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Case number 21-5099, head out.

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Novartis Pharmaceuticals Corporation versus Gerald Johnson in her official capacity as Administrator, Health Resources and Service Administration, and Xavier Becerra in his official capacity as Secretary, United States Department of Health and Human Services, a balance.

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Mr. Aguilar for the balance, Ms.

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Debson for the athlete Novartis Pharmaceuticals Corporation, Mr. Berry for the athlete United Therapeutics Corporation.

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Good morning, whenever you're ready.

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Good morning.

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May I please support Daniel Aguilar for the federal defendants?

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Congress enacted the 340B statute to ensure that cover densities like thoroughly funded health clinics and children's hospitals could receive medications at a discounted price.

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The statute represents a carefully calibrated scheme that entrusts HHS to oversight over both drug manufacturers and cover density.

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If manufacturers have a complaint, Congress established an administrative dispute resolution process to address it.

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But what manufacturers may not do and have not done until the last two years is to impose their own sui generis unilateral conditions on what covered entities must do before they can purchase drugs at the statutory discounted price.

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I can understand why you're worried about an unfettered

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power to impose conditions.

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But the rationale in the order under review is that the manufacturers can't impose any conditions.

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That seems awfully hard to accept.

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I don't think so, Your Honor.

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Can they require delivery on planet Earth?

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Yeah, so if you're talking about the advisory... Okay, that's an absurd hypothetical and I normally wouldn't use it except that that was one thing your agency GC said.

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So obviously two things, Your Honor.

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One, that's withdrawn.

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It's not at issue here.

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And two, as we know and we... Okay, but the logic of your position is no conditions.

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As we know in our reply, it needs to be dispensed pursuant to a prescription, which means logistically it needs to be at a pharmacy or at a doctor's office.

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And obviously, we're not talking about general practices that just have a business like we need to know the bank account number in order to process this, or we need to know the address at which we're shipping it to them.

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Those are logistical things.

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Those aren't an issue here.

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What we are talking about, though, are particular policies that are targeted at 340D covered entities.

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And at that point, what I take plaintiffs and other manufacturers' positions to be, this doesn't mean mischaracterizing it, this is in the letters that they sent to HHS that we discussed in our opening brief, I think on page 16, is we have no obligation under the statute to ship to any contract pharmacy.

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And I think as Eli Lilly noted in their brief, that's certainly pending in the Seventh Circuit, at common law, the seller of the goods wasn't required to ship anywhere.

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You could make the person come and pick them up at your headquarters.

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And so I think what they're saying is we have some reasonable conditions.

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We think this is all right.

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But that doesn't comport with the statutory text.

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Addendum one of our brief, it's the statutory text, it's A1.

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It says that the covered entity, or sorry, the drug manufacturer needs to enter into a contract with the secretary to sell drugs at the covered price.

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And the manufacturer shall offer those drugs to covered entities if it makes those drugs otherwise available.

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That is a unqualified obligation.

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And I think what planners are saying is that, well, that only talks about price.

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And so therefore, we can impose any other conditions that we want.

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And they're reasonable.

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And maybe we have on some a text rule of law for that to sort of make it sound good.

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But also, if you notice, the statute doesn't talk about quantity.

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There's nothing that says, well, we can restrict you to 100 pills.

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We think that's sufficient for this month.

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And if you want more, well, that's just too much on our burden.

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Or, well, you can only have one contract pharmacy if you're a children's hospital, but no others, or whatever other conditions they want.

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That's not the scheme that Congress put in place.

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I take their policies to be driven by a desire to combat what they see as potential statutory violations, duplicate discounts, or diversion.

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If Congress, if they, if they impose a commercially reasonable condition, a commonly used condition, or maybe if they impose a relatively easy to meet condition that's closely tailored to fighting version, what, what

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specific statutory language have they violated?

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They've still made an offer and they're still offering a ceiling price.

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But I think it is that adding on additional conditions like that, even if they report to be consistent with the statute, the statute represents a carefully calibrated scheme and there's no room for them.

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You keep saying that, but all the statute says is they have to make an offer

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or a purchase at a price.

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And so what I would direct the court to is the rest of the statutory scheme as a whole.

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And so your honor, if they're concerned about duplicate discounts, the statute provides a reticulated mechanism for addressing those.

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First, the manufacturer has to undertake an audit of the cover density at the manufacturer's expense.

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That's at an end of page five.

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That's a statutory requirement.

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after that's completed, then you can start the administrative process.

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But why does the fact that the manufacturers can conduct an audit limit the conditions they can place on an offer?

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And so the government's primary position here seems to be that because the statute doesn't permit conditions that all the conditions like any conditions are prohibited.

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I mean, isn't that, isn't that sort of

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flip things around?

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I mean, don't we sort of have a baseline in our society of private contractual agreements unless they are prohibited by Congress?

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I take that as a general background point, but I don't think it answers the question here because the particular worry that they're trying to address, right, is a duplicate discount or a diversion.

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And they say, well, we want to stop that at the front end.

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The statutory scheme says no, we address that at the back end.

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That's the first Congress has made at the end of page five.

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That's the statutory point that says if a covered entity commits a statutory violation.

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the remedy is for the covered entity to pay back.

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That's one remedy.

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But I'm not sure that the existence of such a remedy precludes reasonable conditions on the front end.

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What's the connection between those two things?

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I mean, is there anything in the statutory structure that suggests that the audit is the only way that

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manufacturers may police these concerns?

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Well I think the important thing there is that it's not necessarily the manufacturers that Congress has entrusted to police these concerns, it's the federal government.

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It says that HHS is the one that can impose sanctions and compliance and kick covered entities out of the program if they, for instance, fail to certify or take manufacturers or impose fines on them if they commit statutory violations that the choice Congress has made.

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And I think that's entirely consistent with the Supreme Court's decision in Astra, right?

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And then Astra USA versus Santa Clara County, that was a case where covered entities

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tried to sue the manufacturers to enforce the statutory conditions.

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They said, this is entirely consistent with the scheme.

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The Supreme Court rejected that, said, no, you can't sue because what Congress has done with 340B is place a centralized enforcement mechanism with the federal government.

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And it would contradict that system and impose a myriad of different compliance schemes if we let each government entity bring this private suit.

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And that's why when you have a sophisticated, articulated scheme like this that Congress in the Affordable Care Act amended to add in additional compliance mechanisms and enforcement mechanisms, you say, well, is it consistent with that statutory scheme to allow drug manufacturers, 700 of whom participated in this program,

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to impose their own conditions on when any covered entity can access the drug at all at the 340B price.

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And at the time the statute was enacted, Congress knew that the vast majority of covered entities did not have their own in-house pharmacies.

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They had to rely on outside pharmacies.

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And it makes good sense to try to do that because a lot of these patients, right, in the 340B program are rural or they're poor.

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They have nine to five jobs Monday to Friday.

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And a lot of covered entities, in-house pharmacies, as the administrative record demonstrated, are only open during that time.

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The best way to get these drugs to the patients oftentimes is through an outside pharmacy that's dedicated to that purpose.

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And a lot of the covered entities explain, you know, it would be cost prohibitive for us to spend a lot

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What is the government's understanding of what the companies here have suggested is sort of a massive transfer of money from the pharmaceutical companies to pharmacies and covered entities because of the way the billing works?

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I mean, surely the government doesn't think that was the purpose of the 340B program.

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I think the purpose of the 340B program was to provide these discounted drugs to the covered entities so they go on

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And I think for that concern, I mean, that is something that Congress is well aware of.

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And I think the 2018 GAO report, which we cite, it kind of explains this and explains what these are in there.

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At the back of the 2018 requirement table that show the black fees or the fixed fees, they're fairly minor.

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It's $7 to $8, $15.

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I know in one place, there's a fairly large fee for a brand name drug, where I think it's helped by the seed.

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And then right below that, it says that pharmacy also charges $0.

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No fee at all for the generic version of that drug.

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So these are pharmacies that are taking some of these and third party administrators that go through and try to make sure that any discount that's being applied is consistent with the program.

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And they do have some administrative fees for that.

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But as the report also notes, the majority of the covered entities that they survey pass on savings directly to the patient.

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And I'd like to back you up a little bit upon the issue of essentially ripeness in some of the procedures that

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Okay, sorry, I'd like to back you up on the issue of brightness and some of the procedural issues.

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It appears that the parties have agreed that that violation letter was the final agency action and so that the district court had the ability to actually consider this matter.

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But is that a finding that the parties can just concede to or is it something that this court must make as a final action?

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I, as I understand it, final agency action in the DC circuit is a merits question.

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And so I don't think it's a jurisdictional bar, unless I'm mistaken.

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Under the APA, that's right.

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Yes.

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There's no special review scheme here.

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No, this is a standard APA.

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Yeah, and I agree with that.

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But then does it go to rightness?

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Because I've got the issue of the district court only deciding certain issues

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closing the record, but essentially leaving open certain issues.

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There are certain issues that were appealed by Novartis, certain issues appealed by United, but you all are not here essentially on the same issues because they have left open the issue about specific conditions as opposed to just whether or not there's a prohibition on or any and all conditions.

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I think this will adjust your question and if it doesn't, let me know.

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The question that we heard today, as I understand it, and the parties have joined issue on is a pure one of law.

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It is, what does the statute require?

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And I think drug manufacturers position on this is that

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The statute allows us to impose these conditions that are at issue and allows us to limit the shipment contract pharmacies.

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And the government's position is the statute represents a carefully reticulated team that doesn't leave room for manufacturers to impose these unilateral conditions, whatever they are, even if they attempt to be sounding consistently with the statutory scheme.

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And just to be clear, that's a consistent position that HHS has taken since the statute was enacted.

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I think as early as 1993, drug manufacturers said, can we just have as a condition of shipping out these drugs that you, the covered entity assures us that it's in compliance with the statute.

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But do you believe that the district court is, what specifically do you understand the district court is leaving open essentially?

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Even though I close the record, it appears to

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not address certain questions, but leaves open other questions.

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And so I'm just curious as to what you are expecting us to accomplish here, but that the district court believes that it still has the case.

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I'm not exactly sure what the district court mentally vote.

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And I know that at least specifically said that it wasn't considering whether these particular policies were consistent with it.

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I don't think that.

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Well, let me just let me just try to.

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had a related thought, which is I think there's probably final agency action was reviewable by the district court.

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But why is the district court's order final under section 12 91 reviewable by us when it's a little bit schizophrenic?

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I mean, she says, I'm done with the case.

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I closed the case.

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On the other hand, she leaves an issue open and says,

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I'm not addressing it at this time.

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As I understand it, Your Honor, I think what the district court said is that as I read the violation letter, I think that that is arbitrary and capricious being an inconsistent statute.

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And I think that if HHS wanted to, it could take another go at this and maybe come up with something else.

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But your friends on the other side had what I think was styled as a different claim.

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It's really a request for additional relief, right?

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Fully enjoining enforcement.

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And she declined to either enjoin that or allow it.

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She said it's an open question that she wasn't resolving at this time.

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But what the district court did resolve is the legal question.

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It said that manufacturers can impose these unilateral conditions

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and that the statute doesn't prohibit that.

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And that's the basis for HHS's enforcement letters.

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It's the basis for the enforcement actions we have going on across multiple courts.

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That's what this dispute is here.

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And as I understand it, that is just a pure question of law for this court.

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What does the statute mean?

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What does it require?

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And does it allow the manufacturers to do anything like this?

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And I think the parties have fully joined issue on that and that this court can rule on that question.

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The district court only issued a partial summary judgment.

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Right.

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As I understand it, it was leaving, leaving aside the injunctive, the claim for injunctive relief with no 54 B certification.

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Uh, I, as I understood it, it was a final judgment.

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I'm not sure I'm not prepared to answer that question right now, your honor, because it wasn't something that had been highlighted in the briefing.

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Uh, if the court wanted supplemental briefing on it, we'd be happy to answer it.

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question about how to understand HHS's enforcement letter.

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So primary legal argument given is that no conditions are allowed to be, you know, manufacturers can put no conditions when making an offer.

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Do you take the enforcement letters to also be saying that these specific conditions are unlawful?

[00:15:58] Speaker 06:
Yes, because that's why we sent them to the individual manufacturers, right?

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We sent one to Novartis, one to United Therapeutics, then to others.

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So they're really, they're sort of the general principle, no conditions are permissible and also these conditions violate the statute.

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Yes, Your Honor.

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That's how you understand.

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Yes.

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Suppose, um, suppose I disagree with you that the statute prohibits

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I know you want to fight that, but just take that as a gift.

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Suppose also I think that an unfettered ability to impose conditions, right, at some point would either mean that there's no bona fide offer or would trigger the conditions become too onerous, would trigger some idea of frustration of purpose or the predicate act or something like that.

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What guidance would you give us on drawing a line to explain the point at which the conditions would do either of those?

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Honestly, Your Honor, I'm not certain.

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I'm not certain how that line would be administered.

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I know plaintiffs before a bona fide offer gloss on this to try to say that that could curtail certain abuses.

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I'm not sure what that looks like.

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Which is why this is a tough case because either extreme looks

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I think what we can say is that this is the statute that isn't

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is susceptible to many canons of interpretation.

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We offer ours, they offer theirs.

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We think the best reading of the statute is ours.

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It doesn't mean at first glance that it is obviously resolvable, but after close textual analysis, applying the Supreme Court's precedence on this issue, we think that ultimately ours is the better reading.

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And that's the question of law here.

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This isn't something where Congress has allowed HHS, the legislative rulemaking to address this particular issue, right?

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So there's nothing left for the agency to do to further clarify this issue.

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If Congress wants to amend the statute, it obviously can, but as the statute stands right now, it is a question of law about how best the statute reads.

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And we think that that's a question that this court ought to resolve.

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Can I ask you, after the district court opinion in this case, has HHS issued any enforcement letters that offer specific, like enforcement letters against pharmaceutical companies that offer specific reasons why certain conditions are inconsistent with 340B

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Have they changed their enforcement practice?

[00:18:35] Speaker 06:
Not to my knowledge, Your Honor, because as I understand, it's been the agency's consistent position that this is not something where either the covered entities or the manufacturers can add on other additions or other enforcement mechanisms.

[00:18:47] Speaker 06:
This is solely within the federal government's purview.

[00:18:50] Speaker 02:
So they haven't tried to follow Judge Friedrich's idea of offering more specific arguments?

[00:18:58] Speaker 05:
Not to my knowledge, Your Honor.

[00:19:00] Speaker 05:
So following up on that again, same, same assumptions, right?

[00:19:05] Speaker 05:
I think some conditions are okay, but at some point comes a problem.

[00:19:11] Speaker 05:
So suppose we, um, set aside the orders under review in so far as they rest on the theory that no conditions or no conditions can be imposed.

[00:19:28] Speaker 05:
but still have this concern about there have to be some limits.

[00:19:34] Speaker 05:
And then we're faced with an issue of is a 40 mile radius to onerous and are these reporting requirements to onerous?

[00:19:52] Speaker 05:
Should we get into that or should we just do what

[00:19:58] Speaker 05:
something akin to what Judge Friedrich did.

[00:20:01] Speaker 05:
I'll restate it a little bit, which is not kind of a, you know, resolve some claims but not others.

[00:20:08] Speaker 05:
But we would say that the rationale the agency has put forward to us, which is no conditions are valid.

[00:20:16] Speaker 05:
We set aside and, you know, we we would have a chennery problem if we went farther and tried to get into

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40 miles versus 20 miles because that's just not the rationale asserted in the order under review.

[00:20:34] Speaker 06:
I don't know that it's necessarily a Chenery problem but what I would say is if you're getting into that kind of what is an onerous restriction what is reasonable.

[00:20:43] Speaker 05:
I'm a Chenery insofar as you haven't you haven't you've given us a no conditions position you haven't given us a fallback that if

[00:20:54] Speaker 05:
If we're talking about bona fide offer or frustration of purpose, we're doing some kind of balancing and here's why these fall on one side of a line rather than another.

[00:21:06] Speaker 05:
That's not a rationale that you've

[00:21:08] Speaker 06:
It's not for this reason, because at that point, what still is going to happen is that the drug manufacturers will have whatever policies that they do.

[00:21:19] Speaker 06:
And it's stopping the covered entities from being able to purchase the drugs at the discounted price for the contract pharmacies.

[00:21:25] Speaker 06:
And so then you're going to have litigation

[00:21:29] Speaker 06:
for each and every drug manufacturer that is like, well, what are the particular terms of this?

[00:21:34] Speaker 06:
Is this reasonable?

[00:21:36] Speaker 06:
Suit can be brought in in different courts based on that.

[00:21:39] Speaker 06:
And you're going to have, I don't exactly know how that's going to end up being workable.

[00:21:43] Speaker 06:
And also at that point, it is getting pretty far afield from the textual scheme that's been laid out here.

[00:21:49] Speaker 06:
And you're having more sort of common law set up about like, what is best compliant with this?

[00:21:54] Speaker 06:
And I think that that actually is a better job.

[00:21:59] Speaker 05:
um further statement of your argument in favor of a no conditions rule and it doesn't really help me on if we're um if we're trying to distinguish among conditions should we start that process with um a 40 mile radius in this case in this appeal or should we just leave it for

[00:22:26] Speaker 05:
some kind of future enforcement action.

[00:22:30] Speaker 06:
Just two points.

[00:22:31] Speaker 06:
First is that I think every drug manufacturer obviously is going to say our conditions are reasonable, right?

[00:22:35] Speaker 06:
That's why we... Sure, they'll be case by case litigation.

[00:22:39] Speaker 06:
And so even given that, you can look at the administrative record that we cited, I think at page 19 of our opening brief that showed after just these six manufacturers that are currently in the course of appeals instituted their policy, within a month after their policies were instituted, 340 degrees

[00:22:55] Speaker 06:
Sorry, 340B sales dropped 70% for those manufacturers.

[00:23:00] Speaker 06:
And the analysis was that for the course of a fiscal year, there would be $3 billion in lost savings.

[00:23:07] Speaker 06:
But I think that just, if you're just even looking at these particular policies, I don't think that qualifies as reasonable.

[00:23:12] Speaker 06:
It really does qualify as onerous.

[00:23:14] Speaker 02:
But that just depends on where that money was going before.

[00:23:18] Speaker 02:
if it was being diverted or in some other way being spent inconsistently with the statute.

[00:23:24] Speaker 02:
It's only a problem if that money was previously going to its intended beneficiaries.

[00:23:30] Speaker 06:
So to be clear, I think it is going to its intended beneficiaries, even if you're using a contract pharmacy and paying an administrative fee, right?

[00:23:37] Speaker 06:
That's a cashflow issue.

[00:23:39] Speaker 06:
You're using the contract pharmacy to make sure that you don't have to spend the money and upkeep and compliance with various controlled substances laws to have that pharmacy and be able to dispense it to your patients.

[00:23:50] Speaker 06:
But even for, I'm sorry, Your Honor.

[00:23:52] Speaker 02:
I mean, you're just following up on Judge Katz's question.

[00:23:55] Speaker 02:
I mean, if this court were to follow the same reasoning of the district court and say that at least some conditions are permissible, presumably HHS would then have to, in their enforcement letters, articulate and develop some more specific guidelines for when they enforce against the conditions that manufacturers are imposing.

[00:24:17] Speaker 02:
And then those would then be reviewed in the litigation.

[00:24:20] Speaker 06:
I think the statute already does that.

[00:24:23] Speaker 06:
It says you can bring in enforcement action and sanction a drug manufacturer, not just for any violation, but when the violations satisfy this particular statutory criteria.

[00:24:32] Speaker 06:
And that was something that Congress enacted.

[00:24:34] Speaker 06:
Again, I'm just not sure exactly how HHS is supposed to be deciding at the front end whether something's reasonable or onerous, if it's consistent with the statute or not, but we know from cases

[00:24:44] Speaker 06:
that the Supreme Court's decided, like County of Maui or Javik Holding, is even if you say that something is entirely consistent with the statutory scheme, when it works to frustrate its intent and it's not consistent with how it actually operates and allows for short practices, essentially, that is inconsistent with the statutory scheme and you can, you can

[00:25:06] Speaker 06:
read the statute as properly forbidding that circumvention of its operation.

[00:25:12] Speaker 06:
And I think that's an entirely reasonable holding for this court to take.

[00:25:17] Speaker 05:
Judge Rowan, anything else?

[00:25:18] Speaker 05:
Judge Childs?

[00:25:20] Speaker 05:
Nothing else.

[00:25:21] Speaker 05:
Thank you.

[00:25:21] Speaker 05:
Okay, thank you.

[00:25:22] Speaker 05:
We'll give you some rebuttal.

[00:25:23] Speaker 05:
Thank you.

[00:25:30] Speaker 05:
Stetson, good morning.

[00:25:32] Speaker 01:
Good morning, your honors, and may it please the court.

[00:25:34] Speaker 01:
My name is Kate Stetson.

[00:25:35] Speaker 01:
I'm representing the Appellee Novartis.

[00:25:37] Speaker 01:
Mr. Aguilar said a few minutes ago that this is a standard APA case.

[00:25:42] Speaker 01:
This is not, as you likely recognize, a standard APA case.

[00:25:46] Speaker 01:
One of the reasons I think the district court wrote the opinion she did is because of the way the government has chosen to and had to litigate this case in the first instance.

[00:25:57] Speaker 01:
HRSA, as you know, only has very limited rulemaking

[00:26:02] Speaker 01:
And that led HRSA, when it decided that these contract pharmacy policies that were being put in place were violative of the statute, HRSA's only request

[00:26:13] Speaker 01:
was to argue that those policies, all of them, any conditions whatsoever, were violative of the plain text of the 340B statute.

[00:26:23] Speaker 01:
But that's a strange argument for HRSA to have to make.

[00:26:26] Speaker 01:
And it's probably why we didn't get to the text of the statute until about four minutes into Mr. Aguilar's argument.

[00:26:31] Speaker 05:
We don't dispute, just in terms of the procedural posture, you don't dispute that was final agency action.

[00:26:40] Speaker 01:
We do not dispute that it was fine on agency action, nor do I think there's any issue with Judge Friedrich's opinion.

[00:26:52] Speaker 01:
I think what Judge Friedrich held was the rationale the government has brought to me is unlawful.

[00:26:58] Speaker 01:
The idea that these contract pharmacy policies, all of them of whatever stripe, violate the 340B statute because they purport to place conditions not on the offer, by the way, but on delivery.

[00:27:13] Speaker 02:
Before we just get into those, could you just address our jurisdiction here?

[00:27:17] Speaker 02:
Because there was a claim for injunctive relief below, and then there was partial summary judgment.

[00:27:24] Speaker 01:
Yes, so I think the fact that Judge Friedrich held that the government's interpretation was unlawful resolved the case.

[00:27:34] Speaker 01:
Now, what we had asked for was an additional remedy.

[00:27:37] Speaker 01:
We had asked for Judge Friedrich to take one further step and say, not only is the interpretation the government offered unlawful, but Novartis's policy is lawful under the statute.

[00:27:48] Speaker 01:
The conditions are more than reasonable.

[00:27:50] Speaker 01:
So have you abandoned that claim then?

[00:27:53] Speaker 01:
I don't think we've abandoned the claim, nor did we have to cross-appeal it, because the relief was full and complete as far as we were concerned.

[00:28:02] Speaker 01:
The government's interpretation was held unlawful.

[00:28:05] Speaker 01:
To your point, Judge Rao, I wouldn't describe it as having left something open for purposes of appellate review.

[00:28:14] Speaker 01:
I think what Judge Friedrich was going to do was to leave something open for the government if it had available to it.

[00:28:20] Speaker 01:
any other statutory textual argument to support the idea that conditions on delivery of 340B price drugs to contract pharmacies were unlawful, that it should offer it.

[00:28:32] Speaker 01:
And that's why I think your question to Mr. Aguilar about whether any other reasons have been offered in these subsequent violation letters is quite important.

[00:28:42] Speaker 01:
The only thing Judge Friedrich left open wasn't something for her to consider.

[00:28:46] Speaker 01:
it was an opportunity for the government, if it had any argument available to it, to try to argue some other statutory basis for its statutory argument.

[00:28:57] Speaker 05:
In the case before her or somewhere else?

[00:28:59] Speaker 01:
No, I think somewhere else.

[00:29:01] Speaker 01:
I think Judge Friedrich and these other judges are well aware that there are a number of these cases.

[00:29:06] Speaker 05:
Sorry, go ahead.

[00:29:09] Speaker 05:
I mean, that would make it a perfectly sensible

[00:29:13] Speaker 05:
ad law disposition.

[00:29:16] Speaker 05:
She said some things that might tend to suggest that there was more work in the case before her.

[00:29:25] Speaker 01:
I don't think so.

[00:29:26] Speaker 01:
I think, as I mentioned a couple of minutes ago, the reason Judge Friedrich, we think, wrote the opinion she did was because the government made the argument it did.

[00:29:36] Speaker 01:
The government's argument, and this was your call with Mr. Aguilar,

[00:29:40] Speaker 01:
is that the words offer and purchase, first it started with offer and then in the district court pivoted to purchase, but that somehow brings along with it in its wake this massive set of requirements on all other conditions that a manufacturer could possibly place, including on delivery.

[00:29:59] Speaker 01:
And that simply is not supported by the text of the statute.

[00:30:02] Speaker 01:
The other thing I would point you to, and this goes to your question Judge Rao, is if you go back and look at the violation letter itself,

[00:30:10] Speaker 01:
The phrasing of it is really remarkable, we think, because what the letter says is, Adriel, we are joint appendix 35.

[00:30:20] Speaker 01:
Nothing in the statute grants a manufacturer the right to place conditions on its offer of a discounted price.

[00:30:30] Speaker 01:
And that, as you mentioned, Judge Rao, is a complete 180 from the way that statutes are interpreted.

[00:30:36] Speaker 01:
Agencies need to have their authority specifically

[00:30:39] Speaker 01:
granted by statute.

[00:30:41] Speaker 01:
Private companies do not.

[00:30:43] Speaker 01:
Private companies are allowed to act within the bounds of the law.

[00:30:47] Speaker 01:
And I think what Mr. Aguilar and what DOJ is arguing here is that the law somehow embraces a huge number of conditions that simply aren't on the face of the statute.

[00:30:57] Speaker 01:
Now, Judge Katzis, you asked whether these two polar extremes are kind of... You need to give me...

[00:31:05] Speaker 05:
The limiting principle.

[00:31:06] Speaker 01:
I can.

[00:31:07] Speaker 01:
And it's the principle that the Judge Friedrich offered.

[00:31:09] Speaker 01:
You know, which is- Bonafide the offer?

[00:31:11] Speaker 01:
Yes.

[00:31:12] Speaker 01:
Our limiting principle actually does in here in the text.

[00:31:15] Speaker 05:
Okay.

[00:31:15] Speaker 05:
Suppose, suppose your client imposed a condition, um, no delivery to contract pharmacies, period, full stop.

[00:31:28] Speaker 05:
Awful.

[00:31:30] Speaker 01:
I think that that would actually be the closest question.

[00:31:33] Speaker 01:
Because, of course, that was the regime from 1992 to 1996.

[00:31:38] Speaker 01:
There were no deliveries to contract pharmacies.

[00:31:41] Speaker 01:
The reason for this statute, as we know, was to permit covered entities the purchasing power to get more drugs for their scarce money.

[00:31:50] Speaker 01:
So that's the toughest question.

[00:31:52] Speaker 01:
No manufacturer of which I am aware has that policy.

[00:31:57] Speaker 01:
Well, I know.

[00:31:58] Speaker 05:
But your theory

[00:32:00] Speaker 05:
Just like the government's theory might imply a lot of difficult results, your theory seems to imply that that condition, that hypothetical condition would be just fine.

[00:32:16] Speaker 05:
I mean, there's an offer, it's at the price and it's for the purchase and the statute's satisfied.

[00:32:24] Speaker 01:
I think I tried to make the point that we don't think that it's an easy question.

[00:32:30] Speaker 01:
We don't think that imposing a condition that says no delivery on contract pharmacies.

[00:32:36] Speaker 05:
Why?

[00:32:37] Speaker 05:
On your textual reading of the statute, why is that a hard case?

[00:32:43] Speaker 01:
I think it's a harder case because I think it does step a little bit closer to the question about what constitutes a bona fide offer.

[00:32:50] Speaker 01:
But I think when it comes to the question of a bona fide offer in these circumstances, no vartices for example, when you have a radius of 5,000 square miles plus no federal grantees plus exceptions, I think what the manufacturers are trying to do here is to walk this balance between understanding and fulfilling not just their statutory obligations, which to your point don't carry any implications for contract pharmacies.

[00:33:20] Speaker 01:
but also carrying out the purposes of the statute that they've been alongside HHS carrying out since 1992.

[00:33:26] Speaker 05:
So how do, so just bona fide, does the bona fide, bona fide-iness of the offer, do we look to ordinary commercial practices or are we also looking, rebuilding into that concept some idea of frustration of statutory purpose?

[00:33:50] Speaker 01:
I think we would look to ordinary commercial practices.

[00:33:52] Speaker 01:
And I think that's an important point in this context as well.

[00:33:56] Speaker 05:
But not frustration of purpose.

[00:33:59] Speaker 01:
Not, I think, frustration of purpose.

[00:34:00] Speaker 01:
No, because now we're just talking about a contracting, you know, as the government has said in many other contexts, the head of versus OPA has said.

[00:34:09] Speaker 05:
Oh, sorry.

[00:34:09] Speaker 05:
Let me just, let me give you one other hypothetical then, which is suppose they said,

[00:34:20] Speaker 05:
buyer of the drugs must take delivery at our plant.

[00:34:28] Speaker 05:
Just the default UCC rule in the absence of a contract term, right?

[00:34:34] Speaker 05:
The seller, the buyer goes to the seller.

[00:34:40] Speaker 01:
I think that I would put that in the same category as refusing to deliver to contract policies.

[00:34:45] Speaker 01:
I think that is a closer question, but I'm not prepared under the statutory text to conclude that that is not a bona fide offer.

[00:34:53] Speaker 01:
The statutory text requires us to make an offer for purchase to a covered entity.

[00:34:59] Speaker 01:
To your point, Judge Katz,

[00:35:01] Speaker 01:
When you think about writing this opinion and what you have to do now versus what can be done later, I think for these purposes, what the government has brought you is this kind of one size fits all, any condition is no good, cookie cutter argument that they have made across all conditions.

[00:35:21] Speaker 01:
I think to the extent that the government, despite having had in place a policy from 1996 to 2010 that permitted just one contract pharmacy,

[00:35:31] Speaker 01:
wants to argue that any of these manufacturers policies is something less than a bona fide offer, which it has never argued in any of these cases of which I'm familiar.

[00:35:42] Speaker 01:
And it can do that.

[00:35:43] Speaker 01:
But what we're here on a statutory interpretation that simply can't be supported.

[00:35:47] Speaker 02:
It doesn't bona fide though.

[00:35:49] Speaker 02:
You said that you shouldn't take into account frustration of statutory purposes in your answer to Judge Katz's.

[00:35:55] Speaker 02:
But doesn't

[00:35:57] Speaker 02:
Bonafide take into account the context, right, which is the statutory scheme.

[00:36:01] Speaker 02:
So maybe not frustration of some very broad understanding of purpose, but doesn't it have to be a good faith offer within what the statute requires manufacturers to do?

[00:36:11] Speaker 01:
I think it certainly does.

[00:36:12] Speaker 01:
And I'm conscious that I'm going into my colleague's time, so I want to make sure.

[00:36:17] Speaker 05:
We'll give you time.

[00:36:18] Speaker 01:
I think it certainly does, but I don't think that that necessarily diverges at all from what you would expect a bonafide offer to be.

[00:36:25] Speaker 01:
A bonafide offer for purchase comes along with a number of conditions, and to the point about whether this is any different from any other commercial transaction, I can tell you

[00:36:37] Speaker 01:
These types of unilateral covered entity directed build to ship to arrangements where the covered entity gets to direct where the drugs are delivered, including to the moon, are unheard of.

[00:36:51] Speaker 01:
They are not occurring in the wild.

[00:36:53] Speaker 01:
They are just a creature of this world.

[00:36:56] Speaker 01:
So there is nothing unique about what these manufacturers are putting in place.

[00:37:01] Speaker 01:
They are simply putting in place reasonable conditions on their delivery requirements.

[00:37:06] Speaker 02:
So your colleague on the other side said these enforcement letters should be understood both as taking the broad position that no conditions are permitted and also the more specific enforcement idea that these conditions are inconsistent with the statute.

[00:37:24] Speaker 02:
But you've argued in your briefs that we don't need to reach that second question.

[00:37:27] Speaker 02:
I'm wondering why.

[00:37:31] Speaker 01:
I think our primary argument in the brief is that the district judge was able to and did stop at that initial legal question, the legal question that Mr. Aguilar referred to.

[00:37:45] Speaker 01:
Does this statute support the government's interpretation, yes or no?

[00:37:48] Speaker 01:
The answer was no.

[00:37:50] Speaker 01:
And so the district court didn't feel the need to go on to the remedy question that we had.

[00:37:55] Speaker 02:
It's not just the remedy question, but really there are, I mean, I think a fair reading of these letters are as HHS has said, I mean, there are two, there's sort of the multiple no conditions and also that these conditions are unlawful.

[00:38:07] Speaker 02:
So even if we agreed with the district court that, you know, the no conditions idea is inconsistent with the statute, don't we still need to decide whether these specific questions that Novartis has placed are consistent with 340B?

[00:38:22] Speaker 02:
I mean, it seems that that question is still left.

[00:38:27] Speaker 01:
I think it is left.

[00:38:29] Speaker 01:
I think the question becomes one of, of time.

[00:38:32] Speaker 01:
Um, you know, what the government has asked in its brief is for you to disagree with the district court on its holding and to go further and rule that we agree with the district court.

[00:38:43] Speaker 02:
Don't we have to go another step to determine whether the specific conditions are consistent with the statute?

[00:38:49] Speaker 02:
I think if you,

[00:38:52] Speaker 01:
If you felt like you needed to go that extra step, and I don't know that you would need to, I could see you ruling that because there is a statutory basis for a reasonable condition on an offer.

[00:39:06] Speaker 01:
It's a bona fide offer.

[00:39:08] Speaker 01:
It travels along with that word offer because it's a familiar commercial context.

[00:39:13] Speaker 01:
then I would be comfortable if you wanted to look at Novartis's policies and conclude.

[00:39:18] Speaker 03:
But what is it that needs to be developed, if anything, in the record as to that second question?

[00:39:22] Speaker 03:
It seems like the district court kind of withheld response on that question based on a further factual development.

[00:39:30] Speaker 01:
I don't think anything needs to be developed in the record, Judge Childs.

[00:39:33] Speaker 01:
I think the record as it arrived to us was the administrative record that the agency relied upon.

[00:39:39] Speaker 01:
And that might have been Judge Friedrichs' reluctance to do more.

[00:39:42] Speaker 01:
But as the record stands, there's no factual dispute about what Novartis' policy is.

[00:39:47] Speaker 01:
There's no factual dispute that there is no evidence offered in the violation letter that Novartis' policy has prevented any covered entity from accessing the drugs.

[00:39:58] Speaker 01:
What you heard Mr. Aguilar say earlier is that these policies are designed to prevent access to the drug.

[00:40:04] Speaker 01:
That is simply not true.

[00:40:07] Speaker 05:
This was an informal adjudication.

[00:40:09] Speaker 05:
There's no record to speak of about the specifics of the 40-mile radius, is there?

[00:40:18] Speaker 01:
There is a record to speak of to the extent that these manufacturers, Novartis included, put in lengthy letters and comments to the agency explaining why their policies, what their policies were, and why they comported with both the text and the original purpose of the 340B statute.

[00:40:36] Speaker 05:
And I do want to touch on that just for a moment because... All right, so assuming we reach that question, give me the 32nd version of why you think you win on your 40-mile

[00:40:48] Speaker 01:
We went under the 40 mile radius plus the carving out of all federal grantees from the policy because of course federal grantees are required to put their revenue savings back into benefiting the populations they serve.

[00:41:02] Speaker 01:
Plus the exceptions regime, because we think that is far and away a reasonable approach to curbing the kind of diversion that HRSA's own Office of Inspector General and GAO have pointed out for a decade.

[00:41:16] Speaker 01:
The fact that the government itself had in place for 14 years, a policy that just permitted one contract pharmacy in the event a covered entity didn't have its own, I think is the baseline that you can work from.

[00:41:27] Speaker 01:
Our policy goes well beyond that.

[00:41:31] Speaker 05:
I think I saw somewhere in these materials a very striking statistic that the average distance between the patient pharmacy is over 300 miles now.

[00:41:46] Speaker 05:
Which I don't know what to make of that.

[00:41:50] Speaker 05:
I mean it might suggest that there's massive diversion going on or it might suggest that these programs are operating in

[00:42:00] Speaker 05:
very rural areas where it's really important to have as many farmers, as much distribution as you can.

[00:42:09] Speaker 01:
It's not sure what to make of that.

[00:42:13] Speaker 01:
It is a striking statistic.

[00:42:14] Speaker 01:
And I think in 2000, the average distance to a contract pharmacy was about 20 miles.

[00:42:20] Speaker 01:
I don't think the populations have changed.

[00:42:22] Speaker 01:
So I think what you make of that statistic and others is that the 340B program, as many of us have said in our briefs, has really strayed from the purpose of the statute, which is to deliver additional benefits to underserved communities.

[00:42:41] Speaker 01:
And to your point, Judge Rao, you talked about the intended beneficiaries of the 340B statute.

[00:42:46] Speaker 01:
The intended beneficiaries presumably are not Walgreens and CVS, both of whom said in their 10 case that if this case turned out poorly for them, they would suffer a material loss.

[00:42:57] Speaker 01:
The fact that this program has now been to the benefit of billions with a B dollars to those pharmacies, I think tells you that these modest constraints that these manufacturers are putting in place are designed to make sure that their discounted drugs are going to the people who can actually use them.

[00:43:16] Speaker 05:
I don't know how much that statistic helps you unless the pharmacy profit is connected to diversion.

[00:43:30] Speaker 05:
Because otherwise it's just the hospitals who are the primary beneficiaries are

[00:43:37] Speaker 05:
enlisting pharmacies and making it worth their while to do distribution to the hospital's patients, which is the whole point of the program.

[00:43:47] Speaker 01:
I think it helps us in two respects.

[00:43:49] Speaker 01:
I mean, go back and look at the 1992 report of this statute.

[00:43:56] Speaker 01:
When you look at the description in 1996, this statute was passed to enable covered entities to acquire

[00:44:04] Speaker 01:
the drugs they need at a much less expensive price.

[00:44:08] Speaker 01:
But what has now been put in place for the purpose of benefiting their patients and specifically not patients of other entities and not Walgreens, 327 miles away.

[00:44:24] Speaker 01:
What this has morphed into is this bizarre, massive ecosystem

[00:44:30] Speaker 01:
of Walgreens and CVS and Walmart, all of them skimming off the top of the 340B revenues that are supposed to and designed to and were intended to.

[00:44:39] Speaker 01:
go to the hospitals themselves and the covered entities themselves so that they could be put back into service for underprivileged communities that they serve.

[00:44:50] Speaker 01:
Hospitals of course are under no obligation to do that.

[00:44:53] Speaker 01:
That's one of the reasons that we've carved out hospitals to apply this policy to and the federal grantees not to.

[00:44:59] Speaker 01:
But the bottom line I think here is the government has brought one interpretation to you.

[00:45:04] Speaker 01:
It is that the statute unambiguously requires us to comply with unilateral delivery directives.

[00:45:12] Speaker 01:
The answer to that is it doesn't.

[00:45:14] Speaker 01:
The answer to your questions is our policies are reasonable.

[00:45:18] Speaker 05:
Just one slight refinement to that.

[00:45:21] Speaker 05:
We're not reviewing this through Chevron.

[00:45:25] Speaker 05:
So there's no question of ambiguous or not.

[00:45:28] Speaker 05:
We're just figuring out the best reading of the statute.

[00:45:32] Speaker 05:
If the government's reading is better by 5149, they win.

[00:45:41] Speaker 01:
I actually wouldn't worry about that hypothetical because I don't think the government's reading is better.

[00:45:50] Speaker 01:
But if you conclude that the better reading of the statute is that it brings along with it this

[00:45:55] Speaker 01:
entire weight of restrictive delivery conditions.

[00:46:00] Speaker 01:
I think I would ask the question to Mr. Aguilar, as you did in the first is opening argument.

[00:46:05] Speaker 01:
What text exactly does that depend on?

[00:46:08] Speaker 01:
Because it doesn't exist.

[00:46:11] Speaker 01:
There are no further questions.

[00:46:12] Speaker 03:
Judge Childs.

[00:46:13] Speaker 03:
Nothing further.

[00:46:14] Speaker 03:
Thank you.

[00:46:16] Speaker 03:
Thank you.

[00:46:24] Speaker 04:
May it please the court, Bill Perry for United Therapeutics.

[00:46:29] Speaker 04:
I'd like to start, if I might, by talking about the reasonableness of our policies, conditions.

[00:46:34] Speaker 04:
And there's two parts of United Therapeutics policy.

[00:46:38] Speaker 04:
The first, regarding contract pharmacies, deals essentially with two specialty pharmacies.

[00:46:44] Speaker 04:
And the reason we do that is because patient safety is very important.

[00:46:49] Speaker 04:
sell and we have to educate patients how to use the drugs there's home health activities that are involved in that but because we have a patient training a mandate what we do is sell through two specialty pharmacies and in turn there's really only one that's been a contract pharmacy up and out and the point is they deliver by mail

[00:47:12] Speaker 02:
Mr. Perry, before you get to your specific policies, what do you think is the test that this court should apply?

[00:47:18] Speaker 02:
I mean, if there are some conditions that pharmaceutical companies may impose, how do we determine which conditions are reasonable?

[00:47:29] Speaker 04:
I think Judge Friedrich's test is the right test in part because it borrows directly from the statute, which is, can we make a bona fide, genuine offer?

[00:47:38] Speaker 04:
And of course, I think we did.

[00:47:40] Speaker 04:
But I would suggest here there is absolutely no record that Justice has developed or HRSA has developed to suggest that there is no bona fide offer here.

[00:47:48] Speaker 04:
In fact, what they've done is take an absolutist position.

[00:47:51] Speaker 04:
No conditions at all are permitted rather than actually doing their job and going back and looking at the record, figuring out what each individual company has done or not done, and then creating the type of record on which they can make a judgment.

[00:48:05] Speaker 02:
So the bona fide,

[00:48:07] Speaker 02:
The bonafide term comes sort of by importing common law contract terms into what an offer means.

[00:48:13] Speaker 04:
Bonafide is a handy term, but really the question is, have we offered?

[00:48:18] Speaker 04:
Right?

[00:48:18] Speaker 04:
So bonafide is one way I think we can think about that.

[00:48:20] Speaker 04:
Is it genuine?

[00:48:21] Speaker 04:
Is it a good faith offer?

[00:48:23] Speaker 04:
But the question is, is it an offer?

[00:48:26] Speaker 04:
And I think, as my colleague Ms.

[00:48:29] Speaker 04:
Stetson said, certainly our programs are an offer.

[00:48:33] Speaker 04:
Certainly Novartis' programs are an offer.

[00:48:37] Speaker 04:
And I think if they want to try to draw a distinction between what's been done and what's required under the statute, they need a record showing that for some reason it's not a genuine offer and they've got virtually nothing.

[00:48:48] Speaker 04:
Now, my colleague from the Department of Justice suggested that there was some type of record information suggesting that that 70% of

[00:48:57] Speaker 04:
340 B discounts are no longer being given.

[00:49:00] Speaker 04:
That's certainly not evidence about my client.

[00:49:03] Speaker 04:
I don't think it's evidence about Novartis.

[00:49:06] Speaker 04:
I don't know where they're getting that, but they, of course, in their record have assimilated data with respect to all sorts of other.

[00:49:13] Speaker 04:
I just don't know what they're doing.

[00:49:15] Speaker 04:
The bottom line, I think,

[00:49:16] Speaker 04:
your honor, is that they are just assuming that no conditions are appropriate and developing a very sparse record that doesn't support what they've done.

[00:49:26] Speaker 05:
Now, on the legal standard, if bona fide is not doing a lot of work and you could lawfully refuse to deliver to any contract pharmacy,

[00:49:40] Speaker 04:
Well, of course, we're not doing that, delivering to the one.

[00:49:43] Speaker 04:
But I think your honor, the question is whether they have a record to suggest that the individual policy that you're implementing actually is somehow inconsistent with your obligation to offer.

[00:49:54] Speaker 04:
And so there are certainly a lot of hypotheticals that we can discuss.

[00:49:58] Speaker 04:
The government has said, what if you, for example, say if you do business with my competitors, I will not provide you with a discount?

[00:50:06] Speaker 04:
That could be a problem.

[00:50:07] Speaker 04:
But you, I think, talked about low Earth orbit or some of the deliveries to the moon and so forth that we've seen in some of the rhetoric from the government.

[00:50:17] Speaker 04:
I don't mean to say that bona fide isn't an important concept.

[00:50:22] Speaker 04:
What I'm saying is that shall offer is the most important concept.

[00:50:25] Speaker 04:
And there's another ways to analyze it.

[00:50:27] Speaker 04:
But I think bona fide is perhaps the best way.

[00:50:30] Speaker 04:
And that's perhaps why Judge Friedrich elected.

[00:50:34] Speaker 04:
So if we go that route,

[00:50:37] Speaker 05:
and require some sort of more specific assessment of conditions.

[00:50:45] Speaker 05:
One of yours is this reporting requirement of certain data and such.

[00:50:54] Speaker 05:
You can easily imagine conditions like that that are de minimis and you can easily imagine conditions like that that are hugely burdensome.

[00:51:05] Speaker 05:
All right, so the devil is going to be in the details.

[00:51:07] Speaker 05:
So what do we know about the details of your conditions and why should we get into that?

[00:51:17] Speaker 05:
Assuming hypothetically, we've just set aside the no conditions.

[00:51:22] Speaker 04:
To take your first question, let me explain what we're doing with the claims data and why it's reasonable and why the record shows that.

[00:51:28] Speaker 04:
I see my time is up.

[00:51:29] Speaker 04:
We'll let you keep going.

[00:51:31] Speaker 04:
Thank you, Your Honor.

[00:51:34] Speaker 04:
What we've asked for is essentially eight data elements.

[00:51:37] Speaker 04:
And our understanding is that these data elements are routinely gathered at pharmacies all over the country.

[00:51:44] Speaker 04:
They overlap with the elements that are used for Medicare Part D drug reimbursement.

[00:51:49] Speaker 04:
They overlap and

[00:51:53] Speaker 04:
Parallel, in some respects, what private insurers require.

[00:51:57] Speaker 04:
This is not an unreasonable thing to ask for.

[00:51:59] Speaker 04:
There is unrebutted evidence in the record.

[00:52:03] Speaker 04:
It's our declaration from Mr. Barton.

[00:52:06] Speaker 04:
You can find it at 539 JA 539.

[00:52:09] Speaker 04:
And specifically, JA 577 to 78 addresses what the imposition is here on contract pharmacies or covered entities, whomever is responding.

[00:52:23] Speaker 04:
It's really five minutes every two weeks or an hour per year to provide this information versus guidance.

[00:52:31] Speaker 04:
So there's a couple of different guidance documents.

[00:52:33] Speaker 04:
I'm sure the court has read about them in the briefs, but one is from 2010.

[00:52:38] Speaker 04:
It's the one that talks about multiple contract pharmacies.

[00:52:42] Speaker 04:
And if that guidance is digested, if that guidance is complied with by

[00:52:49] Speaker 04:
the covered entities, there's no doubt they have this information available.

[00:52:53] Speaker 04:
Let me provide three examples for the court on where they can find the guidance instructing the covered entities to ensure they have this information and the contract pharmacies.

[00:53:03] Speaker 04:
First, on 692 in the section on suggested contract provisions, there are provisions that address that.

[00:53:12] Speaker 04:
In the essential element section of that guidance, they instruct that covered entities should have this type of information

[00:53:20] Speaker 04:
about annual audits of the contract pharmacies.

[00:53:24] Speaker 04:
Of course, the inspector general in some of the materials in the JA, for example, says those aren't happening.

[00:53:32] Speaker 04:
But that's what this guidance actually says.

[00:53:34] Speaker 04:
And that reinforces the reasonableness of what we're doing.

[00:53:37] Speaker 04:
Third, in the pharmaceutical pricing agreement.

[00:53:43] Speaker 04:
That's the agreement that the secretary must enter with every manufacturer.

[00:53:48] Speaker 04:
There are specific provisions which

[00:53:50] Speaker 04:
under which the secretary has obligated him or herself to ensure that the covered entities have these records and are gathering them.

[00:53:59] Speaker 04:
In other words, we're not asking them to do the impossible.

[00:54:01] Speaker 04:
These records exist, and there I would suggest JA 637.

[00:54:06] Speaker 04:
And similarly, on the top of JA 638, when you deal with what was then informal to speed resolution,

[00:54:15] Speaker 04:
The secretary's instructed us to try to work this out.

[00:54:18] Speaker 04:
Anytime we have a disagreement with covered any were instructed to try to work this out.

[00:54:22] Speaker 04:
This is the type of information we need to do that.

[00:54:26] Speaker 04:
This tells us and it will tell us when we get this information what the duplicate discounts are and will give us clues.

[00:54:34] Speaker 04:
And then finally, Judge Friedrich mentioned this.

[00:54:38] Speaker 04:
You take a look at the ADR provision in the statute.

[00:54:42] Speaker 04:
ADR provision

[00:54:43] Speaker 04:
can only apply for a manufacturer.

[00:54:46] Speaker 04:
A manufacturer can only invoke ADR after doing an audit.

[00:54:53] Speaker 04:
So you have to do an audit first, right?

[00:54:55] Speaker 04:
But there's a precondition to doing an audit.

[00:54:58] Speaker 04:
And that is found in the HRSA guidance.

[00:55:00] Speaker 04:
And what the HRSA guidance says is that you have to have documentation of a reasonable cause to audit.

[00:55:07] Speaker 04:
That's another purpose of going out and doing this.

[00:55:09] Speaker 04:
And what Judge Friedrich said about that is that

[00:55:13] Speaker 04:
For its part, United Therapeutics convincingly argues that the claims data conditions it has added to the policy will enable it to better utilize the anti-fraud audit and thus the ADR process.

[00:55:26] Speaker 05:
You made all these arguments to the agency on the facts.

[00:55:31] Speaker 05:
They haven't responded on the facts.

[00:55:33] Speaker 05:
They've responded with a very broad legal argument.

[00:55:36] Speaker 05:
no conditions.

[00:55:37] Speaker 05:
What we call the absolute.

[00:55:39] Speaker 05:
So right.

[00:55:39] Speaker 05:
So shouldn't we be a little concerned about resolving the fact question without hearing from the agency at the same granular level that you just went through with me?

[00:55:55] Speaker 04:
Might I suggest this, Your Honor?

[00:55:57] Speaker 04:
If the court were to affirm Judge Friedrich's order, then, of course, they could see if they could

[00:56:04] Speaker 04:
perform a genuine investigation and come up with some type of basis to say we had an offer.

[00:56:08] Speaker 04:
But frankly, I don't.

[00:56:09] Speaker 05:
Well, it depends on the ground on which we affirm.

[00:56:13] Speaker 05:
I mean, if we go all the way and affirm on the ground that your conditions are lawful, there'd be nothing for them to investigate.

[00:56:24] Speaker 04:
I agree.

[00:56:24] Speaker 05:
And I'd prefer that.

[00:56:25] Speaker 05:
Sure.

[00:56:26] Speaker 05:
But we'd be resolving a bunch of

[00:56:31] Speaker 05:
factual questions without really hearing a lot from the government about them.

[00:56:37] Speaker 04:
I would suggest, Your Honor, to your question early in this session.

[00:56:42] Speaker 04:
The notice that letter on May 17th had a profound effect on us.

[00:56:50] Speaker 04:
Not only did it tell us very specifically that we had to grant

[00:56:55] Speaker 04:
these discounts in circumstances where we don't think we're lawfully required.

[00:56:58] Speaker 04:
It said we should search out and find covered entities and rebate discounts that hadn't been given.

[00:57:04] Speaker 04:
And then it also said that we may be liable for civil monetary penalties under a different provision, et cetera.

[00:57:12] Speaker 04:
That's profound.

[00:57:12] Speaker 04:
And what Judge Friedrich did here was essentially take that off the table.

[00:57:19] Speaker 04:
Now, I might suggest in a different context, and I think you were asking that the Bailey on spirits case

[00:57:24] Speaker 04:
which is about whether something is or isn't a federal agency action and the relevance that a letter in that case had to weather civil monetary penalties.

[00:57:34] Speaker 05:
No, I'm not getting into that.

[00:57:36] Speaker 05:
I'm at the last step of assuming hypothetically you've won on the broad legal.

[00:57:43] Speaker 02:
Mr. Perry, do you agree that deciding the specific questions about whether your conditions are reasonable is a fact question or is it a question of law?

[00:57:56] Speaker 02:
I think it is a mixed question of fact and law.

[00:57:59] Speaker 02:
Those are the best.

[00:57:59] Speaker 04:
I'd like to say the question of law and in part because there should be no basis given the record here to conclude that we hadn't made an offer under the statute, which might be mixed, but I think it is a better thought of as a question.

[00:58:18] Speaker 04:
Anything else?

[00:58:19] Speaker 05:
Judge Childs?

[00:58:21] Speaker 03:
Nothing further.

[00:58:21] Speaker 05:
Thank you, Mr. Perry.

[00:58:23] Speaker 05:
Thank you.

[00:58:28] Speaker 06:
Mr. Aguilar, some rebuttal.

[00:58:32] Speaker 06:
Thank you, Your Honor.

[00:58:33] Speaker 06:
Just on the question that you were posing to Phoenix Council.

[00:58:37] Speaker 06:
on whether or not it would be lawful for them to just refuse to deliver to contract pharmacies.

[00:58:42] Speaker 06:
That was the position they took in their letters to HHS advising the government of their policies.

[00:58:47] Speaker 06:
That's at Joint Appendix 349 for Novartis and Joint Appendix 808 for United Therapeutics.

[00:58:52] Speaker 06:
They said they're not legally bound to honor any... What was the second, sorry?

[00:58:58] Speaker 06:
Oh, sorry, JA808.

[00:59:00] Speaker 06:
They said they're not legally bound to honor any shift to order to a contract pharmacy.

[00:59:05] Speaker 06:
I think that is the logic of their position.

[00:59:07] Speaker 06:
And we spend a lot of time talking about what makes it a bonus.

[00:59:10] Speaker 02:
But it's not the position they've taken in their current policies.

[00:59:14] Speaker 06:
Right.

[00:59:14] Speaker 06:
Their current policies are basically a noblesse oblige.

[00:59:17] Speaker 06:
Right.

[00:59:17] Speaker 06:
We can do this as a favor to you.

[00:59:19] Speaker 06:
And I think that the problem that that runs into under the statutory scheme is that you're going to have a ratchet effect on this.

[00:59:25] Speaker 06:
If you're judging reasonableness, okay, well, this company's policy today is reasonable.

[00:59:31] Speaker 06:
Well, let's make it a little bit more restrictive and let's see whether that stands up in court.

[00:59:35] Speaker 06:
And all of the time, because it's a preemptory policy at the front end, covered entities aren't able to purchase the drugs or shipment to contract pharmacies where the patients can actually get them.

[00:59:45] Speaker 06:
And if you look at page 17 of our brief, that causes real problems, real world problems

[00:59:49] Speaker 06:
One of the pressing community health center, for instance, was saying we expect as a result of these policies that are by the manufacturers across the country to increase our cost of patients from $180 a year to $5,000.

[01:00:02] Speaker 06:
We expect to lose about a million dollars in revenue and lose the ability to pay for our patients' co-pays.

[01:00:08] Speaker 06:
And there's a number of benefits that the state's amic history offers, page 18, about how covered entities can give a lot of extra benefits to their patients.

[01:00:17] Speaker 06:
And I think that it is really this restrictive web that's being imposed by not only these particular manufacturers, but those across the country.

[01:00:24] Speaker 06:
And that's why, if you could, I'd just direct the court's attention to page 120 of the Supreme Court's Santa Clara decision, where it was saying the covered entities wanted to be able to sue the manufacturers.

[01:00:35] Speaker 06:
for statutory violations and the court said are from assisting HHS

[01:00:39] Speaker 06:
Suits from these entities would undermine the agency's efforts to administer 340B harmoniously on a uniform nationwide basis, and they would spawn a multitude of dispersed and uncoordinated lawsuits.

[01:00:50] Speaker 06:
I think it's that exact logic that explains why, given the reticulated statutory scheme that Congress had here, the unlimited requirement that you need to sell these drugs to these covered entities at the 340B price.

[01:01:04] Speaker 06:
That's why the best reading of the statute is that

[01:01:07] Speaker 06:
manufacturers may not impose these unilateral conditions.

[01:01:11] Speaker 02:
What do you make of the fact that the civil monetary penalties are only for overcharging but have nothing to do with whether an offer was

[01:01:20] Speaker 02:
know, you know, you can't impose civil monetary policies except for overcharging.

[01:01:24] Speaker 06:
But I think I'd point to the administrative record where we have a number of instances where the covered entities are saying we have put in purchase orders for these drugs at the 340b price and the manufacturer has refused to sell us to them at that price because we're shipping

[01:01:40] Speaker 06:
them to a contract pharmacy.

[01:01:42] Speaker 06:
There are hundreds, if not thousands of pages of those where they particularly say we ordered six pills at this price.

[01:01:47] Speaker 06:
We were denied.

[01:01:49] Speaker 06:
If that kind of a denial for some reason doesn't count as saying, well, this is an overcharge because we're only going to sell it to you if it's at the higher retail price, then essentially it just is allowing the manufacturers and other back for it.

[01:02:00] Speaker 06:
We can just refuse to sell at all.

[01:02:02] Speaker 02:
So the lack of a bona fide offer can result in overcharging.

[01:02:06] Speaker 06:
I think it's the refusal to sell at the 340B price because you have not complied with our conditions, whatever they may be.

[01:02:17] Speaker 06:
And I think it's that decision Congress gave HHS the enforcement authority here.

[01:02:23] Speaker 06:
in addition to the unqualified obligation that imposed on the manufacturers.

[01:02:27] Speaker 06:
And again, the manufacturers only have this obligation because they've chosen to be reimbursed under the Medicare and Medicaid schemes.

[01:02:34] Speaker 06:
They've chosen to receive federal funds in that instance.

[01:02:37] Speaker 06:
And this is an attachment corollary.

[01:02:39] Speaker 06:
You have to fulfill this obligation.

[01:02:41] Speaker 06:
And it makes sense that Congress imposed oversight of that in the federal government, rather than allowing private profit-driven companies to determine when not they need to sell their drugs at a discount.

[01:02:52] Speaker 02:
oversight but no rulemaking authority for HRSA to set out respective criteria for this.

[01:02:58] Speaker 06:
That about the contract pharmacies, that's correct.

[01:03:00] Speaker 06:
And that's why we think this is a pure question of law that this poured out to a result.

[01:03:04] Speaker 06:
And that's why we don't think there's anything left for the agency to do at this point.

[01:03:07] Speaker 06:
It really is up to the best reading of the statute.

[01:03:11] Speaker 05:
If we disagree with you on your statutory position and adopt some standard of bona fide offer,

[01:03:22] Speaker 05:
Do you want us to apply that to consider, to resolve the question about 40-mile radius and the reporting requirements in this case, or do you want us to put that out?

[01:03:38] Speaker 05:
uh leave it open for the agency to consider or I guess I'm just I'm worried not worried I'm wondering about like what the left leave it open we would say we would say the logic of the rationale the agency has tendered to us it's a broad legal argument that no can no conditions are allowable we reject that for reasons we've discussed and then

[01:04:04] Speaker 05:
We don't decide just as Judge Friedrich did.

[01:04:07] Speaker 05:
We don't decide the 40-mile radius and the reporting.

[01:04:13] Speaker 06:
I worry about a granular investigation about whether very specific policies are permissible.

[01:04:21] Speaker 05:
I know you don't like case by case.

[01:04:23] Speaker 05:
I'm just for this reason, if I could pull it out.

[01:04:26] Speaker 06:
United Therapeutics I think represented that it's only going to take an hour a year.

[01:04:30] Speaker 06:
There are 700 different manufacturers.

[01:04:32] Speaker 06:
And they would have to comply with if everyone had a claim state of requirement, they'd have to comply with that.

[01:04:37] Speaker 06:
If everyone does 40 mile versus 20 mile, they'd have to comply with that.

[01:04:40] Speaker 06:
If they said designate one and it's another discretion about whether we should that contract pharmacy, they'd have to comply with that.

[01:04:46] Speaker 06:
That's why I think it is.

[01:04:47] Speaker 06:
It's difficult for me to say whether or not we can really analyze these.

[01:04:51] Speaker 06:
individually because it is such a massive system.

[01:04:54] Speaker 02:
You said in your initial argument that the letters were both about the general policy and about the specific policy and in the government's brief

[01:05:03] Speaker 02:
they argue that we should decide the specific questions about whether these policies are consistent with the statute.

[01:05:08] Speaker 02:
So are you backing away from that position?

[01:05:11] Speaker 06:
No, no, no.

[01:05:11] Speaker 06:
If I can clarify, it's because we do think that these unilateral policies that are targeted at 340b covered entities are not permissible.

[01:05:20] Speaker 06:
And therefore, because these are policies that satisfy that criteria, it's being unilateral.

[01:05:26] Speaker 06:
You're just circling back to your global argument.

[01:05:30] Speaker 06:
Yes, we think that's the best reading.

[01:05:33] Speaker 06:
I understand.

[01:05:33] Speaker 06:
I'm trying to be responsive, Your Honour, but that's why I think it's hard for me standing here right now to say that we can say that a unilateral policy that imposes just very little things isn't permissible.

[01:05:46] Speaker 02:
You want us to decide

[01:05:49] Speaker 02:
the granular question about these specific policies if we do so in the government's favor, but not if we do so in the manufacturer's favor.

[01:05:56] Speaker 02:
We think it's possible for us to decide that these specific policies are inconsistent with 340B, but not possible on this record to decide that they're consistent with 340B.

[01:06:06] Speaker 02:
I mean, that's what I'm hearing you to say, and I'm not sure that

[01:06:10] Speaker 02:
make sense as a kind of logical matter.

[01:06:13] Speaker 06:
The reason that it, what I'm saying is because we have a pretty clear demarcation, you can't impose conditions versus we can impose reasonable conditions, right?

[01:06:22] Speaker 06:
Right now I'm not really prepared to concede, well, you can analyze this under a reasonableness rubric and make individualized determinations about what's reasonable and what's not for all the reasons set aside.

[01:06:33] Speaker 06:
So I think for that reason, we're saying, if you agree with our statutory construction, then these particular policies are invalid.

[01:06:41] Speaker 06:
If you disagree, and I'm trying to analyze this under a bona fide offer, I don't exactly know where this comes out.

[01:06:47] Speaker 06:
And that's why I was trying to ask about the follow-up.

[01:06:49] Speaker 06:
Like, how do you actually make that determination?

[01:06:51] Speaker 06:
Is it a fact question?

[01:06:52] Speaker 06:
Are you trying to weigh particular burdens?

[01:06:55] Speaker 06:
And just because that's not the scheme that Congress set up, it didn't set up a weighing costs and benefits system here.

[01:07:02] Speaker 06:
The statutory structure says manufacturers and to sell the drugs.

[01:07:10] Speaker 05:
Judge Charles.

[01:07:11] Speaker 03:
Nothing further.

[01:07:12] Speaker 03:
Thank you.

[01:07:14] Speaker 05:
Thank you to all counsel for a helpful argument.

[01:07:17] Speaker 05:
The case is submitted.