The opinion of the court was delivered by: James Robertson United States District Judge
Baxter Healthcare Corporation is the manufacturer of Advate, a clotting factor that is used to control and prevent bleeding in hemophiliacs. Baxter claims that the Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) have violated the Administrative Procedure Act by treating Advate as a "multiple source drug" under 42 U.S.C. § 1395w-3a(c)(6)(C)(ii), a provision of the Medicare statute.
Baxter moved for a preliminary injunction, but after a hearing on the motion, and with the consent of the parties, I ordered that the disposition of the case on the merits would be considered together with the pending motion, and invited the parties to submit supplemental memoranda. Dkt. 12. Judgment will now be entered in favor of the defendants.
Medicare Part B authorizes HHS to reimburse health care providers for drugs they administer to enrolled Medicare beneficiaries. To submit a reimbursement claim, a provider logs onto an automated system and identifies the drug it has administered by the drug's Healthcare Common Procedure Coding System (HCPCS) code. That information is sent to one of several private contractors, who process and pay out the claim with government funds.
As part of its responsibilities overseeing the reimbursement process, CMS maintains a set of national HCPCS codes, which it revises periodically. Declaration of Elizabeth Richter ¶ 5. Each HCPCS code is associated with a short phrase that describes a category of medication -- J0290 for "Ampicillin sodium," for example. See Alpha-Numeric HCPCS, available at http://www.cms.hhs.gov/HCPCSReleaseCodeSets/. To submit a valid reimbursement claim, a provider must select the HCPCS code that most closely describes the drug. Richter Decl. ¶ 9. If no existing code adequately describes the drug, providers can select a "miscellaneous/not otherwise classified" code, which serves as a placeholder while CMS considers whether a new permanent code is needed. Id. ¶ 7.
Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), "multiple source drugs" and "single source drugs or biologicals" are reimbursed at different rates. "Multiple source drugs" are therapeutically equivalent, pharmaceutically equivalent, and bioequivalent to other drugs on the market. 42 U.S.C. § 1395w-3a(c)(6)(C). They typically fall within the same HCPCS code as their equivalents, and their reimbursement rate is the weighted average of the average sale price of all drugs in that HCPCS code plus 6%. Id. § 1395w-3a(b)(1)(A). "Single source drugs and biologicals" are non-multiple source drugs and all biological products. Id. § 1395w-3a(c)(6)(D). They typically have their own HCPCS code, and their reimbursement rate is the lesser of (1) their average sale price, or (2) their wholesale acquisition cost, plus 6%. Id. § 1395w-3a(b)(1)(B).
Advate was the first anti-hemophilic factor to be made without any added human or animal plasma proteins, eliminating the risk of infections caused by viruses like HIV, West Nile Virus, and the human form of Mad Cow disease. Declaration of Deborah K. Williams ¶ 4. The FDA approved Baxter's application for Advate in July 2003, and Baxter began selling the drug on August 20 of that year. Id. ¶ 5; Richter Decl. ¶ 10.
The defendants concede that Advate meets the statutory definition of a biological. See Dkt. 10, at 8. But they contend that they must treat Advate like a multiple source drug because of a grandfather clause in the MMA, which directs the HHS Secretary to treat single source drugs or biologicals like multiple source drugs if they were "within the same [HCPCS] code [as other drugs] as of October 1, 2003." 42 U.S.C. § 1395w-3a(c)(6)(C)(ii). The defendants assert that, as of October 1, 2003, Advate was within HCPCS code J7192 -- the code for "Factor VII (antihemophilic factor, recombinant) per I.U." -- along with other anti-hemophilic products.
Advate is the most expensive product in HCPCS code J7192. Williams Decl. ¶ 19. Because the government treats Advate like a multiple source drug, and reimburses providers at the same rate for administering Advate as it does for administering any of the other products in group J7192, providers have a financial disincentive to administer Advate to Medicare beneficiaries. Id. Baxter has repeatedly asked CMS to reclassify Advate as a biological, most recently in connection with CMS' February 2007 review of reimbursement rates, but CMS has refused. Id. ¶¶ 11-17. In December 2008, after receiving CMS' denial of its most recent request to reclassify Advate, id., Ex. 8, Baxter filed this suit.
There are two issues in dispute: whether Baxter can seek judicial review of its claims at this time, and, if so, whether it can show that the defendants have either misinterpreted or misapplied 42 U.S.C. § 1395w-3a(c)(6)(C)(ii). Baxter prevails on the first issue, but falls short on the second.