September 22, 2021

Volume XI, Number 265

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September 20, 2021

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Federal District Courts Enjoin CMS’s Most Favored Nation Model Rule for Medicare Part B Drug Reimbursement

At a time when prescription drug costs have been increasingly burdensome for Medicare beneficiaries,  and the American taxpayer, the Centers for Medicare and Medicaid Services (“CMS”) issued an interim final rule with comment period on November 27, 2020,[i] explicitly recognizing, as a basis for the rule, “[i]ncreases in drug prices” that “far exceed prices in other countries.”[ii] and establishing a new reimbursement methodology for the payment of selected drugs under Part B of the Medicare program.[iii] 

The new rule implements the “Most Favored Nation Model” (“MFN Rule” or “Model Rule”) which sought to link drug costs under Medicare Part B for 50 high-cost drugs to the lowest price of a non-U.S. member country of the Organization for Economic Co-operation and Development.[iv]  The expectation was that the MFN Rule would test a new reimbursement scheme to lower drug expenditures and save the federal government more than $80 billion and Medicare beneficiaries $28.5 billion during a seven-year period.[v]  The rule was promulgated under the authority of 42 U.S.C. § 1315a, and CMS specified an implementation date of January 1, 2021 for the new rule. 

In deciding to issue the rule as an interim final rule with comment, the Secretary of Health and Human Services (“the Secretary”) relied on the “good cause” exception under the Administrative Procedure Act (“APA”) that allows for the waiver of prior notice and comment in circumstances where the public interest would be served.[vi]  Additionally, the Secretary chose to rely on the “good cause” exception under the APA to waive the normal effective date of 30 days from the time of publication of a substantive rule.[vii]          

A complaint was filed on December 4, 2020 in the U.S. District Court for the District of Maryland in Association of Community Cancer Centers, et al. v. Azar, et al. challenging the Model Rule.[viii]  Plaintiffs in the action are organizations which represent members, including provider groups, doctors, patients, and pharmaceutical companies.  On December 23, 2020, the district court issued a nation-wide temporary restraining order (“TRO”), enjoining CMS from implementing the Model Rule.[ix]   

In a separate lawsuit, Biotechnology Innovation Organization, et al. v. Azar, et al., filed in the U.S. District Court for the Northern District of California,[x] plaintiffs there challenged the MFN Rule.  On December 28, 2020, that court granted a nation-wide preliminary injunction, adopting in large part the reasoning set forth in the December 23 ruling rendered in Association of Community Cancer Centers, granting a TRO.  Additionally, in Regeneron Pharmaceuticals, Inc. v. Unites States Dept. of Health and Human Services, et al.,[xi] on December 30, 2020, the U.S. District Court for the Southern District of New York issued its own preliminary injunction, enjoining the MFN Rule as it pertained to the drug EYLEA (aflibercept Injection).  The court’s reasoning in granting a preliminary injunction is substantially similar, in most respects, to that of the U.S. District Court for the District of Maryland in granting a TRO.                        

The thrust of the district court’s ruling on December 23 in Association of Community Cancer Centers centered on the failure of CMS to promulgate the MFN Rule allowing for notice and comment, mandated by the APA.  The district court focused on the infirmities in the rulemaking process, and did not address the merits of the challenge to the MFN Rule itself as exceeding statutory authority, or constitutional challenges, pressed by the plaintiffs in the litigation.[xii]  Since the U.S. District Court for the District of Maryland was the first court to substantively address the APA challenge, and issue  judicial relief, this article will discuss the analysis employed by that court in its December 23 ruling, granting a TRO.     

Statutory Authority for the MFN Rule

The moorings for the MFN Rule are codified at 42 U.S.C. § 1315a.  That statutory provision, enacted as part of the Affordable Care Act, empowers the Center for Medicare and Medicaid Innovation to test “innovative payment” and “service delivery models” to “reduce program expenditures” while “preserving or enhancing” quality of care provided under the Medicare and Medicaid programs.[xiii]  Section 1315a specifies that testing of a payment or service delivery model may be limited to “certain geographic areas.”[xiv]  Further, section 1315a directs that the models chosen address “a defined population for which there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures.”[xv]  The statute authorizes the Secretary to waive otherwise applicable requirements under the Medicare program.[xvi]  Section 1315a also explicitly precludes administrative and judicial review of the numerous design elements of a model subject to testing.[xvii]                    

It is the Secretary who is designated with the authority to undertake, through CMS and the CMI, the testing of models that are defined under Section 1315a. 

The MFN Rule that was chosen by the Secretary was designed to be phased-in during seven years.[xviii]  It identifies 50 drugs under Medicare Part B for the new reimbursement scheme.  The remainder of drugs that are covered under Medicare Part B will continue to be reimbursed as specified under 42 U.S.C. § 1395w-3a.          

Scope of the Litigation

As previously mentioned, the MFN Rule that was promulgated under Section 1315a, and subject to  challenge in Association of Community Cancer Centers, pertained to the reimbursement for certain prescription drugs under Medicare Part B.  Aside from the direct challenge brought claiming that CMS violated the dictates of the APA rulemaking process, the plaintiffs asserted claims that the MFN Rule was in excess of statutory authority under 42 U.S.C. § 1315a, and that CMS’s action raised issues of constitutional dimensions.  On the statutorily-based claims, the plaintiffs pressed salient points, and they were not the focus of the district court’s decision to issue a TRO enjoining implementation of the Model Rule.                       

The District Court’s Reasoning In Granting A TRO

The district court applied a four part test to determine whether a TRO should be issued, as sought by the plaintiffs in the litigation.  That test, identical to the one that would be applied where a preliminary injunction is sought, requires the court to consider whether:

(1)  The party seeking a TRO is likely to succeed on the merits,

(2)  The party seeking a TRO is likely to suffer irreparable injury without the TRO,

(3)  The balance of equities tips in favor of the moving party, and

(4)  An injunction is in the public interest[xix]        

Applying the “likely to succeed on the merits” prong of the test, the district court in Association of Community Cancer Centers looked to the bases for allowing waiver of notice and comment for good cause under section 553(b)(3)(B) of the APA.    

The APA reads, in part, that the notice and comment requirement does not apply “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued)” that notice and comment by the public “is contrary to the public interest.”[xx]  In the Model Rule, CMS stated that waiver was necessitated in the “public interest.”  The district court ruled that the government failed to meet its burden of persuasion.  

To determine the probability of success on the merits of dispensing with notice and comment for “good cause,” the court explained the standard of review it would apply.  For this inquiry, the court  reviewed de novo the Secretary’s decision to invoke the good cause exception, allowing deference to the Secretary’s factual determinations unless found to be arbitrary or capricious.[xxi]   The court looks to the agency’s articulation of the rationale for invoking good cause at the time of the rulemaking.

The district court cautioned that the good cause exception generally is narrowly construed.  For a waiver based on the public interest, the inquiry is weather advance notice and comment would harm the public interest by defeating the very purpose of the rule itself.  An emergency, or where a delay caused by notice and comment risks serious harm are instances where waiver based on the public interest would be legitimately presented.[xxii]    

In the Model Rule, CMS stated several reasons that it thought provided the rationale for waiving notice and comment based on the public interest.  First, the agency stated that Medicare beneficiaries have faced increasing costs for drugs which have caused them to “divert scarce resources to pharmaceutical treatments and away from other needs, or prompting them to skip doses of their medications, take less than the recommended doses, or abandon treatment altogether.”[xxiii]  Further, CMS pointed to the risks associated with COVID-19.  The agency wrote that there was a severe danger of illness for older members of the population who are already burdened with chronic illnesses, and a lack of financial resources to afford medications.  In the agency’s view, the new surge in COVID-19 cases enhanced the basis to invoke the public interest exception.  CMS concluded that implementation without delay of the  Model Rule will “provide immediate relief to Medicare beneficiaries through reduced copays for drugs covered under the rule.[xxiv]    

The district court concluded that CMS did not meet its burden to invoke good cause under section 553(b)(3)(B).  This is so for several reasons.  The court viewed the agency’s stated basis in the rule as mere speculation.  There was a paucity of credible data in the rule that would support the agency’s rationale to dispense with notice and comment.  The agency’s rationale was further cast in doubt since there were perceived economic dislocations and negative impacts on beneficiaries from the loss of access to drugs that would result from the rule.  The court opined that, rather than presenting a detriment, undertaking notice and comment may well provide insight from the public on how the agency could ameliorate such negative effects of the Model Rule on members of the population.  In sum, since the purpose of the Model Rule was to test a new payment scheme for Part B drugs, CMS failed to show why a delay in pursuing notice and comment would be detrimental to the very purposes of the rule.[xxv]  More to the point, the court wrote that any delay the agency sought to avoid was of its own making, since it has taken CMS several years to pursue a model to reduce drug costs.   

The district court addressed the next prong of the test for a TRO, whether irreparable injury would be suffered by the moving party if a TRO was denied.  Here, the court concluded that there would be such injury to the parties of interest in the litigation.  Central to the court’s determination was whether the the plaintiffs adequately demonstrated that they would likely suffer irreparable harm that could not be fully rectified by a final judgment on the merits, or by a separate suit seeking damages.[xxvi]  The court wrote that the actual harm to a plaintiff must be “actual and imminent.”[xxvii]  Economic loss may constitute irreparable injury, particularly, as in the case, an action to recover such losses against the government would be barred by sovereign immunity.  Plaintiffs in the action are organizations which represent members, including provider groups, doctors, patients, and pharmaceutical companies.  The court took note of severe economic impact of the rule, once implemented, without at TRO, within days of its promulgation.  Plaintiffs allege the rule could have severe impacts, disrupting care to beneficiaries and significantly impairing the ability of provider groups to remain financially viable.[xxviii]  Further, the court found that the deprivation to the plaintiffs to engage in notice and comment for the Model Rule, prior to its effective date, coupled with likely economic harm from the waiver of that public process, raises the specter of a procedural violation.  That deprivation gives rise to irreparable injury since plaintiffs would loose the opportunity to influence CMS’ decision-making about the infirmities in the Model Rule that impact their financial viability.[xxix]        

Lastly, the district court considered the remaining prongs for the test on whether to grant a TRO.  The court determined that the balance of the equities and the public interest militate in favor of issuing such relief.  For this inquiry, when, as here, the government is the party against whom a TRO is sought, the government’s interest is the public interest.[xxx] In its analysis, the court was mindful that plaintiffs were deprived of the opportunity to participate in notice and comment for the MFN Rule.  This took greater weight since the rule significantly altered the payment regime for selected Part B drugs, with potential for wide-spread negative impacts on the ability of providers, and health care facilities, to continue to treat patients.  These effects could also have negative consequences for Medicare Part B beneficiaries, where they may be faced with inferior medical treatment or no treatment at all.  All these potential effects would result from the absence of prior notice and comment, depriving interested parties with an avenue to influence CMS decision-making on the negative ramifications of the rule.  Even more to the point, the Model Rule’s implementation, so close to its issuance, left little time for providers to adjust to the new payment scheme, and market realities, including renegotiation of contracts and supply chain interruptions.  This too added to perceived hardships in the health care system, with no convincing need to bypass notice and comment.  The government objected to delay in implementing the rule that would impede reducing drug prices.  However, in view of the stakes involved for those impacted by the Model Rule, the district court rejected the government’s position as unconvincing.  For these reasons, the court concluded that the balance of the equities, and the public interest, militated in favor of granting a TRO.[xxxi] 

Observations

The nation-wide preliminary injunctions enjoining the MFN Rule comes at a time of a transition in Executive Branch leadership, and thus cast significant doubt on the viability of the Model Rule.  The rulings enjoining the Model Rule do provide affirmation for adherence to APA’s notice and comment rulemaking dictates, even at a time when an outgoing administration rushes to complete its regulatory agenda.  Under established law, exceptions to notice and comment under the APA are strictly construed against the party seeking to waive those provisions.                                                                                                                                                


[i]85 Fed. Reg. 76180 (November. 27, 2020). 

[ii]Id.

[iii]42 U.S.C § 1395 et seq.  

[iv]85 Fed. Reg. 76180, 76181.  (November 27, 2020). 

[v]Id. at 76181.  

[vi]5 U.S.C. § 553(b)(3)(B). 

[vii]Id. at 553(d)(3). 

[viii]Association of Community Cancer Centers v. Azar (No. 1:20-cv-3531, D. Md. Dec. 4, 2020).       

[ix]Memorandum Opinion and Order (“Mem Op.”) (No. 1:20-cv-3531, D. Md. Dec. 23, 2020).  

[x]Biotechnology Innovation Organization, et al. v. Azar (No. 20-cv-08603, N.D. Cal. Dec. 4, 2020). 

[xi]Regeneron Pharmaceuticals, Inc. v. United States Dept. of Health and Human Service (No. 20-cv-10488, S.D. N.Y. Dec. 11, 2020). 

[xii]As a threshold matter, the district court addressed CMS’ assertions that the court lacked jurisdiction to consider plaintiffs’ challenges to the MFN Model Rule, and that plaintiffs lacked standing to bring the lawsuit.  The court rejected both contentions.  As to the standing issue, the court concluded that standing of the plaintiff organizations existed based on the concept of representational standing.      

[xiii]42 U.S.C. § 1315a(a)(1). 

[xiv]Id. at 1315a(a)(5). 

[xv]Id. at 1315a(b)(2)(A).  I

[xvi]Id. at 1315a(d)(1). 

[xvii]Id. at 1315a(d)(2). 

[xviii]85 Fed. Reg. 76180, 76205. 

[xix] District Court citing case law in the Fourth Circuit. 

[xx]  5 U.S.C. § 553(b)(3)(B). 

[xxi]Mem Op. at 13.

[xxii]Id. 

[xxiii]85 Fed. Reg. 76180, 76249.  

[xxiv]  Id. 

[xxv]  Mem Op. at 16-18.  

[xxvi]  Id. at 20. 

[xxvii]  Id.

[xxviii]  Id. at 20-21. 

[xxix]  Id. at 21-23.   

[xxx]  Id. at 23-24 (citing case law). 

[xxxi]  Id. at 23-26. 

© The National Law Forum. LLCNational Law Review, Volume XI, Number 9
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About this Author

Stuart Silverman

During his professional life, Stuart Silverman has practiced health care law.  He was an attorney with the Medicaid Fraud Control Unit in the Office of the Inspector General for the District of Columbia Government (OIG).  While with the OIG, he was designated as a Special Assistant United States Attorney for the District of Columbia.  

Prior to joining the OIG, Mr. Silverman was in private practice with Greenberg Traurig, and was also an attorney with the Office of the General Counsel for the U.S. Department of Health and Human Services (HHS). ...

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