United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 9, 2019 Decided December 3, 2019
No. 18-5299
IPSEN BIOPHARMACEUTICALS, INC.,
APPELLANT
v.
ALEX MICHAEL AZAR, II, IN HIS OFFICIAL CAPACITY AS
SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH
AND HUMAN SERVICES, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:16-cv-02372)
Jeffrey S. Bucholtz argued the cause for appellant. With
him on the briefs were John D. Shakow and Nikesh Jindal.
Ruthanne M. Deutsch, Hyland Hunt, R. Craig Kitchen,
Daryl L. Joseffer, and Michael B. Schon were on the brief for
amicus curiae the Chamber of Commerce of the United States
of America in support of plaintiff-appellant.
Matthew J. Glover, Attorney, U.S. Department of Justice,
argued the cause for appellees. With him on the brief was Abby
C. Wright, Attorney. Alisa B. Klein, Attorney, and R. Craig
Lawrence, Assistant U.S. Attorney, entered appearances.
2
Before: HENDERSON, MILLETT and WILKINS, Circuit
Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge:
This appeal arises out of Ipsen Biopharmaceuticals, Inc.’s
challenge to the designation by Centers for Medicare and
Medicaid Services (CMS)—a part of the United States
Department of Health and Human Services—of the pricing
information Ipsen must report to CMS for a drug that it
manufactures. The sole issue on appeal is whether a series of
letters CMS sent Ipsen constitutes final agency action under the
Administrative Procedure Act (APA), 5 U.S.C. § 704. As
explained infra, we believe Ipsen has plausibly argued that
receipt of the letters significantly increased its risk of a
statutory civil penalty being levied for “knowingly provid[ing]
false information.” 42 U.S.C. § 1396r-8(b)(3)(C)(ii). This
increased risk is a “legal consequence” sufficient to make the
agency action final under the second prong of the test
enunciated by the United States Supreme Court in Bennett v.
Spear, 520 U.S. 154, 177–78 (1997). Accordingly, we reverse
the judgment of the district court and remand the case for
further proceedings.
I. BACKGROUND
Ipsen’s appeal implicates the details of the self-reporting
scheme contained in the Medicaid drug-rebate program.
Medicaid is a co-operative federal and state program, the
federal side of which is administered by CMS. See 42 U.S.C. §
1396 et seq. In order to participate in the Medicaid program, a
drug manufacturer is obligated to enter into an agreement with
CMS to provide rebates to states that elect to pay for outpatient
prescription drugs. The rebate a manufacturer must provide is
3
calculated in two parts. Both parts use the average price (the
AMP) that the manufacturer charges a wholesaler for the drug.
The base rebate is the greater of 1.) the difference between the
drug’s AMP and the lowest price offered during the most recent
past quarter and 2.) 23.1 % of the AMP. The additional rebate,
paid on top of the base rebate, is calculated by subtracting the
inflation-adjusted AMP for each dosage form and strength of
the drug when it was first sold to wholesalers (described by
Ipsen as the “base date AMP”) from the AMP for the same
dosage and strength during the quarter in which the rebate is
calculated. The manufacturer calculates the total per-unit
rebate and reports it to the participating states, which then use
the information to prepare invoices sent to and paid by the
manufacturer. The statute provides for civil penalties for
manufacturers that “knowingly provide[] false information”
related to the rebate calculation, including a civil penalty of up
to $100,000 for each item of false information. See 42 U.S.C.
§ 1396r–8(b)(3)(B)–(C). Judicial review of a rebate calculation
is limited to review of enforcement proceedings brought by
CMS. See 42 U.S.C. § 1320a–7a(e); see generally 42 U.S.C. §
1396r–8.
Ipsen first introduced Somatuline Depot Injection in 2007
and, accordingly, calculated a base date AMP for the drug at
that time. In 2014 Ipsen sought and obtained a new FDA
approval for Somatuline ED, an outpatient prescription drug, it
asserts, that is entitled to calculation of its own base date
AMP. 1 Ipsen by letter notified CMS to this effect. Before
receiving a response, Ipsen reported the new base date AMP to
CMS. CMS responded to Ipsen’s letter several months later,
indicating that Ipsen was not entitled to calculate a new base
1
The record does not allow us to determine the precise impact of
Ipsen’s preferred calculation. Presumably, Ipsen’s base date AMP is
higher, resulting in a lower additional rebate owed to the states.
4
date AMP. The letter further instructed Ipsen that “the baseline
data for [Somatuline ED] must be changed to reflect the
original baseline data of Somatuline Depot.” Ipsen sent a
second letter, iterating its position and requesting a meeting.
The letter prompted a response by CMS’s Director of the
Division of Pharmacy repeating CMS’s view that a new base
date AMP was not warranted because Somatuline ED had
received FDA approval under a supplemental new drug
application number based on the new drug application number
of Somatuline Depot. The Director’s letter expressly stated that
it was not “a final agency action or even an initial determination
on a reimbursement claim.”
Ipsen responded to the second letter by filing suit. CMS
moved for summary judgment, arguing that it had taken no
final agency action to trigger judicial review under the APA.
See 5 U.S.C. § 704 (“Agency action made reviewable by statute
and final agency action for which there is no other adequate
remedy in a court are subject to judicial review.”). The district
court agreed and granted summary judgment to CMS. Ipsen
timely appeals pursuant to 28 U.S.C. § 1291.
II. ANALYSIS
We review the district court’s grant of summary judgment
de novo. See Grunewald v. Jarvis, 776 F.3d 893, 898 (D.C. Cir.
2015). The APA permits judicial review of “final agency
action” only. See 5 U.S.C. § 704. “Agency actions are final if
two independent conditions are met: (1) the action marks the
consummation of the agency’s decisionmaking process . . . and
(2) it is an action by which rights or obligations have been
determined, or from which legal consequences will flow.”
Soundboard Ass’n v. FTC, 888 F.3d 1261, 1267 (D.C. Cir.
2018) (internal alterations and quotation marks omitted)
5
(quoting Bennett v. Spear, 520 U.S. 154, 177–78 (1997)).2 The
parties agree that only the second condition is in dispute.
The Supreme Court has indicated that determining
whether “legal consequences will flow” from an agency action
is a “pragmatic” inquiry. U.S. Army Corps of Eng’rs v. Hawkes
Co., 136 S. Ct. 1807, 1815 (2016) (citing Abbott Labs. v.
Gardner, 387 U.S. 136, 149 (1967)). We recently clarified that
“[i]n characterizing the inquiry as pragmatic, we do not take
the Court to be encouraging some sort of common-sense
approach” but rather “[w]e take it as counseling lower courts
to make Bennett prong-two determinations based on the
concrete consequences an agency action has or does not have
as a result of the specific statutes and regulations that govern
it.” Cal. Comtys. Against Toxics v. EPA, 934 F.3d 627, 637
(D.C. Cir. 2019).
In Sackett v. EPA, the Supreme Court delineated one way
an agency action could interact with a statutory scheme to
cause a legal consequence. 566 U.S. 120 (2012). There, the
Court considered whether an EPA administrative compliance
order issued to landowners was a “final agency action.” The
compliance order recited the EPA’s decision that the
landowners’ property contained wetlands and that the
landowners had violated the Clean Water Act, 33 U.S.C.
§ 1311, by discharging fill material into those wetlands. It
commanded the landowners to “immediately . . . undertake
activities to restore the Site.” Sackett, 566 U.S. at 125. The
order was not self-executing—the EPA had to initiate a
separate enforcement action in order to penalize the
2
Although Ipsen argues that the Bennett conditions are properly
viewed as disjunctive, not conjunctive, it acknowledges that our
Circuit precedent settles this issue. See Soundboard, 888 F.3d at
1267 (Bennett conditions are conjunctive).
6
landowners for violating the statute. Nonetheless, the Court
held that “legal consequences . . . flow[ed]” from the order
because, inter alia, issuance of the order meant that the
landowners faced higher penalties in a future enforcement
proceeding than they would have had the EPA not issued the
order. Id. at 126.
We recently applied Sackett in Rhea Lana, Inc. v. DOL, a
case in which the Department of Labor twice notified a
company that one of its practices violated the Fair Labor
Standards Act. 824 F.3d 1023 (D.C. Cir. 2016). The second
letter noted that the statute provided for a civil penalty for any
“repeated or willful violations of” the statute and warned that
“[i]f at any time in the future [the company] is found to have
violated [the relevant provisions], it will be subject to such
penalties.” Id. at 1026. We held that the warning met Sackett’s
articulation of “legal consequences” resulting therefrom. Id. at
1032.
Ipsen analogizes the consequences of the CMS letters it
received to the consequences of the agency communications in
Sackett and Rhea Lana. It emphasizes that the Medicaid statute
provides for penalties against manufacturers that “knowingly
provide[] false information.” See 42 U.S.C. § 1396r-
8(b)(3)(C)(ii). Ipsen argues that “legal consequences . . .
flow[ed]” from the letters because they increased the
probability that in the future it could be found to have
“knowingly” supplied false information.
We agree. Within the framework of the “specific”
statutory and regulatory scheme involved here, California
Communities, 934 F.3d at 637, and in view of the character of
the agency action at issue, that increased risk of prosecution
and penalties constitutes a “legal consequence” under Bennett
for four reasons.
7
First, the letter refutes any colorable argument Ipsen might
have in an enforcement action that it was acting without
knowledge of CMS’s position. Under the relevant statute,
“knowingly” means that “a person, with respect to an act, has
actual knowledge of the act, acts in deliberate ignorance of the
act, or acts in reckless disregard of the act, and no proof of
specific intent to defraud is required.” 42 C.F.R. § 1003.110.
Here, CMS takes the position that the CMS letter would be
“relevant evidence” in a future determination regarding
whether Ipsen would be subject to enhanced penalties for a
“knowing” or “willful” violation of the Social Security Act. See
Tr. of Oral Arg. at 41–47, Ipsen Biopharmaceuticals v. Azar,
No. 18-5299 (D.C. Cir. Sept. 9, 2019).3 CMS also conceded
that it has brought an enforcement action against another drug
manufacturer under 42 U.S.C. § 1396r-8(b)(3)(C)(ii) for
“knowingly provid[ing] false information” when that company
allegedly “misrepresented the Average Sales Price of at least
one of its products to CMS.” Govt 9/13/2019 Ltr at 1-2.
Perhaps CMS believed its position would not constitute
“legal consequences” under Bennett because of our dictum in
Soundboard, indicating that an FTC staff attorney letter, even
if “could be [used as] evidence of willfulness,” would not
satisfy Bennett’s second prong. See 888 F.3d at 1273. But this
case differs from Soundboard in one critical respect. In
3
CMS draws our attention to the fact that in district court Ipsen
argued that it could not be found to have “knowingly provid[ed] false
information,” notwithstanding receipt of the letters because “its
position reflects . . . a reasonable, good-faith interpretation on a novel
issue.” This statement, CMS suggests, undermines Ipsen’s argument
that the letters produced legal consequences because it concedes that
the letters did not automatically subject Ipsen to civil penalties.
Although Ipsen conceded that the letters would not automatically
result in penalties, it nonetheless maintains that the letters “increased
its risk of facing penalties.”
8
Soundboard, the FTC staff attorney letter did not meet
Bennett’s first prong because it was not the consummation of
the agency’s decision-making. Id. at 1269-71. As a result, the
Soundboard letter was not an authoritative statement of the
agency’s views. The Supreme Court has indicated that such
informal advice is insufficient, as a matter of law, to establish
a “knowing” or “willful” violation of a statute or regulation
pursuant to a theory that the regulated party should have been
“warned away from the view that it took.” See Safeco Ins. Co.
of America v. Burr, 551 U.S. 47, 69-70 & n.19 (2007).
Following Safeco, we have held, in the False Claims Act
context, that “knowledge” of falsity was not established where
the government could point to “informal guidance” only, not
“the necessary ‘authoritative guidance,’” as evidence “to warn
a regulated defendant away from an otherwise reasonable
interpretation it adopted.” U.S. ex rel. Purcell v. MWI Corp.,
807 F.3d 281, 289 (D.C. Cir. 2015) (quoting Safeco, 551 U.S.
at 70 & n.19). At the same time, we noted that even if a
regulated party adopts a “reasonable” interpretation of an
“ambiguous” statute, it can nonetheless be deemed liable for
knowingly making a false statement if it “had been warned
away from that interpretation” by authoritative agency
guidance. Purcell, 807 F.3d at 288.
When further pressed about the permissible use of the
letter at oral argument, CMS asserted that using the letter as
“relevant evidence” against Ipsen did not result in a legal
consequence because, unlike in Rhea Lana, there is no
“regulation on the books,” see 824 F.3d at 18 n.3, that
announces that any future action contrary to the agency’s
position will be deemed willful by the agency. Tr. of Oral Arg.
at 54–58. But that is a distinction without a difference. In Rhea
Lana, we held that, if the regulation was “capable of a reading
rendering the letter a stand-alone trigger for willfulness
penalties,” it “render[ed] Rhea Lana a candidate for civil
9
penalties.” Therefore the agency’s letter was final agency
action because it “establish[ed] legal consequences.” 824 F.3d
at 21. The outcome in Rhea Lana turned on the legal
consequence of the letter in that case and CMS cannot avoid
the legal consequence of the letter in this case by arguing that
here the legal consequence does not count because it results
from the application of settled caselaw rather than from a
published regulation. The CMS letter could be potentially
dispositive proof in an enforcement action, consistent with
Safeco and US ex rel Purcell, because “knowingly” means
“that a person, with respect to an act, has actual knowledge of
the act, acts in deliberate ignorance of the act, or acts in reckless
disregard of the act, and no proof of specific intent to defraud
is required,” and that is of legal consequence under Bennett.
See 42 C.F.R. § 1003.110.
The consequences Ipsen claims to face in the future are not
as certain as those in Rhea Lana or Sackett. We in Rhea Lana
and the Supreme Court in Sackett accepted that the agency
action alone was enough to subject the regulated parties to
additional penalties in the event of an enforcement action. By
contrast, Ipsen claims that the letters increase its risk of
incurring penalties in a future enforcement proceeding—
granted, a less certain consequence. Nonetheless, Ipsen does
claim that its receipt of the letters will be a factor, if not the
factor, in assessing penalties against it in a future enforcement
proceeding. CMS conceded as much before us. See Tr. of Oral
Arg. at 42 (“Well, again, the letter here would be evidence, or
could be used as evidence in that adjudication . . . .”).
Second, the self-reporting nature of the regulatory scheme
gave the letter’s command immediate and direct legal
force. The regulatory scheme requires Ipsen to self-report
pricing information to CMS each quarter as a condition of its
participation in the Medicaid Rebate program. See 42 C.F.R.
10
§ 447.510; see also 42 U.S.C. § 1396r-8(b)(3). As soon as the
letter issued, each and every one of the repeat submissions
exposed Ipsen to potential civil penalties for each quarter. See
42 U.S.C. § 1396r-8(b)(3)(C) (a manufacturer “is subject to a
civil penalty in an amount not to exceed $100,000 for each item
of false information”). No further or intervening agency action
is needed for the penalty risk and amount to start
accumulating—the trigger is the issuance of the letter.
Third, as CMS itself acknowledges, there is no further
agency action for Ipsen to invoke or to exhaust to plead its
cause. Appeal is unavailable and there is no avenue for Ipsen
to affirmatively seek relief. As CMS concedes, the agency’s
decisionmaking process is at the end. CMS has made its final
decision and has told Ipsen that its rebate computations “must
be changed,” as the prior rebate amount is the only one that
Ipsen (in CMS’s view) can lawfully implement. The only
potential next step is an agency enforcement action. See Tr. of
Oral Arg. at 36–37 (Counsel for CMS: “[S]ometimes in self-
reporting regimes it may be difficult for a regulated entity, like
Ipsen, to get a final agency action short of CMS telling them
please change this.”).
As a result, the only thing standing between Ipsen and
CMS’s prosecution of it for financial penalties, and a possible
expulsion from participation in the Medicaid Rebate program,
see 42 U.S.C. § 1396r-8(b)(3)(C), (4)(B)(i), is the agency’s
exercise of prosecutorial discretion. 4 The regulatory scheme
thus leaves Ipsen in a quandary: Either accept CMS’s
interpretation to avert civil penalties and the risk of exclusion
4
See Tr. of Oral Arg. at 41 (Q: “[I]s there anything standing between
[Ipsen] * * * and an enforcement action, other than prosecutorial
discretion?” CMS Counsel: “No[.]”).
11
from the Medicaid Rebate program or proceed in defiance of
that risk, with penalties growing each quarter.
Fourth, agencies often communicate their interpretations of
governing statutory and regulatory obligations or prohibitions
to interested parties in letters and they do so without taking
final agency action. In this case, however, the nature of the
agency’s letter went beyond simply announcing its
interpretation of relevant statutory and regulatory
language. The letter expressly applied CMS’s interpretation of
the governing law to the specific facts of Ipsen’s case. See J.A.
45 (stating that the new factors Ipsen highlighted “do not meet
the criteria for the establishment of new base date AMPs”).5 In
that respect, the agency action at issue here closely resembles
an individual adjudication, which is a well-recognized form of
final agency action. See Southwest Airlines Co. v. United States
Dep’t of Transp., 832 F.3d 270, 276 (D.C. Cir. 2016).
For the foregoing reasons, the judgment of the district
court is reversed and the case is remanded for further
proceedings consistent with this opinion.
So ordered.
5
See also Tr. of Oral Arg. at 52 (CMS counsel stating that the letter
“laid out our view of the law” and how it applied “to the facts
provided”).