee schedule payment rate for the "comparable dose" of Procrit,
whose pass-through status was scheduled to expire in 2003. See Id.
Interested individuals and entities were given until October 7, 2002,
to submit their comments on the proposed rule. 67 Fed. Req. 53,644 (Aug.
C. Comments on the Proposed Rule
During the public comment period, plaintiff submitted a September 6,
2002 e-mail resubmitting an April 17, 2002 letter from plaintiff to CMS
addressing whether Aranesp and Procrit were sufficiently similar to be
paid at the same rate. A.R. at 2342-49. The April 17, 2002 letter from
plaintiff was a response to a March 29, 2002 Ortho Biotech letter to CMS,
submitted by Ortho at a public CMS Town Hall Meeting on 2003 OPPS rates
on April 5, 2002. A.R. 2243-49. The announcement of the meeting in the
Federal Register invited "(p)roviders, physicians, hospitals, coding
specialists, and other interested parties . . . to present their views" on
payment methodology for the 2003 OPPS rule. 67 Fed. Reg. 11,969-70. The
administrative record includes several other e-mail comments sent to CMS
in September 2002, some of which attached references, studies, and
previous correspondence for CMS's review. A.R. at 2317-29, 2350,
2351-2357, 2360, 2361-63.
Plaintiff also submitted comments and materials dated September 12,
2002 suggesting that Aranesp and Procrit were not substitutes, and that
it would be difficult to develop a comparable dosing ...