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National Association of Chain Drug Stores v. U.S. Dep't of Health & Human Services

June 23, 2009


The opinion of the court was delivered by: Royce C. Lamberth, United States District Judge,


Before the Court is defendants' Motion [75] to Amend/Correct the Order [36] on Motion for Preliminary Injunction. Upon consideration of the motion, the opposition, the reply thereto, and the record herein, the Court will grant defendants' motion to amend the preliminary injunction to allow defendants to provide AMP data to the Government Accountability Office.


Plaintiffs, the National Association of Chain Drug Stores ("NACDS") and the National Community Pharmacists Association ("NCPA"), have challenged the United States Department of Health and Human Services' calculation of federal upper payment limits for Medicaid-covered generic drugs. Plaintiffs argue that, under regulations promulgated by the Department of Health and Human Services ("HHS"), pharmacies will not receive adequate compensation for the generic drugs they dispense to Medicaid patients.

In the Deficit Reduction Act of 2005 ("DRA"), Congress amended the Medicaid Act to substantially change the manner in which pharmacies would be compensated for Medicaid-covered generic drugs. Pub. L. No. 109-171, § 6001, 120 Stat. 4, 53 (2006). Effective January 1, 2007, the DRA set the federal upper payment limit ("FUL") for Medicaid-covered generic drugs at 250 percent of the average manufacturer price ("AMP") for the least costly equivalent formulation of the drug, plus a reasonable dispensing fee. Id. § 6001(a)(2), codified at 42 U.S.C. § 1396r-8(e)(5). Congress instructed the Centers for Medicare & Medicaid Services ("CMS") to promulgate a rule clarifying the term "average manufacturer price." Id. § 6001(c)(3)(B). CMS issued a final rule setting forth a definition of that term on July 17, 2007. 72 Fed. Reg. 39,142 (July 17, 2007). That rule became effective on October 1, 2007. Id. at 39,142. Since that time, prescription drug manufacturers have calculated AMPs for each of their drugs pursuant to CMS's new AMP definition and have been submitting those AMP data to CMS on a monthly basis. CMS had intended to begin setting AMP-based FULs in early 2008. Pursuant to the new public disclosure requirement of the DRA, § 6001(b)(2)(C)(v), codified at 42 U.S.C. § 1396r-8(b)(3)(D)(v), CMS had intended to begin publishing AMP data on its website in December 2007.

On December 14, 2007, this Court ruled that plaintiffs were likely to succeed on the merits of their claim that one or more components of CMS's AMP definition were inconsistent with the Medicaid Act. (Hr'g Tr. 54 (Dec. 14, 2007).) The Court ultimately entered an injunction that prohibited CMS from setting FULS for Medicaid-covered generic drugs based on AMP, as the DRA would have required, and from disclosing AMP data except within HHS or to DOJ. (Order [36] , Dec. 19, 2007, 2 ¶ b.) CMS therefore continues to apply its pre-DRA methodology for calculating FULs, but relies on the AMP data calculated by the challenged definition for any purpose that does not affect pharmacy payment rates for Medicaid-covered drugs. (Defs.' Mot. to Am. 4.)

On July 15, 2008, Congress passed the Medicare Improvements for Patients and Providers Act of 2008 ("MIPPA"). Pub. L. No. 110-275, 122 Stat. 2494 (2008). In MIPPA, Congress imposed a statutory moratorium until October 1, 2009 on CMS's use of AMPs to set FULs so that Congress would have sufficient time to determine whether to amend the statutory definition of AMP or take some other legislative action in light of the agency's AMP definition. Id. § 203(a); 154 Cong. Rec. H5914 (2008) (statement of Rep. Etheridge). CMS is thus currently prohibited by both the MIPPA and by this Court's preliminary injunction from setting FULs based on AMPs, as the DRA would have required. (Defs.' Mot. to Am. at 5.)

In order to evaluate CMS's AMP definition, the ranking member of the Senate Committee on Finance, Senator Charles E. Grassley, has asked Congress's investigative arm, the Government Accountability Office ("GAO"), for a report comparing retail pharmacy acquisition costs to the FULS that would apply in an AMP-based FUL system under the challenged HHS regulation. (Defs.' Mot. to Am. at 5.) This would update the report that GAO prepared in December 2006, shortly after the DRA was enacted, on the same topic. (See Defs.' Mot. to Am., Ex. A & B.) While the December 2006 report used AMPs calculated under the agency's preDRA AMP calculation procedures, CMS understands that the update would utilize AMPs calculated pursuant to the requirements of the DRA, the AMP definition CMS promulgated pursuant to the DRA, and the "outlier" provision adopted in the AMP regulation. (See Defs.' Mot. to Am., Ex. C.)

To prepare the requested report, GAO requires access to AMP data held by HHS. The preliminary injunction [36] entered by this Court on December 19, 2007, however, prohibits the agency from disclosing AMP data except within HHS or to the Department of Justice ("DOJ"). (Order [36], Dec. 19, 2007, at 2 ¶ b.) This non-disclosure provision addresses plaintiffs' concern that public release of AMP data could cause third party payers to lower their prescription drug payment rates. An unforeseen consequence of the preliminary injunction's non-disclosure provision, however, is that it now precludes HHS from providing GAO with the data GAO requires to fulfill its congressional request, thereby bringing this legislative oversight process to a halt. Defendants assert that plaintiffs will not be harmed by the disclosure of AMP data to GAO, and moreover, that the public interest will be furthered by allowing GAO to prepare this report pursuant to its authority so that Congress may consider amendments to the AMP-based FUL system. Defendants thus seek a limited modification of the injunction to provide GAO access to AMP data, subject to GAO's statutorily-imposed duty of confidentiality, so that GAO may update its 2006 report and enable Congress to perform its legislative and oversight responsibilities. (Defs.' Mot. to Am. at 6.)

Plaintiffs oppose the disclosure of AMP data to GAO for purposes of preparing the congressional report, claiming that the AMP data are flawed because they will not produce adequate payments to pharmacies for Medicaid-covered generic drugs and therefore should not be used even for the limited purpose of preparing a report evaluating the adequacy of the data. Plaintiffs also claim that the GAO, Comptroller General, and Senator Grassley do not have the authority to obtain the enjoined AMP data.


A. Plaintiffs Will Not Be Harmed by the Requested Modification

Disclosure of AMP data to GAO will not result in any of the harms plaintiffs have claimed in this lawsuit with respect to the agency's definition of AMP. Plaintiffs' claimed harm relates to public disclosure, which still would not occur if the AMP data were disclosed to GAO.

"Injunctive relief granted to a party in a lawsuit must be framed to remedy the harm claimed by the party." Aviation Consumer Action Project v. Washburn, 535 F.2d 101, 108 (D.C. Cir. 1976). "An injunction must be narrowly tailored to remedy the specific harm shown." Id.; see also State of Neb. Dep't of Health & Human Servs. v. Dep't of Health & Human Servs., 435 F.3d 326, 330 (D.C. Cir. 2006) ("We have long held that an injunction must be narrowly tailored to remedy the specific harm shown.") (quotations omitted). An injunction should be "no broader than necessary to achieve its desired goals." Madsen v. Women's Health Ctr., Inc., 512 U.S. 753, 765 (1994). "Injunctive relief should be no ...

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