[00:00:07] Speaker 00:
I'd like to invite those who are at the second, in his official capacity as the Secretary of Health and Human Services at L.

[00:01:01] Speaker 03:
May it please the court to lease the client for the government.

[00:01:05] Speaker 03:
The premise of the district court's ultra-vibes ruling is that the Medicare trust fund is compelled to overpay the group of hospitals we're calling 340B hospitals unless HHS collects their cost acquisition data in the form of a survey.

[00:01:25] Speaker 03:
Even before getting into the weeds of the statutory text that governs,

[00:01:29] Speaker 03:
That should sound improbable based on the big picture undisputed points about how the OPPS system works and how these rates fit in.

[00:01:41] Speaker 03:
Two key points.

[00:01:43] Speaker 03:
One is that there's no dispute that this annual rate setting for these drugs

[00:01:50] Speaker 03:
is subject to the same overarching budget neutrality requirement as the rest of the OPPS system, and that's explicit in paragraph 14H.

[00:02:00] Speaker 03:
It's the very last page of our addendum, very last paragraph at the bottom.

[00:02:04] Speaker 06:
So that was when this issue, when this case was before this court previously, that was not so clearly and unequivocally stated by counsel for the government.

[00:02:16] Speaker 06:
The question that I think was left open a little bit was whether

[00:02:21] Speaker 06:
HHS really believes that it's bound by budget neutrality to the extent that if it accomplished savings under drug pricing, under a theory like that used here, would it in fact have to redistribute those within the program or could it retain those for the government to make the entire program cheaper?

[00:02:45] Speaker 03:
So the point was actually clarified in a 28-day letter that was either submitted the same day as the last oral argument, or perhaps the following day, was under that H provision, there's no question that when HHS is doing the rate setting process year after year, that it is bound by the budget neutrality requirement.

[00:03:07] Speaker 03:
It could not just say,

[00:03:09] Speaker 03:
I'm reducing these particular rates to average sales price minus 22.5 percent and period, doing nothing else.

[00:03:18] Speaker 03:
The question not resolved then and still not resolved would be, well, what if despite the express preclusion of review provision and, as I'll go on, the clear authority to make this rate reduction, a court nonetheless were to say,

[00:03:33] Speaker 03:
I don't care.

[00:03:34] Speaker 03:
I'm invalidating it anyway.

[00:03:36] Speaker 03:
And then we're in the quagmire of remedy where we've never been before.

[00:03:40] Speaker 03:
And so that, I don't want to get out ahead of the agency, which was required to take comment on the issue and has done so.

[00:03:46] Speaker 03:
But just the basic point.

[00:03:49] Speaker 03:
And I think the plaintiffs recognized this on page 29 of their brief, including the footnote on that page.

[00:03:56] Speaker 03:
The basic point is that when HHS is doing its annual job upsetting these outpatient prospective payment system rates, you know, year after year, there's nothing special about these rates under paragraph 14H.

[00:04:11] Speaker 03:
They're explicitly subject to the budget neutrality requirement.

[00:04:15] Speaker 03:
And as the plaintiffs actually point out in the footnote, that said a second time in paragraph nine itself,

[00:04:21] Speaker 03:
refers to paragraph 14.

[00:04:23] Speaker 03:
So Congress has said this twice with respect to the very types of rates at issue here, these paragraph 14 rates.

[00:04:30] Speaker 02:
And what was your second point?

[00:04:31] Speaker 02:
Because that was your first point.

[00:04:32] Speaker 03:
OK, so this is one.

[00:04:33] Speaker 03:
So I just want to make sure we understand how these fit in.

[00:04:36] Speaker 03:
And the other is about Medicare beneficiaries themselves, because of course the Medicare program is running for their benefit.

[00:04:42] Speaker 03:
There is no dispute that the usual statutory 20% co-insurance rate applies

[00:04:50] Speaker 03:
to these rates, and that's tied to the Medicare payment.

[00:04:54] Speaker 03:
So the obvious problem that arises if Medicare is paying out at inflated rates is that the Medicare beneficiaries are now being asked to pay very inflated coinsurance.

[00:05:09] Speaker 03:
And the Inspector General, and we cite this in our brief, found that for some of these drugs, the beneficiaries' coinsurance alone

[00:05:18] Speaker 03:
was greater than the entire acquisition cost for the drug.

[00:05:22] Speaker 03:
And these, when you think about the types of drugs we're talking about here, like cancer treatment, as the commenters pointed out, that could mean the difference for a beneficiary between being able to afford the treatment and not being able to afford the treatment.

[00:05:34] Speaker 03:
These are expensive drugs that are often administered repeatedly.

[00:05:38] Speaker 03:
So this is the big picture framework.

[00:05:41] Speaker 03:
And now, if you look at the specific language, and you think this is where the district court just got a little tangled up,

[00:05:48] Speaker 03:
This is now the actual, what we call subclause one and subclause two.

[00:05:52] Speaker 03:
One has to do with the survey, and the other is the proxy to use when you don't have a survey.

[00:05:57] Speaker 03:
So this is in our appendix.

[00:06:00] Speaker 03:
It's the A3 at the bottom.

[00:06:05] Speaker 03:
So now we're talking about, so stepping back just briefly for one second.

[00:06:10] Speaker 03:
The whole provision that we call T, that's the entire outpatient prospective payment system.

[00:06:16] Speaker 03:
T2 says,

[00:06:18] Speaker 03:
set up a classification system.

[00:06:20] Speaker 03:
T14, which we're now in that universe, says, and here's how you're going to do it for certain drugs.

[00:06:26] Speaker 03:
And they're basically drugs where the Medicare payment isn't packaged with the payment for the medical procedure, but it's paid separately.

[00:06:34] Speaker 03:
I'm oversimplifying a little bit, but that's the basic idea.

[00:06:37] Speaker 03:
And these were also drugs that were relatively new to the market, so that the concern was their cost wasn't being captured by the older cost aid.

[00:06:47] Speaker 03:
So what Congress did was it said to GAO, do a survey of hospitals generally and try to figure out the average acquisition cost by a drug, figure out if it varies by category of providers.

[00:07:04] Speaker 03:
So think teaching hospitals, urban hospitals, large hospitals, that kind of thing.

[00:07:10] Speaker 03:
Use that to set the Medicare payment rates initially

[00:07:16] Speaker 03:
and also give advice to HHS to say, like, what should you do about a survey in future years?

[00:07:22] Speaker 07:
Can I back up and ask you one thing?

[00:07:23] Speaker 03:
Yes.

[00:07:26] Speaker 07:
Is 14 establishing a classification system?

[00:07:30] Speaker 03:
Yes.

[00:07:31] Speaker 03:
Yes, that's if you look at the bold right next to paragraph 14, drug APC payment rates, that acronym, ambulatory payment classification,

[00:07:42] Speaker 03:
that is a classification.

[00:07:43] Speaker 03:
So that's what I'm saying.

[00:07:44] Speaker 07:
So what 14 is doing something with a classification, but it's not developing a classification system within the meaning of 2.

[00:07:54] Speaker 03:
Well, it's the set 2 tells HHS, develop a classification system.

[00:07:59] Speaker 03:
14 gives more specific instructions for how to do that when you're talking about drugs.

[00:08:04] Speaker 03:
Well, it's how to set rates for a particular thing

[00:08:07] Speaker 03:
It's been so classified.

[00:08:09] Speaker 03:
Well, the classification, you actually have to go to the CMS website.

[00:08:12] Speaker 03:
It's line after line of code.

[00:08:14] Speaker 03:
It's massive.

[00:08:15] Speaker 03:
So, you know, if you think of it, like, again, I'm oversimplifying, but, you know, hernia, like, that kind of thing, it's very subdivided.

[00:08:22] Speaker 03:
So there's drug naming.

[00:08:23] Speaker 03:
Right.

[00:08:23] Speaker 07:
I'm sorry, what happens under 14 is rate setting for a particular class or classes.

[00:08:28] Speaker 07:
It's not the classification system.

[00:08:30] Speaker 07:
Is that right?

[00:08:31] Speaker 03:
I'm not sure I agree, but I'm also not sure it matters.

[00:08:33] Speaker 03:
So I'm happy to call it rate setting, and that this is the... I just want to make sure I understand.

[00:08:38] Speaker 07:
So every time you set a rate, that's a classification?

[00:08:41] Speaker 03:
If you determine how to group things, that's a classification.

[00:08:44] Speaker 06:
But things are not grouped.

[00:08:45] Speaker 06:
I mean, that's the difference, really, between 2 and 14.

[00:08:47] Speaker 06:
14 is a per drug, for the drug.

[00:08:53] Speaker 06:
Well, or grouping of drugs.

[00:08:55] Speaker 07:
I'm sorry, for what?

[00:08:57] Speaker 06:
Or grouping.

[00:08:57] Speaker 06:
For the drug for that year.

[00:08:59] Speaker 03:
the average price for the drug in the year.

[00:09:04] Speaker 03:
Though I might be able to help avoid this issue, because I don't know that anything does turn on it.

[00:09:09] Speaker 06:
I thought that the jurisdiction stripping turned on it.

[00:09:12] Speaker 06:
I thought that was how you get there, because the jurisdiction stripping provision mentions two and mentions nine, but doesn't mention 14.

[00:09:17] Speaker 06:
And I thought your whole theory about how jurisdiction is stripped over the section 14 question depends on understanding two as the umbrella that encompasses 14.

[00:09:29] Speaker 03:
It's a piece of it, but it's not necessary to focus on the classification language because two speaks of adjustments, nine speaks of adjustments, and 14 cross-references the nine adjustments.

[00:09:41] Speaker 07:
So we can just assume, for purposes of this case, it's not a classification, and we're just talking about rates and rate adjustments.

[00:09:47] Speaker 07:
Actually, we're just talking about rate adjustments.

[00:09:48] Speaker 03:
For the moment, we can talk about rate adjustments.

[00:09:50] Speaker 03:
And I just want to make sure, even though I know I'm focusing on a merits issue because of the way the district court ruled, it's very important to understand the merits issue in order to understand the error in the ultra-virus ruling.

[00:10:01] Speaker 03:
And I will come to the alternative theory that the plaintiffs are offering about jurisdiction, but I just want to focus on the central issue.

[00:10:10] Speaker 03:
going back to, so Congress said, you know, do this survey.

[00:10:13] Speaker 03:
And that's the GAO 2006 report is its report on the survey.

[00:10:18] Speaker 03:
And it did the survey and it made some findings like

[00:10:22] Speaker 03:
teaching hospitals seemed to pay a little bit less.

[00:10:25] Speaker 03:
But it included an important caveat, which is that the survey data that they got in, and this isn't about 340B in particular, but it didn't include rebates.

[00:10:33] Speaker 03:
So there were systematic problems with the survey data.

[00:10:36] Speaker 03:
And neither GAO nor HHS concluded that the data were useful.

[00:10:41] Speaker 03:
And so HHS went to the proxy right from the start.

[00:10:45] Speaker 03:
The proxy, this is sub plus two,

[00:10:48] Speaker 03:
And basically, Congress, anticipating that there might be issues getting survey data, said, you don't have survey data.

[00:10:55] Speaker 03:
I'm giving you such a choice of proxies for average acquisition cost.

[00:11:00] Speaker 03:
And the one that's borrowed, this cross-reference to 1395W-3A, that's just the reimbursement rate under the physician fee schedule.

[00:11:10] Speaker 03:
And for many drugs acquired by many hospitals, that's a perfectly fine proxy for average acquisition cost.

[00:11:18] Speaker 03:
That's the inspector general's finding that when you're outside the universe of 340B, it's only varying by about 1%.

[00:11:25] Speaker 03:
So there's been no particular reason to, what we're getting to now, the next language, to adjust that because there's no systematic problem with using that as a proxy for average acquisition cost.

[00:11:41] Speaker 03:
We're now here in the particular overlap between Medicare reimbursement and a separate 340B program.

[00:11:49] Speaker 03:
It's not a Medicare program.

[00:11:51] Speaker 03:
Many of the providers aren't serving Medicare patients.

[00:11:53] Speaker 03:
They're not being reimbursed under this scheme.

[00:11:55] Speaker 03:
But for the particular overlap here, when what you're talking about are certain hospitals that are both getting the big discounts from the manufacturers under 340B,

[00:12:08] Speaker 03:
and serving Medicare patients, the question is, is there some clear prohibition on HHS taking

[00:12:18] Speaker 03:
undisputed findings from independent agencies about the drug ceiling prices under this 340B program and using that, again, you know, uncontested information to make what was a conservative downward adjustment of the reimbursement rate.

[00:12:37] Speaker 02:
Can I ask you this question?

[00:12:41] Speaker 02:
If it's okay for the government to go straight into sub 2 on A3 in the way that you're describing it, would this be okay?

[00:12:50] Speaker 02:
So if you look at A5 and Romanet 3, which deals with the survey requirements when the surveys are conducted,

[00:13:00] Speaker 02:
It says, the surveys conducted under clauses one and two shall have a large sample of hospitals that is sufficient to generate a statistically significant estimate of the average hospital acquisition cost for each specified covered outpatient drugs.

[00:13:10] Speaker 02:
So in the situations in which surveys are used, that's the way that the surveys are going to be formulated according to what Congress said.

[00:13:18] Speaker 02:
So could HHS say, you know, we are going to use surveys because we want to figure out what the average acquisition costs are.

[00:13:29] Speaker 02:
We're just not going to have, and we're going to use hospitals.

[00:13:32] Speaker 02:
We're going to use a sample of hospitals.

[00:13:34] Speaker 02:
But we're just not going to have a large sample of hospitals that's sufficient to generate a statistically significant estimate.

[00:13:40] Speaker 02:
That's the part we're not going to do.

[00:13:42] Speaker 02:
And that's okay for us to do because we can just do that by going to sub 2 on A3.

[00:13:48] Speaker 03:
I'm going to answer, but I want to make clear I'm answering what's OK for the agency, not what the courts get to review.

[00:13:54] Speaker 03:
So come back to reviewability.

[00:13:56] Speaker 03:
I just want to make sure anything I say about what HHS is supposed to do is not a concession about whether the courts get to comment and review it.

[00:14:04] Speaker 04:
Oh, the preclusion of the procedure.

[00:14:05] Speaker 03:
I understand that, right.

[00:14:06] Speaker 03:
OK.

[00:14:06] Speaker 03:
So no, the clear import is that you're supposed to be using reliable cost information.

[00:14:12] Speaker 03:
I'm not aware in general, if you look back at that 2006 year report of some other mechanism for getting reliable acquisition cost information about, say, teaching hospitals or urban hospitals other than a survey, other than doing a statistically valid sample.

[00:14:31] Speaker 03:
The unique thing about these 340V hospitals is that

[00:14:35] Speaker 03:
the inspector general had the PERSUS drug sealing data.

[00:14:40] Speaker 03:
It had just in that particular context an independent source of reliable information not contested in the rulemaking.

[00:14:47] Speaker 03:
So we're not suggesting that in general it would be appropriate for the agency to say, I know Congress wanted us to use

[00:14:54] Speaker 03:
statistically valid sample, but I'm just going to pick, you know, 100 hospitals, even if it's not statistically valid.

[00:15:00] Speaker 03:
So, and of course the agency's never done that.

[00:15:01] Speaker 02:
But that, I mean, it might be arbitrary, but just to, but based on whether it's consistent with the statute, if HHS said,

[00:15:13] Speaker 02:
We're just not going to do exactly what's spelled out in Romanette 3, but we're going to do something that we think is pretty close.

[00:15:19] Speaker 02:
And you're saying this one is still valid because you have the data somewhere else and that the reliability of the data shouldn't be questioned.

[00:15:27] Speaker 02:
And I'm just, for the purpose of this question, I'm willing to assume that.

[00:15:30] Speaker 02:
I'm willing to assume that.

[00:15:31] Speaker 02:
But could the agency say, we want to conduct surveys, and we're not able to do what this says, but we're going to try to do something that's pretty close,

[00:15:41] Speaker 02:
we think is close enough.

[00:15:43] Speaker 02:
Now we know that's not consistent with the text of the statute because it's not a large enough sample of hospitals that's sufficient to generate a statistically significant estimate.

[00:15:50] Speaker 02:
But we want to do this anyway.

[00:15:52] Speaker 02:
We want to do a survey and it's going to be based on a sample of hospitals.

[00:15:56] Speaker 02:
And we can do that even though we can't do that under one.

[00:15:59] Speaker 02:
I assume you couldn't do that under one.

[00:16:01] Speaker 03:
Correct.

[00:16:01] Speaker 02:
And then, so you'd have to go under two.

[00:16:04] Speaker 02:
And would that be okay?

[00:16:05] Speaker 03:
Yeah, I mean, we're assuming another valid, you know, reliable mechanism for getting information about average acquisition costs?

[00:16:13] Speaker 03:
Yes.

[00:16:14] Speaker 03:
Because again, remember, the touchstone here is

[00:16:18] Speaker 03:
these rates, and this is going back to 2E, are supposed to be equitable.

[00:16:22] Speaker 03:
And that means equitable among providers and equitable to beneficiaries, so that they're not overpaying their COVID.

[00:16:29] Speaker 06:
So we have a specific separate provision in 14 that's going to drug pricing, and you say throughout your brief,

[00:16:36] Speaker 06:
that the purpose of 14 is to align Medicare payments with average acquisition costs, again and again and again, without citation.

[00:16:49] Speaker 06:
And when I, and so I assume you're referring to just the text of the statute, but when I read the text of the statute, I see two alternatives.

[00:16:57] Speaker 06:
One, and this is just another way of putting, I think, Judge Srinivasan's question, one, average acquisition costs obtained in a particular rigorous way.

[00:17:08] Speaker 06:
Or if you don't have that, where actually the touchdown is no longer average acquisition cost, as I read just the text here, it's if that data, particularly rigorous data, is not available, sample size, then what we're interested in is something different, the average price for the drug, the average sales price.

[00:17:29] Speaker 06:
And the question is, nobody disputes that there isn't the data that Roman 1 requires.

[00:17:36] Speaker 06:
So why isn't the different terminology of Roman 2 just the open and shut on the merits?

[00:17:43] Speaker 06:
And this is assuming that we were to get to the merits.

[00:17:46] Speaker 06:
And I see that your conception of the statute is, well, it's all about approximating average acquisition costs.

[00:17:54] Speaker 06:
But I'm not sure where you

[00:17:57] Speaker 03:
find that.

[00:17:59] Speaker 03:
Okay, so clause two doesn't just say use this proxy period.

[00:18:05] Speaker 03:
It says use it and adjust it as necessary for purposes of this paragraph.

[00:18:10] Speaker 03:
And the overriding purpose of the paragraph, we know from clause one, it's to reimburse by... But that's assuming, again, you're assuming the conclusion.

[00:18:18] Speaker 06:
Why is that the overriding purpose of the paragraph is to come up with ambulatory payment classification rates for drugs?

[00:18:26] Speaker 03:
No, but it's saying, and how do you do that?

[00:18:28] Speaker 03:
Congress has made it unambiguously clear that you're supposed to be targeting average acquisition costs.

[00:18:34] Speaker 06:
Or if the particular rigorous form of average acquisition costs is unavailable, you're supposed to be targeting the average price for the drug in the year established.

[00:18:45] Speaker 06:
And I thought the cross-section was about overhead costs and the adjustment.

[00:18:50] Speaker 06:
The primary source of a need to adjust would be

[00:18:55] Speaker 06:
some kind of overhead cost, not to flip back.

[00:18:58] Speaker 06:
I mean, you could see the statute, if Congress meant what you thought, you could see the statute saying the average acquisition cost either determined by the survey or average acquisition cost approximated by looking at average sale price and other data

[00:19:14] Speaker 06:
partial data about acquisition costs and trying to adjust the sales price accordingly, which I think is how you're reading this.

[00:19:20] Speaker 03:
Well, first, address the overhead point.

[00:19:23] Speaker 03:
Overhead is addressed separately.

[00:19:25] Speaker 03:
That's right in that little III provision, in a subsequent year shall be equal subject to subparagraph E. Subparagraph E is the separate direction to study overhead and make adjustments for overhead.

[00:19:39] Speaker 03:
That qualifies both little i and little ii.

[00:19:44] Speaker 03:
The adjustment, so of course Congress isn't just pulling out of thin air.

[00:19:49] Speaker 03:
Congress is trying to give a proxy for average acquisition costs because nobody's supposed to get overpaid systematically under this program.

[00:19:57] Speaker 02:
So is that the ultimate point?

[00:19:58] Speaker 02:
Because I think what Jeff Phillips is getting to is it would be

[00:20:02] Speaker 02:
much tidier for your explanation if 14 had, before capital A, had a general purposes provision that says the purposes of the rates are to try to figure out what the acquisition costs are.

[00:20:15] Speaker 02:
And then you would say, well, okay, then when you can't calculate acquisition costs with the statistically valid survey in the way that Congress contemplated, you're still trying to get to acquisition costs.

[00:20:24] Speaker 02:
We're going to use price as a proxy.

[00:20:26] Speaker 02:
But obviously, when we use prices as a proxy, we want to get it as close to acquisition costs as possible.

[00:20:31] Speaker 02:
So if you have to make adjustments to get it closer to acquisition costs, do that.

[00:20:34] Speaker 02:
And if that's the way the statute read, then you'd be...

[00:20:37] Speaker 02:
even more well served.

[00:20:39] Speaker 02:
And then the question is, if it doesn't have that kind of overarching principle at the beginning that says, by the way, what you're trying to do with the rates is get them as close to acquisition costs as possible, then where do you get the understanding that really what Sub 2's reference to price is about is to try to get closer to get as close to acquisition costs as possible?

[00:20:58] Speaker 03:
Where does that come from?

[00:20:59] Speaker 03:
Well, we're getting it from two places.

[00:21:00] Speaker 03:
The narrow place is

[00:21:02] Speaker 03:
that you know Congress is preferring that these rates be set at average acquisition costs.

[00:21:08] Speaker 03:
How do we know that?

[00:21:08] Speaker 03:
Because that's from Clause 1.

[00:21:10] Speaker 04:
That's the one.

[00:21:10] Speaker 03:
Okay.

[00:21:10] Speaker 03:
Okay.

[00:21:11] Speaker 03:
The broader point.

[00:21:11] Speaker 03:
Just because it's first.

[00:21:12] Speaker 03:
Yes.

[00:21:13] Speaker 03:
The broader point, and it's first and mandatory.

[00:21:16] Speaker 03:
It's not discretionary there.

[00:21:17] Speaker 03:
The broader point is the one I started with, which was once you understand how these rates fit into the OPPS system, why would you possibly think

[00:21:26] Speaker 03:
that there's some penalty where you have to systematically overpay a category of hospitals despite reliable cost information.

[00:21:34] Speaker 06:
So the overpayment part is, it does seem compelling, except when you think about the way the whole system is framed, which is, I mean, there may be all kinds of hospitals that are getting discounts.

[00:21:47] Speaker 06:
volume discounts, rebates, whatever.

[00:21:49] Speaker 06:
And this pricing system isn't really set up to sort of nuance, calibrate, ebb and flow.

[00:21:56] Speaker 06:
Depending on that, it's setting the average acquisition cost for the drug.

[00:22:03] Speaker 06:
Right, so typically.

[00:22:05] Speaker 03:
Which may vary by hospital group.

[00:22:07] Speaker 06:
Right, under one.

[00:22:08] Speaker 03:
Well, and under, this is actually also an overarching principle, under 2E.

[00:22:13] Speaker 03:
It's explicitly, this is what I mean by classifications.

[00:22:16] Speaker 03:
It's, again, to make these fair, you don't have to just lump everybody together if one group is paying a lot less than another group.

[00:22:24] Speaker 03:
That would not be an equitable system, and equity doesn't go out the window just because you're not looking at E, the startup stage, but at nine, the annual revisions to the OPTS system.

[00:22:37] Speaker 06:
And the E, what are you pointing to for E that would allow a change in

[00:22:43] Speaker 06:
the price that's set under Roman 2, Romanette 3, Romanette 2, for subcategories of hospitals.

[00:22:51] Speaker 02:
You're talking 2E, not 14E.

[00:22:53] Speaker 06:
I'm sorry, 2E.

[00:22:55] Speaker 03:
Oh, you're talking 2E.

[00:22:55] Speaker 06:
I'm sorry.

[00:22:56] Speaker 06:
Page A1 of our addendum, first page of the addendum.

[00:23:01] Speaker 06:
But 14 Romanette 3, 2 talks about adjustments

[00:23:06] Speaker 06:
by the Secretary of State for the purpose of this paragraph.

[00:23:09] Speaker 03:
Yes, but this is, again, my big picture point.

[00:23:10] Speaker 03:
The purpose of this paragraph is no different from the general purpose of the OPPS system, which is to set fair rates that compensate for the average acquisition cost, whether it's a service, a service for the drug.

[00:23:24] Speaker 07:
I was talking about paragraphs 13 and 18 when Congress wanted to treat an adjustment under those paragraphs as an adjustment under 2E.

[00:23:32] Speaker 07:
It said so expressly, and that language isn't here.

[00:23:35] Speaker 03:
Congress, this court has recognized there are lots of inconsistencies and redundancies in the Medicare statute, as the court pointed out in Mercy Hospital, which is wholly unsurprising given the complexities.

[00:23:46] Speaker 07:
These are later editions where Congress is actually

[00:23:50] Speaker 07:
much more focused on what it's doing.

[00:23:51] Speaker 07:
It's not right in the whole friggin' statute.

[00:23:53] Speaker 07:
And then it comes in, and it puts some things, some adjustments, and says, those are 2E adjustments, and then it creates this 14 thing, and it doesn't say that.

[00:24:02] Speaker 07:
And we're supposed to go, they didn't know what they were doing, that's our rule of statutory construction.

[00:24:06] Speaker 03:
Okay, this was the argument rejected in Amgen.

[00:24:09] Speaker 03:
Amgen came in and said, we're entitled to a pass-through payment under 6.

[00:24:13] Speaker 03:
Six comes after two.

[00:24:15] Speaker 03:
There's no cross-reference to two.

[00:24:16] Speaker 03:
And this court unanimously said, that doesn't matter.

[00:24:19] Speaker 03:
The 2E Equitable Adjustment Authority carries through and allows the adjustment of the six pass-through payments.

[00:24:26] Speaker 03:
This is unsurprising, and this is the slightly longer answer for getting to two.

[00:24:30] Speaker 03:
14 does explicitly cross-reference 9.

[00:24:34] Speaker 03:
All 9 is doing is saying keep reusing your same adjustment authority year after year when you're revisiting the OPPS system rates.

[00:24:43] Speaker 03:
So if you want a cross-reference, you've got it in 14H.

[00:24:46] Speaker 07:
Well, the cross-reference to 9 is for 2004 and 2005 when they had a specialized process.

[00:24:52] Speaker 03:
No, you're going to keep reading.

[00:24:55] Speaker 03:
Okay, read the last page of the addendum to our brief.

[00:25:01] Speaker 03:
Okay.

[00:25:02] Speaker 03:
But shall be taken into account for subsequent years.

[00:25:04] Speaker 06:
So it's applicability of expenditures and determining it's not inapplicability, it's applicability for now, right?

[00:25:11] Speaker 03:
It's doing two things.

[00:25:13] Speaker 03:
So the background general rule is, of course, when you're adjusting these rates, you're acting under paragraph nine.

[00:25:19] Speaker 03:
That is the authority that has HHS year after year adjust the entire OPPS system.

[00:25:26] Speaker 03:
There's a special rule for the first two years.

[00:25:29] Speaker 03:
Right, which is no longer relevant.

[00:25:30] Speaker 03:
Right, which was like, OK, you don't have to worry about budget neutrality for 2004, 2005, but you do for all subsequent years.

[00:25:37] Speaker 06:
But that's a budget neutrality point, which doesn't really drive

[00:25:41] Speaker 06:
one way or the other, it just, it supports your policy argument that it's actually better to reimburse from 340b drugs at a lower rate because voila, then we have more money to pass around, right?

[00:25:56] Speaker 06:
It does support that argument.

[00:25:58] Speaker 03:
It's not just that, though.

[00:25:59] Speaker 03:
It's also the budget neutrality is 9B.

[00:26:03] Speaker 03:
That qualifies the adjustments that are being made under 9A.

[00:26:09] Speaker 03:
And what's happening under 9A is take what you did under 2, you know, at whatever startup point for any particular rate and keep revising it, keep thinking about it, look at new cost data.

[00:26:20] Speaker 03:
That's why when I'm saying the equitable adjustment authority doesn't fall out after you've set the rate the first time.

[00:26:28] Speaker 03:
It gets exercised every year, whether it's specifically invoked or not.

[00:26:32] Speaker 03:
That is part of what the agency is doing.

[00:26:34] Speaker 07:
So in Amgen, they said they were making the adjustment under 2E.

[00:26:38] Speaker 07:
They didn't say they were making it under 2.

[00:26:39] Speaker 07:
And here, they're making the adjustment under 14.

[00:26:42] Speaker 07:
That's what the agency said.

[00:26:43] Speaker 07:
Did not say it was making it under 2 or 9.

[00:26:45] Speaker 03:
Is that correct?

[00:26:45] Speaker 03:
It said 9.

[00:26:46] Speaker 03:
It said in the beginning of the rule, it said, here we are doing our 9 adjustments.

[00:26:52] Speaker 03:
That's everything.

[00:26:53] Speaker 03:
It also invoked the- Sorry, this is the final rule?

[00:26:57] Speaker 03:
We quoted the language in our reply brief.

[00:27:01] Speaker 03:
And it's the very start.

[00:27:02] Speaker 02:
That's in the preamble, right?

[00:27:03] Speaker 03:
In the preamble, yeah.

[00:27:03] Speaker 03:
And we quoted the language.

[00:27:05] Speaker 03:
But it's also like, this is what they're doing.

[00:27:07] Speaker 03:
They're doing, this is this Sisyphean task of each year, you have to process mind boggling amounts of data and come up with a revised OPPS system.

[00:27:18] Speaker 02:
But in the part of the rule that deals with 340B, there's no reference to nine.

[00:27:22] Speaker 02:
There's only a reference to 14.

[00:27:25] Speaker 03:
OK.

[00:27:26] Speaker 03:
No.

[00:27:26] Speaker 02:
No.

[00:27:27] Speaker 03:
When you say goes to 340B, so paragraph 14 is not about 340B in particular?

[00:27:33] Speaker 02:
No, I know, but the rule part.

[00:27:36] Speaker 03:
Oh, just in the subsection.

[00:27:37] Speaker 03:
Well, of course, because they're talking about the specific rates, and yes, they're referring to the specific authority within, you know, 14, that clause 2.

[00:27:46] Speaker 03:
But the outset makes clear, this is our general point, all of this is an exercise of the paragraph 9 authority, and that's what the agency says

[00:27:54] Speaker 03:
right up front.

[00:27:55] Speaker 03:
And it would be true even if the agency didn't have the citation.

[00:27:58] Speaker 03:
That is this enterprise that they do every year.

[00:28:01] Speaker 06:
I mean, it is complicated, and you're doing a great job in trying to make it clear.

[00:28:06] Speaker 06:
But when I look at 9 and you say, well, 9 also applies to 14, it does say adjustments described in paragraph 2.

[00:28:12] Speaker 06:
So we do have to be on board with your initial characterization of what's going on under 14 as

[00:28:21] Speaker 06:
a subset within the umbrella of two, right?

[00:28:26] Speaker 06:
We have to be with you on that in order for your argument to hold together, right?

[00:28:30] Speaker 03:
Well, 14 cross-references nine.

[00:28:34] Speaker 03:
Right, but nine cross-references two.

[00:28:38] Speaker 03:
There would be no reason to cross-reference nine if Congress didn't understand that, of course, this is a subset of your nine authority, which is what you do each year to exercise your two authority.

[00:28:50] Speaker 06:
Not necessarily, you could have two categories of things, the section two category and the section 14 category, and they're all on the table for purposes of budget neutrality, but they're actually two different projects.

[00:29:06] Speaker 03:
We don't think it makes any sense to think of it that way, because what the agency has to do, and maybe this is the big picture.

[00:29:12] Speaker 06:
But I thought that was the point historically of why 14 was pulled out.

[00:29:14] Speaker 03:
14 was pulled out.

[00:29:17] Speaker 03:
because Congress said, I want an additional classification system for drugs because their acquisition cost data, we have reason to think, aren't captured in the existing data.

[00:29:28] Speaker 03:
So again, these are just drugs newer to the market.

[00:29:32] Speaker 03:
And so you wanted more recent data.

[00:29:34] Speaker 03:
And that's why they said, go do a survey, figure out what is the average acquisition cost for these drugs.

[00:29:40] Speaker 03:
And there's no question that's what Congress wanted.

[00:29:43] Speaker 03:
Congress just didn't anticipate that it was going to be very hard to get accurate data from hospitals.

[00:29:48] Speaker 07:
But you're doing it.

[00:29:49] Speaker 07:
The agency's doing it now, right?

[00:29:50] Speaker 03:
So they're doing it for 340B hospitals.

[00:29:52] Speaker 03:
You can get it.

[00:29:53] Speaker 03:
So discounts are at the front end.

[00:29:56] Speaker 03:
Those are relatively easy to report.

[00:29:59] Speaker 03:
Rebates are at the back end and are much more complicated.

[00:30:01] Speaker 03:
It might not be for a drug in particular.

[00:30:04] Speaker 03:
It has to do with bundles of drugs.

[00:30:06] Speaker 03:
That's between the manufacturer.

[00:30:07] Speaker 07:
We're doing it now, so it's not a question whether you could have done this survey.

[00:30:10] Speaker 07:
It's whether you could have done this without doing the survey.

[00:30:14] Speaker 07:
You may have had maybe problems with doing a survey for everything in this area, but because this is targeted to a specific hospital group,

[00:30:21] Speaker 03:
No, no, of course that's right.

[00:30:22] Speaker 03:
And if necessary, then the agency, if it were really told, you have to come up with a remedy that say, all right, we'll use the survey data, though that could be years down the road.

[00:30:32] Speaker 03:
The question here is, is there a prohibition in this statute on using data that the reliability is uncontested and the price adjustment is conservative?

[00:30:45] Speaker 03:
in order to be able to then spread that money to other providers and stop Medicare beneficiaries from having to pay these inflated coinsurance payments.

[00:30:55] Speaker 02:
Can I ask this question about the preclusion review, the nesting of all these provisions?

[00:31:00] Speaker 02:
I mean, obviously, it would be a lot better if 12 specifically referred to 14.

[00:31:05] Speaker 03:
It would be very straightforward if 12 referred to 14.

[00:31:08] Speaker 02:
If Congress had kept up to date in the way that they had in the past when they added a provision, they would specifically fold it into the limitation of review provision.

[00:31:18] Speaker 02:
They could have done that with 14.

[00:31:19] Speaker 02:
They didn't.

[00:31:20] Speaker 02:
Your argument is they didn't need to because it was just an exercise of nine, which is already there.

[00:31:24] Speaker 02:
I get that.

[00:31:25] Speaker 02:
And then in solidifying the notion that this is just an exercise of nine authority, you're relying on 14H, which cross-references nine.

[00:31:35] Speaker 03:
And also 9B cross-references 14.

[00:31:38] Speaker 02:
Okay, so if 14 didn't have H at all, because for years past 2004, 2005, H is only saying what you would already assume to be the case.

[00:31:50] Speaker 03:
Well, the reason we assume to be the case is because we know it's an exercise of 9.

[00:31:54] Speaker 02:
Well, that's the question.

[00:31:55] Speaker 02:
So if 14 didn't have H at all, you'd be making the exact same argument.

[00:31:59] Speaker 02:
You'd be saying it's absolutely obvious that 9.

[00:32:01] Speaker 02:
And you agree that there's a general principle out there in the world that says we don't lightly assume there's a preclusion of review.

[00:32:08] Speaker 02:
So it has to be pretty clearly stated.

[00:32:11] Speaker 03:
Not here.

[00:32:12] Speaker 03:
This is where I want to come to why DCH regionals, just the general point, that this doesn't leave room for ultra-virus review and why you don't pick apart the preclusion provision this way when you understand what Congress was actually trying to do with the preclusion provision.

[00:32:28] Speaker 03:
What Congress was doing with this preclusion provision is saying, I, Congress,

[00:32:34] Speaker 03:
amend this statute, this OPBS statute, the whole thing, all the time, practically every year.

[00:32:39] Speaker 03:
I'm in a much better position than the courts are to decide whether a course correction is needed and to oversee it.

[00:32:47] Speaker 03:
I can put more money in.

[00:32:48] Speaker 03:
I can authorize exemptions to budget neutrality.

[00:32:51] Speaker 03:
I'm going to take care of that.

[00:32:52] Speaker 03:
And so Congress said for basically what are all the cross-cutting issues, the classification and the conversion factor and the periodic adjustments in which you revisit the entire thing, like all the big ticket items, it said, courts, stay your hand.

[00:33:08] Speaker 03:
I've got this.

[00:33:09] Speaker 03:
And that's why the problem

[00:33:13] Speaker 03:
that was just the dictum in Amgen that was later clarified in DCH Regional, is like, no, this is not where you then, as a court, essentially engage in a mini merits inquiry in order to decide whether the preclusion applies.

[00:33:28] Speaker 06:
For my purposes, it would be helpful to put aside the ultra virus argument and look at the actual statutory argument, because I think that's what the question was asking about, is really that,

[00:33:39] Speaker 03:
No, I understand.

[00:33:40] Speaker 03:
And this is why, so if the court wants the textual provision that's most on point, it's the reference to paragraph 9.

[00:33:48] Speaker 03:
We also think 2 is indirectly incorporated because when HHS is exercising its annual 9 authority, it is also exercising its 2 authority.

[00:34:01] Speaker 03:
But the shortest path textually is the reference to 9.

[00:34:05] Speaker 07:
Which is a reference to six, but it's everybody Yeah, everyone agrees the six should be nine And you said nine references 14, but that's the one that's only confined to 2004-2005 or is there another place?

[00:34:19] Speaker 07:
I'm looking at 9b.

[00:34:21] Speaker 03:
Yeah, 9b.

[00:34:22] Speaker 03:
I'm sorry.

[00:34:22] Speaker 03:
We didn't quote this part in our brief, but it's quoted on page 29 of the appellants brief

[00:34:30] Speaker 03:
But I'm going to just pull out the full.

[00:34:32] Speaker 07:
Just make sure you have the right language.

[00:34:34] Speaker 07:
They're the reference to, it's actually a very narrow reference to 14.

[00:34:37] Speaker 07:
And as I read it, it's only for 2004 and 2005.

[00:34:40] Speaker 07:
It's not in 9.

[00:34:42] Speaker 07:
So 9B1.

[00:34:43] Speaker 07:
Am I missing something?

[00:34:44] Speaker 03:
So what it's doing, OK.

[00:34:46] Speaker 03:
And does the court have the whole statute?

[00:34:48] Speaker 03:
Did you have the full 9?

[00:34:50] Speaker 03:
Yes.

[00:34:50] Speaker 07:
I think so.

[00:34:51] Speaker 07:
That's what I'm telling you.

[00:34:52] Speaker 03:
OK.

[00:34:52] Speaker 03:
All right.

[00:34:52] Speaker 07:
It's something they produced, which is interesting.

[00:34:54] Speaker 03:
Our addendum is missing some of the key language on this.

[00:34:57] Speaker 03:
That's why I'm saying.

[00:34:58] Speaker 03:
I'm sorry.

[00:34:59] Speaker 03:
So all right, so 9A, periodic review.

[00:35:03] Speaker 03:
This is saying what HHS generally, across the board, should do every year, review and revise various things, including the paragraph two adjustments to take into account all sorts of things, including new cost data.

[00:35:17] Speaker 03:
9B is the budget neutrality adjustment.

[00:35:21] Speaker 03:
And that applies when the secretary makes adjustments under subparagraph A. That's the one I just read.

[00:35:28] Speaker 03:
And then it goes on to say, and this is the language that I should have included, don't worry about budget neutrality for 2004 and 2005.

[00:35:36] Speaker 03:
The only reason, paragraph 14.

[00:35:41] Speaker 03:
That's the only reference to paragraph 14 in 9.

[00:35:47] Speaker 03:
Implicit in that is that when you're making the paragraph 14 rate changes, you're exercising your paragraph 9A, Periodic Review Authority, because that's the first sentence.

[00:35:58] Speaker 03:
If the secretary makes adjustments under subparagraph A, you don't have to worry for two years about the paragraph 14 payments.

[00:36:06] Speaker 03:
implicit there is you do have to worry going forward, and that's explicit in 14-H.

[00:36:11] Speaker 07:
But there's no question, the only reason... Well, it refers to budget neutrality, but it doesn't mean that the adjustments that are being made are 14 adjustments.

[00:36:20] Speaker 07:
The 14 has its own adjustments.

[00:36:23] Speaker 03:
No, but it's saying if you're doing your annual thing, which is the 9-A annual adjustments,

[00:36:30] Speaker 03:
Start thinking.

[00:36:31] Speaker 06:
It has its own adjustment authority.

[00:36:33] Speaker 06:
Right.

[00:36:33] Speaker 06:
That's the thing.

[00:36:34] Speaker 06:
If you have the universe of 14 and the universe of 2, then 9 is saying adjustments under subparagraph A, which specifically talks about 2, may not cause the estimated amount of expenditures to increase or decrease.

[00:36:49] Speaker 06:
It has to be budget neutral.

[00:36:51] Speaker 06:
Now, adjustments under 14, they're different.

[00:36:53] Speaker 06:
They may be according to the respondents.

[00:36:57] Speaker 06:
a little bit narrow, more limited.

[00:36:59] Speaker 06:
So each universe is going to be adjusted.

[00:37:02] Speaker 06:
And then this, provision nine, is saying adjustments under A, meaning the adjustments to two, shouldn't be non-budget neutral because it's a broader, more open-ended adjustment authority.

[00:37:18] Speaker 06:
But you're saying it's not taking 14 as a given.

[00:37:20] Speaker 06:
It's talking about adjustments that encompass 14 in language that you didn't provide it.

[00:37:25] Speaker 03:
Well, I'm just saying, and first, let's go back to Amgen one more time.

[00:37:30] Speaker 03:
Remember, the argument in Amgen was the 2E adjustment authority doesn't apply once you get to six, because there's no reference to it.

[00:37:38] Speaker 03:
And this court said, sure it does.

[00:37:41] Speaker 03:
So the same logic, the 2E adjustment authority applies in the same way to paragraph 14 as it did in Amgen to paragraph six.

[00:37:51] Speaker 03:
But this is where I worry about getting lost in the weeds.

[00:37:53] Speaker 03:
Didn't deal with paragraph 14, and it's of a different character, I think, is what?

[00:37:58] Speaker 03:
No, that was the Amgen argument.

[00:38:00] Speaker 03:
The Amgen argument was paragraph 6, also about drugs, prescribed with specificity formula for making additional pass-through payments for certain drugs.

[00:38:10] Speaker 03:
And what Amgen argued was that specificity isn't qualified either explicitly or by cross-reference to paragraph 2E, therefore there's a want of authority to 2E.

[00:38:25] Speaker 07:
adjustment provision that was relevant to what they were doing there?

[00:38:28] Speaker 03:
It did not have a broad adjustment provision.

[00:38:31] Speaker 03:
It had a narrow adjustment provision.

[00:38:33] Speaker 03:
But that wouldn't have covered what they were doing there?

[00:38:35] Speaker 03:
No.

[00:38:36] Speaker 03:
Because what happened in Amgen was the conclusion that, yes, Amgen's drug was otherwise entitled under the formula to the extra payment.

[00:38:48] Speaker 03:
But Medicare, there was another drug that was maybe not quite as good, but good enough, much cheaper.

[00:38:54] Speaker 03:
And therefore, HHS just eliminated Amgen's pass-through payment.

[00:38:58] Speaker 03:
And this court said, that's fine.

[00:39:01] Speaker 03:
That's an equitable adjustment, because it's equitable writ large to the Medicare system not to be overpaying for a drug that's not much better than another one.

[00:39:09] Speaker 07:
I guess there's been some claim here that you were not applying, you were not making an adjustment under Rule 14.

[00:39:19] Speaker 07:
But in fact, in this case, as happened in Amgen,

[00:39:22] Speaker 07:
the agency has said, we're making an adjustment under two or nine or both, then you would fit that scenario.

[00:39:29] Speaker 07:
But here, what the agency said is, we are doing a 14, lots of other stuff, two, big Roman two, 14A, whatever, three, two.

[00:39:40] Speaker 07:
That's where we're doing the adjustment.

[00:39:41] Speaker 07:
We're doing that specific type of adjustment here.

[00:39:44] Speaker 03:
Correct?

[00:39:46] Speaker 03:
Nine globally.

[00:39:47] Speaker 07:
In the preamble to a multi-hundred page rule, it was covering all kinds of rates.

[00:39:52] Speaker 07:
But it never mentioned that power in making this decision.

[00:39:56] Speaker 03:
It doesn't need to cite nine every time it goes through one of the specific rate setting procedures.

[00:40:01] Speaker 07:
If it says we're exercising this adjustment, it seems to me what your argument is.

[00:40:05] Speaker 07:
The agency said we're exercising this 14 big Roman II adjustment power.

[00:40:10] Speaker 07:
This is the muscle we're using.

[00:40:13] Speaker 07:
And then the arguments here in court

[00:40:16] Speaker 07:
not in the Federal Register are, well, actually what they meant when they said is we're doing that muscle, but we're also using our adjustment powers under two and nine.

[00:40:25] Speaker 07:
Am I understanding your argument correctly?

[00:40:29] Speaker 03:
No.

[00:40:30] Speaker 03:
So first, remember, these Federal Register notices aren't written for the purpose of judicial review because there's a preclusion provision.

[00:40:37] Speaker 03:
Everybody in the community understands that these are the nine annual adjustments, in a big sense.

[00:40:42] Speaker 03:
Everything the agency is doing here is under paragraph nine.

[00:40:46] Speaker 03:
There are lots and lots of subsidiary paragraphs that also get invoked.

[00:40:50] Speaker 07:
That doesn't take it out of the overarching introductory... What is your evidence, and that's what everyone understands, you haven't claimed Chevron or anything here, so what is your evidence that everybody knows that even though they said 340B,

[00:41:02] Speaker 07:
Sorry, 14-2.

[00:41:04] Speaker 07:
That's the type of adjustment we're making.

[00:41:07] Speaker 07:
That's the specific, it's a specific statutory form of adjustment and that's what we're doing.

[00:41:12] Speaker 07:
That everyone knew we were also exercising our statutory muscle under 2 and 9.

[00:41:17] Speaker 03:
Well, they did cite nine in the preamble.

[00:41:21] Speaker 03:
Well, it's all in the preamble.

[00:41:22] Speaker 03:
So you're just saying, yes, in the broad introduction where they said, what are we doing right now?

[00:41:27] Speaker 07:
They talked about 14-2 in the 340B decision.

[00:41:29] Speaker 03:
Yes.

[00:41:30] Speaker 03:
And we talked about the merits.

[00:41:32] Speaker 03:
They have authority under 14 to adjust the proxy in order to bring these payment rates in line with acquisition costs.

[00:41:39] Speaker 03:
That's clearly what they were doing in the narrow sense.

[00:41:42] Speaker 03:
But for preclusion of review purposes, the court asked, how do we get from 14

[00:41:46] Speaker 03:
to nine, and I'm just explaining that this is just one of many, many types of more specific adjustments that fall under the umbrella of nine, as well as the specific adjustments.

[00:41:58] Speaker 02:
But there's some specific adjustments that don't rely on anything other than nine, right?

[00:42:04] Speaker 02:
So elsewhere in the rule, you wouldn't... In other words, it's not as if the way the statute is constructed is everything is an exercise of nine, and I'm just leaving two aside for now.

[00:42:16] Speaker 02:
Everything is an exercise of nine, and that's what we're going to say in the preamble, because obviously we're talking about nine.

[00:42:24] Speaker 02:
And then for every adjustment we talk about later, we're going to invoke the specific source of authority that's below the overarching rubric of nine.

[00:42:31] Speaker 02:
Because there's some things for which there's not a below part at all.

[00:42:36] Speaker 02:
There's some things for which nine itself is an issue, right?

[00:42:40] Speaker 03:
There are some provisions, like paragraph six, that might not have relevant adjustment authority, but you can still use your overarching, HS can use its overarching authority under nine.

[00:42:51] Speaker 03:
When I say this is a power, I mean that this rate setting, this whole endeavor where you go through notice and comment and you get tons of data and you revisit it, that's just the exercise of the instruction periodically review and revise the open guesses.

[00:43:05] Speaker 07:
Well, in fact, if you group a whole bunch of stuff together and one big federal register notice doesn't really address what power was being exercised for a particular adjustment, does it?

[00:43:14] Speaker 03:
Well, I'm not sure we're disagreeing because we agree that 14 itself

[00:43:21] Speaker 03:
says adjust the proxy as necessary for purposes of the paragraph.

[00:43:25] Speaker 03:
Which may not be the same as an equitable adjustment under two.

[00:43:28] Speaker 03:
Well, equitable is a cross-cutting objective.

[00:43:33] Speaker 03:
This is, again, we're going back now to these rates are all budget neutral.

[00:43:36] Speaker 07:
Well, for purposes of this paragraph, it's not necessarily the same thing as equitable.

[00:43:40] Speaker 03:
In fact, an agency can well decide, huh?

[00:43:42] Speaker 03:
It doesn't mean inequitable.

[00:43:43] Speaker 07:
Well, there's a world filled with a lot of things between those.

[00:43:45] Speaker 07:
And so someone could decide, this is what, it actually may look inequitable to you,

[00:43:50] Speaker 07:
But in fact, that is what the purpose of this statute is.

[00:43:54] Speaker 07:
And I think that would be a perfectly legitimate agency answer that you would defend.

[00:43:59] Speaker 07:
It doesn't have to meet some definition of being equitable to still be legitimate necessarily under Rule 14, as long as it's advancing the purposes of this paragraph, right?

[00:44:09] Speaker 03:
Well, I mean, equitable is not defined, and I'm not aware of any limitation on it, given the way it was read in Amgen, but here.

[00:44:16] Speaker 07:
If all these adjustments were automatically, everything under, this type of adjustment under Roman II, is automatically

[00:44:26] Speaker 07:
an adjustment under Rule 9.

[00:44:28] Speaker 07:
Why do they have to add the cross-reference to budget neutrality?

[00:44:32] Speaker 07:
There was no need for that language, because everyone knew it was just a 9 adjustment, which already requires budget neutrality.

[00:44:38] Speaker 03:
I agree.

[00:44:39] Speaker 03:
They didn't need it, but what they were primarily doing was making an exception.

[00:44:43] Speaker 03:
for the 2004-2005 years.

[00:44:44] Speaker 07:
They could have done that in 2014 just like they did in 2009, right?

[00:44:48] Speaker 07:
They could have just stopped.

[00:44:49] Speaker 07:
In 2009, they just stopped after 2004 and 2005.

[00:44:52] Speaker 07:
Don't worry about budget neutrality.

[00:44:54] Speaker 07:
They could have said the same thing in 2014.

[00:44:56] Speaker 07:
But in fact, they felt a need to tell us that 14 things, sorry, but I'm just trying to finish my thought here, that the rule 14 adjustments themselves will be subject to budget neutrality, which seems to be entirely redundant statutory language if everybody in the world knows.

[00:45:11] Speaker 07:
that we're already doing a rule nine budget neutrality going forward after 2005.

[00:45:16] Speaker 03:
I want to go back to Mercy Hospital.

[00:45:18] Speaker 03:
There is lots of redundant language in the Medicare statute.

[00:45:21] Speaker 07:
How are we supposed to do statutory construction?

[00:45:23] Speaker 03:
Well, you're not.

[00:45:25] Speaker 03:
There's a preclusion of review provision.

[00:45:27] Speaker 03:
These are instructions to HHS and the program people who have to do this.

[00:45:32] Speaker 07:
It seems to me it gets circular or bootstrapping because you say the reason, even though you're not listed in the preclusion of review,

[00:45:38] Speaker 07:
We know you're there because things are listed and everybody knows that those listed things are the same things that aren't listed because ignore rules of statutory construction.

[00:45:48] Speaker 07:
So I don't think it's quite right to say that they just threw a couple numbers in and left everything out because we would figure out that by putting a couple of paragraphs in and leaving everything out, they actually meant everything is in and we have no authority.

[00:46:03] Speaker 07:
Your argument isn't working for me in that regard.

[00:46:05] Speaker 03:
14 cross-references 9.

[00:46:07] Speaker 03:
And review of nine adjustments are explicitly precluded.

[00:46:10] Speaker 02:
Can I ask this question?

[00:46:12] Speaker 02:
The 14H is the cross-reference to nine.

[00:46:15] Speaker 03:
Yes.

[00:46:16] Speaker 02:
And the purpose of that is to carve out 2004, 2005.

[00:46:20] Speaker 02:
That seems to be what's centrally going on.

[00:46:23] Speaker 03:
I think that's the driver.

[00:46:24] Speaker 02:
That's the driver.

[00:46:25] Speaker 02:
And then 9B also carves out 2004 and 2005.

[00:46:29] Speaker 03:
Yes, which is redundant.

[00:46:31] Speaker 02:
So 14H is unnecessary.

[00:46:35] Speaker 02:
It just makes more clear what already would have been.

[00:46:38] Speaker 02:
In other words, the same arguments would apply under 9B.

[00:46:42] Speaker 03:
Yes.

[00:46:43] Speaker 02:
So 14H.

[00:46:46] Speaker 03:
As I'm saying, the Medicare statute has a lot of redundancy.

[00:46:49] Speaker 03:
I mean, this court made that point in mercy.

[00:46:50] Speaker 02:
But it's wholly redundant.

[00:46:52] Speaker 03:
It dovetails.

[00:46:53] Speaker 03:
They speak one stage to the other.

[00:46:54] Speaker 06:
They're speaking to each other at the same time.

[00:46:56] Speaker 03:
They dovetail, but I don't see why you would need both.

[00:46:59] Speaker 06:
I just want to circle back.

[00:47:01] Speaker 06:
I know we've kept you a long time.

[00:47:03] Speaker 06:
It's been really helpful.

[00:47:06] Speaker 06:
Just back to this question of you had characterized in your brief, as I mentioned again and again, that the major point of 14 is that Congress wants to get a proxy for average acquisition costs.

[00:47:18] Speaker 06:
And then you mentioned in some of this argument about

[00:47:22] Speaker 06:
jurisdiction, you mentioned that was a whole point, that's why the drug piece got taken out and created separately.

[00:47:30] Speaker 06:
Do you have a citation for something?

[00:47:31] Speaker 06:
Because I don't see it in your brief, the overarching, and I don't see it in the text necessarily.

[00:47:38] Speaker 06:
The clarity that we need for jurisdiction stripping.

[00:47:41] Speaker 06:
How do we know that that's what Congress was up to?

[00:47:44] Speaker 03:
I think it's in

[00:47:47] Speaker 03:
Maybe the GAO 2006 report.

[00:47:49] Speaker 03:
I mean, it's discussed in the earlier reports just as the background of this 2003 amendment.

[00:47:55] Speaker 06:
But not in a committee report or something more like non-post hoc and non-executive.

[00:48:05] Speaker 03:
I mean, I think it was understood, and it may well be in the legislative history, but the one thing, again, I just want to go straight to the text.

[00:48:13] Speaker 03:
We know from the primary directive in 14 that says HHS set the price, set the Medicare rate at average acquisition cost, that Congress wanted to set the Medicare rate at average acquisition cost.

[00:48:25] Speaker 03:
We don't need additional legislative history beyond that text to know that was Congress's overriding objective.

[00:48:32] Speaker 03:
And then the only question is,

[00:48:35] Speaker 03:
Is your only means for adjusting the proxy to gather information through a survey, regardless of how reliable the source might be for a particular subset of products?

[00:48:45] Speaker 02:
Because in one way to look at it is, I mean, not to make it arrogant for you, but I assume that this is where you're getting at.

[00:48:51] Speaker 02:
And not to say that this is efficient, but which is that sub one refers to the average acquisition cost.

[00:48:56] Speaker 02:
Sub two refers to acquisition cost data.

[00:49:00] Speaker 02:
And so I take it what you're saying is, even if you don't have the data,

[00:49:05] Speaker 02:
The way it's structured is that you're still trying to get to the cost.

[00:49:08] Speaker 03:
Yes.

[00:49:08] Speaker 03:
The touchstone is cost.

[00:49:10] Speaker 03:
Yes.

[00:49:10] Speaker 02:
And price is a proxy for cost.

[00:49:12] Speaker 02:
Yes.

[00:49:12] Speaker 02:
Even if you're lacking the acquisition data, then you have different data.

[00:49:15] Speaker 02:
You have price data.

[00:49:16] Speaker 03:
Yes.

[00:49:16] Speaker 02:
And then price data can be adjusted to get closer to what one tries to get to in the first instance, which is the primary objective, which is cost.

[00:49:23] Speaker 02:
That's the way you're looking at it.

[00:49:24] Speaker 07:
Exactly.

[00:49:25] Speaker 02:
Yeah.

[00:49:26] Speaker ?:
OK.

[00:49:26] Speaker 07:
Can I get back to one thing you said, which is we're not supposed to be doing statutory construction?

[00:49:30] Speaker 07:
Are we supposed to, in just paragraph 12, the limitation

[00:49:35] Speaker 07:
on judicial review?

[00:49:38] Speaker 07:
Are we supposed to do statutory construction and interpreting paragraph 12?

[00:49:42] Speaker 07:
I understand the court has to, but... We're supposed to do statutory construction there.

[00:49:48] Speaker 07:
Yeah, no, and I understand the court has to... Do you do ordinary rules of statutory construction or not ordinary rules of statutory construction just for paragraph 12?

[00:49:56] Speaker 03:
I think it's important to understand why paragraph 12 is there.

[00:50:00] Speaker 03:
And this is the point Amgen made, which is that it is a quagmire.

[00:50:04] Speaker 03:
If you do what age this first decision in this case recognized you have to do, wait until after the fact, get a concrete claim, have years of litigation, and then try to unravel threshold factors that went into the rates that

[00:50:21] Speaker 03:
that is wholly unworkable.

[00:50:22] Speaker 03:
And so when you understand that, then you understand when you're interpreting paragraph 12, why Congress has all of these broad and overlapping provisions.

[00:50:29] Speaker 03:
So it's ordinary tools of statutory interpretation, but the important one is to understand why this preclusion provision.

[00:50:37] Speaker 07:
And to get to your big why, do we use?

[00:50:40] Speaker 07:
ordinary rules of statutory construction as well?

[00:50:43] Speaker 03:
This court recognized in Amgen as it's unsurprising that Congress has these broad overlapping preclusion provisions given that you've got a system that processes 100 million claims a year and a budget neutrality requirement and no practical means to unravel the transactions once done.

[00:51:02] Speaker 07:
Because I'm still trying to figure it out because again there's been no claim of Chevron application here or deference.

[00:51:09] Speaker 07:
In interpreting paragraph 12, we are not to just look at statutory text, but we are supposed to... As in Amgen... Amgen was talking about consequences, I get that, but I don't think it was saying courts stop doing statutory construction.

[00:51:29] Speaker 07:
Well, I don't think those are alternatives.

[00:51:32] Speaker 07:
If you're asking the question.

[00:51:35] Speaker 07:
If in fact we're supposed to jettison ordinary rules of statutory construction because this is a mess, how do we enforce the rule that we expect bars on judicial review to be clearly stated?

[00:51:50] Speaker 07:
So that rule just doesn't apply here.

[00:51:52] Speaker 07:
I didn't read that in Amgen.

[00:51:53] Speaker 03:
OK, the bar on judicial review, there shall be no judicial review under the Medicare provisions or otherwise of all of these things, is clearly stated.

[00:52:04] Speaker 03:
And the reason for that bar?

[00:52:07] Speaker 03:
Well, there's an of.

[00:52:09] Speaker 03:
Yes, no, I understand.

[00:52:10] Speaker 07:
There's no administrative judicial review of.

[00:52:11] Speaker 07:
And then there's a list of five things, which does not include everything under this OPPS.

[00:52:21] Speaker 03:
Well, what it doesn't include are the types of things that you would imagine being raised in the context of a concrete claim that don't have to do with generally applicable issues.

[00:52:32] Speaker 03:
So you come in with your concrete claim and say, wait, you only reimbursed me for five of my treatments, not 10, or you dropped a zero, or something like that.

[00:52:40] Speaker 03:
Because that is what goes through administrative review, and that's why it's after the fact.

[00:52:45] Speaker 03:
in connection with the concrete claim.

[00:52:47] Speaker 03:
The cross-cutting issues that get set in a hurry up front, published through the world.

[00:52:53] Speaker 07:
We have the concrete claim here.

[00:52:53] Speaker 07:
They did what you argued for, we told them to do, go make concrete claims.

[00:52:58] Speaker 07:
So we're at the concrete claim stage.

[00:52:59] Speaker 03:
Yes, and the question is, what did Congress leave room to challenge at that stage?

[00:53:05] Speaker 03:
And it's the computation issues or documentation issues.

[00:53:09] Speaker 03:
It's not the cross-cutting issues

[00:53:12] Speaker 03:
that if you were to say, it's one thing for Congress, which amends the statute all the time, to come in and say, I don't like the way you're running this.

[00:53:21] Speaker 03:
I'm going to make this tweak, which, as I said, it does almost every year.

[00:53:24] Speaker 03:
For a court to do that after 100 million claims have been processed, that really is unworkable.

[00:53:31] Speaker 03:
And when Amgen said, it's unsurprising that Congress precluded review so broadly, given the unworkability of the alternative,

[00:53:40] Speaker 03:
Like, that's not dispensing with tools of statutory construction.

[00:53:43] Speaker 03:
That's like the Supreme Court's decision in King, which said, we're not just looking at the text in isolation.

[00:53:48] Speaker 03:
We have to understand what Congress was getting at.

[00:53:50] Speaker 03:
And here, what Congress was getting at is this is a really complicated thing that agency has to do year after year, and it's going to be too hard to unravel it down the road.

[00:53:59] Speaker 02:
All right.

[00:53:59] Speaker 02:
Why don't we hear from the other side, and then we'll give you some time for rebuttal.

[00:54:04] Speaker 02:
Thank you.

[00:54:15] Speaker 01:
May it please the court.

[00:54:17] Speaker 01:
My name is Bill Schultz, and I'm arguing for the appellees.

[00:54:22] Speaker 01:
The basic problem with the government's argument is that it's not supported by the text of the statute.

[00:54:30] Speaker 01:
And that's true both for the argument on the merits and for the argument on preclusion.

[00:54:36] Speaker 01:
On the merits, as the Court is well aware, in 1997, Congress, not satisfied with the way that Medicare was paying for these separately payable drugs that were part of the outpatient OPPS system, adopted a new payment methodology.

[00:54:54] Speaker 01:
And that's what's in paragraph 14 of the statute.

[00:54:57] Speaker 01:
And that's the methodology that controls

[00:55:00] Speaker 01:
whether the 30% reduction at issue here was lawful.

[00:55:04] Speaker 01:
As the court has discussed, there are really two possible methodologies that HHS can use.

[00:55:12] Speaker 01:
The first one is in subclause one of the statute, and here the payment would be based on acquisition costs.

[00:55:20] Speaker 01:
HHS would look at the hospitals and see what they were paying to acquire the drugs.

[00:55:25] Speaker 01:
The Congress was quite specific

[00:55:28] Speaker 01:
about when acquisition costs could be used, namely only when there was a survey done that met very specific requirements.

[00:55:37] Speaker 01:
And so in subparagraph D, Congress said to HHS,

[00:55:42] Speaker 01:
If you're going to do acquisition costs, you have to have a survey that has a large enough sample to be statistically significant.

[00:55:50] Speaker 01:
And the government admits that it couldn't do this.

[00:55:54] Speaker 01:
It did not meet this requirement.

[00:55:56] Speaker 01:
And in fact, it's not using subclause one.

[00:56:00] Speaker 01:
And that leaves subclause two as the basis for setting the payment rate.

[00:56:05] Speaker 01:
Now, subclause two, as the court knows, is a different approach.

[00:56:10] Speaker 01:
Average sales price plus 6%.

[00:56:12] Speaker 01:
This is a standard formula that HHS uses across Medicare and other programs to pay for drugs.

[00:56:22] Speaker 01:
And the idea is

[00:56:24] Speaker 01:
For each drug, there's a national price that looks at what the drug company is selling it for, and it takes into account various discounts and rebates to get to a fair price.

[00:56:37] Speaker 01:
Now, the subclause says that that price may be adjusted as necessary for purposes of this paragraph.

[00:56:46] Speaker 01:
And I think that's really the issue in this case.

[00:56:49] Speaker 01:
And I want to talk about what that means.

[00:56:51] Speaker 01:
But there's one thing it does not mean.

[00:56:54] Speaker 01:
It does not mean that the average sales price plus 6% can be adjusted to be converted into a rough estimate of acquisition costs.

[00:57:05] Speaker 01:
And we know that, because to do that would violate clause one, which plainly requires more than a rough estimate.

[00:57:12] Speaker 02:
So can I ask you this then?

[00:57:14] Speaker 02:
Suppose that two said, if hospital acquisition costs data are not available, the average price for the drug

[00:57:24] Speaker 02:
parentheses, as a proxy for acquisition cost in the year established.

[00:57:29] Speaker 02:
If it just said explicitly that price is a proxy for acquisition cost, then your entire argument on the merits goes away.

[00:57:37] Speaker 02:
I don't think so.

[00:57:39] Speaker 01:
It doesn't.

[00:57:39] Speaker 01:
I think it might be harder.

[00:57:41] Speaker 02:
I know you will resist the premise, but I'm just asking.

[00:57:44] Speaker 01:
No, no, I'm not just resisting the premise.

[00:57:46] Speaker 01:
I mean, I think you still

[00:57:50] Speaker 02:
I mean, maybe I'm not quite getting the change, but... Well, the change is that the whole purpose of 2 is to use price as a proxy for acquisition cost.

[00:58:01] Speaker 02:
It just makes more explicit what the government thinks is implicit.

[00:58:03] Speaker 01:
Right.

[00:58:04] Speaker 02:
And I'm just, let's just buy that premise.

[00:58:07] Speaker 02:
And then if you do that, then the adjustment that was made here was designed to get price closer to acquisition cost.

[00:58:13] Speaker 02:
I don't think anybody disagrees with that.

[00:58:15] Speaker 02:
Your point is that you're just not supposed to be getting to acquisition cost to begin with under 2.

[00:58:20] Speaker 01:
Right, and I mean even if say it was all through the legislative history and somewhere in this statute that if you're going to use acquisition costs, you have to do it exactly this way.

[00:58:30] Speaker 01:
If you don't have that, then we want you to do it another way because we think that's the best way to get close to it.

[00:58:38] Speaker 01:
You still have to use

[00:58:41] Speaker 01:
the requirements in subclause one and subclause two.

[00:58:45] Speaker 01:
And interestingly, the beginning of subclause two, it starts out and it says, if acquisition costs data are not available.

[00:58:53] Speaker 01:
So Congress twice was telling HHS, if you want to use acquisition costs, this is how to do it.

[00:58:59] Speaker 01:
And I think the implication here is they were concerned that they did not want to get it wrong.

[00:59:06] Speaker 01:
And essentially, I'm sorry.

[00:59:08] Speaker 01:
Essentially, the Secretary's argument really repeals subclause one.

[00:59:14] Speaker 01:
I mean, what HHS is saying is we can unsubclause to interpret this adjustment authority to approximate acquisition costs to really do almost whatever we want.

[00:59:27] Speaker 01:
And subclause one and subparagraph D are just irrelevant.

[00:59:32] Speaker 06:
You also have this argument, even if

[00:59:35] Speaker 06:
it were written the way Judge Srinivasan has just proposed, you have really, I think it's an independent argument, and I'd just be curious how fully you would rest on it, that they don't have a, CMS doesn't have authority to treat 340B providers differently from other providers, and I gather this goes to this notion that it's a pricing for the drug, drug by drug, not hospitals or classes of hospitals, at least when you're under sub clause two,

[01:00:04] Speaker 01:
We do make that argument.

[01:00:06] Speaker 01:
So under subclause one, Congress explicitly said, do the survey.

[01:00:12] Speaker 01:
Do the survey.

[01:00:13] Speaker 01:
And then after you do the survey, which has to be statistically significant, depending on your data, you can have different acquisition costs for different classes of hospitals if you use subclause one.

[01:00:26] Speaker 01:
Subclause two, on the other hand, is a national price.

[01:00:32] Speaker 02:
I don't understand this aspect.

[01:00:36] Speaker 02:
What would be the point of denying the agency ability to tailor price by hospital group if it's available to do?

[01:00:45] Speaker 02:
Why would you force a uniform price across the board if it's actually not getting to the price that's relevant?

[01:00:51] Speaker 02:
If there's a price that's just out of whack with some particular group of hospitals, why would Congress have wanted to preclude the agency from taking that into account?

[01:01:00] Speaker 01:
Well, I just, it's unclear how it would be done.

[01:01:03] Speaker 01:
I mean, because of what average sales price is, I mean, I keep repeating myself, but it's a national price.

[01:01:11] Speaker 01:
And so I think in Congress's mind, the reason they didn't specifically give them the authority in subclause two is it's just not the way average sales price works.

[01:01:20] Speaker 02:
But two also includes the proviso that allows the secretary to make adjustments.

[01:01:23] Speaker 02:
It does, it does.

[01:01:24] Speaker 02:
And so then the question becomes, why would Congress

[01:01:27] Speaker 02:
want to take, even if we take your point that sales price necessarily is across the board, if the Secretary has available to it the ability to make an adjustment that more carefully tailors the price to something that's localized, why would Congress have not wanted it?

[01:01:40] Speaker 01:
I think the reason Congress passed 14D, and this is really in the government's brief, is they were unhappy

[01:01:47] Speaker 01:
with how drugs were being reimbursed.

[01:01:50] Speaker 01:
They thought hospitals were not getting enough.

[01:01:53] Speaker 01:
And so they set up sub-cause D, and I think they were worried that if acquisition costs were used

[01:02:00] Speaker 01:
HHS would underpay.

[01:02:02] Speaker 01:
And so they were very specific.

[01:02:03] Speaker 01:
They said if you use acquisition costs, GAO, the Comptroller General, is to do two surveys of those costs.

[01:02:10] Speaker 01:
There are three separate reports to Congress of the surveys.

[01:02:13] Speaker 01:
And then once the Secretary identifies the acquisition costs of what those costs were, and then most importantly, as we keep talking about, there has to be a large enough sample to be statistically significant.

[01:02:26] Speaker 01:
So I don't think

[01:02:28] Speaker 01:
We need to speculate really here because Congress is very specific in the statute about what you need to do.

[01:02:35] Speaker 06:
Tell us a little bit more about the availability of the data.

[01:02:38] Speaker 06:
It would help me to understand the logic of the two different subsections.

[01:02:43] Speaker 06:
Acquisition costs clearly is harder to come by.

[01:02:47] Speaker 01:
Yes.

[01:02:48] Speaker 06:
Because the average sales price, you're looking at market data.

[01:02:54] Speaker 01:
Well.

[01:02:54] Speaker 06:
And the acquisition costs, you're actually

[01:02:57] Speaker 06:
pull people and pick up all kinds of rebates, discounts, volume, deals.

[01:03:03] Speaker 06:
I mean, I'm just guessing.

[01:03:05] Speaker 06:
So tell them a little more why there's this thousand suspenders, what the risks are, what the horror is.

[01:03:10] Speaker 01:
So average sales price is something that's just out there because it's there for a lot of other reasons.

[01:03:17] Speaker 01:
It's calculated every year and it's an effort by the government to get as accurate as they can to what the average price is across the country.

[01:03:29] Speaker 01:
This is a price that takes into account what consumers are paying at pharmacies, what doctors are paying.

[01:03:35] Speaker 01:
what hospitals are paying.

[01:03:37] Speaker 01:
There's an effort to take into account rebates and special deals.

[01:03:41] Speaker 02:
So this is calculated independently of 14 sub 2?

[01:03:44] Speaker 01:
Yes, it's out there.

[01:03:44] Speaker 01:
It's independent.

[01:03:45] Speaker 06:
And is it, it would be slightly percentage-wise slightly depressed given the existence of the 340B program?

[01:03:54] Speaker 01:
Actually, the statute takes 340B out of that calculation.

[01:03:59] Speaker 06:
So it's a, there's a... Only or other kinds of discounts and rebates?

[01:04:04] Speaker 01:
Well, I have to look, but it takes 340.

[01:04:06] Speaker 01:
I believe it takes 340B out, 340B discounts out.

[01:04:10] Speaker 01:
Because of what you're saying, it really wouldn't be very fair.

[01:04:12] Speaker 01:
340B was a program, as you know, that Congress enacted.

[01:04:18] Speaker 01:
And it's really off budget.

[01:04:19] Speaker 01:
It doesn't cost the government any money.

[01:04:22] Speaker 01:
And they figured out they required discounts be given to community health centers and nonprofit hospitals that disproportionately serve the poor.

[01:04:32] Speaker 01:
And the idea was that this money would then be used to provide better services at those hospitals.

[01:04:38] Speaker 01:
But it's not part of the budget.

[01:04:40] Speaker 01:
And so I think that would explain why.

[01:04:43] Speaker 02:
So 340B is taken out of it.

[01:04:44] Speaker 02:
I'm sorry.

[01:04:45] Speaker 02:
Go ahead.

[01:04:46] Speaker 06:
I was just going to ask about 340B.

[01:04:47] Speaker 06:
I mean, when I first looked at the first case I ever had about 340B, I thought there are two benefits to these hospitals that served before that might come from 340B.

[01:04:58] Speaker 06:
One is a lot of the people that they serve

[01:05:02] Speaker 06:
are uninsured and so you're actually having to give them drugs for free and those drugs are going to be a lot cheaper if you can buy them cheaply from the drug company.

[01:05:11] Speaker 06:
So that's one benefit.

[01:05:13] Speaker 06:
But then it seems like over the past quarter century it's also come to be associated with, and maybe it was intended this way in the beginning, it's become associated with this additional sort of

[01:05:24] Speaker 06:
profit, if you will, or not profit, but pool of money that comes through the Medicare reimbursement.

[01:05:31] Speaker 06:
And it's just a little odd to think that 34B meant to both get a benefit from the drug companies in terms of a discounted price and bring down a kind of overcompensation from Medicare and Medicaid for the people who are insured.

[01:05:52] Speaker 06:
And so you would think, well, the government just wants to save money.

[01:05:56] Speaker 06:
So it's going to say, when people are insured, we're not going to extra pay you.

[01:05:59] Speaker 06:
Yeah, when they're uninsured, use these cheap drugs.

[01:06:03] Speaker 06:
But when they are insured, why should we extra pay?

[01:06:06] Speaker 06:
Why should the taxpayer actually pay you?

[01:06:09] Speaker 06:
And then she makes an argument about how it's going to bring down the price of the program for other Medicare recipients, to which I think, well, it depends a lot on what the baseline was.

[01:06:18] Speaker 06:
You know, we've been treating 340B as not only a cheap drug source, but also sort of a cash source for these other uncompensated funds.

[01:06:31] Speaker 06:
And is that anomalous under Medicare?

[01:06:35] Speaker 06:
Do you see what I mean?

[01:06:38] Speaker 01:
Yeah, I think it's best to think of it as not under Medicare.

[01:06:42] Speaker 01:
It's a standalone program.

[01:06:44] Speaker 06:
But the thing we're arguing about here

[01:06:46] Speaker 06:
is a payment under Medicare.

[01:06:49] Speaker 06:
I know 340B is a separate program, but the question is, what is its status in terms of the right level of reimbursement under Medicare?

[01:06:58] Speaker 06:
And you're arguing its status, the right way to think about it, is that it's treated as a full-price drug and that the increment between the actual price paid and the price reimbursed, at least if they haven't done the study,

[01:07:13] Speaker 06:
under Roman one, its status is as a source of cross compensation and that you're comfortable with that.

[01:07:20] Speaker 06:
And that's certainly something Congress has been well aware of for decades.

[01:07:23] Speaker 01:
I mean, look, HHS is free to go to Congress and argue about the 340B and make a lot of the policy arguments they're making here.

[01:07:33] Speaker 01:
But that's not what they're doing here.

[01:07:36] Speaker 01:
They are trying to use statutory authority

[01:07:41] Speaker 01:
to essentially take away the benefit of 340B and spread it out.

[01:07:47] Speaker 06:
They still have the benefit of cheap drugs to people who aren't insured.

[01:07:51] Speaker 05:
Pardon me?

[01:07:52] Speaker 06:
They still have the benefit of having cheap drugs available to give to people who are uninsured.

[01:07:57] Speaker 06:
They're just not getting the benefit of the additional reimbursement under Medicaid.

[01:08:02] Speaker 01:
Right, they're not getting the benefit, which is then used for Medicaid and other patients.

[01:08:09] Speaker 01:
But in order to, you know, since they didn't go to Congress, in order to do that, they have to qualify under their statute.

[01:08:17] Speaker 01:
And they have to show that they're entitled under this subclause two to make the adjustment of 30%.

[01:08:25] Speaker 01:
And in addition to, you know, what I talked about before is that it is effective repeal of subclause one, there are three other problems with what they did in terms of the statute.

[01:08:37] Speaker 01:
And the first one is, this wasn't an adjustment of the average sales price or the 6% overhead.

[01:08:46] Speaker 01:
And it's really pretty clear in the statute.

[01:08:50] Speaker 01:
In other words, this wasn't a tinkering with the average sales price.

[01:08:54] Speaker 01:
Let's add this rebate or do something else together.

[01:08:57] Speaker 07:
Well, they adjusted.

[01:08:58] Speaker 07:
They just subtracted a big amount rather than adding a small amount.

[01:09:01] Speaker 07:
They did start with that.

[01:09:02] Speaker 07:
They start with the adjustment.

[01:09:04] Speaker 07:
And then they just subtracted a whole lot out of it.

[01:09:07] Speaker 01:
We're going to, yes, and you can see this, the first Federal Register notice in July of 2017, this is page 33634, but they say in the first column, they say, we don't have the acquisition cost data, we know that, and therefore we're going to use our adjustment authority.

[01:09:29] Speaker 01:
And then in the second column, on the same page, they say, for separately payable drugs,

[01:09:35] Speaker 01:
that are acquired under 340B, we're proposing ASP minus 22.5%, which we believe better represents the average acquisition cost for these drugs.

[01:09:47] Speaker 01:
So they were very upfront about it.

[01:09:49] Speaker 01:
This isn't an adjustment of the average sales price.

[01:09:52] Speaker 01:
It's a deduction.

[01:09:54] Speaker 07:
Well, it's an adjustment of the average sales price to try to get it as close as they could to what they think the average acquisition cost is.

[01:09:59] Speaker 01:
Yes, it's a percentage of it.

[01:10:01] Speaker 01:
Not to make the sales price

[01:10:05] Speaker 01:
more accurate, but for these drugs to take into account.

[01:10:10] Speaker 01:
I don't understand what that's about.

[01:10:11] Speaker 06:
They've been candid about that the whole time.

[01:10:13] Speaker 06:
They read the statute as being about approximating acquisition costs.

[01:10:20] Speaker 06:
And so if you buy that, there's nothing that does violence to subsection two in characterizing the adjustment of the average sales price to come close to acquisition price.

[01:10:34] Speaker 01:
Right, I mean you would have to buy that they can, the adjustment of the sales price is really for something else.

[01:10:41] Speaker 02:
I don't understand what independent work the word adjustment is doing with respect to this argument because if they're trying to get, if you buy the premise that it's okay to try to adjust, to try to shift price to get it closer to acquisition cost,

[01:10:55] Speaker 02:
Then it is an adjustment that's getting a closer to acquisition costs.

[01:10:58] Speaker 02:
You just reject the idea that they can go to acquisition costs to begin with.

[01:11:01] Speaker 01:
We definitely reject that idea.

[01:11:02] Speaker 02:
Right.

[01:11:03] Speaker 02:
But then, but it's still an adjustment that gets you closer to acquisition costs.

[01:11:06] Speaker 01:
It is.

[01:11:06] Speaker 02:
Okay, so then it seems like it qualifies it as an adjustment.

[01:11:10] Speaker 02:
It's just not the type of adjustment that, in your view, the statute of countenance is.

[01:11:14] Speaker 01:
Well, I mean, I guess that's a fair way to look at it.

[01:11:16] Speaker 01:
I would say that it's worth looking in the past when they've used this adjustment authority, and they've only used it to adjust the 6% overhead cost.

[01:11:26] Speaker 01:
And the statute, I think as was discussed in the earlier argument, this statute has a whole study and discussion in subparagraph E about overhead costs, and it talks about an adjustment.

[01:11:39] Speaker 01:
of overhead costs.

[01:11:40] Speaker 01:
And I think it's probably a fair reading of this adjustment authority in sub-costs, too, is that it's really just for overhead costs.

[01:11:49] Speaker 02:
But why have E then?

[01:11:52] Speaker 02:
Because if E's already there for adjustments that are related to overhead costs, what

[01:11:59] Speaker 02:
is the word adjusted in subparagraph to doing?

[01:12:03] Speaker 01:
Well, he has a lot more because it talks about a study by this group called MedPAC to try and see what the fair costs were.

[01:12:11] Speaker 02:
Right, and so I think you'd, I mean, your argument on the merits would say that

[01:12:17] Speaker 02:
under E, it has a bunch of provisos about how you're supposed to do adjustments related to overhead costs.

[01:12:21] Speaker 02:
If you're going to do an adjustment related to overhead costs, you have to go through E. Right.

[01:12:25] Speaker 02:
Which that makes sense to me, but then that seems to leave the question of what is adjusted doing in sub two?

[01:12:34] Speaker 02:
What do you think that authority allows the agency to do?

[01:12:37] Speaker 01:
I could see somebody writing this in sub plus two and they say ASP plus six wanting to say, well, we want to make sure that you can use E

[01:12:47] Speaker 01:
for those kinds of adjustments, so we said adjust it for purposes of this paragraph.

[01:12:52] Speaker 01:
Otherwise, it may be too stark.

[01:12:54] Speaker 02:
So suppose I – that's an argument, and let's just suppose that I disagree with that and that I think adjust needs to do something other than just refer to what's already accounted for by E. What would that independent thing be, or do you think that it only refers to E?

[01:13:09] Speaker 01:
I mean, I have to say, I'm not sure what it is.

[01:13:12] Speaker 01:
They've never used it that way.

[01:13:15] Speaker 01:
But I do think, and this is what I was saying before, it has to be of the sales price.

[01:13:19] Speaker 01:
If it's more than the 6%, it actually has to be to make the sales price across hospitals more accurate.

[01:13:30] Speaker 06:
The other- What's the text that allowed, you said 340B is not included in average sales price, and that's not in the adjustment.

[01:13:37] Speaker 06:
That's somewhere else?

[01:13:39] Speaker 01:
So subclause two, the way we get to average sales price is that subclause two has a reference to section, to three sections in 1395.

[01:14:03] Speaker 01:
And I believe it's 1395W-3A.

[01:14:08] Speaker 01:
That's the definition of average sales price.

[01:14:11] Speaker 01:
And I believe, and I'll go back and check it, but I believe that it actually takes out 340B.

[01:14:18] Speaker 02:
Doesn't that result in a little bit of an anomalous, it seems a little bit anomalous if, I hadn't followed that through in the way that you are, but it seems a little anomalous to say that average sales price

[01:14:28] Speaker 02:
by definition, excludes 340B, but then the way you read the statute is for 340B hospitals, you have to use average sales price.

[01:14:37] Speaker 01:
Unless you have to use average sales price, that's correct.

[01:14:41] Speaker 02:
But if the very concept excludes 340B, that seems a little bit of a mismatch to say that you have to use it anyway.

[01:14:48] Speaker 01:
The whole purpose of 340B was to generate this extra money outside the appropriation process

[01:14:56] Speaker 01:
for hospitals to use.

[01:14:57] Speaker 01:
And it's been true since 1992.

[01:15:00] Speaker 01:
Nobody's questioned it until this decision that we're challenging.

[01:15:05] Speaker 01:
These are all independent arguments about why HHS is what it is.

[01:15:13] Speaker 07:
Can I just ask, while we're analyzing what this Adjustment Authority allows, what is HHS supposed to do?

[01:15:20] Speaker 07:
If it's got no one disputes,

[01:15:23] Speaker 07:
very reliable and carefully obtained information.

[01:15:26] Speaker 07:
It may not fit the Roman 1 survey requirements, but they've got very reliable and concerning data for them about extraordinary overpayments to 340B hospitals.

[01:15:42] Speaker 07:
And not disputing that the extra money is used by those hospitals for good purposes,

[01:15:49] Speaker 07:
If Congress wants that, it can do it under the 340-B statute.

[01:15:53] Speaker 07:
And the point of Medicare is not to subsidize a 340-B program.

[01:15:58] Speaker 07:
Why is it not within their authority under adjustment?

[01:16:04] Speaker 07:
What forecloses their adjustment authority being to go, look, we've got a real problem here.

[01:16:11] Speaker 01:
Well, there are two questions.

[01:16:12] Speaker 07:
And so we're going to adjust this average sales price to eliminate that problem, because Medicare is what it's all about.

[01:16:20] Speaker 01:
what precludes them the statute and what are they supposed to do?

[01:16:22] Speaker 01:
In terms of the first question, and maybe I'm being repetitive, but what precludes them is when you read all of paragraph 14.

[01:16:31] Speaker 01:
And when you read paragraph two and subparagraph E, and this is, this, if you want acquisition costs, this is how you do it.

[01:16:38] Speaker 07:
Why the adjustment wouldn't allow for that.

[01:16:41] Speaker 01:
Yeah, and I think it's just very hard to read this statute, you know, if you read the sections of it.

[01:16:49] Speaker 01:
without coming to that conclusion.

[01:16:52] Speaker 01:
In terms of what they're supposed to do, if they're unhappy, if they think there's an opportunity here for them to get some more money into Medicare, I would say at the expense of the hospitals, but they have a different view, they should go to Congress.

[01:17:05] Speaker 01:
That's what they should do.

[01:17:06] Speaker 06:
Or just do the study.

[01:17:07] Speaker 06:
I mean, that's what they're doing.

[01:17:08] Speaker 06:
They're just going to do the study.

[01:17:09] Speaker 06:
They've already gotten ready to do that.

[01:17:11] Speaker 01:
If they can do that.

[01:17:12] Speaker 01:
I mean, we'll see if they're capable of that.

[01:17:16] Speaker 01:
And there will be issues about that.

[01:17:19] Speaker 01:
I think those are for another day.

[01:17:21] Speaker 01:
But I think there are questions about, given the 340B statute, whether they can do this.

[01:17:26] Speaker 01:
But really, what they should do.

[01:17:27] Speaker 02:
What do you mean, whether they can?

[01:17:28] Speaker 02:
I know that this is a separate set of issues.

[01:17:30] Speaker 02:
But do you mean about the particularities of the studies?

[01:17:33] Speaker 02:
Or do you think that there's some

[01:17:35] Speaker 02:
have an issue or problem with them trying to use the studies at all for 340B hospitals?

[01:17:42] Speaker 01:
I think there may be questions about whether they can use them, whether

[01:17:46] Speaker 01:
interferes with the 340B statute in a way that they're precluded.

[01:17:49] Speaker 01:
I think that's for another day.

[01:17:51] Speaker 02:
They can't even do the surveys.

[01:17:53] Speaker 01:
I don't want to be giving up that argument here when we don't even have to make it.

[01:17:58] Speaker 06:
It's interesting because you're defending 340B, but I don't hear you actually making a very full-throated defense of the way it functions in intersection with

[01:18:07] Speaker 06:
Medicare.

[01:18:08] Speaker 06:
Does Congress know and is Congress aware?

[01:18:10] Speaker 06:
As you say, they intended to do this without coming up with more money.

[01:18:14] Speaker 06:
So they thought, we'll just pull this off the table.

[01:18:20] Speaker 06:
It's on the table in Medicare, and so that's the way it's going to go.

[01:18:22] Speaker 01:
I don't think it's intended to interface with Medicare, and it never has before.

[01:18:29] Speaker 06:
It's been an independent... That's a very strange argument for you to be making.

[01:18:35] Speaker 06:
The only way that it gets the extra money is when somebody's reimbursing for those drugs.

[01:18:45] Speaker 06:
And I guess that could be private insurance.

[01:18:48] Speaker 06:
Or, as in the case before us, it's Medicare.

[01:18:51] Speaker 01:
Yes.

[01:18:52] Speaker 01:
Yes.

[01:18:52] Speaker 06:
That's the only way it produces extra money for those hospitals.

[01:18:55] Speaker 01:
Maybe I was being imprecise.

[01:18:58] Speaker 01:
Yes.

[01:18:58] Speaker 01:
So Medicare and private insurance are paying, say, the full price and the hospitals get the discount and that's how they get the money.

[01:19:06] Speaker 01:
Yeah.

[01:19:08] Speaker 01:
that I don't think it interfaces with Medicare.

[01:19:10] Speaker 01:
Medicare has never before tried to... Nuance its treatment with an eye to those drug prices.

[01:19:18] Speaker 01:
You know what?

[01:19:19] Speaker 01:
We want that discount.

[01:19:21] Speaker 01:
We think it's better for us to have it than for you to have it.

[01:19:24] Speaker 07:
It's not their discount.

[01:19:26] Speaker 07:
They're not supposed to be paying those funds to you.

[01:19:29] Speaker 07:
You're not supposed to be getting, this is our money that you're not supposed to be getting.

[01:19:32] Speaker 07:
I don't think it's quite fair to say they're trying to get your discount instead of you.

[01:19:35] Speaker 07:
I think we're saying we shouldn't be paying you this money.

[01:19:39] Speaker 01:
I mean, I guess it depends.

[01:19:42] Speaker 01:
I mean, from the hospital's point of view, and I would say from Congress's point of view, when they set up the program, they set up a system where certain hospitals

[01:19:52] Speaker 01:
who disproportionately serve the poor would get a discount.

[01:19:55] Speaker 01:
From Medicare's point of view, they're saying, well, we want to pay the lowest possible, and we don't want to pay you any more than you're paying for it.

[01:20:02] Speaker 02:
And there's also a ripple effect on the beneficiaries themselves.

[01:20:09] Speaker 01:
Yes.

[01:20:13] Speaker 01:
That's an argument.

[01:20:15] Speaker 01:
I mean, there are a bunch of policy arguments made here.

[01:20:17] Speaker 07:
It's a fact that's not disputed, right?

[01:20:19] Speaker 07:
Well, you do.

[01:20:20] Speaker 07:
You argue that mostly they have a couple of insurance.

[01:20:24] Speaker 07:
It's a fact that's not disputed.

[01:20:25] Speaker 01:
Yeah, I think it's probably overstated, because as Judge Cohen said, many beneficiaries have supplemental insurance.

[01:20:32] Speaker 07:
Did your comments say that they were wrong about that?

[01:20:37] Speaker 07:
They keep saying that that wasn't disputed.

[01:20:38] Speaker 01:
I think the comments suggest it was overstated, yes.

[01:20:43] Speaker 01:
And as we point out, what they did

[01:20:48] Speaker 01:
by, you know, spreading this money across hospitals has a slight actually increase on the co-pay.

[01:20:55] Speaker 01:
But, I mean, these are all important questions and important discussions, but I don't think they allow HHS to get away from the plain requirements of the statute.

[01:21:08] Speaker 02:
What are your other independent arguments?

[01:21:09] Speaker 02:
You said you had other independent.

[01:21:11] Speaker 02:
You have the adjustment one, which

[01:21:13] Speaker 02:
Which you didn't buy.

[01:21:14] Speaker 01:
Well, I'm not sure it does independent work.

[01:21:18] Speaker 01:
The main one, obviously, is that it's an effective repeal of some costs.

[01:21:23] Speaker 02:
Yes, that's the principle.

[01:21:24] Speaker 01:
And I have the adjustment one.

[01:21:25] Speaker 01:
And then we talked a little bit about whether this goes just to overhead costs.

[01:21:29] Speaker 01:
But the final argument, which is really what the district court accepted, so I should spend a couple minutes on it,

[01:21:36] Speaker 01:
is that the size and the scope of this change, this alteration, isn't compatible with the term adjustment.

[01:21:47] Speaker 01:
In Amgen, this court said, and it was looking at a different kind of adjustment, but under the same statute,

[01:21:55] Speaker 01:
in a different place, but it said a substantial departure from the baseline at some point ceases to be an adjustment and violates the statute.

[01:22:06] Speaker 01:
And as the district court here found, the 30 percent reduction across the board for 340B drugs is a patent violation of the statute and fundamentally alters the statutory scheme.

[01:22:19] Speaker 01:
And so it doesn't qualify

[01:22:21] Speaker 01:
as an adjustment, which really more connotes some kind of tinkering or some kind of question, some kind of correction, rather than what was initially here.

[01:22:34] Speaker 02:
And a tinkering and a correction, to what end?

[01:22:39] Speaker 02:
What could they tinker and adjust to do?

[01:22:44] Speaker 01:
Well, I think it's clear they can do that of overhead, 6% overhead.

[01:22:49] Speaker 01:
And they've done that in the past.

[01:22:51] Speaker 01:
And that raises the sales price to make the across the board sales price more accurate.

[01:23:00] Speaker 01:
And those would be the kinds of things, but it would be an effort to make it more accurate, not an effort to do acquisitions.

[01:23:07] Speaker 07:
More accurate as to certain regions or?

[01:23:11] Speaker 07:
urban versus rural hospitals, or I don't know how you would make it more accurate.

[01:23:15] Speaker 07:
I think it would be as to hospitals.

[01:23:17] Speaker 01:
In my view, it would be as to hospitals.

[01:23:20] Speaker 01:
But there's something particular about hospitals.

[01:23:23] Speaker 07:
Hospitals versus doctor's offices or particular hospitals versus other hospitals?

[01:23:27] Speaker 01:
Well, all the other payers for drugs, whether it's other government agencies or doctor's offices or individuals,

[01:23:40] Speaker 01:
All those are looked at in figuring out the average sales price, and I'm just making this up because HHS has never identified this.

[01:23:48] Speaker 01:
It's just in my imagination, but maybe you would find that... How would they know?

[01:23:52] Speaker 07:
How would they be able to make that adjustment?

[01:23:53] Speaker 07:
How would they get the information about what hospitals are paying versus doctors or private individuals or government?

[01:24:01] Speaker 01:
Maybe they would do a survey and they'd say, you know, there's a kind of rebate

[01:24:06] Speaker 01:
that hospitals get that's not reflected in average sales price, but it really affects the average sales price for hospitals.

[01:24:14] Speaker 07:
And so we think... And that survey wouldn't have to be like a Roman one survey.

[01:24:18] Speaker ?:
No.

[01:24:19] Speaker 02:
Or else we wouldn't be in Roman II at all.

[01:24:21] Speaker 06:
And you're saying that there would be authority to tier the prices under Roman II.

[01:24:27] Speaker 06:
That would be what would come out of adjustments, tiering it for different categories of recipients?

[01:24:32] Speaker 01:
I don't think they could tier it.

[01:24:33] Speaker 01:
I think it's a single national price.

[01:24:36] Speaker 01:
And I actually, I don't agree with this.

[01:24:41] Speaker 01:
But the argument would be that there would be authority to change the ASP as it applies to hospitals under this statute.

[01:24:51] Speaker 06:
But that would be a tearing.

[01:24:52] Speaker 06:
It's hospitals versus others.

[01:24:54] Speaker 06:
I thought part of your argument in your brief was under Roman 1, the acquisition

[01:25:02] Speaker 06:
price could be tailored to different subgroups.

[01:25:06] Speaker 01:
It could.

[01:25:07] Speaker 01:
It says that in the statutes.

[01:25:07] Speaker 06:
And it doesn't have similar language in two.

[01:25:09] Speaker 06:
And so you're actually talking about one price.

[01:25:11] Speaker 06:
And I thought that was actually the premise of your argument in the very end of your brief.

[01:25:15] Speaker 06:
And now it sounds like you're saying, actually, the adjustment is not just an adjustment in the national price, but might be an adjustment in that price as payable to certain recipients?

[01:25:27] Speaker 01:
Let me be very clear.

[01:25:30] Speaker 01:
Subclass 1 specifically says after you do the whole survey, you can segment by groups of hospitals.

[01:25:37] Speaker 01:
That's in Subclass 1.

[01:25:40] Speaker 01:
Subclass 2 doesn't have anything like that.

[01:25:42] Speaker 01:
And so we think any interpretation of Subclass 2, the average sales price has to be the same across all hospitals.

[01:25:51] Speaker 02:
But hospitals, as opposed to other payers, you think could be done.

[01:25:54] Speaker 02:
You're just saying within the group of hospitals, you can't.

[01:25:57] Speaker 01:
You asked me what could be an adjustment of the average sales price, not the 6%.

[01:26:03] Speaker 01:
And I was saying, I don't really think you can do it, but here's how I can imagine it.

[01:26:07] Speaker 01:
But it would be across all hospitals.

[01:26:09] Speaker 02:
In one fell swoop, not divisible within hospitals, which, I mean, why Congress would have wanted to allow an adjustment that cuts across all hospitals but wouldn't have wanted to allow something that gets even more accurate by hospital group, it's not entirely clear.

[01:26:23] Speaker 01:
But it's not something that has to be decided to decide this case.

[01:26:29] Speaker 02:
And so those are the independent arguments that you had?

[01:26:32] Speaker 02:
Yes.

[01:26:35] Speaker 02:
For what it's worth, I'll just say what seems like a conundrum to me about this case.

[01:26:40] Speaker 02:
On one hand, the government's, and maybe you can help me just figure out which one.

[01:26:43] Speaker 02:
I hope so.

[01:26:45] Speaker 02:
At least for me, I'm only speaking for myself here.

[01:26:48] Speaker 02:
But on one hand, the government's argument doesn't leave much operative force to the provisions that require a particular type of survey, because I think the government's argument means that you can just do that under two, regardless of what

[01:27:03] Speaker 02:
is embedded within one about the surveys.

[01:27:06] Speaker 02:
But your argument doesn't do much with the adjustment authority, because it just deals with overhead principally, which is already covered under E, and then not a whole lot else.

[01:27:18] Speaker 02:
So which, it seems like both sides have some authority within some provisions within the statute that are not being given much effect.

[01:27:28] Speaker 02:
Why is the survey specification

[01:27:33] Speaker 02:
the one that should trump the adjustment authority as opposed to the other way around?

[01:27:38] Speaker 01:
I just think that Congress could not have been clearer how concerned it was that if acquisition costs were going to be used, that AG just get it right.

[01:27:50] Speaker 01:
I've rarely seen something quite like this where they say, OK, the Comptroller General is going to do a survey in 2004 and report to Congress and do one in 2005

[01:28:03] Speaker 01:
and report to Congress.

[01:28:04] Speaker 01:
And then the secretary does a survey.

[01:28:06] Speaker 01:
And by the way, it has to have a large enough sample to be statistically significant.

[01:28:12] Speaker 01:
And then if the secretary uses acquisition costs, 30 days later, the Comptroller General has to report what he thinks about it to Congress.

[01:28:20] Speaker 01:
So I mean, we can argue about whether this was a good idea.

[01:28:25] Speaker 01:
I think it was.

[01:28:26] Speaker 01:
But I don't think it matters.

[01:28:29] Speaker 01:
Because this is what Congress said.

[01:28:31] Speaker 01:
If you're going to use acquisition costs,

[01:28:33] Speaker 01:
This is how you do it.

[01:28:35] Speaker 01:
And then, in sub-cost 2, it says, if you don't have acquisition costs, we're going to do this average sales price plus 6%.

[01:28:43] Speaker 07:
Now, in terms of what the... What does the purpose of this paragraph mean, then?

[01:28:46] Speaker 07:
If the adjustments can be for purposes of this paragraph, what purposes?

[01:28:50] Speaker 01:
I think the purpose of the paragraph is to set the price

[01:28:57] Speaker 01:
for separately payable drugs, and so it includes, you know.

[01:29:02] Speaker 07:
Well, they're already doing that just by adopting, what Congress envisioned in room two, capital room in two, is that we'll take this average sales price and then, and then, not to set that, that's already set by 1395W3.

[01:29:17] Speaker 07:
Right.

[01:29:18] Speaker 07:
We are going to let the secretary adjust it for purposes of this paragraph.

[01:29:24] Speaker 07:
Right, right.

[01:29:27] Speaker 07:
If the purpose isn't, as they say, to get as close to cost acquisition data, and you've got a textual answer to that, then what is the purpose?

[01:29:35] Speaker 07:
It can't just be to set the sales price.

[01:29:37] Speaker 07:
The adjustment has to be serving some other purpose.

[01:29:39] Speaker 01:
Right.

[01:29:39] Speaker 01:
Well, I mean, I think the way it's always been used in the past is to adjust overhead, which is covered in another.

[01:29:47] Speaker 07:
That's purposes of paragraphs.

[01:29:49] Speaker 07:
subparagraph E for the purposes of the whole paragraph 14.

[01:29:53] Speaker 07:
Is there a purpose to the whole paragraph 14?

[01:29:55] Speaker 07:
Does it have an overarching purpose?

[01:29:57] Speaker 01:
Yes.

[01:29:57] Speaker 01:
It's to set a separate methodology for reimbursing hospitals for separately-payable drugs.

[01:30:04] Speaker 01:
That's the paragraph.

[01:30:05] Speaker 07:
Then there's no work for the adjustment.

[01:30:07] Speaker 07:
I'm just trying to follow.

[01:30:08] Speaker 07:
Congress seemed to think that there was some additional purpose to how or why we're picking these two models for rate setting

[01:30:19] Speaker 07:
that pervades paragraph 14 that the adjustments aren't supposed to advance.

[01:30:24] Speaker 01:
No, I mean, I think Congress's goal is to get a fair rate to the hospitals, either by this owner's acquisition cost.

[01:30:33] Speaker 07:
A fair rate for the Medicare program?

[01:30:35] Speaker 01:
Yes, absolutely.

[01:30:36] Speaker 07:
Okay, so if they made an adjustment to make it a more fair rate for the Medicare program, that would be within that authority.

[01:30:44] Speaker 01:
Well, that's the purpose of the paragraph, yeah.

[01:30:46] Speaker 02:
But it has to be an adjustment of... I thought that's what they think they are doing.

[01:30:50] Speaker 07:
I think they're making it easier.

[01:30:52] Speaker 02:
I think the whole point of what they're trying to do is to make it a fair rate for purposes of the Medicare, within the rubric of the Medicare program.

[01:30:59] Speaker 01:
Yeah, I think so.

[01:31:00] Speaker 01:
I think that's right.

[01:31:02] Speaker 01:
But it's got to be an actual adjustment of the average sales price plus 6%.

[01:31:08] Speaker 07:
All right, so if they had done something smaller, they had done average sales price, but we're going to only do plus 2 percent because that is fairer overall for all participants in the Medicare program.

[01:31:21] Speaker 07:
you wouldn't be able to challenge that.

[01:31:23] Speaker 01:
I want to see what their justification was.

[01:31:26] Speaker 07:
It's fair because we think there's this average sales price across all hospitals is capturing too many, there's too many distinctions and too many, it's ignoring rebates and these types of things and so we think the better target is why keep adding the plus.

[01:31:43] Speaker 07:
We'll just go with the actual average sales price.

[01:31:46] Speaker 01:
I personally have a problem with that, but it wouldn't be as big a problem as I have with this, because... I mean, the plus six is an adjustment, right?

[01:31:54] Speaker 07:
Right now, they do have a sales price plus six, so that's an adjustment.

[01:31:57] Speaker 01:
The plus six and the subparagraph D is a recognition that in addition to paying for the drug, you've got to put it in a pharmacy and pay for the pharmacy and pay for storage.

[01:32:09] Speaker 01:
It's designed to get to overhead.

[01:32:11] Speaker 02:
So it's designed to get to overhead.

[01:32:13] Speaker 02:
I mean, your argument has to be, I think, that

[01:32:16] Speaker 02:
no matter what the degree of adjustment, if the degree of adjustment, however infinitesimally small, goes towards dealing with the rebates, that's just out of bounds.

[01:32:27] Speaker 02:
Because once you're talking about rebates, what you're doing is you're trying to get price to get closer to cost.

[01:32:32] Speaker 02:
And that's the one thing you can't do under two.

[01:32:34] Speaker 02:
Price can't get closer to cost because two independently deals with price.

[01:32:39] Speaker 02:
It doesn't have to do with cost.

[01:32:40] Speaker 02:
And once you take into account rebates, you're trying to

[01:32:43] Speaker 01:
You mean the 340B rebates?

[01:32:46] Speaker 07:
Any rebates?

[01:32:47] Speaker 01:
Because I think it does take into account other rebates.

[01:32:52] Speaker 02:
Whatever we call it, rebate discount.

[01:32:54] Speaker 02:
It's just you can't take that into account in making the adjustment because if you're doing that you're trying to get closer to cost.

[01:33:01] Speaker 02:
So that's just out of bounds.

[01:33:02] Speaker 02:
You can't take that into account in the adjustment.

[01:33:08] Speaker 01:
I think, you know, anytime you base it on acquisition costs, you really got to do it right, and they told you how to do it right, and HHS acknowledges that you can do that here.

[01:33:21] Speaker 02:
And so they can't try to get closer to acquisition costs without doing the surveys in the way that one... It's got to be an adjustment of the sales price.

[01:33:30] Speaker 01:
Not to get... Not to get closer to cost.

[01:33:32] Speaker 01:
Not to get closer to cost.

[01:33:34] Speaker 01:
Just can't do that.

[01:33:36] Speaker 01:
So maybe I should spend a few minutes on preclusion.

[01:33:45] Speaker 01:
So I'm not telling the court anything it doesn't know, but in every preclusion case, the court starts with a presumption of judicial review.

[01:33:55] Speaker 01:
And it says, to find preclusion, there must be clear and convincing evidence that Congress intended to preclude judicial review.

[01:34:05] Speaker 01:
It's quite clear here that that standard's not met.

[01:34:08] Speaker 01:
The statute has a preclusion provision, as the court has mentioned, and that's paragraph 12.

[01:34:13] Speaker 01:
And paragraph 12 identifies six of the other 21 paragraphs where actions are precluded.

[01:34:20] Speaker 01:
As we all know, paragraph 14 isn't one of them.

[01:34:26] Speaker 01:
Some of the paragraphs have an internal preclusion provision, but not paragraph 14.

[01:34:33] Speaker 01:
And it's important that in enacting this statute, Congress made choices about when to preclude and when not to.

[01:34:41] Speaker 01:
In 1999, Congress enacted paragraphs five, six, and seven.

[01:34:47] Speaker 01:
It amended paragraph 12 to preclude actions under five and six, but not under seven.

[01:34:55] Speaker 01:
In 2003, Congress enacted paragraphs 13, 14, 15, and 16,

[01:35:02] Speaker 01:
Actions under 13 are precluded by a cross-reference to another section, but not actions under 14, 15, and 16.

[01:35:11] Speaker 01:
The government argues, and that in and of itself I think is really enough here, and I would say I think the government's argument amounts to saying that everything under this statute is precluded, because really

[01:35:27] Speaker 01:
in one way or another, you know, the overarching provisions are two and nine.

[01:35:32] Speaker 01:
And I think they would say everything is precluded.

[01:35:35] Speaker 07:
So if when they were in the Federal Register notice, not just in the preamble, but specifically in the portion of the rule that was addressing this 340B payment change, if they had said pursuant to our authority under Rule 14, Form 2, and under

[01:35:57] Speaker 07:
Paragraph 9, you're making this adjustment.

[01:36:00] Speaker 07:
What would happen then?

[01:36:02] Speaker 01:
There's still be no preclusion.

[01:36:05] Speaker 07:
Even if they specifically invoke the authority under 9?

[01:36:07] Speaker 01:
Even if they invoke?

[01:36:08] Speaker 07:
Or 2e or 2 also?

[01:36:09] Speaker 01:
2 or 9.

[01:36:11] Speaker 01:
And let me go through.

[01:36:16] Speaker 01:
Do you mind if I start with 2?

[01:36:18] Speaker 01:
Because that's the sort of where they start.

[01:36:21] Speaker 01:
And then I'll go to 9.

[01:36:23] Speaker 01:
So paragraph two sets up the initial system.

[01:36:28] Speaker 01:
Before OPPS, as the court knows, hospitals charge reasonable charges and HHS paid them and there's a method for challenging them and so on.

[01:36:39] Speaker 01:
And what Congress said here is instead of doing that, we're going to in advance set what we're paying for hospital services.

[01:36:49] Speaker 01:
And it's a complicated system that involves various weights, it involves locality adjustments for wages, and it involves rural adjustment, a whole range of other factors.

[01:37:04] Speaker 01:
But the point of this is none of these factors come into play when HHS is paying for separately payable drugs under paragraph 14.

[01:37:16] Speaker 01:
So if there's a change in the wage in a locality, that doesn't affect how much a hospital gets for a drug under paragraph 14.

[01:37:27] Speaker 01:
And so that's why we say what happens under paragraph two is not part of paragraph 14, and paragraph 14 is not part of paragraph two.

[01:37:40] Speaker 07:
So if they had said we're making this change under 2E for an equitable adjustment,

[01:37:46] Speaker 07:
that would have been statutorily precluded?

[01:37:50] Speaker 01:
I think in that case, we would say it's pretty clear they don't have authority to do it under 2E.

[01:37:58] Speaker 01:
The whole purpose of this statute was to take these payments out of 2 and 9 and make them separate.

[01:38:06] Speaker 01:
And if they were to say, well, you know what, we're just going to ditch all of paragraph 14, and we're going to make these adjustments under 2E,

[01:38:15] Speaker 07:
We don't think that's allowed.

[01:38:16] Speaker 07:
That's kind of what happened in Amgen, right?

[01:38:18] Speaker 07:
We're not going to do the thing that we can do under 6, but we're going to affect the payments rates under 6 by going under 2E.

[01:38:24] Speaker 01:
Right.

[01:38:25] Speaker 01:
Well, I mean, I guess the first point is they didn't do that, and if they did it, they'd have to explain how that's an ECRA adjustment under 2E, and they didn't do any of that.

[01:38:37] Speaker 01:
Amgen was a single drug, and they explained why for that single drug,

[01:38:43] Speaker 01:
you know, what they were doing was equitable.

[01:38:46] Speaker 07:
But here... So they could do it, they would just have to explain it.

[01:38:48] Speaker 07:
They're not statutory... Well, that's the first thing.

[01:38:50] Speaker 01:
They'd have to cite it, they'd have to explain it.

[01:38:53] Speaker 01:
But here, we don't believe that even if they did all of that, they can use 2E to just completely change the reimbursement under 14 and essentially say, we don't have to comply with one, we don't have to comply with two,

[01:39:09] Speaker 01:
We don't have to pay average sales price plus 6%.

[01:39:12] Speaker 01:
We just have to make an argument that it's equitable.

[01:39:15] Speaker 01:
And by the way, that's precluded.

[01:39:18] Speaker 01:
We don't think they could do that, and we think it's very different from managing.

[01:39:21] Speaker 01:
But in any case, they've had enough three chances here.

[01:39:24] Speaker 01:
They've issued this rule three times.

[01:39:26] Speaker 01:
They've never relied on 2 or 9 or 2E or any of these sections that they're citing here.

[01:39:38] Speaker 01:
I'll go to paragraph nine unless there are other questions about too.

[01:39:44] Speaker 01:
So what happens under paragraph nine, what Congress did is that after you set this up under two, the HHS, we want you every year to kind of look at what's happening.

[01:39:55] Speaker 01:
Look at what's happening with wages, look at what's happening with medical practice, look at what's happening with how much certain procedures are using, and we want you to

[01:40:08] Speaker 01:
make adjustments so that hospitals are paid fairly under that.

[01:40:13] Speaker 01:
Now, that's under 9A.

[01:40:15] Speaker 01:
And I want to come to 9B, because it's different.

[01:40:18] Speaker 01:
But under 9A, none of that relates to the payment for separately payable drugs.

[01:40:26] Speaker 01:
And then under 9B, Congress says, and you know what?

[01:40:30] Speaker 01:
We want you to jigger this so it's budget neutral.

[01:40:33] Speaker 01:
And what 14H does,

[01:40:38] Speaker 01:
which we've talked about so much, it says that the rates paid under 14 for separately payable drugs will be taken into account under 9.

[01:40:52] Speaker 01:
They're not taken into account in any of the adjustments.

[01:40:58] Speaker 01:
They're taken into account in budget neutrality.

[01:41:01] Speaker 01:
And so once everything is done,

[01:41:03] Speaker 01:
is taken into account that way.

[01:41:05] Speaker 01:
And by the way, as a footnote, 14-H applies to increases in expenditures.

[01:41:12] Speaker 01:
And of course, what we have here is a decrease anyway, not an increase.

[01:41:17] Speaker 01:
But nothing.

[01:41:19] Speaker 07:
14-H doesn't actually reference budget neutrality.

[01:41:24] Speaker 07:
It says it could not be taken into account in establishing conversion, weighting, and other adjustment factors.

[01:41:32] Speaker 07:
obviously budget neutrality, but it seems more general.

[01:41:36] Speaker 07:
You don't take these into account.

[01:41:41] Speaker 01:
The preclusion provision in paragraph 12 is of periodic adjustments made under paragraph nine.

[01:41:53] Speaker 01:
And what I described under A, those are the periodic adjustments made under paragraph nine.

[01:42:00] Speaker 01:
The increases under 14 which come into account on budget neutrality are not part of those periodic adjustments.

[01:42:13] Speaker 07:
I just may not understand what I'm reading here.

[01:42:15] Speaker 07:
When it says in 14-H, don't take these, for the first two years, don't take these into account and then take them into account afterwards under 9.

[01:42:28] Speaker 07:
weighting and other adjustment factors.

[01:42:30] Speaker 07:
Am I just missing something?

[01:42:32] Speaker 07:
Is that code for budget neutrality?

[01:42:35] Speaker 07:
Or does that include stuff under 9A?

[01:42:36] Speaker 07:
It doesn't say under paragraph 9B.

[01:42:40] Speaker 07:
It says under 9.

[01:42:42] Speaker 01:
No, I think it's a fair question.

[01:42:47] Speaker 01:
But I think it's the additional expenditures resulting from this paragraph that shall be taken into account.

[01:42:56] Speaker 02:
But it doesn't age clearly have to, it clearly has to do with budget neutrality also.

[01:43:00] Speaker 07:
It definitely has to do with 14A.

[01:43:02] Speaker 01:
Yeah, I think that's all it has to do with, and that's all.

[01:43:05] Speaker 07:
Wait, how do you think it's only budget neutrality?

[01:43:07] Speaker 07:
I'm sorry.

[01:43:08] Speaker 01:
Well, I think my point is that 14 sets the payment for drugs.

[01:43:17] Speaker 01:
That's set in 14.

[01:43:18] Speaker 01:
That is not affected by anything that's going on in 9.

[01:43:23] Speaker 01:
The only thing

[01:43:25] Speaker 01:
that happens under 9 that relates to 14.

[01:43:28] Speaker 01:
And this is the way HHS has always done it and interpreted it.

[01:43:34] Speaker 01:
It has to do with budget neutrality.

[01:43:35] Speaker 02:
Right, and that's why I think, well, right or wrong, that's why it refers only to additional expenditures because for neutrality purposes the only expenditures that matter are additional ones because that's all you have to neutralize.

[01:43:46] Speaker 07:
So it talks about weighting and 9A talks about relative payment weights.

[01:43:50] Speaker 07:
I mean, I assume the consequences

[01:43:55] Speaker 07:
Increase in drug payments can get factored in to 9A adjustments for other things?

[01:44:01] Speaker 01:
I don't believe that that's the way it's ever been interpreted.

[01:44:05] Speaker 06:
It says weight in 9A and here.

[01:44:06] Speaker 06:
But isn't the weighting and conversion all the things that are subject to the budget neutrality constraints?

[01:44:13] Speaker 01:
I mean, I guess what I would say is, as I understand the way this works, is once they sort of

[01:44:24] Speaker 01:
you know, figure out what adjustments they're going to make, and once they take into account increases for drugs, which isn't what happened here, then they have to readjust the weighting and so on.

[01:44:36] Speaker 01:
But that's all for the other services.

[01:44:39] Speaker 01:
None of that affects the setting of the price for drugs, the setting of the average sales price for acquisition costs.

[01:44:48] Speaker 02:
I mean, do you think that the UVU 14,

[01:44:51] Speaker 02:
to be standalone authority that deals specifically with the finite subject matter, which is the drug APC payment rates.

[01:44:59] Speaker 02:
And do you read 9A just in the words of 9A, because it's talking about relative payment rates, wage and other adjustments, that by nature 9A just doesn't intersect with 14?

[01:45:11] Speaker 02:
Is that the way you're reading it?

[01:45:13] Speaker 02:
That 14 is just a standalone authority?

[01:45:15] Speaker 06:
Except in that one place where it's expressly cross-referenced.

[01:45:22] Speaker 01:
the way it was intended and the way HHS has interpreted it is when what's happening under 14 results in increases in expenditures, okay, then when they're doing their annual weighting, you know, their annual adjustments under nine, they have to take those increases into account under nine B, and it may affect what's going on in nine A, but the point is none of this affects the reimbursement rate

[01:45:51] Speaker 01:
for separately payable drugs.

[01:45:53] Speaker 01:
And that's why there's no preclusion.

[01:45:55] Speaker 01:
The preclusion is of the, of whatever work they're doing under 9A, it's not of the setting of the rates under paragraph 14.

[01:46:10] Speaker 07:
Are there other examples on their argument on paragraph 12?

[01:46:16] Speaker 07:
Is that it covers everything that sort of

[01:46:20] Speaker 07:
general cross-cutting calculations for the OPPS.

[01:46:25] Speaker 07:
And the only things that are left out are like the, sorry, I thought it was six or seven.

[01:46:31] Speaker 07:
The one that was left out is just like a, it's an interim year transition matter.

[01:46:37] Speaker 07:
Are there other equally sort of cross-cutting calculations that don't fall under 12?

[01:46:44] Speaker 01:
So there are,

[01:46:46] Speaker 01:
paragraphs that set rates or tell them not to do something for rates, there, I mean, as I read it, you know, there are seven paragraphs, six in addition to paragraph 14, that are not

[01:47:00] Speaker 01:
precluded, and those are not just, there's 7, 8A, 11, 14, we know about, 15, 16, and 17.

[01:47:11] Speaker 07:
15 is just a temporary thing.

[01:47:15] Speaker 07:
I think 7 is a temporary thing.

[01:47:17] Speaker 07:
16 is miscellaneous stuff.

[01:47:21] Speaker 07:
It doesn't, I guess it doesn't have to be budget neutral.

[01:47:24] Speaker 07:
So I'm trying to, you know the statuaries came better than me.

[01:47:27] Speaker 07:
Is there something that's equivalently cost cutting this stuff down on these?

[01:47:32] Speaker 01:
But I mean, even seven, even if it's transitional, for that period of time, has the effect that we're.

[01:47:43] Speaker 07:
You said seven.

[01:47:45] Speaker 01:
Eight.

[01:47:46] Speaker 01:
What about eight?

[01:47:53] Speaker 02:
Eight.

[01:47:53] Speaker 02:
Eight A, at least.

[01:47:59] Speaker 01:
I mean, seven is the one that's transitional, but eight, yeah, eight A. The co-payment amounts, okay.

[01:48:14] Speaker 07:
Who makes, is this the beneficiaries co-payments?

[01:48:23] Speaker 01:
I mean, 11 talks about a separate conversion factor

[01:48:27] Speaker 01:
for certain hospitals.

[01:48:42] Speaker 01:
So you want me to address ultra-virus or not?

[01:48:50] Speaker 02:
I think we understand the argument.

[01:48:54] Speaker 01:
You've got that.

[01:48:55] Speaker 01:
I mean, we certainly did brief it.

[01:48:58] Speaker 01:
Well, so in conclusion, the only thing I want to say is that we're now almost through year two of this really deep reduction in what these hospitals are being paid.

[01:49:16] Speaker 01:
The court granted our motion to expedite

[01:49:19] Speaker 01:
We're hopeful that if we were to prevail, that we'd get a decision in time so that HHS can make the correction for all or at least most of 2020.

[01:49:31] Speaker 01:
What time would that be?

[01:49:36] Speaker 07:
What time would that be?

[01:49:39] Speaker 01:
Well, I don't think we'll agree with the government.

[01:49:41] Speaker 01:
I mean, the ideal time would be before the first of the year.

[01:49:44] Speaker 01:
But I personally believe, if it's into the new year, that they'd have to issue a regulation, but that they can make the correction for what remains.

[01:49:55] Speaker 02:
If you prevail.

[01:49:56] Speaker 01:
If we prevail.

[01:49:57] Speaker 01:
Exactly.

[01:49:57] Speaker 01:
Which we'll do.

[01:49:59] Speaker 01:
And we ask you to affirm the district court.

[01:50:00] Speaker 01:
Thank you very much.

[01:50:02] Speaker 02:
Thank you, Mr. Schultz.

[01:50:04] Speaker 02:
We'll give you three minutes for rebuttal, since it's been a long argument.

[01:50:08] Speaker 03:
Thank you, Your Honor.

[01:50:09] Speaker 03:
I'll be brief.

[01:50:10] Speaker 03:
I want to address two quick merits points.

[01:50:15] Speaker 03:
One, Judge Pillard, your question about the relationship between Medicare and the 340B program.

[01:50:20] Speaker 03:
I just want to make sure it's understood that many 340B providers are not hospitals.

[01:50:26] Speaker 03:
They're clinics.

[01:50:27] Speaker 03:
I know the court has the Cares community case.

[01:50:30] Speaker 03:
And for those clinics, a very small segment of their patients are Medicare patients.

[01:50:36] Speaker 03:
they're getting federal grants under the Public Health Services Act.

[01:50:40] Speaker 03:
And that money is what the original purpose of the 340B program was letting clinics like that to stretch those grants by getting drugs more cheaply from manufacturers.

[01:50:53] Speaker 03:
So this just now happens to be about an intersection with Medicare reimbursement and 340B, but that was not the objective of the 340B program.

[01:51:03] Speaker 06:
And it also intersects with Medicaid

[01:51:05] Speaker 06:
and with private insurance, presumably.

[01:51:07] Speaker 06:
If somebody were a worker, went to a community clinic that gets 340B, their Blue Cross Blue Shield would not look behind the drug price and say, oh, that's a 340B facility, right?

[01:51:24] Speaker 06:
It would just pay for the price.

[01:51:25] Speaker 06:
And in that case, the clinic would come out ahead.

[01:51:32] Speaker 03:
Yes, and that page from the HRSA manual that the plaintiff cite, if the court clicks on the link, it's talking about billing private insurance.

[01:51:40] Speaker 03:
There's no reference to Medicare there.

[01:51:42] Speaker 06:
Although this has been going on for more than a quarter century, and Congress has not balked.

[01:51:47] Speaker 03:
Well, actually, disagree.

[01:51:50] Speaker 03:
So the essentially explosion of Medicare paying at a big

[01:51:58] Speaker 03:
paying much higher than the acquisition cost of 340-B hospitals.

[01:52:02] Speaker 03:
That's something that's developed relatively recently and that was addressed comprehensively in those 2015 and 2016 reports of the MedPAC and the GAO and the IG.

[01:52:13] Speaker 03:
Back at the dawn of the program,

[01:52:15] Speaker 03:
I mean, I think it's not a total coincidence that when there's a big profit to be made, it affects the prescribing practices.

[01:52:23] Speaker 03:
But that wasn't something that would have been true at the time that Congress put the 340B program in place.

[01:52:28] Speaker 06:
I know you cite to a 2015 report as having unearthed this problem.

[01:52:38] Speaker 06:
And then the hospitals in their brief say, no, no, no.

[01:52:44] Speaker 03:
evident for a really long time.

[01:52:48] Speaker 03:
The answer's somewhere in the middle.

[01:52:49] Speaker 03:
They cite a 2010 HHS Inspector General Report, which did identify this issue, but cautioned that it was based on a limited example and shouldn't be extrapolated.

[01:53:01] Speaker 03:
And so that's why you ended up having both a comprehensive examination from the Inspector General and leading to it was either 2015 or 2016 report, and also MedPAC and the GAO.

[01:53:12] Speaker 03:
And to be clear, in fact, after the final rule at issue here was published, Congress did amend paragraph T, the OPPS system, to add a provision pertaining to opioids and didn't do anything to change the rule that's being challenged here.

[01:53:29] Speaker 03:
So Congress's most recent word would not suggest any concern with the rule at issue here.

[01:53:34] Speaker 06:
In order to make it clearer that the drug prices should be

[01:53:40] Speaker 06:
set to take account of these discounts either.

[01:53:44] Speaker 03:
Well, again, Congress wouldn't have perceived the need to make it clear it had just been set out in a final rule that the Medicare rates... But by that time, it had already been invalid.

[01:53:53] Speaker 06:
It held not to... No.

[01:53:55] Speaker 06:
Wasn't it?

[01:53:55] Speaker 03:
No.

[01:53:56] Speaker 03:
I believe Congress had acted before the district court decision.

[01:53:59] Speaker 03:
Before the district court decision.

[01:54:00] Speaker 03:
Yeah.

[01:54:00] Speaker 03:
And then the other point, back to our provision, paragraph T, so

[01:54:07] Speaker 03:
Again, the crucial language here is you take what we're calling the proxy, average sales price plus 6%, which plaintiffs correctly note, that's used in a whole array of situations based on manufacturer data.

[01:54:21] Speaker 03:
It does not include the 340-B discount, because that would be distorting for across-the-board purposes.

[01:54:27] Speaker 03:
And so there's here, when you say,

[01:54:32] Speaker 03:
use that proxy, but then as adjusted as necessary for purposes of this paragraph, the plaintiffs have never given any content to that language other than to say overhead costs.

[01:54:43] Speaker 03:
That's all they have offered, and as we've explained, overhead costs are separately addressed.

[01:54:48] Speaker 03:
There's separate adjustment authority for that.

[01:54:50] Speaker 03:
This language, and I know the court has heard this,

[01:54:53] Speaker 03:
What's necessary for purposes of the paragraph is if you've got a reliable way to bring that proxy closer to average acquisition cost for a particular subset of hospitals, that there should be no question that that's what HHS can do.

[01:55:08] Speaker 03:
You might not be able to do it.

[01:55:09] Speaker 03:
You might need a survey for various categories of hospitals, like teaching hospitals, but here, when

[01:55:16] Speaker 03:
The other side is saying Congress expected HHS to get it right.

[01:55:19] Speaker 03:
The reliability of this cost information was uncontested in the rule makings.

[01:55:24] Speaker 03:
And we think uncontestable because it was based on the independent HRSA ceiling price data that the Inspector General got.

[01:55:32] Speaker 02:
So what do we do with the, and this, I know we've kept you both up here for a long time, but Congress did say that surveys have to have certain attributes.

[01:55:42] Speaker 02:
And under your argument,

[01:55:44] Speaker 02:
That just turns out to be basically an empty provision.

[01:55:49] Speaker 02:
Because there's no need to do that.

[01:55:50] Speaker 03:
For the mine run of hospitals, like groups of hospitals, you need to do a survey.

[01:55:57] Speaker 03:
And we agree that the statute expects the survey to be reliable based on a large sample, et cetera.

[01:56:05] Speaker 03:
And that is what the GIO did back in 2006.

[01:56:07] Speaker 03:
It just said there are problems with the data we've gotten from the hospitals.

[01:56:13] Speaker 03:
So we're not suggesting that there's some other unreliable survey method that HHS could, consistent with Congress's intent, just slot in.

[01:56:23] Speaker 02:
But if you think it's reliable, if you just say it's reliable, then you don't have to do the things that Romanette III says.

[01:56:32] Speaker 02:
Just ever.

[01:56:33] Speaker 03:
As a practical matter, there's not a reliable source of information about hospital acquisition cost data writ large.

[01:56:42] Speaker 06:
Right on that.

[01:56:42] Speaker 06:
But that actually undercuts your argument, because you're saying, well, but we have these GAO reports.

[01:56:47] Speaker 06:
And so we're going to take the sales price, and we're going to adjust it with what you've just characterized as necessarily unreliable data to try to at least, as you say, to your credit, conservatively push this price.

[01:57:02] Speaker 06:
toward an acquisition price.

[01:57:06] Speaker 03:
For, in general, a survey is the way to get reliable information.

[01:57:11] Speaker 03:
For the 340B hospitals in particular, there is another, in fact, even more reliable source of information.

[01:57:18] Speaker 03:
We have statutory ceiling prices.

[01:57:21] Speaker 03:
You don't need a survey.

[01:57:22] Speaker 03:
We have the actual statutory ceilings.

[01:57:25] Speaker 03:
And so this is just an unusual situation in which a survey, like they're doing it, but it's not necessary to get, certainly to make a conservative adjustment, it's not necessary to know what the ceiling is.

[01:57:39] Speaker 03:
If they want to bring it down further, because there's lots of indication the hospitals are paying well below the ceiling, that's what they would use the survey data for.

[01:57:48] Speaker 06:
It's also somewhat odd.

[01:57:50] Speaker 06:
On the one hand, the agency says, we don't think it's legitimate to use Medicare to overpay in the 340B program.

[01:58:03] Speaker 06:
And then there's a bunch of facilities where you say, but actually, these are all exempted.

[01:58:07] Speaker 06:
And they are going to get what you've characterized as overpayment through the same mechanism.

[01:58:13] Speaker 03:
Yeah, I'm glad the court brought that up.

[01:58:15] Speaker 03:
So those are largely types of hospitals whose participation in the 340-B program was a result of the Affordable Care Act's amendments.

[01:58:24] Speaker 03:
Some of them, like critical access hospitals, aren't compensated under the outpatient prospective payment system.

[01:58:31] Speaker 03:
They're compensated on a reasonable cost basis.

[01:58:33] Speaker 03:
So they're just unaffected by this.

[01:58:36] Speaker 03:
But they are compensated under 14.

[01:58:39] Speaker 03:
No, that's what I'm saying.

[01:58:40] Speaker 03:
No, no, no.

[01:58:42] Speaker 03:
There are some that are, but critical access hospitals are not compensated under 14.

[01:58:46] Speaker 06:
What about the cancer hospitals or the children's hospitals?

[01:58:48] Speaker 03:
Okay, so those are compensated under paragraph 14, but they're also, and the agency walks through the reasons for these exemptions and the rulemaking.

[01:58:57] Speaker 03:
There are various other specific provisions having to do with those types of hospitals, and there were concerns about access.

[01:59:03] Speaker 03:
So access to children's hospitals, access to rural hospitals.

[01:59:07] Speaker 03:
And so what HHS said was, for the time being at least,

[01:59:10] Speaker 03:
and given the concerns about access and given the fact that these are not the hospitals that were responsible for the huge uptick in Medicare spending, they're exempted.

[01:59:23] Speaker 03:
They may have to go back and revisit that, but they are just being particularly cautious not to impair access to particularly children's hospitals.

[01:59:32] Speaker 06:
But I thought all the hospitals that benefit from 340B are hospitals that are providing access to underserved

[01:59:40] Speaker 06:
population.

[01:59:42] Speaker 03:
So I guess I don't really... To qualify as a DISH hospital, you have to serve a certain percentage, though as the amicus brief points out, there are many hospitals, non-340B, that meet that same percentage.

[01:59:54] Speaker 03:
And also, just to be clear, the court probably knows there are separate Medicare DISH payments that go to DISH hospitals.

[02:00:00] Speaker 03:
The only point here is Congress didn't compel inflated reimbursement rates for drugs acquired by 340B hospitals.

[02:00:10] Speaker 03:
except for some of them.

[02:00:11] Speaker 03:
It didn't compel them.

[02:00:12] Speaker 03:
HHS, in an abundance of caution, said at this point, we're not applying this reduced rate to certain hospitals where you've got a particular concern about access.

[02:00:25] Speaker 02:
Thank you.

[02:00:25] Speaker 02:
Thank you, counsel.

[02:00:26] Speaker 02:
Thank you, counsel.

[02:00:27] Speaker 02:
Case is submitted.