American Hospital Association v. Department of Health & Human Services

Background

The plaintiffs were the American Hospital Association, 340B Health, America’s Essential Hospitals, the Association of American Medical Colleges, the Children’s Hospital Association, the American Society of Health-System Pharmacists, Avera St. Mary’s Hospital, Riverside Regional Medical Center, and St. Mary’s Medical Center. The defendants were the Department of Health and Human Services (HHS) and acting HHS Secretary Norris Cochran.

The plaintiffs brought two claims under the Administrative Procedure Act (APA), 5 U.S.C. § 706. They alleged that HHS had taken unlawful, arbitrary, and capricious agency action and had unlawfully withheld or unreasonably delayed required agency action.

The dispute concerned the 340B drug-pricing program. Under that program, certain hospitals, community health centers, and other providers serving low-income patients can obtain discounted drugs. The plaintiffs or their association members used contract pharmacies, generally retail pharmacies, to provide discounted drugs when they did not have an in-house pharmacy.

The plaintiffs alleged that several drug manufacturers changed their contract-pharmacy policies in 2020. According to the allegations, some manufacturers stopped providing 340B-priced drugs to covered entities without in-house pharmacies unless those entities submitted additional information or satisfied new conditions. The plaintiffs alleged that these changes could force them to reduce or eliminate healthcare services and that HHS unlawfully refused to take enforcement action.

Motion to Dismiss

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which permits dismissal for lack of subject-matter jurisdiction. The defendants advanced three grounds: (1) the Supreme Court’s decision in Astra USA, Inc. v. Santa Clara County barred the plaintiffs’ action and required initial use of the 340B administrative dispute-resolution process; (2) the plaintiffs had not identified final agency action supporting APA review; and (3) the requested enforcement was committed to agency discretion under Heckler v. Chaney.

Administrative Dispute-Resolution Process

The court held that the plaintiffs’ action was effectively an indirect attempt to enforce the 340B program against drug manufacturers. Relying on Astra, the court explained that Congress had not authorized covered entities to bring private enforcement suits under the 340B statute and had instead provided for an agency-run dispute-resolution process. The court concluded that the plaintiffs’ claims and requested relief sought the private enforcement that Astra forbids.

The court rejected the plaintiffs’ argument that the administrative process was limited to retrospective remedies. It noted that the administrative dispute-resolution rule allows equitable relief and provides for judicial review under the APA after an administrative decision. The court therefore granted the motion to dismiss on this ground.

Final Agency Action and Unlawful Withholding

The court also concluded that the plaintiffs had not identified final agency action. Under the APA, final agency action generally must mark the completion of the agency’s decision-making process and determine rights or obligations or produce legal consequences. The plaintiffs relied on a July 8, 2020 email from HRSA Communications Director Martin Kramer. The court held that a single email from an official who lacked a role in policy formulation or ultimate decision-making authority, and who stated a legal principle, was not a final agency decision.

The court further held that the plaintiffs had not shown that HHS unlawfully withheld a discrete action that the law required it to take. The court found that the statute did not require HHS to undertake the specific enforcement contemplated by the plaintiffs. It stated that the plaintiffs could seek APA review after a final determination in the administrative dispute-resolution process, but not before that process occurred. The court alternatively granted the motion to dismiss on this ground.

Agency Enforcement Discretion

The court also applied the rule from Heckler v. Chaney that an agency’s decision not to prosecute or enforce is generally committed to the agency’s discretion. The court concluded that the plaintiffs could not avoid that rule by seeking a broad, industry-wide enforcement policy instead of asking for specific enforcement actions.

The court also rejected, at that stage, the plaintiffs’ contention that HHS and HRSA had abandoned their statutory responsibilities. The court stated that the record showed the agencies were still considering their response to the manufacturers’ actions and that this ongoing consideration did not amount to adoption of a policy so extreme that it constituted an abandonment of statutory duties. The court alternatively granted the motion to dismiss on this ground.

Disposition

The court granted the defendants’ motion to dismiss and dismissed the action without prejudice. The court stated that the plaintiffs might be able to pursue a narrower action seeking general enforcement. In light of the dismissal, the court denied the motion for a preliminary injunction and the motions to intervene as moot. The Clerk was directed to close the matter.