United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 12, 1999 Decided April 13, 1999
No. 98-5317
University Medical Center of Southern Nevada,
Appellant
v.
Donna E. Shalala, Secretary,
United States Department of Health & Human Services,
Appellee
Appeal from the United States District Court
for the District of Columbia
(No. 97cv00560)
Elliott B. Adler argued the cause and filed the briefs for
appellant.
Robert D. Kamenshine, Attorney, United States Depart-
ment of Justice, argued the cause for appellee. With him on
the brief were Frank W. Hunger, Assistant Attorney Gener-
al, Wilma A. Lewis, United States Attorney, and Anthony J.
Steinmeyer, Attorney, United States Department of Justice.
Michael E. Anderson was on the brief for amicus curiae
National Association of Public Hospitals and Health Systems.
Before: Silberman, Ginsburg, and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Silberman.
Silberman, Circuit Judge: University Medical Center of
Southern Nevada (UMC) appeals from the district court's
dismissal, for lack of standing, of its challenge to the Depart-
ment of Health and Human Service's administration of a drug
discount program. We agree that appellant lacks standing,
albeit on different grounds than those relied on by the district
court, and affirm the dismissal.
I.
Congress, concerned that many federally funded hospital
facilities serving low-income patients were incurring high
prices for drugs, enacted section 340B of the Public Health
Service Act. 42 U.S.C.A. s 256b (Supp. 1998). Section 340B
requires a manufacturer of "covered outpatient drugs" to
enter into a contract with the Secretary of HHS--a condition
for eligibility for Medicaid matching funds--under which the
manufacturer agrees to provide these drugs to certain "cov-
ered entities" at discounted prices.1 A covered entity is one
that meets certain statutory criteria; as relevant here, an
eligible hospital is one that has a "disproportionate share
adjustment" percentage (which is a measure of the number of
low-income patients served by the hospital) greater than 11.75
for the most recent cost reporting period, and that does not
obtain covered outpatient drugs through a group purchasing
organization or other group purchasing arrangement.2 HHS
__________
1 Covered outpatient drugs are those drugs defined under
section 1927(k) of the Social Security Act, 42 U.S.C. s 1396r-8(k)
(1994). See 42 U.S.C. s 256b(a)(3); see also id. at s 1396r-8(a), (c)
(setting forth rebate requirements).
2 The type of covered entity involved in this case is defined in
42 U.S.C. s 256b(a)(4)(L)(i)-(iii). The disproportionate share ad-
justment is calculated in accordance with 42 U.S.C.
s 1395ww(d)(5)(F) and 42 C.F.R. s 412.106 (1998).
initially interpreted the latter eligibility criterion as barring
only "double dipping"--that is, hospitals could participate in
both the section 340B discount program and a group purchas-
ing organization provided that the hospital did not receive
340B discounts on the same drugs purchased through the
group purchasing organization. As the program matured,
however, HHS subsequently changed its interpretation, con-
cluding that participation in a group purchasing organization
for the purchase of covered outpatient drugs would, after
May 1994, render the hospital ineligible for 340B discounts.
HHS compiled an initial list of qualifying hospitals when
the program went into effect on December 1, 1992, and
updates the list quarterly based on information (including the
hospital's disproportionate share adjustment) contained in
cost reports provided to HHS by the hospital's fiscal interme-
diary. If cost data show that a hospital has become eligible,
it is added to the list at the beginning of the next quarter;
similarly, if the data show a hospital is no longer eligible, it is
removed from the list at the beginning of the next quarter.
In other words, the hospital's eligibility status is prospective
only. At the start of the program, however, manufacturers
did not yet have in place the mechanism to provide the
discounts to covered entities at the point of sale. HHS
therefore allowed retroactive discounts to allow manufactur-
ers time to integrate the discounts into their drug distribution
system while at the same time ensuring that covered entities
received the discounts to which they were entitled. If a
hospital had been on the initial list, it would be able to get
discounts from the manufacturer retroactive to December 1,
1992, and hospitals placed on the list subsequently would be
eligible for discounts retroactive to their inclusion on the list,
provided the hospitals requested such retroactive discounts
from the manufacturers before June 13, 1994. After June 13,
1994, discounts could only be obtained at the time of pur-
chase.
Appellant wished to participate in the 340B program, but it
was not included on the initial eligibility list because the cost
report submitted by its fiscal intermediary for the most
recent cost reporting period reflected a disproportionate
share adjustment of less than the required 11.75 percent.
When the intermediary completed an audit of UMC's 1991
cost report (in circa August 1993), it discovered that the
correct disproportionate share adjustment percentage exceed-
ed that required for eligibility. Both UMC and the interme-
diary then gave the Health Care Financing Administration
and the Office of Drug Pricing, which oversees the 340B
program, the corrected numbers, and told them that UMC
had a qualifying disproportionate share adjustment percent-
age. UMC alleged that the government did not respond to
any of this correspondence. When the administrative process
was complete (following the influence of a congressional "in-
termediary") and HHS had satisfied itself that UMC did
indeed qualify for the 340B program discounts, UMC was
placed on the eligibility list on July 1, 1994. This meant
UMC could only receive discounts on drugs purchased on or
after that date. During the period from December 1992 to
June 1994, UMC had continued to purchase certain covered
outpatient drugs though its group purchasing arrangement.
UMC then filed a complaint in the district court, seeking a
declaratory judgment that HHS was arbitrary and capricious
in not putting UMC on the list earlier, and that UMC is
entitled to retroactive discounts for covered drugs purchased
between December 1, 1992 and June 13, 1994. HHS coun-
tered first that UMC lacked standing because the ultimate
relief it seeks--retroactive discounts--cannot be gained by a
judgment against the government. The district court agreed
that UMC did not have standing, but not on the grounds
argued by the government. Rather, the district court con-
cluded that the plain language of the statute excludes from
340B eligibility hospitals that participate in group purchasing
agreements. Since UMC continued to participate in such a
program during the period for which it also claims it should
receive retroactive discounts under section 340B, the district
court thought UMC is statutorily barred from receiving such
discounts. See University Med. Ctr. v. Shalala, 5 F. Supp.2d
4, 8-9 (D.D.C. 1998).
II.
UMC makes two arguments: the district court erred in
interpreting the statute and therefore erroneously found that
UMC lacked standing, and the district court erred procedur-
ally in granting judgment on the pleadings to the govern-
ment.3 The government agrees that the district court's inter-
pretation of the group purchasing exclusion in the statute was
erroneous and that UMC is not barred from eligibility by
virtue of its previous participation in a group purchasing
organization. During the time period for which UMC seeks
retroactive discounts, participation in a group purchasing
arrangement was not a per se bar to participation in the 340B
program--only double-dipping was prohibited. It is con-
ceded, therefore, that UMC does not want for standing on
this basis. The government alternatively claims--as it did
below--that UMC lacks standing because the asserted injury
is not redressable. UMC's inability to obtain retroactive
discounts from drug manufacturers, the government con-
tends, will not be affected by any judgment against HHS.4
We start, of course, with the jurisdictional question. A
party invoking federal jurisdiction must show injury-in-fact
that is fairly traceable to the challenged conduct of the
defendant and that is likely to be redressed by a favorable
decision of the court. See Lujan v. Defenders of Wildlife, 504
__________
3 Because we resolve this case on jurisdictional grounds, we do
not reach the merits. We note, however, that UMC misunder-
stands the district court's role in reviewing agency action. The
district court sits as an appellate tribunal in such a case, and the
question whether HHS acted in an arbitrary and capricious manner
is a legal one which the district court can resolve on the agency
record--regardless of whether it is presented in the context of a
motion for judgment on the pleadings or in a motion for summary
judgment (or in any other Rule 12 motion under the Federal Rules
of Civil Procedure). See Marshall County Health Care Auth. v.
Shalala, 988 F.2d 1221, 1225-26 (D.C. Cir. 1993).
4 The government also argues that even if UMC has standing it
has no valid claim because the Administrative Procedure Act (APA)
provides no remedy for an agency's alleged "negligent" delay in
processing an ultimately granted application.
U.S. 555, 560-61 (1992). The injury must be distinct and
palpable and not merely hypothetical, abstract, or conjectural.
See Allen v. Wright, 468 U.S. 737, 751 (1984); Warth v.
Seldin, 422 U.S. 490, 501 (1975). And "[i]t must be 'likely,' as
opposed to merely 'speculative,' that the injury will be 're-
dressed by a favorable decision.' " Defenders of Wildlife, 504
U.S. at 561 (quoting Simon v. Eastern Ky. Welfare Rights
Organization, 426 U.S. 26, 41-42 (1976)).
UMC has categorized its injury in varying ways. In its
motion for summary judgment before the district court, UMC
argued that HHS acted unreasonably in failing to place UMC
on the list earlier, thereby depriving UMC of the full benefit
of the discounts available to it under the 340B program.
Thus characterized, UMC appeared to be asserting a mone-
tary injury--the denial of discounts as a result of not being
on the list. But in response to HHS's counter-argument that
such an injury is not redressable because it depends on the
actions of the drug manufacturers who were not parties to the
suit, UMC contended before the district court and reiterates
here that its requested relief--a judgment declaring that
UMC was unlawfully excluded from the list--would fully
redress its injury. This is so, appellant insists, because the
"illegal exclusion from the eligibility list, and not the fact that
UMC was forced to pay higher drug prices, is the wrong that
UMC seeks to redress" in this lawsuit. Appellant's shifting
formulation of its injury is understandable. If it were simply
HHS's alleged illegal action--its failure to put UMC on the
list during the now-closed "window" for retroactive dis-
counts--then UMC lacks standing because alleged illegality
without an injury-in-fact does not satisfy standing require-
ments. See Allen v. Wright, 468 U.S. at 754 (stating that "an
asserted right to have the Government act in accordance with
law is not sufficient, standing alone, to confer jurisdiction on a
federal court"); Steel Co. v. Citizens for a Better Environ-
ment, 118 S. Ct. 1003, 1018-19 (1998).
If, on the other hand, the asserted injury is the loss of
discounts during the retroactive period, then UMC's case
founders because it fails to meet the redressability require-
ment. Even assuming that appellant could establish "a caus-
al nexus between the agency action" (not putting UMC on the
list during the retroactive period) "and the asserted injury"
(not getting retroactive discounts), Freedom Republicans,
Inc. v. Federal Election Comm'n, 13 F.3d 412, 418 (D.C. Cir.
1994), it still does not show that its claimed injury " 'is likely
to be redressed' " by a declaratory judgment. See Humane
Soc'y v. Babbitt, 46 F.3d 93, 100 (D.C. Cir. 1995) (quoting
National Wildlife Fed'n v. Hodel, 839 F.2d 694, 704 (D.C. Cir.
1998)). Whether UMC can get the retroactive discounts
apparently depends on whether the manufacturers--who are
not parties to this action--could be persuaded to pay them--
presumably based on their contract with HHS to which UMC
is not even a party. If it could be said that UMC was legally
entitled to get the discounts as a result of being placed on the
list effective December 1, 1992, then we might have a differ-
ent situation. That would force us to ask how likely it was
that appellant would succeed in the second suit. (We are not
aware of a case that presents that situation; we are inclined
to think that a plaintiff should bring in parties like the drug
manufacturers as third-party defendants.) But we do not
have to wrestle with this problem because UMC does not
even claim that it has a contingent legal right against the
drug manufacturers. Even if appellant had a declaratory
judgment that the government unlawfully delayed in placing
UMC on the list, it has never explained how, or under what
legal theory, it would be entitled to recover against the
manufacturers. UMC suggested that because its injury has
two parts--being left off the list and losing the discounts--it
should be allowed to seek redress in two steps, first getting a
declaratory judgment and then suing the manufacturers. But
that is essentially a concession that the redressability require-
ment cannot currently be met. Redressability must be satis-
fied now to establish jurisdiction.
* * * *
As UMC has not shown that HHS has caused it an injury
that we can redress, we affirm the district court's dismissal of
the case.