Servier Pharmaceuticals LLC. v. Becerra
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Opinion
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
SERVIER PHARMACEUTICALS LLC,
Plaintiff,
v. Civil Action No. 24-2664 (RDM) XAVIER BECERRA, et al.,
Defendants.
MEMORANDUM OPINION
Plaintiff Servier Pharmaceuticals LLC (“Servier”) brings this action challenging the
determination by the Centers for Medicare and Medicaid Services (“CMS”) that Servier does not
qualify as a “specified small manufacturer” for purposes of the Manufacturer Discount Program
introduced in the Inflation Reduction Act of 2022. That program requires drug manufacturers to
offer covered drugs to Medicare Part D beneficiaries at discounted prices starting in 2025. Those
manufacturers that qualify as “specified small manufactures,” however, are eligible for a phase-
in program that implements a manufacturer’s discount obligations gradually over seven years,
rather than imposing the full statutory discount rate on January 1, 2025. The parties present
competing interpretations of the statutory criteria for determining whether a manufacturer
qualifies as a “specified small manufacturer.” On Servier’s reading of the statute, it qualifies; on
CMS’s reading, it does not.
Although prior to the Supreme Court’s recent decision in Loper Bright Enterprises v.
Raimondo, 144 S. Ct. 2244 (2024), resolution of the parties’ dispute would have required
application of the two-part standard set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), under current law, the Court must decide just one
question: fairly construed using the traditional tools of statutory interpretation, what is the best
construction of the less-than-pellucid statutory text that governs the parties’ dispute. Applying
that standard, the Court is persuaded that CMS correctly concluded that Servier does not qualify
as a “specified small manufacturer.”
The Court will, accordingly, DENY Plaintiff’s motion for summary judgment and will
GRANT Defendants’ cross-motion for summary judgment.
I. BACKGROUND
A. Statutory and Regulatory Background
The Medicare program provides healthcare for the elderly and disabled. See 42 U.S.C.
§ 1395 et seq. It is administered by CMS, a component of the U.S. Department of Health and
Human Services. See Johnson v. Becerra, 668 F. Supp. 3d 14, 17 (D.D.C. 2023). Medicare has
four parts. Parts A and B of the program make up the traditional Medicare system under which
CMS reimburses healthcare providers for services rendered to Medicare beneficiaries. 42 U.S.C
§§ 1395c, 1395j. Parts C and D, in contrast, permit individuals to receive their Medicare benefits
through private insurers. Part C, also known as the Medicare Advantage program, permits
Medicare beneficiaries to enroll in private health insurance plans. Id. § 1395w-21(a)(1). Finally,
Part D, which is the part at issue here, offers an additional, voluntary program that subsidizes
prescription drug insurance coverage for beneficiaries enrolled in traditional or Part C plans. Id.
§ 1395w-101(a)(1).
1. Medicare Part D’s Benefit Design
Medicare Part D was introduced in 2003 as part of the Medicare Prescription Drug,
Improvement, and Modernization Act (the “Medicare Modernization Act”), Pub. L. No. 108-
173, 117 Stat. 2066 (2003). “Under Part D, qualified Medicare beneficiaries may enroll in a
2 variety of Part D plans, administered by private insurance companies, that contract with CMS to
provide coverage for drugs that have been identified by the Medicare statute as ‘covered part D
drugs.’” Brew v. Burwell, 263 F. Supp. 3d 431, 433 (W.D.N.Y. 2017).
a. The Medicare Modernization Act’s Original Framework (2003)
The Medicare Modernization Act established a framework to allocate the cost of covered
drugs among beneficiaries, insurance companies, and drug manufacturers. That framework,
which has evolved in significant respects since Part D was first implemented, has included
various cost allocation formulas that have applied to different payment “layers” and various
statutory amounts that set the boundaries between the layers. Originally, there were four layers
to a “standard prescription drug coverage” plan. 1 See 42 U.S.C. §1395w-102(b) (2003). Under
the first layer, the deductible layer, the beneficiary was responsible for paying the full cost of
drugs until she incurred costs equal to the statutory deductible, which was set at $250 for 2006
and increased in subsequent years. 2 See id. § 1395w-102(b)(2) (2003). The second layer,
referred to as the “coverage” layer, applied to expenditures made after the beneficiary reached
the deductible amount. Under that layer, the insurance company paid 75% of the “negotiated
price” of covered drugs, and the beneficiary was responsible for paying the remaining amount
1 Insurers can also offer “alternative prescription drug coverage” with a different benefit design, so long as the Secretary approves the plan as compliant with a host of requirements designed to ensure that the alternative plan is at least as generous to beneficiaries as the standard plan. 42 U.S.C. § 1395w-102(c). 2 The statute provided for an “annual percentage increase” to the deductible, initial coverage limit, and annual out-of-pocket threshold that was tied to the “average per capita aggregate expenditures for covered part D drugs in the United States for part D eligible individuals, as determined by the Secretary.” 42 U.S.C. § 13952-102(b)(6).
3 due. See id. §§ 1395w-102(b)(2), 1395w-102(b)(3) (2003). 3 The coverage layer applied until
total outlays on drugs for that beneficiary (including amounts spent by the beneficiary to reach
the deductible) reached the “initial coverage limit,” which was set at $2,250 for 2006 and
increased in subsequent years. Id. The third layer, referred to as the “coverage gap” layer or the
“donut hole,” applied to expenditures in excess of the initial coverage limit. Under the coverage
gap layer, in the absence of any secondary coverage or additional CMS cost-sharing subsidies, 4
the beneficiary was required to pay the full cost of drugs until her out-of-pocket costs reached an
“annual out-of-pocket threshold.” See CMS, Medicare Coverage Gap Discount Program
Beginning 2011: Revised Part D Sponsor Guidance and Responses to Summary Public
Comments on the Draft Guidance 11 (May 21, 2010), https://perma.cc/244C-RY7X. The fourth
and final layer was referred to as the “catastrophic” layer, and it applied once the annual out-of-
pocket threshold (set at $3,600 for 2006 and adjusted thereafter) was met. See 42 U.S.C.
§ 1395w-102(b)(4) (2003). Under that layer, the beneficiary paid 5% of the cost of the drug or a
set copay ($2 for generics and $5 for branded drugs), the insurance company paid 15%, and the
government covered the remaining 80%. See Congressional Budget Office, Paying for Drugs in
Medicare Part D Under Current Law and Under Proposals to Redesign the Program 6 (2021),
https://perma.cc/K7B8-4SVN.
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
SERVIER PHARMACEUTICALS LLC,
Plaintiff,
v. Civil Action No. 24-2664 (RDM) XAVIER BECERRA, et al.,
Defendants.
MEMORANDUM OPINION
Plaintiff Servier Pharmaceuticals LLC (“Servier”) brings this action challenging the
determination by the Centers for Medicare and Medicaid Services (“CMS”) that Servier does not
qualify as a “specified small manufacturer” for purposes of the Manufacturer Discount Program
introduced in the Inflation Reduction Act of 2022. That program requires drug manufacturers to
offer covered drugs to Medicare Part D beneficiaries at discounted prices starting in 2025. Those
manufacturers that qualify as “specified small manufactures,” however, are eligible for a phase-
in program that implements a manufacturer’s discount obligations gradually over seven years,
rather than imposing the full statutory discount rate on January 1, 2025. The parties present
competing interpretations of the statutory criteria for determining whether a manufacturer
qualifies as a “specified small manufacturer.” On Servier’s reading of the statute, it qualifies; on
CMS’s reading, it does not.
Although prior to the Supreme Court’s recent decision in Loper Bright Enterprises v.
Raimondo, 144 S. Ct. 2244 (2024), resolution of the parties’ dispute would have required
application of the two-part standard set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), under current law, the Court must decide just one
question: fairly construed using the traditional tools of statutory interpretation, what is the best
construction of the less-than-pellucid statutory text that governs the parties’ dispute. Applying
that standard, the Court is persuaded that CMS correctly concluded that Servier does not qualify
as a “specified small manufacturer.”
The Court will, accordingly, DENY Plaintiff’s motion for summary judgment and will
GRANT Defendants’ cross-motion for summary judgment.
I. BACKGROUND
A. Statutory and Regulatory Background
The Medicare program provides healthcare for the elderly and disabled. See 42 U.S.C.
§ 1395 et seq. It is administered by CMS, a component of the U.S. Department of Health and
Human Services. See Johnson v. Becerra, 668 F. Supp. 3d 14, 17 (D.D.C. 2023). Medicare has
four parts. Parts A and B of the program make up the traditional Medicare system under which
CMS reimburses healthcare providers for services rendered to Medicare beneficiaries. 42 U.S.C
§§ 1395c, 1395j. Parts C and D, in contrast, permit individuals to receive their Medicare benefits
through private insurers. Part C, also known as the Medicare Advantage program, permits
Medicare beneficiaries to enroll in private health insurance plans. Id. § 1395w-21(a)(1). Finally,
Part D, which is the part at issue here, offers an additional, voluntary program that subsidizes
prescription drug insurance coverage for beneficiaries enrolled in traditional or Part C plans. Id.
§ 1395w-101(a)(1).
1. Medicare Part D’s Benefit Design
Medicare Part D was introduced in 2003 as part of the Medicare Prescription Drug,
Improvement, and Modernization Act (the “Medicare Modernization Act”), Pub. L. No. 108-
173, 117 Stat. 2066 (2003). “Under Part D, qualified Medicare beneficiaries may enroll in a
2 variety of Part D plans, administered by private insurance companies, that contract with CMS to
provide coverage for drugs that have been identified by the Medicare statute as ‘covered part D
drugs.’” Brew v. Burwell, 263 F. Supp. 3d 431, 433 (W.D.N.Y. 2017).
a. The Medicare Modernization Act’s Original Framework (2003)
The Medicare Modernization Act established a framework to allocate the cost of covered
drugs among beneficiaries, insurance companies, and drug manufacturers. That framework,
which has evolved in significant respects since Part D was first implemented, has included
various cost allocation formulas that have applied to different payment “layers” and various
statutory amounts that set the boundaries between the layers. Originally, there were four layers
to a “standard prescription drug coverage” plan. 1 See 42 U.S.C. §1395w-102(b) (2003). Under
the first layer, the deductible layer, the beneficiary was responsible for paying the full cost of
drugs until she incurred costs equal to the statutory deductible, which was set at $250 for 2006
and increased in subsequent years. 2 See id. § 1395w-102(b)(2) (2003). The second layer,
referred to as the “coverage” layer, applied to expenditures made after the beneficiary reached
the deductible amount. Under that layer, the insurance company paid 75% of the “negotiated
price” of covered drugs, and the beneficiary was responsible for paying the remaining amount
1 Insurers can also offer “alternative prescription drug coverage” with a different benefit design, so long as the Secretary approves the plan as compliant with a host of requirements designed to ensure that the alternative plan is at least as generous to beneficiaries as the standard plan. 42 U.S.C. § 1395w-102(c). 2 The statute provided for an “annual percentage increase” to the deductible, initial coverage limit, and annual out-of-pocket threshold that was tied to the “average per capita aggregate expenditures for covered part D drugs in the United States for part D eligible individuals, as determined by the Secretary.” 42 U.S.C. § 13952-102(b)(6).
3 due. See id. §§ 1395w-102(b)(2), 1395w-102(b)(3) (2003). 3 The coverage layer applied until
total outlays on drugs for that beneficiary (including amounts spent by the beneficiary to reach
the deductible) reached the “initial coverage limit,” which was set at $2,250 for 2006 and
increased in subsequent years. Id. The third layer, referred to as the “coverage gap” layer or the
“donut hole,” applied to expenditures in excess of the initial coverage limit. Under the coverage
gap layer, in the absence of any secondary coverage or additional CMS cost-sharing subsidies, 4
the beneficiary was required to pay the full cost of drugs until her out-of-pocket costs reached an
“annual out-of-pocket threshold.” See CMS, Medicare Coverage Gap Discount Program
Beginning 2011: Revised Part D Sponsor Guidance and Responses to Summary Public
Comments on the Draft Guidance 11 (May 21, 2010), https://perma.cc/244C-RY7X. The fourth
and final layer was referred to as the “catastrophic” layer, and it applied once the annual out-of-
pocket threshold (set at $3,600 for 2006 and adjusted thereafter) was met. See 42 U.S.C.
§ 1395w-102(b)(4) (2003). Under that layer, the beneficiary paid 5% of the cost of the drug or a
set copay ($2 for generics and $5 for branded drugs), the insurance company paid 15%, and the
government covered the remaining 80%. See Congressional Budget Office, Paying for Drugs in
Medicare Part D Under Current Law and Under Proposals to Redesign the Program 6 (2021),
https://perma.cc/K7B8-4SVN.
3 The “negotiated price” includes any “negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations, for covered part D drugs, and include[s] any dispensing fees for such drugs.” 42 U.S.C. § 1395w-102(d)(1)(B). 4 One such subsidy is for low-income individuals. See 42 U.S.C. § 1395w-114 (2003). Individuals who qualified for that subsidy were not required to pay out of pocket during the coverage gap. Rather, their insurance plan paid and was then reimbursed by CMS. Id. § 1395w- 114(a)(1)(C), (2)(C) (2003).
4 b. The ACA and the Manufacturer Coverage Gap Discount Program (2010)
The Patient Protection and Affordable Care Act (“ACA”) of 2010, Pub. L. No. 111-148,
124 Stat. 119, modified the Medicare Modernization Act’s original framework to “close” the
“donut hole” through the newly created Manufacturer Coverage Gap Discount Program, id.
§ 3301, 124 Stat. 461–68, codified at 42 U.S.C. § 1395w-114a. That program required brand-
name drug manufacturers with drugs covered under Medicare Part D to enter into written
agreements—referred to as “Coverage Gap Discount Program agreements” or “CGDP
agreements”—with the Secretary to provide those drugs at a discount of 50% of the negotiated
price to beneficiaries subject to the coverage gap. See 42 U.S.C. §§ 1395w-114a(b), (g)(4),
1395w-153(a) (2010). In 2018, Congress increased the manufacturer discount obligation under
the coverage gap layer to 70%. See id. § 1395w-114a(g)(4)(A) (2018); 42 C.F.R. § 423.2305. It
also required insurance plans to cover 5% of the cost of brand-name drugs, which left
beneficiaries to pay 25%, making the beneficiaries’ share in the “coverage gap” layer the same as
their share under the coverage layer and effectively closing that gap from the perspective of a
beneficiary. See Congressional Research Service, Medicare Part D Prescription Drug Benefit
23 (2018), https://perma.cc/DWD6-F5NU. The ACA gradually eliminated the coverage gap
with respect to generic drugs as well. Starting in 2011, insurance plans were required to cover
7% of the cost of generic drugs in the coverage gap. 42 U.S.C. § 1395w-102(b)(2)(C)(ii). That
percentage increased in increments of 7% from 2011 until 2020, when the insurance plan’s share
reached 75%. Id.
There was, however, one important exception: manufacturers were not required to offer a
discount on drugs dispensed to beneficiaries who received low-income subsidies. See id.
§ 1395w-114a(g)(1)(C). Those individuals already received coverage under the coverage gap
layer in the form of government subsidies. Even more notably, during this period the 5 manufacturer discount obligation applied only to the coverage gap phase. Manufacturers were
not obligated under the ACA to provide any discounts to the negotiated drug price under the
initial coverage or the catastrophic coverage layers.
c. The IRA and the Manufacturer Discount Program (2022)
That all changed with the Inflation Reduction Act of 2022 (“IRA”), Pub. L. No. 117-169,
136 Stat. 1818, which made three significant changes to Plan D’s benefit design:
First, the IRA eliminated the coverage gap layer starting in 2025 by removing the “initial
coverage limit.” See 42 U.S.C. § 1395w-102(b)(3) (including such limits only for “year[s]
preceding 2025”). The coverage layer thus stretched from the statutory deductible all the way up
to the annual out-of-pocket threshold, thereby eliminating the coverage gap layer from the
statutory scheme.
Second, the IRA altered the design of the catastrophic layer: Starting in 2024,
beneficiaries were no longer responsible for paying anything at all under the catastrophic layer.
Instead, insurance plans covered 20% of drug costs and the government subsidized the other
80% (at least for 2024, see infra). See id. §§ 1395w-102(b)(4)(A)(i)(II), 1395w-115(b)(1)(A).
In 2025, moreover, the annual out-of-pocket threshold that forms the lower boundary of
catastrophic layer (which was $8,000 for 2024) dropped to $2,000. 5 Id. § 1395w-
5 This drop is not quite as dramatic as it appears. Despite its name, the annual out-of-pocket threshold used to take into account both out-of-pocket expenditures and the value of manufacturer discounts on brand-name drugs in the coverage gap layer. That means that “Part D beneficiaries who purchased only brand-name drugs in 2024 will have spent about $3,300 out of their own pockets” by the time they hit the $8,000 threshold. See Juliette Cubanski & Tricia Neuman, Changes to Medicare Part D in 2024 and 2025 Under the Inflation Reduction Act and How Enrollees Will Benefit, KFF.org (2023), https://perma.cc/XPP4-NRE3. In contrast, beneficiaries who purchased generic drugs may have spent more than that because those drugs are not eligible for manufacturer discounts. Starting in 2025, however, the out-of-pocket threshold no longer takes into account manufacturer discounts. See 42 U.S.C. § 1395w- 102(b)(4)(E) (only “[f]or each of years 2011 through 2024” will incurred costs “include the
6 102(b)(4)(B)(i)(VII). As these changes go into effect, beneficiaries will not bear any portion of
the cost of covered drugs once they have incurred $2,000 in out-of-pocket expenses.
Third, and most importantly for present purposes, the IRA replaced the Manufacturer
Coverage Gap Discount Program with the “Manufacturer Discount Program (“MDP”).” Id.
§ 1395w-114c. Under the old Manufacturer Coverage Gap Discount Program, drug
manufacturers were required to provide discounts of 70%—but only for purposes of the coverage
gap layer, which Congress eliminated starting in 2025. But the elimination of the coverage gap
does not mean that drug manufacturers are off the hook. Under the new Manufacturer Discount
Program, drug manufacturers are now required to offer smaller discounts under the two
remaining coverage layers: a 10% discount for purposes of the initial coverage layer and a 20%
discount for purposes of the catastrophic coverage layer. Id. § 1395w-114c(g)(4)(A).
2. Manufacturers Eligible for Phasing in the Manufacturer Discount Program
Congress provided, however, that two categories of manufacturers are eligible for a
phase-in of the MDP discounts that gradually increases their discount obligations between 2025
and 2031, rather than immediately imposing the full 10% and 20% discount requirements in
2025. These categories are referred to in the statute as “specified manufacturers” and “specified
small manufacturers.” Id. § 1395w-114c(g)(4)(B), (C). Unfortunately, those terms are not only
similar but also not particularly accurate descriptions of the respective categories: a specified
manufacturer is determined primarily by reference to the relative size of its sales (the Part D
expenditures for all of its drugs must have been relatively small), whereas a specified small
negotiated price” of a drug “regardless of whether part of such costs were paid by a manufacturer” under the Medicare Coverage Gap Discount Program).
7 manufacturer is distinguished by its specialization (the Part D expenditures for any one of its
drugs must have predominated over Part D expenditures for all of its others drugs).
Those two categories are relevant here because CMS determined that Servier was a
specified manufacturer but not a specified small manufacturer. Servier disputes the latter
determination and argues that, had CMS correctly applied the statute, it would have concluded
that Servier qualifies as a specified small manufacturer as well. The parties’ dispute,
accordingly, focuses on these statutory definitions.
a. Specified Manufacturers
“Specified manufacturers” qualify for a phase-in of their MDP discount obligations for
“applicable drugs” marketed as of August 16, 2022, but only for drugs dispensed to beneficiaries
eligible for low-income subsidies. 42 U.S.C. § 1395w-114c(g)(4)(B)(i).
Under the IRA, to qualify as a “specified manufacturer,” a manufacturer must satisfy
three criteria: First, it must have had a Coverage Gap Discount Program agreement in effect
with CMS for 2021. Id. § 1395w-114c(g)(4)(B)(ii)(I)(aa). Second, the value of the
manufacturer’s Part D drug sales in 2021 must have constituted less than 1% of total 2021 Part D
expenditures. Id. § 1395w-114c(g)(4)(B)(ii)(I)(bb). Third, the value of the manufacturer’s Part
B expenditures in 2021 must have constituted less than 1% of total 2021 Part B expenditures. Id.
§ 1395w-114c(g)(4)(B)(ii)(I)(cc). The parties agree that Servier satisfies all three of these
criteria and therefore qualifies as a “specified manufacturer” eligible for the phase-in period with
respect to drugs purchased by beneficiaries who receive low-income subsidies.
b. Specified Small Manufacturers
The parties disagree, however, as to whether Servier is a “specified small manufacturer.”
Specified small manufacturers also qualify for a phase-in of their MDP discount obligations for
covered drugs marketed as of August 16, 2022. Unlike the phase-in for “specified
8 manufactures,” however, this additional phase-in applies only to specified drugs (those that
constitute at least 80% of total Part D expenditures for that manufacturer). For that drug,
however, the manufacturer is entitled to the phase-in for all applicable Plan D beneficiaries,
regardless of income. Id. § 1395w-114c(g)(4)(C). The IRA defines a “specified small
manufacturer” as follows:
(ii) Specified small manufacturer
(I) In general
In this subparagraph, subject to subclause (III), the term “specified small manufacturer” means a manufacturer of an applicable drug for which, in 2021—
(aa) the manufacturer is a specified manufacturer (as defined in subparagraph (B)(ii)); and
(bb) the total expenditures under part D for any one of the specified small manufacturer drugs of the manufacturer that are covered by the agreement or agreements under section 1395w- 114a of this title of such manufacturer for such year and covered under this part during such year are equal to or more than 80 percent of the total expenditures under this part for all specified small manufacturer drugs of the manufacturer that are covered by such agreement or agreements for such year and covered under this part during such year.
Id. § 1395w-114c(g)(4)(C)(ii)(I). 6 The statute then defines “specified small manufacturer drugs”
to mean, “with respect to a specified small manufacturer, for 2021, an applicable drug that is
produced, prepared, propagated, compounded, converted, or processed by the manufacturer.” Id.
§ 1395w-114c(g)(4)(C)(ii)(II)(aa). Moreover, the cross-referenced section 1395w-114a, as
discussed above, is the section that governs the Manufacturer Coverage Gap Discount Program,
6 There are two limitations on this definition that the parties agree are not at issue in this case. See id. § 1395w-114c(g)(4)(C)(ii)(II)(bb) (regarding corporate affiliates within a single controlled group), (III) (regarding specified small manufacturers acquired after 2021).
9 and so the “agreement or agreements under section 1395w-114a” are Coverage Gap Discount
Program agreements.
Thus, to qualify as a “specified small manufacturer” a manufacturer must satisfy two
criteria: First, it must have qualified as a “specified manufacturer” for 2021. Second, the total
Part D expenditures for any one of the drugs that it produced, prepared, propagated,
compounded, converted or processed for 2021, which was covered in 2021 by its Coverage Gap
Discount Program agreement, must equal or exceed 80% of the total Part D expenditures for
drugs produced, prepared, propagated, compounded, converted or processed by that
manufacturer for 2021, which were covered by such an agreement or agreements.
3. CMS Guidance on Specified Small Manufacturers
Congress directed CMS to implement the MDP “by program instruction or other forms of
guidance.” IRA § 11201(f), 136 Stat. 1818, 1892. Consistent with that instruction, CMS issued
its Medicare Part D Manufacturer Discount Program Final Guidance (the “Final Guidance”) on
November 17, 2023. Dkt. 18-1 at 3–59. CMS also issued an accompanying memorandum
entitled “Medicare Part D Manufacturer Discount Program: Methodology for Identifying
Specified Manufacturers and Specified Small Manufacturers” (the “Methodology
Memorandum”), which is cross-referenced throughout the Final Guidance. Dkt. 18-1 at 61–68.
CMS’s Final Guidance reiterates that, for purposes of the IRA, a “specified small
manufacturer” must satisfy two criteria for 2021. First, the manufacturer must qualify as a
“specified manufacturer.” Second, “[t]he total expenditures under Part D for any one of [that
manufacturer’s] specified small manufacturer drugs (as described in section 130 of this
guidance) covered under a Coverage Gap Discount Program agreement(s) for 2021 and covered
under Part D in 2021 are equal to or greater than 80 percent of the total expenditures for all its
specified small manufacturer drugs covered under Part D in 2021.” Dkt. 18-1 at 30. Section 10 130, in turn, tracks the statutory definition and provides that “specified small manufacturer drug
means, for 2021, any applicable drug that is produced, prepared, propagated, compounded,
converted, or processed by a specified small manufacturer.” Dkt. 18-1 at 58.
The Final Guidance further explains that CMS will “identify which manufacturers
qualify” as “specified manufacturers” and/or “specified small manufacturers” “by analyzing
Medicare Part B claims data, Part D [Prescription Drug Event] data, and ownership information
submitted by manufacturers.” Dkt. 18-1 at 30. For “a detailed description of the methodology
CMS will use to identify manufacturers eligible for phase-ins,” including information about
“data sources and calculations,” the Final Guidance refers to the Methodology Memorandum.
Dkt. 18-1 at 30–31.
As relevant here, the Methodology Memorandum explains how CMS will determine
whether a “specified manufacturer” also qualifies as a “specified small manufacturer”—i.e.,
whether “the [specified] manufacturer’s total expenditures for one specified [small manufacturer]
drug are equal to or greater than 80 percent of the total expenditures for all of its specified [small
manufacturer] drugs covered under Part D in 2021.” Dkt. 18-1 at 66. The relevant analysis
includes three steps: First, CMS groups different strengths and dosages of a drug 7 together to
form “one specified small manufacturer drug.” Dkt. 18-1 at 66. Second, CMS calculates the
Part D total expenditures for each aggregated “specified small manufacturer drug.” Id. Third,
CMS calculates each such drug’s percent share of the Part D total expenditures for that
7 CMS groups different strengths and dosages of a drug together if they have “the same active moiety and the same holder of the New Drug Application.” Dkt. 18-1 at 66. For biological products, CMS looks at whether the products have “the same active ingredient and the same holder of the Biologic Licensing Application.” Id. Fixed combination drugs with combinations of active moieties or active ingredients will be aggregated based on whether they have a “distinct combination” of active ingredients. Id.
11 manufacturer to determine whether any “single specified drug” had 2021 expenditures equal to
or greater than 80% of the total Part D expenditures for the “specified small manufacturer.” Id.
at 67.
Servier does not take issue with this three-step approach but, rather, challenges the way
that CMS attributes drugs to a particular manufacturer. The Methodology Memorandum
describes CMS’s method of attribution as follows:
CMS will attribute Part D expenditures for a drug, including authorized generic drugs and repackaged and relabeled drugs, to a specified manufacturer based on the [National Drug Code(s)] for the drug, as reported on [Prescription Drug Event] records. Specifically, CMS will match the labeler code extracted from the first 5 digits of each [National Drug Code] to the manufacturer.
Dkt. 18-1 at 66.
A National Drug Code is “a numeric code” that identifies the “labeler, product, and
package size and type” of a particular “finished drug product or unfinished drug.” 21 C.F.R.
§ 207.33(a). It has three parts: a “labeler code,” a “product code,” and a “package code.” Id.
§ 207.33(b)(1)(i)–(iii). The labeler code is a unique four- or five-digit sequence “assigned by the
[Food and Drug Administration (“FDA”)]” to “[e]ach person who engages in manufacturing,
repacking, relabeling, or private label distribution of a drug subject to listing.” Id.
§ 207.33(b)(1)(i), (c)(1). The product and package codes, on the other hand, are proposed by
“[e]ach manufacturer, repacker, or relabeler,” who “must propose” to the FDA a unique National
Drug Code “for each package size and type of drug that it manufacturers, repacks, or relabels for
commercial distribution.” Id. § 207.33(d)(1)(i). Thus, the labels that appear on packages of the
same size and type of drug manufactured, repackaged, or relabeled by the same company would
12 all have the same National Drug Code, but a package of that same drug of a different size or type
would have its own National Drug Code. 8
As the Methodology Memorandum further explains, CMS gathers the National Drug
Codes of disbursed Part D drugs from Prescription Drug Event records, which Part D insurers (or
others) must submit to CMS “[f]or each dispensing event”—that is, every time a drug covered by
Part D is dispensed to a beneficiary. Department of Health and Human Services, Updated
Instructions: Requirements for Submitting Prescription Drug Event Data (PDE) 9 (Apr. 27,
2006), https://perma.cc/VD29-SSVB. Each Prescription Drug Event record includes the
National Drug Code of the dispensed drug in addition to 36 other required data elements, which
also include the date the prescription was filled and the amount paid for the drug. See id. at 9,
11–17. Relying on this process, CMS used the National Drug Code labeler codes reported in
Prescription Drug Event records from 2021 to attribute Part D drug expenditures to particular
manufacturers.
B. Factual Background
That brings us to the events giving rise to the present dispute. Servier is an “oncology
company dedicated to addressing rare [cancers] and patient populations with unmet needs” that
“entered” the United States in 2018. Dkt. 18-1 at 86. At the start of 2021, Servier had a U.S.
roster of two drugs: Asparlas and Oncaspar. Id at 86–87. It is undisputed that no Part D
expenditures were incurred in 2021 for either Asparlas or Oncaspar. Dkt. 8-1 at 13; Dkt. 13-1 at
19; see also Dkt. 18-1 at 90.
8 “The National Drug Code (NDC) number is requested but not required to appear on all drug labels and in all drug labeling, including the label of any prescription drug container furnished to a consumer.” 21 C.F.R. § 201.2.
13 At issue in this case is Servier’s third drug, Tibsovo. Prior to April 2021, Agios
Pharmaceuticals (“Agios”) owned the approved New Drug Application (“NDA”) for Tibsovo,
and it manufactured and sold the drug under its own FDA-approved labeler code. On April 1,
2021, however, Servier “acquired the oncology business of Agios,” including the existing stock
of Tibsovo and the approved NDA. 9 Dkt. 18-1 at 87. As relevant here, Servier sold Tibsovo
“labeled with the Agios labeler code (NDC: 71334-01-001) from April 1, 2021 to February 13,
2022,” and that labeler code “remained on Agios’ Coverage Gap Discount Program (‘CGDP’)
agreement” during that period of time “because the CGDP requires manufacturers to ‘reimburse
all applicable discounts provided by Part D sponsors on behalf of the Manufacturers for all
applicable drugs having [National Drug Codes] with the Manufacturer’s FDA-assigned labeler
code(s).’” Id. (emphasis omitted).
It was not until after February 13, 2022, that “Servier sold TIBSOVO under its own
labeler code.” Id. Moreover, although “Servier took over responsibility for the manufacturing of
TIBSOVO” immediately after the acquisition, it did not release any “finished product to [its]
supply chain with [its own] labeler code [until] October 2021,” and that product was not “sold in
the U.S.” until February 14, 2022. Id. The FDA’s drug database confirms that the “start
marketing date” for Servier-manufactured Tibsovo (NDC: 72694-617-60) was October 19, 2021.
See FDA, National Drug Code Directory, https://perma.cc/PS9Z-GD9K. Significantly, all
9 According to Servier, Agios also transferred “ownership” of the Tibsovo National Drug Code (“NDC”). Dkt. 18-1 at 87. When asked at oral argument what it means to transfer ownership of an NDC, however, counsel retreated from this position, explaining that it is the approved NDA— which provides the right to market the drug—that transfers in the course of a single-product acquisition and not the predecessor company’s NDC. Dkt. 21 at 33–34 (Tr. Oral Arg.); see also Dkt. 18-1 at 89. The record further reflects that Servier obtained its own NDC for Tibsovo in 2021 and that Servier used that distinct NDC for the stocks of Tibsovo that Servier produced (with the assistance of its contractor), released into the supply chain in October 2021, and first sold in the United States on February 14, 2022. Id. at 87.
14 Tibsovo dispensed to Part D beneficiaries in 2021 was manufactured by Agios (or, more
precisely, by Agios’s contract manufacturer) prior to Servier’s acquisition of Tibsovo, was
labeled with Agios’s labeler code, and was covered under Agios’s Coverage Gap Discount
Program agreement. In short, “no Part D expenditures in 2021” were incurred “for any Tibsovo
manufactured by Servier.” Dkt. 13-1 at 22. Part D expenditures were incurred, however, for
Tibsovo manufactured by Agios, the existing stock of which was acquired by Servier on April 1,
2021, and which Servier subsequently distributed. Finally, at the time that Servier distributed the
Agios-manufactured quantities of Tibsovo, Servier was manufacturing its own quantities of the
drug, although that stock was not sold in the United States until after February 13, 2022.
C. Procedural Background
The present dispute turns on whether CMS properly determined that Servier qualified as
a “specified manufacturer” but not a “specified small manufacturer” for purposes of phase-in
eligibility. CMS communicated that determination to Servier on April 4, 2024. Dkt. 18-1 at 83.
After CMS notified Servier that it had concluded that Servier qualified as a “specified
manufacturer” but not a “specified small manufacturer,” the company sought recalculation
pursuant to procedures set forth in CMS’s Final Guidance. 10 Servier argued that CMS’s
determination “was based on a misunderstanding regarding the ownership of Tibsovo.” Dkt. 18-
1 at 86. According to Servier, Tibsovo “qualifies as a specified drug and a specified small
10 In its Final Guidance, CMS “provide[d] a mechanism for manufacturers that wish to request a recalculation of their phase-in eligibility determination.” Dkt. 18-1 at 32. A manufacturer who wants to take advantage of that mechanism “must file the request with CMS no later than 30 calendar days from the date” it received the determination. Id. “After consideration of the issues raised, CMS will decide whether to perform the recalculation, and will issue a written decision to the manufacturer . . . that will include CMS’ decision about whether to perform the requested recalculation and, if such recalculation is performed, the resulting eligibility determination.” Id. That decision “is final and binding.” Id.
15 manufacturer drug of Servier under the statute and CMS guidance” because “Servier owned
TIBSOVO, including the TIBSOVO [National Drug Code] and New Drug Application” and
“responsibility for manufacturing TIBSOVO” as of April 1, 2021. Id. It also argued that
“[w]hile TIBSOVO was technically included on Agios’ CGDP agreement throughout 2021, . . .
Servier accepted responsibility for coverage gap discounts for TIBSOVO and fully reimbursed
Agios for such discounts post-acquisition.” Id. at 89. In other words, Agios had entered into an
CGDP agreement with CMS requiring Agios to reimburse all applicable discounts provided by
Part D sponsors on its behalf in 2021, and Servier agreed, in turn, to reimburse Agios for the
amounts that Agios would owe for Tibsovo under that CGDP agreement for the period following
the acquisition on April 1, 2021. See Dkt. 21 at 15 (Tr. Oral Arg.) (“Servier bore the full
responsibility of reimbursing [Agios for] those rebates over the final nine months of” 2021).
Finally, Servier argued that “[o]nce TIBSOVO is considered, Servier satisfies the requirements
for a specified small manufacturer.” Dkt. 18-1 at 89. Servier’s other drugs had no Part D
expenditures in 2021, and thus any 2021 Tibsovo Part D expenditures attributed to Servier would
constitute 100% of Servier’s Part D expenditures, easily satisfying the 80% threshold to qualify
CMS was unpersuaded. It concluded that “the concerns identified in [Servier’s
recalculation] request” did not raise “a calculation error in phase-in eligibility for Servier and”
thus did not warrant “a recalculation of [the agency’s] determination of phase-in eligibility.”
Dkt. 18-1 at 94. CMS explained:
You assert that, because Servier acquired assets for a drug, TIBSOVO, from another manufacturer on April 1, 2021, CMS should have used 2021 data for that drug to make its phase-in eligibility determination for Servier. However, the labeler code for TIBSOVO (71334) remained under the divesting manufacturer’s Coverage Gap Discount Program agreement in 2021. CMS determined manufacturer phase-in eligibility using expenditure date in
16 accordance with the statute, the Final Guidance, and the Methodology [Memorandum]. As stated in the Methodology [Memorandum] (see section A, step 2, and section C, step 2), CMS used all final action, non-delete Prescription Drug Event (PDE) records . . . for all applicable drugs dispensed in Benefit Year 2021 that are attributable to each manufacturer, as determined by the labeler code extracted from the [National Drug Code] to identify each manufacturer’s Part D expenditures. . . . Consistent with the Methodology [Memorandum], CMS determined the Part D expenditures for Servier’s labeler code, 72694, were $0.00 in 2021. While there may have been Part D expenditures in 2021 for a drug, TIBSOVO, that Servier first marketed under its FDA-assigned labeler code after 2021, that is not relevant to Servier’s eligibility determination because, in 2021, TIBSOVO was not attributable to Servier, as determined by the labeler code. Therefore, such expenditures cannot be attributed to Servier.
Id. at 94. CMS further observed that “the concerns [Servier] raise[d] about the agency’s
consideration of Servier’s 2021 Part D expenditures does not suggest an error in the calculation
in the phase-in eligibility determination for Servier, but rather constitutes an objection to the
Discount Program policies established in the statute, the Final Guidance, and the Methodology
[Memorandum].” Id. CMS, accordingly, concluded that, although Servier qualified as a
“specified manufacturer,” it did not qualify as a “specified small manufacturer” for purposes of
the phase-in. Id. at 95.
Upon receiving the denial of its recalculation request, Servier informed CMS that it was
“considering its legal/litigation options,” and it “request[ed] a short call to discuss the issue.”
Dkt. 18-1 at 97. CMS declined. Id. A week later, Servier brought this action against CMS,
seeking “a declaratory judgment that it qualifies as a specified small manufacturer and is entitled
to benefit from the phase-in provisions as well as preliminary and permanent injunctive relief
preventing the Secretary from enforcing his contrary determination.” Dkt. 1 at 1.
The parties proposed to resolve their dispute by filing expedited cross-motions for
summary judgment “that would hopefully allow the Court to issue a ruling before the phase-in
period commences on January 1, 2025.” Dkt. 7 at 2. Subsequently, the parties informed the
Court that they hoped to obtain a decision by early January 2025, but that, although the MDP 17 would take effect on January 1, 2025, Servier will have thirty-eight days to pay any relevant
rebates after receiving an invoice from CMS’s third-party administrator. Dkt. 21 at 55–56, 65
(Tr. Oral Arg.). Pursuant to the parties’ proposal, Servier moved for summary judgment on
October 1, 2024, Dkt. 8, and CMS cross-moved for summary judgment on October 29, 2024,
Dkt. 13. The Court heard oral argument on December 13, 2024. See Min. Entry (Dec. 13,
2024).
II. LEGAL STANDARD
Servier brings this action under the Administrative Procedure Act (“APA”), 5 U.S.C.
§ 701 et seq. Under the APA, a reviewing court shall “hold unlawful and set aside agency
action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). “[W]hen a party seeks review of
agency action under the APA, the district judge sits as an appellate tribunal.” Rempfer v.
Sharfstein, 583 F.3d 860, 865 (D.C. Cir. 2009) (alteration omitted) (quoting Am. Bioscience, Inc.
v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001)). In other words, “[t]he entire case on
review is a question of law.” Marshall Cnty. Health Care Auth. v. Shalala, 988 F.2d 1221, 1226
(D.C. Cir. 1993).
The general standard for summary judgment set forth in Rule 56 of the Federal Rules of
Civil Procedure does not apply to a review of agency action. But summary judgment
nonetheless “serves as the mechanism for deciding, as a matter of law, whether the agency action
is supported by the administrative record and otherwise consistent with the APA standard of
review.” Sierra Club v. Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006) (citing Richards v. INS,
554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977)). The Court will grant summary judgment to the
agency if it did not “violate[ ] the Administrative Procedure Act by taking action that is
18 ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’” Forsyth
Mem’l Hosp., Inc. v. Sebelius, 639 F.3d 534, 537 (D.C. Cir. 2011) (quoting 5 U.S.C. § 706(2)).
Although this review is “fundamentally deferential,” Fox v. Clinton, 684 F.3d 67, 75 (D.C. Cir.
2012), the APA nonetheless requires not only that “an agency’s decreed result be within the
scope of its lawful authority” but also that “the process by which it reaches that result . . . be
logical and rational,” Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 374 (1998).
In resolving questions of statutory interpretation, the Court “must exercise [its]
independent judgment in deciding whether [the] agency acted within its statutory authority, as
the APA requires.” Loper Bright Enters., 144 S. Ct. at 2273. That undertaking requires the
Court to employ “the traditional tools of statutory construction” to reach a de novo determination
about the meaning of the statute. Id. at 2268; see also Pac. Gas & Elec. Co. v. FERC, 113 F.4th
943, 947 (D.C. Cir. 2024). In contrast, “review under the ‘arbitrary and capricious’ standard is
narrow.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
43 (1983). Under this standard, the Court must avoid substituting its “judgment for that of the
agency,” but must nonetheless ensure that the agency has “examine[d] the relevant data and [has]
articulate[d] a satisfactory explanation for its action including a ‘rational connection between the
facts found and the choice made.’” Id. (quoting Burlington Truck Lines v. United States, 371
U.S. 156, 168 (1962)). “Normally, an agency rule would be arbitrary and capricious if the
agency has relied on factors which Congress has not intended it to consider, entirely failed to
consider an important aspect of the problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so implausible that it could not be ascribed to a
difference in view or the product of agency expertise.” Id.
19 III. ANALYSIS
Servier challenges CMS’s determination that it does not qualify as a “specified small
manufacturer” under two prongs of the APA. First, Servier maintains that CMS’s determination
is contrary to law and that, notwithstanding CMS’s conclusion, it satisfies each of the statutory
criteria for eligibility. Second, Servier argues that CMS’s determination was arbitrary and
capricious (1) because CMS considered only information it knew was incomplete or flawed, and
(2) because in responding to Servier’s recalculation request, CMS failed adequately to explain
why it relied exclusively on the labeler code—and declined to rely on Servier’s evidence of
actual ownership—in attributing post-April 1, 2021 Part D expenditures for Tibsovo to Agios,
rather than Servier. In response, CMS defends its reading of the statute, and it asserts that it
relied on accurate information and adequately explained its reasons for rejecting Servier’s
request for recalculation.
A. Contrary to Law
Servier’s principal argument takes issue with CMS’s reading of the MDP statute. The
parties agree that Servier satisfies the first criterion for 2021—that is, it qualifies as a “specified
manufacturer.” 42 U.S.C. § 1395w-114c(g)(4)(C)(ii)(I)(aa). They disagree, however, about
whether it satisfies the second criterion, which asks whether total Part D expenditures “for any
one of the specified small manufacturer drugs of the manufacturer that are covered by the
[CGDP] agreement or agreements . . . of such manufacturer for” 2021 represented at least 80%
“of the total [Part D] expenditures for all specified small manufacturer drugs of the manufacturer
that are covered by such agreement or agreements for [2021].” Id. § 1395w-
114c(g)(4)(C)(ii)(I)(bb).
20 On CMS’s reading, expenditures are attributable only to the manufacturer of the stock of
the drug that was dispensed in 2021, and Servier thus does not meet the second criterion because
“there were no Part D expenditures in 2021 for any drugs manufactured by Servier.” Dkt. 13-1
at 21. By Servier’s own admission, the Tibsovo that Servier sold in 2021 came from the existing
stock of the drug that Agios had manufactured and that Servier acquired in April 2021 as part of
Servier’s acquisition of Agios’s oncology business. Id. at 21–22. Although Servier did
manufacture additional quantities of Tibsovo in 2021, that stock was not sold to consumers until
after February 13, 2022. Id. And even though CMS has construed “the term ‘manufacturer’ to
include ‘entities otherwise engaged in repackaging or changing the container, wrapper, or
labeling of any applicable drug in furtherance of the distribution of the applicable drug from the
original place of manufacture to the person who makes the final delivery or sale to the ultimate
consumer,’” id. at 23 (quoting AR55), “Servier does not claim that it engaged in any of those
acts in connection with the Tibsovo drug product dispensed to Part D beneficiaries in 2021,” id.
Finally, according to CMS, even if Servier were correct that drug “ownership” was sufficient to
satisfy the statutory requirement (and CMS disputes that premise), Servier’s argument would
nonetheless fail because Servier has not shown—and cannot show—that the Tibsovo that was
dispensed to Part D beneficiaries in 2021 was introduced to the supply chain by Servier (using
the existing stock that it acquired in April 2021), rather than by Agios (prior to the acquisition).
Id. Because the labeler code for all Tibsovo dispensed in 2021 identified Agios as the
manufacturer (and included no reference to Servier), it is impossible to determine whether any
Tibsovo dispensed in 2021 came from the existing stock that Servier acquired. Id.
On Servier’s reading, in contrast, none of this matters. Addressing the statutory criteria
as discrete and disconnected elements, Servier argues that it undisputably “manufactured”
21 Tibsovo in 2021; that Part D expenditures for Tibsovo constituted “at least 80% of the total
expenditures for Servier’s Part D drugs in 2021;” and that “Tibsovo was covered by a Coverage
Cap Discount Program agreement in 2021” (even if it was Agios, and not Servier, that entered
that agreement with CMS). Dkt. 15 at 6. According to Servier, the information contained in the
labeler code is not dispositive in the present context because Servier “acquired full ownership
interests in Tibsovo in April 2021” and because sales of Tibsovo “for the remainder of 2021
accounted for more than 80% of expenditures on Servier’s drugs under Part D for the year.” Id.
at 7. What matters, Servier continues, is that it owned all interests in Tibsovo, including the
interest in the approved NDA for the drug, starting in April 2021, and that Tibsovo was
dispensed to Part D beneficiaries throughout 2021, including after Servier’s acquisition. Finally,
Servier takes issue with what it characterizes as CMS’s “tablet-tracing argument,” according to
which expenditures for a particular stock of product is traced back to the manufacturer of that
product. Id. Under Servier’s contrary reading, “[t]he statute merely requires that Servier
manufactured Tibsovo in 2021 and that the Part D expenditures for the drug for that year
comprised more than 80% of total expenditures [for] Servier’s Part D drugs.” Id. The statute
does not require a manufacturer or CMS to trace particular stocks of the drug at issue from the
actual manufacturer to the relevant Part D expenditure.
1.
The Court starts, as it must, with the statutory text. See Barnhart v. Sigmon Coal Co.,
Inc., 534 U.S. 438, 450 (2002). Here, the controlling statutory text includes two requirements.
CMS must first decide whether the manufacturer qualifies as a “specified manufacturer.” For
present purposes, both parties agree that Servier satisfies that requirement. The parties’ dispute,
22 instead, focuses on the second requirement. For that requirement, a “specified manufacturer”
qualifies as a “specified small manufacturer” if and only if in 2021:
the total expenditures under part D for any one of the specified small manufacturer drugs of the manufacturer that are covered by the agreement or agreements under section 1395w-114a of this title of such manufacturer for such year and covered under this part during such year are equal to or more than 80 percent of the total expenditures under this part for all specified small manufacturer drugs of the manufacturer that are covered by such agreement or agreements for such year and covered under this part during such year.
42 U.S.C. § 1395w-114c(g)(4)(C)(ii)(I)(bb). The phrase “specified small manufacturer drugs” is
defined, in turn, to mean, “with respect to a specified small manufacturer, for 2021, an applicable
drug that is produced, prepared, propagated, compounded, converted, or processed by the
manufacturer.” Id. § 1395w-114c(g)(4)(C)(ii)(II)(aa). And an “agreement . . . under section
1395w-114a” refers to an agreement between the manufacturer and CMS for 2021 pursuant to
the Medicare Coverage Gap Discount Program—that is, a CGDP agreement—under which the
manufacturer agreed “to provide applicable beneficiaries access to discounted prices for
applicable drugs of the manufacturer,” id. § 1395w-114a(b)(1)(A) (2018), and agreed to provide
reimbursement in “an amount equal to the difference between . . . the negotiated price of the
applicable drug [and] the discounted price of the applicable drug,” id. § 1395w-
114a(c)(1)(A)(iv). Finally, “such year” refers to 2021, and “this part” refers to Part D.
Putting these pieces together, the relevant statutory language takes the following—
reconstituted—form:
In 2021 . . . the total expenditures under part D for any one of the [1] specified small manufacturer drugs [defined to mean: for 2021, an applicable drug that is produced, prepared, propagated, compounded, converted, or processed by the manufacturer] [2] of the manufacturer [3] that are covered by a Coverage Gap Discount Program agreement or agreements of such manufacturer for 2021 and [4] covered under Part D during 2021 [5] are equal to or more than 80 percent of the total expenditures under Part D for all specified small manufacturer drugs [defined to mean: “for 2021, an applicable drug that is produced, prepared, propagated, compounded, converted, or processed by the manufacturer] of the 23 manufacturer that are covered by such agreement or agreements for 2021 and covered under Part D during 2021.
The parties agree that no expenditures were incurred under Part D in 2021 for any drug other
than Tibsovo, and so if any Tibsovo expenditures can be attributed to Servier they will account
for more than 80% of Servier’s total expenditures under Part D ([5]). At least for present
purposes, moreover, CMS does not dispute that the phrase “of the manufacturer” is best read to
connote ownership—that is, a drug for which the NDA is owned by the relevant manufacturer.
As a result, the relevant, reconstituted statutory language can be simplified as follows: Servier
qualifies as a “specified small manufacturer” if and only if, in 2021, the Medicare program
incurred expenditures under Part D for a drug [1] that Servier produced, prepared, propagated,
compounded, converted, or processed for 2021, [2] which was owned by Servier, [3] which was
covered by a CGDP agreement of Servier for 2021, and [4] which was covered under Part D
during 2021.
Understood in this light, two barriers frustrate Servier’s argument. First, as Servier
concedes, all of the Tibsovo that was dispensed in 2021 (and, accordingly, all of the Tibsovo that
resulted in Part D expenditures) was “produced, prepared, propagated, compounded, converted,
or processed” by Agios or its contractor, and not by Servier or its contractor. Dkt. 18-1 at 87.
Although Servier manufactured its own stock of Tibsovo in 2021, none of that stock was
dispensed until after February 13, 2022. Second, the Tibsovo that was dispensed in 2021 was
covered by Agios’s CGDP agreement with CMS, and not by a CGDP agreement to which
Servier was a party. Id. Indeed, it was for this reason that Servier entered into a separate
agreement with Agios to reimburse Agios for the discounts that Agios would owe for covered
sales of the existing stock of Tibsovo after the acquisition. Id. at 89. Accordingly, Servier’s
claim fails to satisfy the statutory test.
24 2.
In response to this reading of the statutory text, Servier raises a host of counterarguments.
For the reasons explained below, the Court is unpersuaded that any of these arguments represent
the best reading of the statute.
a.
First, and most fundamentally, Servier argues that this reading of the statute embraces a
form of “tablet tracing” that is inconsistent with the statutory text. According to Servier, “the
statute does not require that Servier created each Tibsovo tablet ‘dispensed’ to Part D
beneficiaries in 2021.” Dkt. 15 at 9. “Instead, it simply requires that Servier was a manufacturer
of Tibsovo in 2021 and that Part D expenditures for Tibsovo in 2021 account for at least 80% of
Part D expenditures for Servier’s drugs.” Id.
Servier begins with its reading of the statutory text and argues that a manufacturer
qualifies as a “specified small manufacturer” if (1) it manufactured a Part D drug in 2021, (2) the
Part D expenditures for that drug satisfied the 80% threshold, and (3) “the Part D drug was the
subject of a Coverage Gap Discount Program agreement in 2021.” Id. at 10. Servier stresses
that the statutory definition “does not include the word ‘dispensed,’ which [on Servier’s telling]
Defendants improperly insert in furtherance of their efforts to add a new tablet-tracing
requirement.” Id. (emphasis omitted). But this textual argument relies on a strawman while
ignoring key portions of the governing text.
Servier is, of course, correct that the MDP statute does not use the word “dispensed.” It
does, however, refer to “total expenditures under part D for any one of the specified small
manufacturer drugs,” 42 U.S.C. § 1395w-114c(g)(4)(C)(ii)(I)(bb), and it defines “total
expenditures” to include “total gross covered prescription drug costs,” id. § 1395w-
25 114c(g)(4)(D), which, in turn, requires an assessment of “the costs incurred under [each Part D
enrollees’] plan . . . including costs directly related to the dispensing of covered part D drugs,”
id. § 1395w-115(b)(3) (emphasis added). But more importantly, the absence or presence of the
word “dispensed” has no bearing on whether the relevant “expenditures” must be for a drug
manufactured by the entity seeking “specified small manufacturer” status. In other words,
Servier’s contention that the statute fails to include the word “dispensed” is a strawman.
The same is true of Servier’s contention that the word “drug” is not narrowly defined to
refer to any particular stock of a product, like the supply of Tibsovo that Servier acquired from
Agios, but rather refers to a pharmaceutical product more generally, like all Tibsovo. Servier is
correct that the statute groups all drugs—regardless of dosage size or method—“approved under
a new drug application” as a single “drug” for purposes of the Manufacturer Discount Program,
42 U.S.C. § 1395w-114c(g)(2)(A)(i). An approved New Drug Application does not focus on
individual pills or lots of pills or (at least at times) specific dosage forms or strengths. Consistent
with this understanding, CMS’s Final Guidance advised that:
In order to determine one drug’s share of a manufacturer’s Part D total expenditures, which we will use to identify specified small manufacturers, we first note that for drug products, one specified small manufacturer drug will include all dosage forms and strengths of a drug with the same active moiety and the same holder of the New Drug Application.
Dkt. 18-1 at 66. Thus, according to CMS, an applicable “drug” includes all product with (1) the
same active moiety and (2) the same holder of the approved New Drug Application. But that
broad definition of “drug,” once again, says nothing about whether the relevant Part D
expenditures attributed to one manufacturer can include expenditures for stock of a drug—no
matter how broadly that term is defined—that was produced by a different manufacturer.
In short, neither the fact that the MDP statute does not use the word “dispense” nor the
broad definition of “drug” that appears in the statute and in CMS’s Final Guidance do anything 26 to advance Servier’s claim. Nor do those arguments help with the more fundamental problem
with Servier’s overall claim, which is that Servier artificially breaks a single sentence of the
statutory text into three discrete and disconnected requirements. On Servier’s reading of the
statute, the company qualifies as a “specified small manufacturer because [1] it manufactured
Tibsovo in 2021, [2] its total Part D expenditures on Tibsovo in 2021 (or after April 1, 2021)
exceeded Part D expenditures for all other drugs that Servier manufactured in 2021 (since no
Part D expenditures were incurred for any other Servier product in 2021), and [3] Tibsovo “was
the subject of a Coverage Gap Discount Program agreement in 2021.” Dkt. 15 at 10.
But that argument ignores the prepositions that affirmatively link the relevant statutory
requirements (and thus prevent the type of disaggregation that Servier proposes), as well as other
important statutory clues. The text requires, for example, that the “total expenditures” for 2021
must be “for” a “drug that is produced, prepared, propagated, compounded, converted, or
processed by the manufacturer” “for 2021.” 42 U.S.C. §§ 1395w-114c(g)(4)(C)(ii)(I)(bb),
1395w-114c(g)(4)(C)(ii)(II)(aa) (emphasis added). The statute is, concededly, far from a picture
of clarity. But this language is best construed to require that the expenditures be for the stock of
the drug that was produced by the manufacturer, rather than also including stock produced by a
different manufacturer, so long as the entity seeking to qualify as a “specified small
manufacturer” happens to have produced some separate stock of the product that may or may not
have resulted in any Part D expenditures. Notably, the entire statutory provision focuses on a
single “manufacturer”—“the manufacturer is a specified manufacturer;” “applicable drug that is
produced . . . by the manufacturer;” “drugs of the manufacturer;” “the agreement . . . of such
manufacturer.” The statute does not contemplate multiple manufacturers, or as here, a situation
where one manufacture produces the stock of the drug that results in the relevant expenditures,
27 and another manufacturer produces stock that is merely held in reserve in 2021 and not
dispensed until 2022.
To the extent that Congress contemplated acquisitions, moreover, it expressly precluded
“specified small manufacturer” status from transferring from one manufacturer in 2021 to
another after 2021 in the statute. See 42 U.S.C. § 1395w-114c(g)(4)(C)(ii)(III). Although that
provision does not apply to the present circumstances, it exists within the same statutory scheme
and therefore casts some light on the meaning of § 1395w-114c(g)(4)(C)(ii)(I)(bb). Common to
both provisions is the concept that the manufacturer must itself qualify and that the actions of
one manufacturer are not attributable to another. In short, although the rules of grammar do not
categorically preclude reading the phrase “expenditures for a drug that is produced by Servier” to
mean expenditures for the stock that Agios produced, so long as the drug was one that Servier
also produced (but did not sell to consumers) in 2021, that is far from the most natural reading of
the statutory text.
Servier’s description of how the statute would operate under its view merely reinforces
that conclusion. According to Servier, allocation of the relevant Part D expenditures should turn
exclusively on who owns the approved NDA for the drug at the time the expenditure occurs. At
oral argument, the Court asked how CMS would go about calculating expenditures for the drug
following an acquisition under Servier’s reading of the statute. Counsel responded as follows:
[I]n situations like this[,] where there has been a change of control and ownership and you have existing stock sold into the marketplace completely owned by Servier as the economic interest holder and regulatory interest holder and owns and possesses the NDA, there is a disconnect between the labeler code from that inventory stock and who the residual economic interest holder is. In that instance, . . . Servier provided full evidence to CMS demonstrating its interests. It pointed out that it had ownership as of April 1st. It pointed out that it paid the rebates on that product under the existing rebate program over the final nine months of 2021.
28 ...
So, Your Honor, our argument is that . . . in referring to the drugs, all that has to be assigned or determined is who owns the economic interest at the point of time that expenditures occurred, who was the holder of the NDA?
Dkt. 21 at 11-12 (Tr. Oral Arg.); see also id. at 14 (“[Y]es, the owner of the NDA at the time . . .
the expenditure is recorded in the economic interest holder and is who the expenditure under the
program is assigned to.”). That is, under Servier’s view, so long as the manufacture produced a
single pill of the drug at issue in 2021, all expenditures for the drug made in 2021 occurring after
the manufacturer acquired the rights to the approved NDA must be attributed to that
manufacturer, regardless of who manufactured the product that was actually sold in 2021 and
regardless of whether that product was introduced into the supply chain before or after the
acquisition. Applying that logic, “Servier estimates that roughly $66 million” of $89 million of
the 2021 sales of Tibsovo should be attributed to Servier because the acquisition occurred at the
beginning of the second quarter of the year. Dkt. 8-1 at 15 n.7.
But, as CMS observes, that introduces a number of anomalies into the statutory scheme.
Most significantly, Servier could take credit for expenditures incurred under Part D for Tibsovo
that was manufactured by Agios and that was introduced into the supply chain before the
acquisition occurred—that is, under Servier’s reading of the statute, Part D expenditures for
Tibsovo that Servier never produced or owned could be attributed to the company. Instead, all
that matters on Servier’s view is that it owned the approved NDA for Tibsovo at the time the
expenditure occurred. But that reading of the statute not only ignores the definition of “specified
small manufacturer drug,” which applies only to drugs “produced, prepared, propagated,
compounded, converted, or processed by the manufacturer,” 42 U.S.C. § 1395-
114c(g)(4)(C)(ii)(II), but also reads a dispositive NDA-ownership rule into the statute based on
29 the slimmest of reeds—the use of the proposition “of” preceding a reference to “the
manufacturer.” Finally, Servier’s reading of the statutory text, which defines “specified small
manufacturer” and uses the word “manufacturer” over a dozen times, would leave in place only
the most tenuous of connections to the actual manufacturer—it would not matter whether “the
manufacturer” produced a single pill that resulted in a Part D expenditure in 2021, so long as it
owned the approved NDA and “produced, prepared, propagated, compounded, converted, or
processed” at least one pill covered by that NDA.
b.
But even were the Court to accept that peculiar reading of the statute, it would do nothing
to address Servier’s separate problem: “the specified small manufacturer drugs of the
manufacturer”—that is, on Servier’s view, the drugs for which the manufacturer owns the
approved NDA at the time the expenditure occurs—must be “covered by” a CGDP agreement
between CMS and “such manufacturer.” 42 U.S.C. § 1395w-114c(g)(4)(C)(ii)(bb) (emphasis
added). Servier concedes, however, that it was never the party to a CGDP agreement covering
Tibsovo for 2021; rather, Agios was the party to that agreement, and Servier merely agreed in a
separate, private agreement to reimburse Agios for the rebates Agios was required to pay under
Agios’s CGDP agreement for expenditures incurred after the acquisition.
In attempting to address this deficiency before the agency, Servier acknowledged that
“TIBSOVO was technically included on Agios’ CGDP agreement throughout 2021, [but] this
was only because Servier did not acquire the entire Agios labeler code and a single product
cannot be transferred between CGDP agreements.” Dkt. 18-1 at 89. Servier contended,
however, that Tibsovo’s presence on Agios’s CGDP agreement could be imputed to Servier
because “Servier accepted responsibility for coverage gap discounts for TIBSOVO and fully
30 reimbursed Agios for such discounts post-acquisition.” Id. But that argument, which Servier
repeats here, merely elides the relevant issue.
To start, it is not a merely administrative quirk that prevented Servier from substituting
itself for Agios under the existing CGDP agreement; rather, long before Congress enacted the
phase-in rules at issue here, the Medicare Coverage Gap Discount Program required
“manufacturers” to enter into CGDP agreements, and, in terms similar to those at issue here,
Congress defined “manufacturer” to mean an “entity which is engaged in the production,
preparation, propagation, compounding, conversion, or processing of prescription drug products,
either directly or indirectly by extraction from substances of natural origin, or independently by
means of chemical synthesis, or by a combination of extraction and chemical synthesis.” 42
U.S.C. § 1395w-114a(g)(5). The assignment of a labeler code, accordingly, is not a mere
administrative proxy but, rather, a means of identifying the “manufacturer,” as required by
statute.
But, even more importantly, any hurdles that Servier may have faced in entering into a
CGDP contract covering sales of Tibsovo for 2021 (which Servier, in any event, did not
manufacture) does not eliminate the statutory requirement that the Part D expenditures allocated
to a manufacturer for 2021 must be for drugs “covered by” the CGDP agreement of “such
manufacturer,” id. § 1395w-114c(g)(4)(C)(ii)(I)(bb) (emphasis added). And, as Servier must
concede, it did not satisfy that statutory requirement. The fact that Servier agreed to reimburse
Agios for the rebates that Agios owed pursuant to Agios’s CGDP agreement with CMS,
moreover, has no bearing on the proper interpretation or application of the statute. The Tibsovo
that resulted in Part D expenditures in 2021 was not covered by a CGDP agreement with Servier,
and Servier’s private undertaking to reimburse Agios is just that—a private undertaking. It
31 neither qualifies as a CGDP agreement nor has the effect of substituting Servier for Agios under
Agios’s agreement. To the contrary, the only reason that a private reimbursement agreement was
necessary was that Agios remained responsible for the rebate payments under its CGDP
agreement with CMS.
Finally, Servier points to various exceptions to the CGDP agreement requirement that
CMS’s Final Guidance recognizes. Dkt. 15 at 19-20; see also Dkt. 18-1 at 89 n.11. The Court’s
task, however, is to construe that statute as Congress wrote it, see Loper Bright Enters., 144 S.
Ct. at 2261–62 (“reviewing courts [must] exercise independent judgment on questions of law”),
and, here, the statutory text is unambiguous: it limits the relevant Part D expenditures to those
incurred in 2021 for drugs covered by a CGDP agreement with “such manufacturer”—that is by
an agreement with the entity seeking “specified small manufacturer” status. 42 U.S.C. § 1395w-
114c(g)(4)(C)(ii)(I)(aa). Because none of the sales at issue were covered by a CGDP agreement
with Servier, that ends the matter. But even putting that recent development in administrative
law aside, CMS’s Final Guidance would carry no weight here. Servier does not contend that it
qualifies under any of the exceptions or refinements discussed in the guidance, but only that “the
guidance provides for a similar situation.” Dkt. 15 at 19. Under certain circumstances, CMS has
permitted a manufacturer to participate in a preexisting CGDP agreement by including its own
drugs on another manufacturer’s CGDP agreement; CMS’s Final Guidance treats such
manufacturers as if they had a CGDP agreement of their own. See Dkt. 18-1 at 29 n.9. But that
“similar situation” differs from the present context in a critical respect. There, the manufacturer
at issue participated in another manufacturer’s CGDP in 2021 using its own labeler code. Here,
in contrast, the Tibsovo listed on Agios’s CGDP agreement bore Agios’s labeler code, not
Servier’s.
32 c.
Nor is the Court persuaded by Servier’s alternative contention that the definition of
“manufacturer” is sufficiently capacious to conclude that Servier should be considered a
“manufacturer” with respect to the 2021 Part D expenditures for Tibsovo that was produced by
Agios (or its contractor) and transferred to Servier in April 2021. Again, Servier presses several
arguments in support of its reading of the statute, and, again, each of those arguments fails.
Servier starts by pointing out that “CMS has never defined ‘manufacturer’ . . . to be the
entity that creates a physical drug product.” Dkt. 15 at 15. For support, it points to a CMS rule
that includes as “manufacturers” companies, like both Agios and Servier, that use “a contract
manufacturer to create [their] pill[s],” and also includes as manufacturers companies that
repackage or relabel products. Id. (citing Medicare Program; Changes to the Medicare
Advantage and Medicare Prescription Drug Benefit Program for Contract Year 2013 and Other
Changes, 77 Fed. Reg. 22072, 22080 (Apr. 12, 2012). But, as CMS explains, it has never
posited that the term “manufacturer” is limited to those companies that “physically make” the
drug. Dkt. 17 at 14-15. Rather, CMS relies on the statutory definition, which encompasses “any
entity which is engaged in the production, preparation, propagation, compounding, conversion,
or processing of prescription drug products.” See 42 U.S.C. § 1395w-114c(g)(5). The fact that
Agios and Servier both engaged a third-party contractor to physically make Tibsovo, under their
direction and pursuant to their specifications, is not inconsistent with a finding that both
companies were “engaged in the production,” “preparation,” or “processing” of prescription
drugs, and Servier does not argue to the contrary. It is a different matter entirely, however, to
find that Servier was engaged in the production, preparation, or processing of stock of Tibsovo
that existed at the time of the acquisition and that Servier did not further prepare or process. The
33 fact that CMS also treats entities that relabel or repackage products as “manufacturers” arguably
presents a closer question, but because Servier did not relabel or repackage Agios’s stock of
Tibsovo, the Court need not address that question.
Servier also cites to guidance issued by CMS pursuant to another program, CMS’s Final
Guidance, Implementation of Sections 1191–1198 of the Social Security Act for Initial Price
Applicability Year 2027 and Manufacturer Effectuation of the Maximum Fair Price in 2026 and
2027, at 187 (Oct. 2, 2024) (“Negotiation Program Guidance”), to support its contention that, in
similar circumstances, CMS has “interpreted the statutory phase ‘the manufacturer’ of a selected
drug to refer to ‘the entity that owns the NDA(s) . . . for the selected drug.’” Dkt. 15 at 16–17
(quoting Negotiation Program Guidance). That guidance, however, dealt with a very different
question; it considered how to choose between multiple entities that meet the statutory definition
of manufacturer. See Negotiation Program Guidance at 35, 187. Here, in contrast, Servier did
not meet the statutory definition of manufacturer at the time the relevant stock of Tibsovo was
produced, and, applying the statutory definition, the relevant Part D expenditures were not “for”
any quantity of Tibsovo “produced, prepared, propagated, compounded, converted, or processed
by” Servier. See 42 U.S.C. §§ 1393w-114c(g)(4)(C)(ii)(I)(bb), 1393w-114c(g)(4)(C)(ii)(II)(aa).
Finally, invoking the dictionary, Servier argues that it “was a ‘manufacturer’ of the
Tibsovo stock existing at the time of the 2021 acquisition because” it “produced” or
“propagated” that stock. Dkt. 15 at 18. In particular, Servier argues, “the common meaning of
‘produce’ includes ‘to make available for public . . . dissemination,’ and ‘propagate’ includes ‘to
cause to spread out and affect a greater number or greater area.’” Id. (quoting Merriam Webster
Online Dictionary, Produce & Propagate (2024)). Under the noscitur a sociis canon, however,
courts must ascribe terms in a series meaning based on the company that they keep. See Yates v.
34 United States, 574 U.S. 528, 543 (2015). Doing so “avoid[s] ascribing to one word a meaning so
broad that it is inconsistent with its accompanying words, thus giving unintended breadth to the
Acts of Congress.” Gustafson v. Alloyd Co., 513 U.S. 561, 575 (1995) (quoting Jarecki v. G.D.
Searle & Co., 367 U.S. 303, 307 (1961)). Here, the statutory definition of “specified small
manufacturer drugs” includes words that focus on the creation or making of a product, 42 U.S.C.
§ 1395w-114c(g)(4)(C)(II)(aa), as does the statutory definition of “manufacturer,” id. § 1395w-
114c(g)(5). Understood in this light, the word “produce” is better understood to mean “to cause
to have existence” or “to compose” or “create,” while the term “propagate” is better understood
to mean “to cause to continue or increase by sexual or asexual reproduction.” Merriam Webster
Online Dictionary, Produce & Propagate (2024). Servier did not “cause” the Tibsovo dispensed
under Part D in 2021 to come into existence, nor did it “increase” the stock of Tibsovo dispensed
under Part D in 2021. Under a common-sense reading of the statutory text, none of the stock of
Tibsovo dispensed under Part D in 2021 was “produced, prepared, propagated, compounded,
converted, or processed by” Servier, and it would strain the text to read verbs like produce and
propagate to include acts of dissemination, which are more closely associated with wholesalers
and pharmacies than with manufacturers.
* * *
For all of these reasons, the Court concludes that the best reading of the statutory
definition of “specified small manufacturer” requires that the Part D 2021 expenditures for any
one applicable drug produced, prepared, propagated, compounded, converted, or processed by
that manufacturer amount to at least 80% of the total Part D 2021 expenditures for all applicable
drugs produced, prepared, compounded, converted, or processed by that manufacturer, and that
the drug was covered by a CGDP agreement “of such manufacturer” that was in place for 2021.
35 Although portions of Servier’s argument make plausible sense of at least portions of the statutory
text, the Court’s task is to discern the best reading of the statutory text as a whole, even in the
face of some ambiguity. See Loper Bright Enters., 144 S. Ct. 2244. Considered in that light, the
Court is persuaded that CMS offers the better reading of the statute—the reading that makes
better sense of the statutory text as a whole, that gives each clause and preposition meaning, and
that gives the words that Congress employed their most natural and common-sense
interpretation.
The Court, accordingly, concludes that CMS’s determination that Servier fails to qualify
as a “specified small manufacturer” is not contrary to law.
B. Arbitrary and Capricious
Servier also contends that CMS’s determination that Servier did not qualify as a
“specified small manufacturer” was arbitrary and capricious for two reasons. First, Servier
maintains that CMS erred when it continued to rely on labeler codes to attribute drug
expenditures to manufacturers, even after Servier provided evidence that those labeler codes
were (according to Servier) “flawed” or “incomplete.” Second, Servier argues that CMS failed
adequately to explain its decision when it denied Servier’s recalculation request. The Court will
consider these arguments in turn.
1. Whether CMS relied on incomplete or flawed information
The APA requires that an agency “examine the relevant data” before making a
determination. Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983) (emphasis added). The “relevant data” must be reliable, and it must offer an accurate
measure of what is at issue. An agency action is arbitrary and capricious if the agency “use[s]
data ill-suited to the task,” Am. Public Gas Ass’n v. U.S. Dep’t of Energy, 22 F.4th 1018, 1029
36 (D.C. Cir. 2022), or “brushe[s] aside critical facts,” Am. Wild Horse Pres. Campaign v. Perdue,
873 F.3d 914, 932 (D.C. Cir. 2017).
Here, CMS relied on Prescription Drug Event data when attributing drug expenditures to
manufacturers. As explained above, a Prescription Drug Event record is created each time a
drug is dispensed to a Part D beneficiary. That record includes, among other things, the date that
the drug was dispensed, the price paid, and the drug’s National Drug Code. The National Drug
Code, in turn, begins with a “labeler code,” which is a five- or six-digit number that identifies the
entity that “manufactur[ed], repack[ed], [or] relabel[ed]” the drug. 21 C.F.R. § 207.33(c)(1). To
determine a manufacturer’s 2021 expenditures under Part D, CMS looked to all of the
Prescription Drug Event records from 2021 and attributed each sale to the manufacturer
identified by the labeler code portion of the recorded National Drug Code.
All Prescription Drug Event records for Tibsovo dispensed in 2021 (exclusively) bear
National Drug Codes with Agios’s labeler code and covered under Agios’s CGDP agreement.
CMS thus attributed all 2021 Tibsovo expenditures to Agios. According to Servier, those
Prescription Drug Event records were “incomplete” because they did “not accurately reflect Part
D sales in the event of a change in ownership.” Dkt. 8-1 at 20. According to Servier, “CMS
[was] well aware” that Prescription Drug Event data “does not reflect which manufacturer
owned” the approved NDA at the time the Part D expenditure occurred, and thus, on Servier’s
telling, CMS acted arbitrarily when it relied on that data even “when presented with more
accurate and reliable data of Servier’s 2021 Part D sales”—namely, information about Servier’s
ownership of Tibsovo. Id.
The parties do not dispute that Prescription Drug Event data accurately reflects the
manufacturer of the drug—that is, the company that produced the relevant product. As CMS
37 observes, Servier does not contend that “Tibsovo dispensed to Part D beneficiaries in 2021 was
mislabeled with the wrong labeler code;” rather, Servier “admits that Agios manufactured all
Tibsovo dispensed to Part D beneficiaries in 2021.” Dkt. 13-1 at 25. According to CMS,
moreover, the manufacturer is all that matters for relevant purposes; it is of no moment that the
labeler code does not provide any information about who owns the approved NDA after an
acquisition. “The fact that the labeler information is less-well-suited to determine what
happened to that drug product once it left Agios’s possession,” moreover, “is irrelevant for
purposes of the statute.” Id.
In short, the parties’ dispute does not turn on the facts but, rather, on the law. If Servier
is correct, and the definition of “specified small manufacturer” turns, at least at times, on whom
owns the approved NDA, then it would also be correct that CMS needed to consider Servier’s
supplemental information. But if CMS is correct and the relevant question is whether the
company at issue actually manufactured the product that resulted in the Part D expenditures, then
the agency would not need any information apart from the Prescription Drug Event data to
render its decision.
As a result, the question of statutory interpretation considered above answers Servier’s
arbitrary and capricious challenge as well. The Court has already concluded that the definition
of “specified small manufacturer” turns, in part, on whether 2021 Part D expenditures on an
applicable drug produced by that manufacturer, and covered by a CGDP agreement “of such
manufacturer” in 2021, equaled or exceeded 80% of total Part D expenditures on applicable
drugs produced by that manufacturer in 2021. Under that reading of the statute, Servier does not
qualify as a “specified small manufacturer” because it did not produce any Tibsovo in 2021 that
resulted in any 2021 Part D expenditures. That ends the matter, and the fact that Servier
38 acquired the approved NDA in April 2021, acquired Agios’s existing stock of Tibsovo, and
agreed to reimburse Agios’s for the rebates that Agios’s was required to pay under its CGDP
agreement for Tibsovo sales after April 1, 2021 is irrelevant.
The Court, accordingly, concludes that CMS’s reliance on the manufacturer drug codes
included in Prescription Drug Event data, and failure to rely on the supplemental information
that Servier provided regarding its acquisition, was neither arbitrary nor capricious.
2. Whether CMS adequately explained its decision
The APA also requires that an agency “articulate a satisfactory explanation for its action
including a rational connection between the facts found and the choices made.” Dist. Hosp.
Partners, L.P. v. Burwell, 786 F.3d 46, 56–57 (D.C. Cir. 2015) (quoting Motor Vehicle Mfrs.
Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)) (emphasis omitted). According
to Servier, CMS failed to satisfy this requirement because it did not adequately explain in its
letter denying Servier’s recalculation request “why it found that Servier’s sales of Tibsovo in
2021 using the legacy Agios labeler code were ‘not relevant to [the] eligibility determination’
under the statute.” Dkt. 8-1 at 23 (quoting Dkt. 18-1 at 94).
In that letter, CMS explained that expenditures on applicable drugs dispensed in 2021,
“[a]s stated in the Methodology [Memorandum],” “are attributable to each manufacturer, as
determined by the labeler code extracted from the [National Drug Code].” Dkt. 18-1 at 94. It
noted that Tibsovo’s labeler code “remained under [Agios]’s Coverage Gap Discount Program
agreement in 2021” and that, “[w]hile there may have been Part D expenditures in 2021 for
[Tibsovo], . . . that is not relevant to Servier’s eligibility determination because, in 2021,
[Tibsovo] was not attributable to Servier, as determined by the labeler code.” Id. And, finally, it
explained that because none of the 2021 Tibsovo Part D expenditures were attributable to
39 Servier, “Servier had no ($0.00) Part D expenditures in 2021 for applicable drugs under its
labeler code, 72694,” and therefore “no applicable drug had 2021 Part D expenditures totaling 80
percent or more of the total 2021 Part D expenditures.” Id. For these reasons, CMS reaffirmed
its conclusion that “Servier Pharmaceuticals does not meet the specified small manufacturer
criteria.” Id.
That explanation is sufficient to satisfy the agency’s obligation to articulate a satisfactory
explanation for its action. CMS’s guidance made clear that Part D expenditures would be
allocated to manufacturers using the labeler code from Prescription Drug Event Data. Moreover,
although neither the Final Guidance nor the Methodology Memorandum explain why CMS was
focused on the identity of the manufacturer, that premise is sufficiently obvious that it required
no explanation: it requires little sleuthing to discern that CMS was focused on the identity of the
manufacturer because it read the statute, as this Court does, to define “specified small
manufacturer” to turn, in part, on the percentage of total 2021 Part D expenditures for applicable
drugs produced by that “manufacturer” that were attributable to a single drug produced by that
“manufacturer.” A “reviewing court must ‘uphold’ even ‘a decision of less than ideal clarity if
the agency’s path may be reasonably discerned.’” Garland v. Ming Dai, 593 U.S. 357, 369
(2021) (quoting Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974));
see also Casino Airlines, Inc. v. Nat’l Transp. Safety Bd., 439 F.3d 715, 717 (D.C. Cir. 2006).
Here, that path is readily discernable.
In any event, no purpose would be served by a remand because the agency correctly
interpreted the statute and correctly determined that Servier did not qualify as a “specified small
manufacturer.” “When an agency raises a purely legal argument for the first time in litigation, a
court may consider that argument if it is both clearly correct and would render remand pointless
40 under the harmless error standard.” Oglala Sioux Tribe v. U.S. Nuclear Regulatory Comm., 45
F.4th 291, 304 (D.C. Cir. 2022) (citing 5 U.S.C. § 706). Here, the agency’s more fully
developed arguments are both purely legal and, as the Court has concluded, correct. As a result,
a remand would be pointless. The Court has determined that Servier does not qualify as a
“specified small manufacturer” under the plain language of statute, and on remand the agency
would have no choice but to deny Servier’s request anew. “To remand would be an idle and
useless formality,” and Chenery “does not require that [courts] convert judicial review of agency
action into a ping-pong game.” NLRB v. Wyman-Gordon Co., 394 U.S. 759, 766 n.6 (1969)
(plurality).
CONCLUSION
For the foregoing reasons, Servier’s motion for summary judgment, Dkt. 8, is hereby
DENIED, and CMS’s cross-motion for summary judgment, Dkt. 13, is hereby GRANTED.
A separate order will issue.
/s/ Randolph D. Moss RANDOLPH D. MOSS United States District Judge
Date: January 3, 2025
Related
Cite This Page — Counsel Stack
Servier Pharmaceuticals LLC. v. Becerra, Counsel Stack Legal Research, https://law.counselstack.com/opinion/servier-pharmaceuticals-llc-v-becerra-dcd-2025.