Regeneron Pharmaceuticals, Inc. v. United States Department of Health and Human Services

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

REGENERON PHARMACEUTICALS, INC.,

Plaintiff, No. 20-CV-10488 (KMK)

v. OPINION & ORDER

UNITED STATES DEPARTMENT OF HEALTH

AND HUMAN SERVICES, et al.,

Defendants.

Appearances

George W. Hicks, Jr., Esq.

Paul D. Clement, Esq.

Daniel Ryan Cellucci, Esq.

Robert Allen, Esq.

Kirkland & Ellis LLP

Washington, DC

New York, NY

Counsel for Plaintiff

Lisa Newman, Esq.

Department of Justice

Washington, DC

Counsel for Defendants

Meredythe Medford Ryan, Esq.

Ropes & Gray LLP

New York, NY

Counsel for Amicus Curiae American Society of Clinical Oncology

KENNETH M. KARAS, United States District Judge:

Regeneron Pharmaceuticals, Inc. (“Regeneron” or “Plaintiff”) brings this Action seeking

declaratory and injunctive relief against the United States Department of Health and Human

Services (“HHS”), Alex M. Azar II, in his official capacity as Secretary of HHS (“Azar” or the

“Secretary”), the Centers for Medicare & Medicaid Services (“CMS”), and Seema Verma, in her

official capacity as Administrator of CMS (“Verma” or the “Administrator”; collectively

“Defendants”). Before the Court is an Order to Show Cause regarding Plaintiff’s application for

a preliminary injunction enjoining application of the Most Favored Nation Rule, 85 Fed. Reg.

76,180 (“MFN Rule”), to its drug EYLEA (aflibercept) Injection (“EYLEA”). (Order to Show

Cause for Preliminary Injunction, Temporary Restraining Order, and Expedited Briefing

Schedule (“OSC”) (Dkt. No. 20).) For the reasons that follow, Plaintiff’s application for a

preliminary injunction is granted.

I. Background

On November 20, 2020, CMS released the Most Favored Nation (“MFN”) Rule. Most

Favored Nation Model, 85 Fed. Reg. 76,180 (Nov. 20, 2020) (to be codified at 42 C.F.R. pt.

513). “The MFN Model aims to take a global approach to calculating Medicare Part B drug

payment amounts, by testing a new payment methodology that [1] takes into account the

discounts that other countries enjoy [(the “MFN Price” component)]], and [2] pays providers and

suppliers with a fixed add-on amount that does not reward the use of higher cost drugs [(the

“alternative add-on payment” component)].” Id. at 76, 181. The MFN Rule was promulgated

based on Section 1115A of the Social Security Act (“Section 1115A”), which allows CMS,

through the Center for Medicare & Medicaid Innovation (“CMI”) to “test payment and service

delivery models.” Id. at 76, 250; 42 U.S.C. § 1315a. This “test” will be in effect for seven years,

with the MFN Price component phased in over the first three. 42 C.F.R. § 513.210(b)(8).

Targeting some of Medicare Part B’s top drug expenditures, the MFN Rule will apply to the top

50 drugs by aggregate allowed Medicare Part B charges (the “MFN Drugs”). Id. at § 513.130(a).

Subject to certain exclusions, id. at § 513.130(b), participation is required for all providers and

suppliers that submit a claim for an MFN Drug, id. at § 513.100(b). CMS did not follow notice

and comment procedures prior to promulgating the MFN Rule. See 5 U.S.C. § 553(b) & (c).

Instead, it found that there was good cause to dispense with the notice and comment requirement

of the Administrative Procedures Act (“APA”), supposedly due to the risks of high drug prices

and the COVID-19 pandemic. 85 Fed. Reg. 76,248–76,249.

In announcing the MFN Rule, the President stated that it will “transform the way the U.S.

government pays for drugs.” Remarks by President Trump on Delivering Lower Prescription

Drug Prices for All Americans (Nov. 20, 2020), https://www.whitehouse.gov/briefings-

statements/remarks-president-trump-delivering-lower-prescription-drug-prices-americans/

(“MFN Announcement”). The President said that prior drug price reductions were “peanuts

compared to what we’ve done with [most] favored nations,” and that the MFN rule is “probably

the biggest story that we’ve ever had relative to drug prices.” Id. He further said “[n]obody has

ever done this” and “there’ll never be anything like this.” Id. He indicated that “we’re talking

about savings of 50, 60, 70 percent, 80 percent.” Id. Indeed, CMS estimates that the MFN Rule

will save more than $85 billion for Medicare Part B, and $28.5 billion for beneficiaries. 85 Fed.

Reg. 76,181.

In the same comments, the President indicated that the MFN Rule had been under

consideration for at least two years. He stated that the MFN Rule “is something that has been

talked about for many years, but nobody had the courage to do it.” MFN Announcement. He

also said that it “took a long time before we were able to do this because, statutorily, we had to

go through a process.” Id. He said the gap between U.S. and foreign prices has existed “for

years,” and “[w]e’ve been working on [the MFN Rule] for two years.” Id. The Secretary echoed

these comments, stating that he and the President “came up with the idea for Most Favored

Nations status” at “the very first meeting we had in the Oval Office” after he became Secretary

in January 2018. Id. While the Secretary noted a recent application for approval of a vaccine,

neither he nor the President discussed the role of the MFN Rule in responding to the COVID-19

pandemic. Id.

The regulatory record reflects this two-year history. On October 30, 2018, CMS issued

an advance notice of proposed rulemaking (the “ANPRM”). Medicare Program; International

Pricing Index Model for Medicare Part B Drugs, 83 Fed. Reg. 54,546 (Oct. 30, 2018). The

ANPRM noted that U.S. drug acquisition costs exceed those of other developed countries, and

that this leads to “unnecessary, potentially avoidable costs for Part B drugs.” Id. at 54,550. It

proposed an International Pricing Index model, which was to be tested in “selected geographic

areas” pursuant to 42 U.S.C. § 1315a. Id. at 54,547. The ANPRM did not comply with the

notice and comment requirements of 5 U.S.C. § 553(b) & (c). Instead, CMS promised that it

“would implement [the model] through notice and comment rulemaking,” id. at 54,550, and that

“interested parties will also be provided an opportunity to comment on such information through

subsequent proposed and final rulemaking documents,” id. at 54,561.

On July 27, 2020, 21 months later, the President announced four executive orders focused

on drug prices. See Congress Didn’t Act on Prescription Drug Prices. So President Trump Did.

(July 27, 2020), https://www.whitehouse.gov/articles/congress-didnt-act-on-prescription-drug-

prices-so-president-trump-did/ (“Order Announcement”). The text of this Executive Order was

released nearly two months later, on September 13, 2020. Exec. Order No. 13,948, Executive

Order on Lowering Drug Prices by Putting America First (Sep. 13, 2020),

https://www.whitehouse.gov/presidential-actions/executive-order-lowering-drug-prices-putting-

america-first-2/ (“MFN Order”); see also Exec. Order No. 13,947, Lowering Drug Prices by

Putting America First (July 24, 2020), https://www.govinfo.gov/content/pkg/DCPD-

202000674/html/DCPD-202000674.htm (noting the Sep. 13, 2020 release date for this Executive

Order, which resembles and was superseded by the MFN Order). The MFN Order directed the

Secretary to “immediately take appropriate steps to implement his rulemaking plan to test a

payment model pursuant to which Medicare would pay, for certain high-cost prescription drugs

and biological products covered by Medicare Part B, no more than the most-favored-nation

price.” Id. It defined the “most-favored-nation price” as “the lowest price . . . for a

pharmaceutical product that the drug manufacturer sells in a member country of the Organisation

for Economic Co-operation and Development (OECD) that has a comparable per-capita gross

domestic product.” Id.

Plaintiff alleges, and Defendants do not refute, that EYLEA is among the 50 drugs

covered by the MFN Rule, (Compl. ¶ 62 (Dkt. No. 1); Decl. of Richard O’Neal in Supp of

Proposed OSC (“O’Neal Decl.”) ¶ 16 (Dkt. Nos. 13)), and that the MFN Rule will reduce

revenue from EYLEA and cause Plaintiff substantial financial harm, (O’Neal Decl. ¶¶ 21–33).

Plaintiff filed its Complaint on December 11, 2020. (Compl.). Since the MFN Rule will

take effect on January 1, 2021, 42 C.F.R. § 513.1(c), Plaintiff immediately petitioned for

emergency relief, including a preliminary injunction, (Proposed OSC (Dkt. No. 11); Decl. of

Robert Allen in Supp. of OSC (“Allen Decl.”) (Dkt. No. 12); O’Neal Decl.; Mem. of Law in

Supp. of OSC (“Pl.’s Mem.”) (Dkt. Nos. 14)).1

Also on December 11, 2020, the Court entered an Order to Show Cause, which

established an expedited briefing schedule in light of the January 1 implementation date.

1 Plaintiff also submitted a motion to seal portions of its memorandum and the O’Neal

Declaration. (Not. of Pl.’s Mot. for Leave to File Under Seal (Dkt. No. 8); Decl. of Daniel

Cellucci in Supp. of Pl.’s Mot for Leave to File Under Seal (Dkt. No. 9).)

(OSC.)2 Defendants submitted their opposition on December 16, 2020. (Defs.’ Opp. to Pl.’s

Mot. for TRO and Prelim. Injunctive Relief (“Defs.’ Mem.”) (Dkt. No. 33).) Plaintiff submitted

its reply on December 18, 2020. (Reply in Supp. of OSC (Dkt. No. 40); see also Dkt. No. 39

(unredacted version).) On the same date, Amicus Curiae American Society of Clinical Oncology

(“Amicus”) filed its brief. (Dkt. No. 37.) The Court held oral argument on December 22, 2020.

(See Dkt. (minute entry for Dec. 22, 2020).) The following day, a court in the District of

Maryland issued a temporary restraining order, which prevented the Government from

implementing the MFN Rule for 14 days. (See Order (Dkt. No. 44, Ass’n of Cmty. Cancer Ctrs.

v. Azar, 20-CV-3531 Dkt. (D. Md.)).) On December 28, 2020, a court in the Northern District of

California issued an order (the “California Order”) vacating the MFN Rule nationwide “pending

completion of the notice and comment process.” (See Order Granting Mot. for Prelim. Inj. (Dkt.

No. 50, Cal. Life Scis. Ass’n v. Cntr. for Medicare and Medicaid Servs., 20-CV-8603 Dkt. (N.D.

Cal.)).)

II. Discussion

“A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter

v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24 (2008); see also Mazurek v. Armstrong, 520

U.S. 968, 972 (1997) (“[A] preliminary injunction is an extraordinary and drastic remedy, one

that should not be granted unless the movant, by a clear showing, carries the burden of

persuasion.” (emphasis and quotation marks omitted)). “Preliminary injunctive relief is designed

to preserve the status quo and prevent irreparable harm until the court has an opportunity to rule

on the lawsuit’s merits.” Williams v. Rosenblatt Sec., Inc., 136 F. Supp. 3d 593, 616 n.11

2 The Court also granted Plaintiff’s motion to seal portions of its submission, (Dkt. No.

23), and Plaintiff filed under seal unredacted copies of its memorandum and the O’Neal

Declaration, (see Dkt. Nos. 26, 27).

(S.D.N.Y. 2015) (quotation marks omitted). “A party seeking a preliminary injunction must

demonstrate: (1) a likelihood of success on the merits or sufficiently serious questions going to

the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly

in the plaintiff's favor; (2) a likelihood of irreparable injury in the absence of an injunction; (3)

that the balance of hardships tips in the plaintiff's favor; and (4) that the public interest would not

be disserved by the issuance of an injunction.” Benihana, Inc. v. Benihana of Tokyo, 784 F.3d

887, 895 (2d Cir. 2015) (alteration and quotation marks omitted). A preliminary injunction may

be “warranted on the strength of the[] first two factors alone.” New York v. U.S. Dep’t of

Homeland Sec., 969 F.3d 42, 86 (2d Cir. 2020). The third and fourth factors “merge when the

Government is the opposing party.” Nken v. Holder, 556 U.S. 418, 435 (2009).

The Court finds that a preliminary injunction is appropriate. Plaintiff has demonstrated

irreparable financial and reputational harm, a probability of success on its notice and comment

claim, and that the balance of hardships and public interest favor an injunction.3

A. Irreparable Harm

A showing of irreparable harm is “the single most important prerequisite for the issuance

of a preliminary injunction.” Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 118

(2d Cir. 2009). The “standard requires plaintiffs seeking preliminary relief to demonstrate that

irreparable injury is likely in the absence of an injunction.” Winter, 555 U.S. at 22. Since it is

“an extraordinary remedy,” preliminary injunctive relief should not be issued “based only on a

possibility of irreparable harm.” Id. Further, irreparable harm “is neither remote nor speculative,

but actual and imminent.” Faiveley Transp, 559 F.3d at 118.

3 Based on the emergency nature of Plaintiff’s application, the Court will discuss only

Plaintiff’s claim regarding the notice and comment procedures required by the APA.

Plaintiff claims three types of irreparable harm, but the Court considers only two: (1)

unrecoverable monetary harm; and (2) reputational harm. (Pl.’s Mem. 20–24.) The Court finds

Plaintiff has shown irreparable harm.

1. Monetary Harm

“Monetary loss alone will generally not amount to irreparable harm . . . unless the movant

provides evidence of damage that cannot be rectified by financial compensation.” Borey v. Nat’l

Union Fire Ins. Co., 934 F.2d 30, 34 (2d Cir. 1991). However, where a plaintiff cannot recover

damages due to sovereign immunity, monetary loss may amount to irreparable harm. See United

States v. New York, 708 F.2d 92, 93 (2d Cir. 1983) (affirming the district court’s finding that

“[the plaintiff’s] injury was irreparable even though [its] losses were only pecuniary because a

suit in federal court against [the defendant,] New York[,] to recover the damages sustained by

the plaintiff would be barred by the Eleventh Amendment”). Here, because the APA waives

sovereign immunity only for “relief other than damages,” 5 U.S.C. § 702, Plaintiff cannot

recover its alleged financial losses.

Defendants cite some cases suggesting that the magnitude of the monetary harm affects

whether it is irreparable. One such case held that an “alleged loss of $10 million per year . . . is

not of sufficient magnitude in light of [the plaintiff’s] annual revenues of $100 million.”

ConverDyn v. Moniz, 68 F. Supp. 3d 34, 48 (D.D.C. 2014). The Ninth Circuit requires a

showing that the plaintiff “will lose considerable revenue.” California Pharmacists Ass’n v.

Maxwell-Jolly, 596 F.3d 1098, 1113–14 (9th Cir. 2010), vacated and remanded sub nom.

Douglas v. Indep. Living Ctr. of S. California, Inc., 565 U.S. 606 (2012). Further, the Court

considers only “the harm arising during the interim between the request for an injunction and

final disposition of the case on the merits.” Jayaraj v. Scappini, 66 F.3d 36, 40 (2d Cir. 1995).

Plaintiff’s uncontested declaration suggests that it will lose substantial revenue in 2021,

based on the MFN Rule’s methodology. (O’Neal Decl. ¶ 32.) Given the complexity of this case,

it is unlikely that there will be final judgment before the end of next year, so Plaintiff’s reliance

on lost revenue for “the entirety of 2021” is appropriate. (See Defs.’ Mem. 25.) While Plaintiff

is a large corporation, the magnitude of its forecast revenue losses is unquestionably

“considerable.” Indeed, at least three circuits have held that unrecoverable damages may be

irreparable harm, without reference to the amount of the loss. See Odebrecht Const., Inc. v.

Sec’y, Fla. Dep’t of Transp., 715 F.3d 1268, 1289 (11th Cir. 2013) (“In the context of

preliminary injunctions, numerous courts have held that the inability to recover monetary

damages because of sovereign immunity renders the harm suffered irreparable.”); Chamber of

Commerce v. Edmondson, 594 F.3d 742, 770–71 (10th Cir. 2010) (“Imposition of monetary

damages that cannot later be recovered for reasons such as sovereign immunity constitutes

irreparable injury.”); Iowa Utilities Bd. v. FCC, 109 F.3d 418, 426 (8th Cir. 1996) (“The threat of

unrecoverable economic loss . . . does qualify as irreparable harm.”). Further, these financial

losses result from both the MFN Price and alternative add-on payment components of the MFN

Rule. (Oral Arg. 51–52.) Thus, the Court finds that Plaintiff will likely suffer irreparable

financial loss absent a preliminary injunction.

2. Reputational Harm

A court can find irreparable harm based on “loss of reputation, good will, and business

opportunities.” Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 404 (2d Cir. 2004). This is

because these damages “are difficult to establish and measure.” Id.; see also Ticor Title Ins. Co.

v. Cohen, 173 F.3d 63, 68–69 (2d Cir. 1999) (explaining that “it would be very difficult to

calculate monetary damages that would successfully redress the loss of a relationship with a

client that would produce an indeterminate amount of business in years to come,” and that this

supports a finding of irreparable harm). Courts have determined that a loss of existing business

and a decline in the opportunity for new business may qualify as irreparable harm. See, e.g.,

John E. Andrus Mem’l, Inc. v. Daines, 600 F. Supp. 2d 563, 571–72 (S.D.N.Y. 2009) (finding

irreparable harm due to harm to reputation where “physicians would cease” giving new business

to the plaintiff and existing customers “would begin seeking alternative” arrangements); Johnson

Controls, Inc. v. A.P.T. Critical Sys., Inc., 323 F. Supp. 2d 525, 532 (S.D.N.Y. 2004) (finding

irreparable harm where complained of conduct would allow competitors to “lur[e] away the

business of a number of [the plaintiff’s] long-term . . . clients,” and noting that “there is little

guarantee that, should [the plaintiff] ultimately prevail in this action, these clients would

return”); see also Nalco Co. v. EPA, 786 F. Supp. 2d 177, 188 (D.D.C. 2011) (finding irreparable

harm where “customer would be unlikely to incur voluntarily such cost and disruption a second

time to return to [the plaintiff’s] product,” as this would cause “the loss of long-standing clients

that may be unwilling, or unable, to do business with [the plaintiff]” (alteration and quotation

marks omitted)).

Plaintiff’s uncontested declaration states that it will lose existing business and new

customers to competitors as a result of the MFN Rule, and that these customers are unlikely to

return. (O’Neal Decl. ¶¶ 21–28.) Plaintiff will lose this business in part because the EYLEA

reimbursement rate will fall below doctors’ acquisition costs, and doctors will use alternatives.

(Id. at ¶¶ 23–27.) Even if Regeneron lowers the price of EYLEA, it will suffer reputational harm

because it will need to renegotiate contracts, while its competitors will not. (Id. at ¶ 29.) The

burden to renegotiate contracts is due to both the MFN Price and alternative add-on payment

components of the MFN Rule. (Oral Arg. 19–20, 51.) This loss of business could be difficult to

measure in the same way as lost business in Register.com and Ticor was difficult to measure—

particularly the loss of new customers. Defendants argue that “conclusory averments” of harmed

reputation do not suffice. (Defs.’ Mem. 26.) In the case Defendants cite, the plaintiff merely

recited the standard for a preliminary injunction in a declaration, which was, unsurprisingly,

insufficient to establish irreparable harm. Rush v. Hillside Buffalo, 314 F. Supp. 3d 477, 485

(W.D.N.Y. 2018) (finding overly conclusory a declaration stating “immediate and irreparable

injury, loss, or damage will result to [the plaintiff] and that monetary damages at a later time will

not adequately compensate him for injuries and damages he has sustained and is sustaining”

(alterations omitted)). Here, the O’Neal Declaration cogently explains why the MFN Rule will

cause reputational harm. (See O’Neal Decl. ¶¶ 21–28.) And the Court agrees that Mr. O’Neal is

qualified to offer this assessment, based on his position and experience. (Pl.’s Reply 14–15;

O’Neal Decl. ¶¶ 2–5.) Thus, the Court finds that Plaintiff will likely suffer irreparable

reputational harm absent a preliminary injunction.4

4 Defendants seek a stay of Plaintiff’s application, arguing that the California Order

undermines its claimed irreparable harm. (Dkt. No. 42.) The Court disagrees. Defendants may

appeal the California Order. (See id. at 2 (“The Solicitor General has not determined whether to

appeal or seek a stay pending appeal of the California Order.”).) Indeed, appeal seems likely, as

Defendants argued both here and in the Northern District of California that universal or

nationwide injunctions are inappropriately broad, (see Defs.’ Mem. 28–29; see also Defs.’ Opp.

to Pls.’ Mot. for Prelim. Inj. at 20 (Dkt. No. 47, Cal. Life Scis. Ass’n, 20-CV-8603 Dkt. (N.D.

Cal.))), and the Justice Department has taken the same position in other matters and in its internal

litigation guidelines, (see Dkt. No. 44 at 2 (providing examples)). As a result, “the [Ninth]

Circuit could alter the injunction at any moment,” causing Plaintiff to “sustain irreparable harm

immediately, before the Court could decide the merits of its claims.” California v. Health &

Human Servs., 390 F. Supp. 3d 1061, 1066 (N.D. Cal. 2019). Further, “because this Court is

governed by the law of a different circuit, the Court cannot conclude that a stay or decision on

the merits from the Ninth Circuit . . . would resolve this case.” Nw. Immigrant Rights Project v.

U.S. Citizenship & Immigration Servs., No. 19-CV-3283, 2020 WL 5995206, at *31 (D.D.C.

Oct. 8, 2020). By contrast, where courts have stayed proceedings, it has been pending decisions

that would establish controlling authority. See Pars Equality Cntr. v. Trump, No. 17-CV-255

(D.D.C. Mar. 2, 2018) (issuing a stay pending the Supreme Court’s review of a parallel

B. Probability of Success

“To establish a likelihood of success on the merits, a plaintiff need not show that success

is an absolute certainty. [It] need only make a showing that the probability of . . . prevailing is

better than fifty percent.” Broker Genius, Inc. v. Volpone, 313 F. Supp. 3d 484, 497 (S.D.N.Y.

2018) (quotation marks omitted) (citing Eng v. Smith, 849 F.2d 80, 82 (2d Cir. 1988)), appeal

dismissed as moot sub nom. Broker Genius Inc. v. Gainor, 756 F. App’x 81 (2d Cir. 2019). The

Court finds that Plaintiff has established a likelihood of success on its claim that Defendants

failed to comply with the APA’s notice and comment requirements. In the interest of releasing

this Opinion & Order expeditiously, the Court does not evaluate and takes no position on

Plaintiff’s probability of success on its other claims. See Forest City Daly Hous., Inc. v. Town of

N. Hempstead, 175 F.3d 144, 151 (2d Cir. 1999) (“[P]laintiff[] need[s] to show a likelihood of

success with respect to only one of [its claims].”).

1. Preclusion

Defendants argue that Plaintiff’s claims are barred from judicial review, both under the

Medicare Act generally, (Defs.’ Mem. 7–9), and under Section 1115A, the statute authorizing

CMS to test models, (id. at 9–13). The Court finds that Plaintiffs are likely to show that no

statute bars its review of Plaintiff’s notice and comment claim.

There is a “strong presumption that Congress intends judicial review of administrative

action.” Smith v. Berryhill, 139 S. Ct. 1765, 1776–77 (2019). “This presumption, however, may

preliminary injunction that the Supreme Court stayed); Hawai'i v. Trump, 233 F. Supp. 3d 850

(D. Haw. 2017) (issuing a stay pending Ninth Circuit review of a parallel preliminary

injunction). Finally, Defendants’ proposed approach would leave “the resolution of important

questions . . . to a single district court and to a single circuit, losing the benefit of the ‘airing of

competing views’ on difficult issues of national importance.” Nw. Immigrant Rights Project,

2020 WL 5995206, at *31 (quoting Dep’t of Homeland Sec. v. New York, 140 S. Ct. 599, 600

(2020) (Gorsuch, J., concurring)).

be overcome by clear and convincing indications, drawn from specific language, specific

legislative history, and inferences of intent drawn from the statutory scheme as a whole, that

Congress intended to bar review.” Cuozzo Speed Techs. v. Lee, 136 S. Ct. 2131, 2140 (2016)

(quotation marks omitted).

a. Medicare Act

Defendants argue that judicial review of the MFN Rule is barred under the Medicare Act

pursuant to 42 U.S.C. §§ 405(g), 405(h), and 1395ff. (Defs.’ Mem. 7–9.)

The statutory framework referenced by Defendants consists of two components. The first

establishes a procedure for obtaining judicial review of benefits decisions (the “Review

Provisions”). 42 U.S.C. §§ 405(g), 1395ff. Section 405(g) of the Social Security Act provides

that an individual “after any final decision” of the Secretary “made after a hearing to which he

was a party . . . may obtain” judicial review. 42 U.S.C. § 405(g). This provision of the Social

Security Act is incorporated into the Medicare Act by 42 U.S.C. § 1395ff(b)(1)(A), which states

that “any individual dissatisfied with any initial determination under subsection (a)(1) shall be

entitled to . . . judicial review of the Secretary’s final decision after such hearing as is provided in

section 405(g) of this title.” This provision refers to subsection (a)(1), which provides authority

for the Secretary to “promulgate regulations and make initial determinations with respect to

benefits under part A or part B.” Id. at (a)(1).

The second component (the “Preclusion Provision”) bars judicial review when claimants

do not comply with the Review Provisions. 42 U.S.C. § 405(h). Section 405(h) of the Social

Security Act bars “action[s] against the United States . . . brought under section 1331 or 1346 of

Title 28 to recover on any claim arising under this subchapter.”5 42 U.S.C. § 405(h). The statute

also states that “[n]o findings of fact or decision of the Commissioner of Social Security shall be

reviewed by any person, tribunal, or governmental agency except as herein provided.” Id. This

Social Security Act provision is incorporated into the Medicare Act by 42 U.S.C. § 1395ii, which

states that § 405(h) “shall . . . apply with respect to this subchapter.” The referenced subchapter

is Subchapter XVIII, which is the Medicare Act. See Turecamo v. Comm’r, 554 F.2d 564, 566

n.1 (2d Cir. 1977) (describing “Subchapter XVIII of the Social Security Act” as “[t]he Medicare

statutory framework”).

Plaintiff argues that both the Review Provisions and the Preclusion Provision are

inapplicable. (Pl.’s Reply 2.) The Court agrees.

The Review Provisions are inapplicable for two reasons. First, the MFN Rule does not

cite 42 U.S.C. § 1395ff as a source of authority. See 85 Fed. Reg. 76,250. As a result, Plaintiff’s

claims do not arise “under subsection (a)(1)” of § 1395ff, and Plaintiff is not bound by

procedural requirements specific to such claims. See 42 U.S.C. § 1395ff(b)(1)(A). Neither of

the sources of rulemaking authority cited in the MFN Rule similarly incorporates § 405(g). See

42 U.S.C. §§ 1302, 1395hh; see also 85 Fed. Reg. 76,250 (listing sources of authority for MFN

Rule). Second, even if Plaintiff were subject to this requirement, it applies only to “any initial

determination under subsection (a)(1).” Id. Subsection (a)(1) authorizes the Secretary to

“promulgate regulations and make initial determinations with respect to benefits under part A or

part B.” Id. at (a)(1). Plaintiff challenges a regulation, not an initial determination, so this

5 This sentence “reaches beyond ordinary administrative law principles of ripeness and

exhaustion of administrative remedies . . . by preventing the application of exceptions to those

doctrines.” Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 2 (2000). Thus,

Plaintiff’s briefing on the general exhaustion requirement, (see Pl.’s Reply 3), is not applicable to

this sentence of the Preclusion Provision.

provision does not apply. (See Pl.’s Reply 2.) Indeed, a separate, also inapplicable provision

limits judicial review of regulations. Id. at (e)(1) (“A regulation or instruction that relates to a

method for determining the amount of payment under part B and that was initially issued before

January 1, 1981, shall not be subject to judicial review.”).

The Preclusion Provision is also inapplicable. The Court considers its two relevant

sentences in turn. As discussed, the second sentence of § 405(h) bars review by “any . . .

tribunal” of any “findings of fact or decision” of the Secretary, “except as herein provided.” Id.

The Supreme Court has held that an “attack on [a] regulation . . . is not subject to such a

requirement because there is no hearing,” and the first sentence of § 405(h) contextually defines

“‘decision’ . . . as those determinations made by ‘the Secretary after a hearing.’” Bowen v.

Michigan Acad. of Family Physicians, 476 U.S. 667, 679 n.8 (1986); see also 42 U.S.C. § 405(h)

(“The findings and decision of the Commissioner of Social Security after a hearing shall be

binding . . . .”). Because the MFN Rule was not promulgated “after a hearing,” see generally 85

Fed. Reg. 76,180, the second sentence does not apply.

The third sentence of § 405(h)—which is the focus of the briefing—does not bar review

because it applies to Subchapter XVIII, and Plaintiff’s claim arises under Subchapter XI. As

discussed, the last sentence of § 405(h) bars federal courts’ jurisdiction only for “any claim

arising under this subchapter.” 42 U.S.C. § 405(h). And § 1395ii applies this provision only

“with respect to this subchapter.” 42 U.S.C. § 1395ii. Section 1395ii also is located in

Subchapter XVIII. By contrast, Section 1115A and the Secretary’s source of rulemaking

authority under Section 1115A are both located in Subchapter XI. See 42 U.S.C. §§ 1302,

1315a. Neither section incorporates § 405(h), id., but other provisions of Subchapter XI do, see,

e.g., 42 U.S.C. § 1320a-7(f)(3), suggesting that Congress did not intend § 405(h) to apply to

§§ 1302 or 1315a.

At oral argument, Defendants asserted that the Supreme Court has construed the “claim

arising under” language broadly. (Oral Arg. 25, 32 (citing Heckler v. Ringer, 466 U.S. 602, 615

(1984) and Sensory Neurostimulation, Inc. v. Azar, 977 F.3d 969, 979 (9th Cir. 2020)).) But the

Supreme Court has not rewritten the statute, and neither will this Court. Indeed, Ringer states

that a claim arises under the Medicare Act when it provides “both the standing and the

substantive basis for the presentation of the claim[],” even where the plaintiff alleges a violation

of APA procedural law. Ringer, 466 U.S. at 615, 622. In other words, Ringer broadened

§ 405(h)’s preclusion of review to include APA claims, but not to include different subchapters.

Id. Here, it is true that Plaintiff’s notice and comment claim is not unrelated to the Medicare

Act. For example, the challenged MFN Rule cites as authority one section within Subchapter

XVIII, see 85 Fed. Reg. 76,250 (citing as authority 42 U.S.C. § 1395hh), and Plaintiff seeks to

reinstitute the average sales price model required under Subchapter XVIII, (Oral Arg. 32).

However, Plaintiff’s standing is due to alleged harm from a regulation promulgated pursuant to

§ 1315a of Subchapter XI. (See generally Compl.) Similarly, Plaintiff’s notice and comment

claim is substantively based on Defendants’ failure to follow the procedures required by the APA

to promulgate a regulation under § 1302 of Subchapter XI. (Id.) Thus, Ringer does not apply.

Nor does Sensory Neurostimulation, which simply extended the principle from Ringer—that

§ 405(h) can preclude review of APA claims—to lawsuits brought by a third party. 977 F.3d at

980.

Even where § 405(h) would otherwise bar review, the Supreme Court recognizes an

exception: § 405(h) “does not apply . . . where application of § 405(h) would not simply channel

review through the agency, but would mean no review at all.” Ill. Council, 529 U.S. at 19.

While the Second Circuit has not addressed the exception in Illinois Council in depth, according

to the Fifth Circuit, courts of appeal are fairly uniform in requiring a plaintiff to show “there is

no way of having their claims reviewed, there is complete preclusion, or there exists a serious

practical roadblock to having their claims reviewed in any capacity, administratively or

judicially.” Physician Hosps. of Am. v. Sebelius, 691 F.3d 649, 655 (5th Cir. 2012) (quotation

marks omitted). This standard is not met where “third-party physicians [are] sufficient proxies

for [the plaintiffs] since the physicians had adequate financial incentive to pursue a regulatory

challenge on [the plaintiffs’] behalf.” Sw. Pharmacy Sols., Inc. v. Centers for Medicare &

Medicaid Servs., 718 F.3d 436, 445 (5th Cir. 2013). However, the standard is met where the

possible proxies have “little incentive to pursue the [plaintiff’s] challenge to the regulations.”

Council for Urological Interests v. Sebelius, 668 F.3d 704, 713 (D.C. Cir. 2011).

Here, Plaintiff is more likely than not eligible for the Illinois Council exception. There

are two competitors to EYLEA that are not covered by the MFN Rule: off-label Avastin and

recently approved Beovu. (O’Neal Decl. ¶¶ 24–25.) Under the MFN Rule, Plaintiff claims, and

Defendants do not refute, that it faces one of two alternatives. First, doctors switch to one of

these competitors. (Id. at ¶¶ 23–27.) Or, second, Plaintiff reduces the price of EYLEA. (Id. at

¶ 29.) Under neither scenario would prescribers have a financial incentive to challenge the MFN

Rule on behalf of Plaintiff. Nor would patients, who would be paying a lower price. Further,

unlike cases where the Fifth Circuit has found sufficient proxies, Plaintiff does not have a direct

link to providers. See Sw. Pharmacy Sols., 718 F.3d at 446 (finding plaintiff could challenge

regulation through one of its enrollees); Nat’l Athletic Trainers’ Ass’n, 455 F.3d at 507 (finding

that physicians employing trainers to reduce costs could seek review on the trainers’ behalf).

(See also Compl. ¶ 23 (noting that Plaintiff “first sell[s] the drugs to wholesalers, who then sell

those drugs to pharmacies, hospitals, doctors, and other healthcare providers”).) Amicus’s brief

suggests that providers of drugs for which there are no such substitutes may have an incentive to

challenge the MFN Rule. (See Amicus Br. 4–7.) And at oral argument, Defendants explained

that various provider groups have already filed suit. (Oral Arg. 53–54.) But Defendants also

pointed out that any injunctive relief should be limited to Regeneron, (Defs.’ Mem. 28–29), so it

is not clear that these lawsuits, if successful, would result in Plaintiff’s sought-after relief. Thus,

the Court on this record finds it more likely than not that there are no adequate proxies to

advance Plaintiff’s individual claim, and that Plaintiff qualifies for the Illinois Council exception

to § 405(h).

b. Section 1115A

Defendants argue that judicial review of the MFN Rule is barred under Section 1115A.

(Defs.’ Mem. 9–13.) Section 1115A bars “administrative or judicial review” of several facets of

models selected for testing, including “the selection of models for testing or expansion,” id. at

(d)(2)(A), “the selection of organizations, sites, or participants to test those models selected,” id.

at (d)(2)(B), and “the elements, parameters, scope, and duration of such models for testing or

dissemination,” id. at (d)(2)(C). Since the statute’s “intent to bar review is clear, . . . [the Court]

determine[s] only whether the challenged action falls within the preclusive scope of the statute.”

DCH Reg’l Med. Ctr. v. Azar, 925 F.3d 503, 505–06 (D.C. Cir. 2019).

In arguing that Section 1115A bars Plaintiff’s notice and comment claim, Defendants rely

on case law interpreting § 405(h), and in particular on Ringer. (Defs.’ Mem. 12–13.) But

§ 405(h) is a separate preclusion provision, in a separate subchapter, and there is no reason to

read it into Section 1115A because Section 1115A is “in the Medicare context.” (Defs.’ Mem.

12.) Section 1115A merely bars judicial review of particular facets of CMI’s models. See 42

U.S.C. § 1315a(d). It does not bar review of the propriety of the procedures used for establishing

such models. See generally id. If Congress intended to bar review of rulemaking procedures, it

could have precluded review of the “establishment” of these models. See 42 U.S.C.

§ 1395nn(i)(3)(I) (“There shall be no administrative or judicial review under section 1395ff of

this title, section 1395oo of this title, or otherwise of the process under this paragraph (including

the establishment of such process).”). Because it did not, and because Plaintiff is “seeking

review of the promulgation of the Secretary’s rules and policies, separate from the substance of

any such rules or policies,” Section 1115A does not overcome the “presumption of review.”

Yale New Haven Hosp. v. Azar, 409 F. Supp. 3d 3, 15 (D. Conn. 2019).

2. Notice and Comment

The Court finds that Plaintiff is more likely than not to prevail on its notice and comment

claim. (See Compl. ¶¶ 71–80.)

The Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq., governs

the procedural requirements for agency decision-making, including the rulemaking process.

Prior to formulating, amending, or repealing a rule, agencies must engage in a notice-and-

comment process. 5 U.S.C. §§ 551(5), 553. Notice must include “the legal authority under

which the rule is proposed,” and “either the terms or substance of the proposed rule or a

description of the subjects and issues involved.” Id. § 553(b). The public may then

submit comments which the agency must consider before promulgating a final rule. Id. § 553(c).

Specifically, “the agency shall give interested persons an opportunity to participate in the rule

making through submission of written data, views, or arguments with or without opportunity for

oral presentation.” Id. To satisfy the requirements of § 553, notice of a proposed rule must

“provide an accurate picture of the reasoning that has led the agency to the proposed rule,” so as

to allow an “opportunity for interested parties to participate in a meaningful way in the

discussion and final formulation of rules.” Conn. Light & Power Co. v. Nuclear Regul. Comm’n,

673 F.2d 525, 528–30 (D.C. Cir. 1982). The Medicare Act similarly requires that “before

issuing in final form any regulation under subsection (a), the Secretary shall provide for notice of

the proposed regulation in the Federal Register and a period of not less than 60 days for public

comment thereon.” 42 U.S.C. § 1395hh(b)(1). Both statutes contain an exception “when the

agency for good cause finds . . . that notice and public procedure thereon are impracticable,

unnecessary, or contrary to the public interest.” 5 U.S.C. § 553(b)(B); see also 42 U.S.C.

§ 1395hh(b)(2)(C) (subsection (b)(1) does not apply where “subsection (b) of section 553 of

Title 5 does not apply pursuant to subparagraph (B) of such subsection”). As discussed, the APA

provision applies to regulations like the MFN Rule that are promulgated pursuant to

42 U.S.C. § 1302. See 5 U.S.C. § 553(a) (discussing applicability of § 553 procedure

requirements).

Defendants do not argue that they provided adequate notice and opportunity to comment.

Instead, they argue that they had good cause to find that notice and comment procedures would

be “contrary to the public interest.” (Defs.’ Mem. 13–17.) Thus, the key question is whether

Defendants made an adequate finding of good cause.

“The burden is on the agency to establish that notice and comment need not be provided.”

Nat. Res. Def. Council v. Nat’l Highway Traffic Safety Admin., 894 F.3d 95, 113–14 (2d Cir.

2018). “The good cause exception should be narrowly construed and only reluctantly

countenanced.” Id. at 114 (citation and quotation marks omitted). “It is generally limited to

emergency situations, or where delay could result in serious harm.” Id. (quotation marks

omitted). A court should only agree with a finding of good cause “in the rare circumstance when

ordinary procedures—generally presumed to serve the public interest—would in fact harm that

interest.” Id. However, a finding of good cause is “an important safety valve to be used where

delay would do real harm.” United States v. Dean, 604 F.3d 1275, 1279 (11th Cir. 2010). The

Court’s review of the finding of good cause is “de novo,” but the Court “defer[s] to an agency’s

factual findings and expert judgments.” Sorenson Commc’ns Inc. v. FCC, 755 F.3d 702, 706 &

n.3 (D.C. Cir. 2014). The Court does not consider the justifications in isolation, but considers

“the combined effect” of the reasons given by the Government. Nat’l Women, Infants, &

Children Grocers Ass’n v. Food & Nutrition Serv., 416 F. Supp. 2d 92, 107 (D.D.C. 2006).

Here, CMS found “good cause,” for two reasons: the general risks of high drug prices

and the collateral effects of the COVID-19 pandemic. 85 Fed. Reg. 76,248–76,249. Regarding

the risk of high drug prices, CMS stated that “[h]igh drug prices in the U.S. have serious

economic and health consequences for beneficiaries in need of treatment.” Id. at 76,249. High

drug prices cause beneficiaries “to divert scarce resources to pharmaceutical treatments or skip

doses.” Id. Further, more than “two thirds” of the increase in Medicare Part B drug spending

was due to an increase in price. Id. Regarding the COVID-19 pandemic, CMS stated that

“[h]igh drug prices could cause improper medication adherence or skipped treatment,” causing

“poor clinical outcomes for chronic disease management.” Id. Further, older adults with chronic

illness are at the highest risk of severe illness from COVID-19. Id. In addition, the COVID-19

pandemic has increased unemployment and food prices. Id. As a result, seniors living on fixed

income—including “the 6 million Medicare FFS beneficiaries without supplemental coverage

and over 12 million beneficiaries dually eligible for Medicare and Medicaid”—require “urgent

relief from high drug prices in order to prevent stinting on care and alleviate general financial

instability worsened by the COVID-19 pandemic.” Id. Despite some positive economic and

employment trends, a “new surge” of cases “may lead to additional hardship and requires

immediate action.” Id. Defendants rely particularly on CMS’s identification of this “new surge”

to justify its finding of good cause. (Defs.’ Mem. 14–16.) Notably, the MFN Rule apparently is

not intended to facilitate treatment of COVID-19, because drugs granted Emergency Use

Authorization (“EUA”) to treat COVID-19 are excluded from the rule.

42 C.F.R. § 513.130(b)(ix). At oral argument, Defendants argued that this is incidental, because

the federal government pays for most COVID-19 treatments and vaccines. (Oral Arg. 40.)

The risks of high drug prices are unlikely to support a finding of good cause because

CMS was aware of this problem for years and failed to act. In the ANPRM issued more than two

years ago, CMS noted that higher cost drugs “are driving increasing Part B drug expenditures,”

83 Fed. Reg. 54,549, and that “acquisition costs in the U.S. were 1.8 times higher than in

comparator countries,” id. at 54,550. Indeed, the MFN Rule itself refers to a 2018 analysis

showing that “[d]rug acquisition costs in the U.S. exceed those in Europe, Canada, and Japan.”

85 Fed. Reg. 76,183. That “some semblance of the [MFN] Rule has been on [CMS’s] regulatory

agenda” since 2018 suggests that the agency could have acted sooner and complied with the

notice and comment requirements. Chamber of Commerce v. DHS, No. 20-CV-7331, 2020 WL

7043877, at *8 (N.D. Cal. Dec. 1, 2020). Put bluntly, an agency’s self-imposed delay cannot

support a finding of good cause. See Nat. Res. Def. Council, 894 F.3d at 114–15 (“Good cause

cannot arise as a result of the agency’s own delay, because otherwise, an agency unwilling to

provide notice or an opportunity to comment could simply wait . . . raise up the ‘good cause’

banner and promulgate rules without following APA procedures.”); Nat. Res. Def. Council v.

Abraham, 355 F.3d 179, 205 (2d Cir. 2004) (“[A]n emergency of [CMS’s] own making can[not]

constitute good cause.”). Thus, CMS’s finding regarding the risks of high drug prices does not

suffice to show good cause.

The same is true of the COVID-19 pandemic, for three reasons. First, the MFN Rule’s

rationale—the health risks and economic risks to Medicare Part B beneficiaries during the

pandemic—does not support a finding of good cause. Regarding health risks, CMS does not

suggest that the MFN Rule will improve COVID-19 outcomes. It states that “high drug prices

could lead to improper medication adherence or skipped treatment,” and that this “can result in

poor clinical outcomes for chronic disease management.” 85 Fed. Reg. 76,249. CMS continues

that “[t]he risk of severe illness from COVID-19 increases with age and the presence of chronic

illness.” Id. But it does not link these two statements. Id. It does not cite any studies or

otherwise draw the conclusion that better chronic disease management improves COVID-19

outcomes. See Ass’n of Cmty. Cancer Ctrs. v. Azar, No. 20-CV-3531, 2020 WL 7640818, at *7

(D. Md. Dec. 23, 2020) (“[F]or the proposition, central to CMS’s justification for dispensing

with notice and comment, that ‘the COVID-19 pandemic has rapidly exacerbated’ the problem of

high drug prices, CMS does not cite to any source at all.”). There is little question that the

COVID-19 pandemic is “a situation of acute health or safety risk.” Nat. Res. Def. Council, 894

F.3d at 115. However, because the MFN Rule does not claim to improve outcomes from the

virus, it cannot point to these risks as good cause. See Ass’n of Cmty. Cancer Ctrs., 2020 WL

7640818, at *7 (“In its rationale, CMS cites fifteen distinct sources in support of its various

assertions, but most of those sources link to studies relating to drug pricing and health indicators

from well before the pandemic existed, and none specifically address the cost of the particular

drugs covered by the rule.”). Regarding the economic risks, there is a “mismatch of facts

regarding the unemployment caused by the proliferation of the pandemic and the classes of

[individuals] impacted by the [MFN] Rule[].” Chamber of Commerce, 2020 WL 7043877, at

*10 (citation and quotation marks omitted). CMS states that the vulnerable population includes

“seniors, particularly those who live on fixed incomes, such as the 6 million Medicare fee-for-

service beneficiaries without supplemental coverage and over 12 million beneficiaries dually

eligible for Medicare and Medicaid.” 85 Fed. Reg. 76,249. CMS also states that COVID-19 has

caused high levels of unemployment. Id. However, it does not state that higher unemployment

has affected the target population—which includes seniors and fixed income recipients (who

may be less likely to rely on wages). See Ass’n of Cmty. Cancer Ctrs., 2020 WL 7640818, at *7

(“[T]he agency does not indicate in its rationale the extent to which these beneficiaries will

experience immediate economic relief as a result of reduced copays under the MFN rule . . . .”).

CMS also states that COVID-19 has raised food prices. 85 Fed. Reg. 76,249. However, the

cited article refers to food insecurity generally due to unemployment. Bridget Balch, 54 million

people in America face food insecurity during the pandemic. It could have dire consequences for

their health, AAMC (Oct. 15, 2020), https://www.aamc.org/news-insights/54-million-people-

america-face-food-insecurity-during-pandemic-it-could-have-dire-consequences-their. Thus,

CMS provides no support for its conclusion that food prices are higher due to the COVID-19

pandemic. 85 Fed. Reg. 76,249; see also Capital Area Immigrants’ Rights Coal. v. Trump, No.

19-CV-2117, 2020 WL 3542481, at *16 (D.D.C. June 30, 2020) (finding no good cause where

an agency “rel[ied] on a single newspaper article that does not even directly address the key

predictive judgment in question”).

Second, the “new surge” does not justify the MFN Rule. The MFN Rule indicates that

“we have seen some positive economic and employment trends since the initial peak in April.”

85 Fed. Reg. 76,249. This information does not suggest a “dire emergency.” See Chamber of

Commerce, 2020 WL 7043877, at *10 (quotation marks omitted). The Secretary finds that this

“new surge in COVID-19 cases . . . may lead to additional hardship and requires immediate

action,” and cites a Center for Disease Control and Prevention (“CDC”) study showing an

expected increase in cases. 85 Fed. Reg. 76,249. Neither the MFN Rule nor the CDC study

suggests that the “positive economic and employment trends” will be reversed, much less that

these indicators will reach the level of “the initial peak in April.” See id.; CDC, COVID–19

Forecasts: Cases (last visited Dec. 23, 2020), https://www.cdc.gov/coronavirus/2019-

ncov/cases-updates/forecasts-cases.html. CMS could have announced a NPRM in April, when

these effects were at their worst. It could have done the same in July 2020, when the President

announced his executive orders on drug prices, Order Announcement, and COVID cases

increased in some parts of the country, see CDC, Previous COVID-10 Forecasts: Cases (last

visited Dec. 23, 2020) (forecast from September 3, 2020),

https://www.cdc.gov/coronavirus/2019-ncov/covid-data/forecasting-us-cases-previous.html.

Delays after the MFN Order suggest a lack of urgency, including the two months between the

executive order being announced and publicly issued, see Order Announcement; MFN Order,

and the two months between the executive order being issued and the MFN Rule being

promulgated, see MFN Order; 85 Fed. Reg. 76,180.

Third, the approach of the MFN Rule does not fit with the claimed good cause. The

MFN Rule is designed to last seven years. 43 C.F.R. § 513.210(b)(8). It is not “intended to be a

temporary solution until the emergency situation has been eased by [its] promulgation.”

Chamber of Commerce, 2020 WL 7043877, at *10 (quotation mark omitted). Indeed, because it

is phased in, the biggest effects will be after 2021, when the COVID-19 pandemic will

presumably be a less severe problem, thus thoroughly undercutting this as the basis for good

cause. See Ass’n of Cmty. Cancer Ctrs., 2020 WL 7640818, at *8 (“Where, as here, the purpose

of the rule is to test, over a period of seven years, a transformative new model of drug

reimbursements that may affect untold numbers of beneficiaries and billions of dollars in

spending on pharmaceuticals, there is a significant benefit in providing advance notice and

comment procedures, and nothing in the agency’s rationale explains why the relatively brief

delay that would result from a notice and comment period would obstruct the purpose of testing

such a long-term model.”). And in announcing the MFN Rule, neither the President nor the

Secretary nor the Administrator mentioned the MFN Rule’s role in addressing the COVID-19

pandemic. MFN Announcement. Instead, the President described the MFN Rule as

“transform[ing] the way the U.S. government pays for drugs” and “probably the biggest story

that we’ve ever had relative to drug prices.” Id. Consistent with this view of the MFN Rule as

transformational, it is much more sweeping than the Medicare Part B population particularly

affected by the COVID-19 pandemic. It covers all of Medicare Part B beneficiaries, not just the

six million fee-for-service beneficiaries without supplemental coverage, and not just the 12

million beneficiaries dually eligible for Medicare and Medicaid. See 42 C.F.R. § 513.100(b);

Ass’n of Cmty. Cancer Ctrs., 2020 WL 7640818, at *7 (“[T]he agency . . . concedes . . . that the

number of Medicare beneficiaries with supplemental coverage vastly outnumbers those without

such supplemental coverage.”). Nor is it focused on drugs treating chronic conditions that may

worsen COVID-19 outcomes. See 42 C.F.R. § 513.100(b). Even accepting Defendants’

argument that “the good cause does not have to be tied to the entirety of the rule,” (Oral Arg. 40),

this lack of fit undermines Defendants’ good cause claims. It suggests that the claimed good

cause weighs relatively lightly against the much heavier risk of failing to “foster reasoned

decisionmaking” by “providing a forum for the robust debate of competing and frequently

complicated policy considerations having far-reaching implications.” Nat. Res. Def. Council,

894 F.3d at 115. Notice and comment procedures are particularly important for regulations that

will “transform the way the U.S. government pays for drugs,” MFN Announcement, and about

which there is significant debate, (see Amicus Br. 4–9; Oral Arg. 14–16).

Taken together, these three reasons suggest that the COVID-19 pandemic does not

suffice to show good cause, nor does the combination of the pandemic and the effect of high

drug prices. As a result, CMS has not carried its burden of showing good cause to skip notice

and comment procedures, and Plaintiff is likely to prevail on its claim that the MFN Rule is

procedurally invalid.

C. Public Interest and Balance of Hardships

The Court finds that the balance of the equities and public interest weigh in Plaintiff’s

favor. Allowing the MFN Rule to go into effect would cause Plaintiff significant financial

hardship. (O’Neal Decl. ¶¶ 32–33.) In particular, Plaintiff argues that revenue losses will

require it to cut its research and development budget, (O’Neal Decl. ¶¶ 35–36), and that such

budget cuts risk restricting medical innovation and limiting Americans’ access to new

prescription drugs, (Pl.’s Mem. 25). Finally, there is a public interest in providing notice and

comment for rules with “far-reaching implications” in order to “foster reasoned

decisionmaking.” Nat. Res. Def. Council, 894 F.3d at 115.

Defendants argue to the contrary, claiming harms from delayed implementation of what

they say are congressionally authorized means of reducing the financial burdens of high

prescription drug prices. The Court accepts Defendants’ premise that “there is inherent harm to

an agency in preventing it from enforcing regulations that Congress found it in the public interest

to direct that agency to develop and enforce.” Cornish v. Dudas, 540 F. Supp. 2d 61, 65 (D.D.C.

2008), aff’d sub nom. Cornish v. Doll, 330 F. App’x 919 (Fed. Cir. 2009). (See Defs.’ Mem. 27–

28.) But, as discussed, the MFN Rule is likely procedurally invalid, so this factor does not weigh

in Defendants’ favor. Defendants identify an interest in reducing the harms of high drug prices.

(See Defs.’ Mem. 28.) However, as discussed, Defendants delayed more two years from issuing

the ANPRM in October 2018 to promulgating the MFN Rule in November 2020, which

mitigates this claimed interest. See 83 Fed. Reg. 54,546. Thus, any harm from delay lies at

Defendants’ door. Finally, Defendants identify a public interest in acting quickly to respond to

the COVID-19 pandemic. (Id.) But, as discussed, there is a mismatch between Defendants’

target population and the risks posted by the COVID-19 pandemic, and Amicus’s brief

reasonably calls into question whether a pandemic is the right time for a large-scale experiment

with drug pricing. (Amicus Br. 9–12.)

Taken to its extreme, Defendants’ argument dilutes the public interest served by the

notice and comment procedures, which are not a mere formality. Instead, they “are designed (1)

to ensure that agency regulations are tested via exposure to diverse public comment, (2) to ensure

fairness to affected parties, and (3) to give affected parties an opportunity to develop evidence in

the record to support their objections to the rule and thereby enhance the quality of judicial

review.” Capital Area Immigrants’ Rights Coal. v. Trump, 471 F. Supp. 3d 25, 44 (D.D.C.

2020) (quoting Int’l Union, United Mine Workers v. Mine Safety & Health Admin., 407 F.3d

1250, 1259 (D.C. Cir. 2005)); see also Make the Rd. N.Y. v. Wolf, 962 F.3d 612, 634 (D.C. Cir.

2020) (noting that “part of the purpose of notice and comment rulemaking is to ensure the parties

develop a record for judicial review”). And they “attempt[] to provide a ‘surrogate political

process’ that takes some of the sting out of the inherently undemocratic and unaccountable

rulemaking process.” Capital Area Immigrants’ Rights Coal., 471 F. Supp. 3d at 44

(quoting Regents of the Univ. of California, 140 S. Ct. at 1929 n.13, 2020 WL 3271746, at *27

n.13 (Thomas, J., dissenting)). CMS’s authority to promulgate the MFN Rule, like any

administrative agency’s authority to promulgate legislative rules, derives from and is

circumscribed by laws enacted by Congress. See Outdoor Amusement Bus. Ass’n, Inc. v. Dep’t

of Homeland Sec., ––– F.3d ––––, 2020 WL 7410295, at *8 (4th Cir. Dec. 18, 2020). Thus, any

claim by CMS that there is inherent harm in requiring it to comply with the notice and comment

requirement ignores the fact that “Congress has . . . determined, in passing the APA, that it is in

the public interest to allow the public to comment on proposed regulations prior to their

promulgation.” Ass’n of Cmty. Cancer Ctrs., 2020 WL 7640818, at *11.

Finally, it bears emphasizing that the Court is not permanently barring CMS from

achieving its goal of lowering certain prescription drug prices. Indeed, the relief being sought

and granted is a preliminary injunction that merely delays the implementation of the MFN Rule

as to one particular prescription medication. “Nor is any burden likely to befall CMS itself as a

result of an injunction, as it already has a longstanding reimbursement scheme in place, and it is

already committed to accepting comments through much of January.” Id. Thus, the balance of

equities and the public interest favor an injunction.

III. Conclusion

For the reasons given, Plaintiff’s application for a preliminary injunction is granted.

Pursuant to Federal Rule of Civil Procedure 65(a), Defendants and their agents, servants,

employees, attorneys, successors and assigns, and all persons acting in concert with them, are

preliminarily enjoined from applying the MFN Rule to Regeneron’s drug EYLEA (aflibercept)

Injection, without bond.°

SO ORDERED.

of

DATED: December 30, 2020 iY seo

White Plains, New York

KENNETH M. KARAS

UNITED STATES DISTRICT JUDGE

© No bond is needed because Defendants have not shown a likelihood of financial harm.

See Doctor’s Assocs., Inc. v. Distajo, 107 F.3d 126, 136 (2d Cir. 1997) (“Rule 65(c) gives the

district court wide discretion to set the amount of a bond, and even to dispense with the bond

requirement ‘where there has been no proof of likelihood of harm... .’”)

30