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Allergan, Inc. v. Burwell

United States District Court, District of Columbia

March 31, 2016

ALLERGAN, INC., Plaintiff,
v.
SYLVIA MATHEWS BURWELL, in her official capacity as Secretary of Health and Human Services, [1] Defendant.

MEMORANDUM OPINION [DKTS. ## 30, 31]

RICHARD J. LEON, UNITED STATES DISTRICT JUDGE

Plaintiff Allergan, Inc. ("Allergan") brought this action against the Secretary of the United States Department of Health and Human Services ("HHS") on February 28, 2013. In a single count complaint, plaintiff seeks declaratory judgment that the Secretary acted arbitrarily and capriciously or contrary to law in violation of section 10(e)(2)(A) of the Administrative Procedure Act ("APA") by interpreting sections 1847A and 1927 of the Social Security Act ("SSA") to require Allergan to disclose to HHS's Center for Medicare Services ("CMS") its proprietary "average sales price" data ("ASP") for BOTOX Cosmetic. See Compl. [Dkt. # 1].

Both parties moved for summary judgment under Federal Rule of Civil Procedure 56(a). Pl.'s Mot. for Summ. J. ("Pl.'s Mot.") [Dkt. # 30]; Def.'s Mot. for Summ. J. ("Def.'s Mot.") [Dkt. # 31]. Upon consideration of the pleadings, record, and relevant law, I find that defendant is entitled to summary judgment. Accordingly, defendant's motion is GRANTED and plaintiffs motion is DENIED.

BACKGROUND

A. Allergan, BOTOX, and BOTOX Cosmetic.

Allergan is a healthcare company that develops and commercializes innovative pharmaceuticals, biologies, medical devices, and over-the-counter products. Pl.'s Mem. of Points and Authorities in Supp. of its Mot. for Summ. J. ("Pl.'s Mem.") 1. The SSA defines "biologicals" as those "included (or approved for inclusion) in the United States Pharmacopoeia . . . ." 42 U.S.C. § 1395x(t)(1). Subsection 351(i)(1) of the Public Health Service Act defines a "biological product" as

a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein (except any chemically synthesized polypeptide), or analogous product, or arsphenamine or derivative of arsphenamine (or any other trivalent organic arsenic compound), applicable to the prevention, treatment, or cure of a disease or condition of human beings.

42 U.S.C. § 262(i)(1). Absent a biologies license granted by the FDA, it is unlawful to "introduce or deliver for introduction into interstate commerce any biological product. . . ." Id. § 262(a)(1). Allergan submitted a "Biologies License Application" ("BLA") to, and received a biologies license from, the Food and Drug Administration ("FDA") to market onabotulinumtoxinA, a toxin regulated by the FDA under 42 U.S.C. § 262(i). Def.'s Mem. of Points and Authorities in Supp. of Mot. for Summ. J. and in Opp'n to Pl.'s Mot. for Summ. J. ("Def.'s Mem.") 7. Beginning in 1989, Allergan received FDA approval under that BLA to market onabotulinumtoxinA as "BOTOX" for a number of therapeutic uses. Pl.'s Mem. 2. In 2002 the FDA approved Allergan's supplement to its BLA for onabotulinumtoxinA to be marketed as "BOTOX Cosmetic" for the treatment of wrinkles ("glabellar lines"). See id.; Def.'s Reply Mem. in Supp. of Mot. for Summ. J. ("Def.'s Reply") 6-7 [Dkt. #36]. The approval letter provided, in relevant part, "The Supplement to your License Application, for Botulinum Toxin Type A to include the indication of treatment of glabellar lines, has been approved. Under this approval, Botulinum Toxin type A will be marketed and labeled for this indication as BOTOX COSMETIC." Ltr. from Karen L. Goldenthal, M.D., HHS (Apr. 12, 2002), at 1, available at http://www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/HowDrugsareDevel opedandApproved/ApprovalApplications/TherapeuticBiologicApplications/ucm088278.pdf (emphasis added). OnabotulinumtoxinA is the sole active ingredient in the same formulation in both BOTOX and BOTOX Cosmetic. Pl.'s Mem. 3; Administrative Record ("A.R.") at 160. BOTOX and BOTOX Cosmetic have different packaging and labels, and Allergan develops, manages, and markets BOTOX and BOTOX Cosmetic in separate divisions of the company. Pl.'s Mem. 3; Def.'s Reply 1. Because BOTOX Cosmetic is approved only for cosmetic treatment, it is not currently eligible for payment under Medicare. Pl.'s Mem. 2-3; A.R. at 29.

Drug manufacturers like Allergan must regularly provide the FDA with lists of all drugs they manufacture, prepare, propagate, compound, or process for commercial distribution. See 21 U.S.C. § 360. Manufacturers report their drugs to the FDA using National Drug Codes ("NDCs"), ten-digit numbers that indicate the labeler, product, and trade package size. See 21 C.F.R. § 207.35(b)(2)(i)-(ii). Depending on the dose size, BOTOX is associated with three NDCs. Def.'s Mem. 8. Similarly, BOTOX Cosmetic is associated with two. Id.

B. Medicare Part B Reporting Requirements.

Title XVIII of the SSA, colloquially known as the Medicare Act, establishes a federally subsidized health insurance program to be administered by the Secretary of HHS. Medicare has five parts: Part A-Hospital Insurance Benefits; Part B- Supplementary Medical Insurance Benefits; Part C-Medicareਚ≱ Program; Part D-Voluntary Prescription Drug Benefit Program; and Part E-Miscellaneous Provisions. See 42 U.S.C. § 1395 et seq. This case deals with Part B, a voluntary supplemental insurance program that provides coverage for various medical and healthcare services including a limited number of outpatient prescription drugs, including injectable drugs furnished incident to a physician's services. See 42 U.S.C. § 1395k(a). Doctors request Medicare reimbursements using Healthcare Common Procedure Codes ("HCPCs"). See 45 C.F.R. § 162.1002(a)(5)(i), (b)(1), (c)(1); see also 42 C.F.R. § 424.32. The injection of onabotulinumtoxinA has a single HCPC, J0585, which is the code assigned for that procedure. Def.'s Mem. 8-9.

With the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("Medicare Modernization Act"), Congress altered the calculation formula for Medicare reimbursements, see Pub. L. No. 108-173, 117 Stat. 2065 (2003), apparently in order to avoid overcharges caused by price discrimination, see H.R. Rep. No. 108-391, at 582 (2003) (Conf. Rep.) (finding drugs' average wholesale prices ("AWPs"), to which reimbursement was tied, "do not reflect the discounts that manufacturers and wholesalers customarily offer to providers and physicians" and thus "AWPs for many Medicare-covered products far exceed the acquisition cost paid by suppliers and physicians"). Under the new statute, drug manufacturers participating in Medicare must report "by National Drug Code . . . [an] average sales price ['ASP'] (as defined in [42 U.S.C. § 1395w-3a]), " 42 U.S.C. § 1396r-8(b)(3)(A), for any "drug or biological for which payment may be made" under Medicare, id. § 1395u(o)(1). Participating manufacturers who fail to report such data are subject to a $10, 000 per day late fee, and could lose their eligibility to participate in Medicare and Medicaid after ninety days. See Id . § 1396r-8(b)(3)(C)(i); id. § 1396r-8(a)(1).

HHS uses the ASP data to calculate a "volume-weighted average of the average sales prices, " id. § 1395w-3a(b)(6)(A), "for all National Drug Codes assigned to such drug or biological product, " id. § 1395w-3a(b)(4). Medicare will reimburse 106% of the volume-weighted average price "for the billing and payment code for a drug or biological." Id. § 1395w-3a(b)(1). HHS is specifically instructed to determine the reimbursement amount "without regard to any ...


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