Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-03-05046/USCOURTS-caDC-03-05046-0/pdf.json

Nature of Suit Code: 151
Nature of Suit: Overpayments under the Medicare Act
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 12, 2003 Decided February 13, 2004

No. 03-5046

AMGEN INC.,

APPELLANT

v.

DENNIS G. SMITH, IN HIS OFFICIAL CAPACITY AS

ACTING ADMINISTRATOR, CENTERS FOR

MEDICARE & MEDICAID SERVICES, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 02cv02259)

Jonathan L. Abram argued the cause for appellant. With

him on the briefs were Stuart Langbein, William H. Johnson, C. Boyden Gray, Edward C. DuMont, and Andrew R.

Varcoe. Louis R. Cohen entered an appearance.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 1 of 23
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William C. Crenshaw and Anie Elizabeth Wulkan were on

the brief for amicus curiae Biotechnology Industry Organization in support of appellant.

Sharon Swingle, Attorney, U.S. Department of Justice,

argued the cause for appellees. With her on the brief were

Peter D. Keisler, Assistant Attorney General, Roscoe C. Howard, Jr., U.S. Attorney, Gregory G. Katsas, Deputy Assistant

Attorney General, Mark B. Stern and Michael S. Raab,

Attorneys, Alex M. Azar II, General Counsel, U.S. Department of Health & Human Services, Henry R. Goldberg,

Deputy Associate General Counsel, and Lawrence J. Harder,

Supervisory Trial Attorney.

Steven A. Zalesin, Eugene Tillman, and Helen G. Kirsch

were on the brief for appellee Ortho Biotech Products LP.

Before: HENDERSON and ROGERS, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: The principal issue on appeal is

whether the court has jurisdiction of a complaint filed by

Amgen, Inc., the manufacturer of an anemia treatment, Aranesp, challenging an adjustment to the Medicare Part B rate

at which the federal government pays hospitals for using its

product. The district court dismissed Amgen’s complaint for

lack of prudential standing. Although we hold that Amgen

has prudential standing, we affirm the dismissal of the complaint for lack of jurisdiction.

I.

Title XVIII of the Social Security Act of 1935, 42 U.S.C.

§ 1395 et seq., establishes the Medicare program, which provides federally funded medical insurance to the elderly and

disabled. Part A of the Medicare program provides insurance coverage for inpatient hospital care, home health care,

and hospice services. Id. § 1395c. Part B of Medicare is a

voluntary program that provides supplemental coverage for

other types of care, including outpatient hospital care. Id.

§§ 1395j, 1395k. The Medicare program is subject to both

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 2 of 23
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fiscal limits and restrictions on administrative and judicial

review. We address the former as applied to Amgen in Part

I and the latter in Part III.

A component of the Medicare B program is the Outpatient

Prospective Payment System (‘‘OPPS’’), which pays hospitals

directly to provide outpatient services to beneficiaries. To

control costs, OPPS, rather than reimbursing providers afterthe-fact for their reasonable expenses in any given year, as

was done prior to 1997, pays hospitals prospectively for their

services in each upcoming year, thus requiring payments for

outpatient hospital care to be made based on predetermined

rates. See Balanced Budget Act of 1997, Pub. L. No. 105–33,

111 Stat. 251 (1997). As relevant here, OPPS payments

governed by 42 U.S.C. § 1395l(t) are calculated through a

formula setting payment weights for the provision of certain

services (or certain groups of clinically similar services) based

on the mean or median costs of providing such services in

past years, with adjustments for regional cost variations. Id.

at §§ 1395l(t)(2)(C) & (t)(2)(D). Pursuant to amendments to

the outpatient prospective payment system in the Balanced

Budget Refinement Act of 1999, Pub. L. No. 106–113, 113

Stat. 1501 (1999), the Secretary of the Department of Health

and Human Services (‘‘the Secretary’’) then additionally modifies those resulting payment amounts. Hospitals facing actual costs significantly above their prospective payment

amounts receive outlier adjustments. 42 U.S.C.

§§ 1395l(t)(2)(E) & (t)(5). Hospitals also receive supplemental payments, called ‘‘pass-through’’ payments, to help cover

the cost of providing certain treatments, including new drugs,

biologicals and medical devices. Id. § 1395l(t)(6) (hereafter,

‘‘§ (t)(6)’’). Under § (t)(6), when a drug, biological, or medical device becomes eligible for pass-through status, hospitals

providing it to beneficiaries receive supplemental payments

equal to 95% of the wholesale cost of the treatment minus

whatever amount the hospital would otherwise receive

through the prospective payment system, §§ (t)(6)(D)(i) &

1395(u)(o), for a period of two to three years.

§ 1395l(t)(6)(C). At the end of that period, the treatment is

factored into the normal prospective payment system. More

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generally, the Secretary also has authority, in light of his or

her ‘‘significant expertise’’ and ‘‘judgment grounded in policy

concerns’’ over Medicare’s ‘‘complex and highly technical regulatory program,’’ see Tenet Health Systems HealthCorp. v.

Thompson, 254 F.3d 238, 248 (D.C. Cir. 2001) (quoting Thomas Jefferson Univ. v. Shalala, 512 U.S. at 512 (1994) (internal

quotation omitted)), to make ‘‘other adjustments as determined to be necessary to ensure equitable payments.’’ 42

U.S.C. § 1395l(t)(2)(E) (hereafter, ‘‘§ (t)(2)(E)’’). No supplemental funding is available for these three types of adjustments: when the Secretary makes any of the three — outlier

adjustments, pass-through adjustments, or other equitable

adjustments — any additional projected expenses must be

offset by a reduction in all prospective payment rates.

§ (t)(2)(E). Supplemental pass-through payments are additionally subject to a cap; they may not exceed a fixed

percentage of OPPS payments, and must be reduced pro rata

in the event they exceed that limit. § (t)(6)(E).

Amgen is the manufacturer of darbepoetin alpha, also

known as Aranesp, a relatively recent biological product used

to treat anemia in chemotherapy and kidney disease patients.

67 Fed. Reg. 66718, 66758 (Nov. 1, 2002). A similar product,

epoetin alpha, was developed in the late 1980s, and is presently marketed both as Amgen’s own predecessor product, Epogen, and the product of its competitor (and intervenor here)

Ortho Biotech Products, Procrit. Id. Providers are presently compensated for providing epoetin alpha to beneficiaries

through the regular prospective payment system. While the

parties disagree about the significance of molecular differences between darbepoetin alpha and epoetin alpha, Aranesp

differs clinically in that it has a longer half-life, such that

many patients require less frequent dosages and therefore

fewer hospital visits. Id.

Amgen applied on November 30, 2001, to the Centers for

Medicare and Medicaid Services (‘‘CMS’’) (known prior to

July 1, 2001 as the Health Care Financing Administration),

which, as relevant here, administers the Medicare Part B

program, for transitional pass-through new-drug status so

that hospitals would receive supplemental payments for proUSCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 4 of 23
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viding Aranesp to Medicare Part B beneficiaries. See

§ (t)(6)(A)(iv). According to the complaint, in September

2001 and July 2002, respectively, the Federal Drug Administration approved Aranesp for marketing as a treatment for

kidney disease-related anemia and for chemotherapy-related

anemia. CMS sent Amgen an approval letter on February 5,

2002, and on March 1, 2002, CMS included Aranesp in the

reimbursement rates for 2002, to be effective April 1, 2002.

67 Fed. Reg. 9556, 9562 (March 1, 2002). CMS’s proposed

2003 OPPS rates, published on August 9, 2002, also included

pass-through payments for Aranesp. 67 Fed. Reg. 52092,

52119 (Aug. 9, 2002). The proposed rule stated, however,

that the pass-through provisions had ‘‘been exceptionally

difficult to implement’’ and that CMS was ‘‘actively seeking

comment on all aspects of these [proposed] rates,’’ explaining

that it was ‘‘open to making changes, perhaps significant’’ to

the proposed rates based on comments received. Id. at

52093. Ortho Biotech, the manufacturer of Procrit, submitted

comments questioning the pass-through payments for Aranesp in light of its purported similarity to Procrit. 67 Fed.

Reg. 66718, 66757 (Nov. 1, 2002). Amgen responded that the

two biologicals were not substitutes, and that reimbursement

amounts for Aranesp should not be determined in reference

to Procrit.

On November 1, 2002, the Secretary published the final

rule setting 2003 OPPS rates. 67 Fed. Reg. 66718 (Nov. 1,

2002). Claiming to act pursuant to the authority in § (t)(2)(E)

to make ‘‘adjustments TTT to ensure equitable payments,’’

CMS adjusted payments for Aranesp to the level hospitals

would receive under the prospective payment system, effectively eliminating the supplemental pass-through payment for

the biological. Id. at 66758. The decision to reduce payments was predicated on the availability of the clinically

similar yet cheaper Procrit, and noted that it was not ‘‘an

equitable or efficient use of Medicare funds to pay for these

two functionally equivalent products at greatly different

rates.’’ Id. Because no historical cost data were available to

calculate Aranesp’s reimbursement level under the prospective payment system pursuant to § (t)(2)(C), CMS calculated

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 5 of 23
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a reimbursement amount using what it determined to be the

equivalent dosage ratio between Procrit and Aranesp. Id. at

66758–59. As an alternative ground for the decision, the final

rule stated that Aranesp is not ‘‘new’’ for pass-through purposes under § (t)(6)(A)(iv) because it is ‘‘functionally equivalent’’ to Procrit and Epogen. Id. at 66759.

Amgen sued the Administrator of CMS and the Secretary

on the ground that the rule reducing its pass-through payments violated the plain language of the Medicare Act. Amgen argued that under § (t)(6) the Secretary is required to

make pass-through payments for new treatments and can

only reduce those payments when necessary to keep total

pass-through payments under the statutory cap, and then

only on a pro rata basis for all pass-through products. Alleging violations of its procedural rights as well, Amgen argued

that the rule was arbitrary and capricious, and that procedural irregularities violated Amgen’s rights under the Administrative Procedure Act and the Due Process Clause of the

Fourteenth Amendment to the Constitution. The district

court allowed Ortho Biotech to intervene on the question of

whether Amgen had standing to bring the suit. Relying in

large part on the Fourth Circuit’s decision in TAP Pharmaceuticals v. U.S. Dept. of Health, 163 F.3d 199 (4th Cir. 1998),

the district court ruled that Amgen, as a drug manufacturer

not itself regulated by or within the zone of interests of the

relevant portion of the Medicare Act, lacked prudential standing, and dismissed the complaint. Amgen v. Scully, 234 F.

Supp. 2d 9 (D.D.C. 2002).

II.

Amgen appeals the dismissal of its complaint on the ground

that the district court’s ruling that it lacks prudential standing to challenge OPPS payment amounts for its product

conflicts with this court’s precedent as well as that of the

Supreme Court. The court reviews de novo the dismissal of a

complaint, accepting as true the allegations of the complaint.

See American Federation of Gov’t Employees AFL–CIO v.

Rumsfeld, 321 F.3d 139, 142 (D.C. Cir. 2003).

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 6 of 23
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Section 10(a) of the Administrative Procedure Act, 5 U.S.C.

§ 702 (2004) (‘‘APA’’) provides that ‘‘[a] person suffering legal

wrong because of agency action, or adversely affected or

aggrieved by agency action within the meaning of a relevant

statute, is entitled to judicial review thereof.’’ The Supreme

Court has held that to qualify as ‘‘ ‘adversely affected or

aggrieved TTT within the meaning’ of a statute, a plaintiff

must establish that the injury he complains of TTT falls within

the ‘zone of interests’ sought to be protected by the statutory

provision whose violation forms the legal basis for his complaint.’’ Lujan v. Nat’l Wildlife Found., 497 U.S. 871, 883

(1990) (quoting Clarke v. Securities Industry Assn., 479 U.S.

388, 396–97 (1987)). A party’s claimed injury from administrative action, therefore, will be considered ‘‘within the meaning’’ of the relevant statute for purposes of 5 U.S.C. § 702

only if the party can meet the so-called ‘‘zone of interests’’

test. Qualified plaintiffs include not only those who are

themselves the ‘‘subject of the contested regulatory action,’’

Clarke, 479 U.S. at 399, but also those whose interests are not

‘‘so marginally related to or inconsistent with the purposes

implicit in the statute that it cannot reasonably be assumed

that Congress intended to permit the suit.’’ Id. Amgen

contends that it is the subject of the Secretary’s action and

that its interests are consistent with the statutory scheme.

We hold that Amgen’s interests are congruent with interests

underlying the Medicare Act and do not reach the question

whether it is a regulated party.

The Supreme Court has explained that ‘‘[t]he [zone of

interests] test is not meant to be especially demanding.’’

Clarke, 479 U.S. at 399. Thus, ‘‘there need be no indication

of congressional purpose to benefit the would-be plaintiff.’’

Id. at 399–400. Not only need a party not be a beneficiary of

a statute, a putative party’s ‘‘objectives in [the] action’’ need

not be ‘‘eleemosynary in nature;’’ whether they are is ‘‘beside

the point.’’ Nat’l Cred. Union Admin. v. First National

Bank, 522 U.S. 479, 498 (1998). Congruence of interests,

rather than identity of interests, is the benchmark; the zone

of interests test serves to exclude only those ‘‘parties whose

interests are not consistent with the purposes of the statute

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 7 of 23
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in question,’’ Ethyl Corp. v. EPA, 306 F.3d 1144, 1148 (D.C.

Cir. 2002), because lawsuits by such plaintiffs ‘‘[c]arr[y] a

considerable potential for judicial intervention that would

distort the regulatory process.’’ Hazardous Waste Treatment Council, Inc. v. EPA, 861 F.2d 277, 282–86 (D.C. Cir.

1988).

Parties motivated by purely commercial interests routinely

satisfy the zone of interests test under this court’s precedents. As the court observed in Mova Pharmaceutical Corp.

v. Shalala, 140 F.3d 1060, 1075 (D.C. Cir. 1998), the salient

consideration under the APA is whether the challenger’s

interests are such that they ‘‘in practice can be expected to

police the interests that the statute protects.’’ See also

Animal Legal Defense Fund v. Glickman, 154 F.3d 426, 444–

45 (D.C. Cir. 1998) (en banc); cert. denied sub nom., Nat’l

Ass’n for Biomedical Research v. Animal Legal Defense

Fund, Inc., 526 U.S. 1064 (1999). Manufacturers’ challenges

to agency actions, then, fall within the zone of interests of a

statute when their interests appear congruent with those of

the statute. For instance, in Ethyl Corp., 306 F.2d at 1148, a

manufacturer of fuel additives had prudential standing, under

the Clean Air Act, to challenge regulations applied to automobile manufacturers because, as the developer of products that

will ‘‘reduce harmful air pollutants,’’ the company’s interests

‘‘appear congruent with those of the statute.’’ Id. Similarly,

in Motor & Equipment Mfrs. Ass’n v. Nichols, 142 F.3d 449,

458 (D.C. Cir. 1998), the court held that the manufacturers of

replacement automobile parts could challenge, under the

Clean Air Act, the agency’s order permitting California to

prohibit tampering with pollution monitors, reasoning that the

manufacturers’ commercial interest in selling replacement

parts was ‘‘congruent’’ with those of mechanics and ultimately

of the statute. And in Nat’l Cottonseed Products Ass’n v.

Brock, 825 F.2d 482, 492 (D.C. Cir. 1987), the manufacturers

of respirators had prudential standing to challenge the effectiveness of OSHA regulations in filtering cotton dust ‘‘on the

basis of the vendor-vendee relationship alone.’’ Id. (quoting

FAIC Securities v. Federal Deposit Insurance Corporation,

768 F.2d 352, 359 (D.C. Cir. 1985)).

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 8 of 23
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Amgen’s commercial interest in a full statutory reimbursement rate for Aranesp is neither incidental nor antagonistic to

the purposes of § (t)(6), the ‘‘statutory provision whose violation forms the basis for the complaint,’’ Bennett v. Spear, 520

U.S. 154, 199 (1997). Congress adopted § (t)(6) as an amendment to the Medicare Act in 1999 because the proposed

outpatient prospective payments did ‘‘not adequately address

issues pertaining to the treatment of drugs, biologicals and

new technology,’’ and to prevent ‘‘restricted beneficiary access to drugs, biologicals and new technology.’’ H.R. REP.

106–436(I) at 53 (1999). Amgen’s commercial interest in

selling Aranesp is congruent with the interests of beneficiaries in obtaining access to the technology because Congress’

reason for providing supplemental pass-through payments

was that hospitals inadequately reimbursed for new drugs or

biologicals are less likely to provide them and more likely to

steer beneficiaries towards older, less expensive treatments.

The required offset to other reimbursements caused by supplemental payments for Aranesp under § (t)(2)(E)’s budgetneutrality requirement does not create a disqualifying conflict

between Amgen and beneficiaries. There would be such an

offset as a result of any successful challenge brought by any

eligible plaintiff seeking access to a new treatment. Moreover, just as beneficiaries desiring access to Aranesp and

hospitals desiring reimbursement for providing it would have

prudential standing to challenge pass-through payment

amounts, Amgen as a vendor does as well, cf. Nat’l Cottonseed Products Ass’n, 825 F.2d at 492. This is true irrespective of whether hospitals or beneficiaries could file lawsuits;

whether Amgen’s claim is ultimately precluded is a separate

question from whether it has prudential standing to file a

lawsuit. Unlike Hazardous Waste Treatment Council, 861

F.2d 277, where the court held that an association of pollution

equipment providers lacked standing to challenge the agency’s adoption of allegedly too weak regulations and that the

statute did not manifest ‘‘congressional intent to improve the

competitive position’’ of suppliers of more expensive pollution

control devices, id. at 284, here the purpose of the passUSCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 9 of 23
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through provision is precisely to attract supply of higherpriced items, making Amgen a suitable challenger.

The district court concluded that Amgen’s ‘‘competitive

interest in financial gain’’ was ‘‘not closely aligned with the

federal health care insurance act.’’ Amgen, 234 F. Supp.

2d at 21. In reaching this conclusion the court focused on

the broad purpose of the Medicare Act ‘‘to provide more

adequate and feasible health insurance protection for the elderly,’’ id. at 18, and neglected the more specific interest

protected by § (t)(6) itself, namely, preventing ‘‘restricted

beneficiary access to drugs, biologicals and new technology.’’ H.R. REP. 106–436(I) at 53. Under the precedents

discussed, the fact that Amgen’s motives were commercial

is not disqualifying, and in distinguishing this circuit’s precedent, the district court did not give adequate weight to

Amgen’s financial alignment with Congress’ purpose in

§ (t)(6) of increasing beneficiary access to new medical

technology. The district court’s reliance on TAP Pharmaceuticals v. U.S. Dept. of Health, 163 F.3d 199 (4th Cir.

1998), was also misplaced, for in holding that drug manufacturers lack prudential standing to challenge the Medicare B

rates at which providers are reimbursed for their drugs,

the Fourth Circuit limited the standing of commercial entities to regulated firms, their competitors, and other firms

whose interests put them in the ‘‘same position,’’ id. at 208,

a test that this court has rejected. See Tax Analysis &

Advocates v. Blumenthal, 566 F.2d 139, 142 (D.C. Cir.

1977), cert. denied, 434 U.S. 1086 (1978). Adopting a more

flexible approach that focuses instead on whether a party

‘‘in practice can be expected to police the interests that the

statute protects,’’ Mova Pharmaceutical Corp., 140 F.3d at

1075, is more faithful to the Supreme Court’s teachings, in

Clarke, 479 U.S. at 399, that parties are denied a right to

judicial review only when their interests are ‘‘marginally

related to or inconsistent with’’ the statute at issue, and in

Nat’l Credit Union Admin., 522 U.S. at 499, rejecting as

‘‘beside the point’’ whether a putative plaintiff’s objectives

are the same as those intended by Congress. The ‘‘commercial competitor[s]’’ of regulated parties, TAP PharmaUSCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 10 of 23
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ceuticals, 163 F.3d at 208, and those in the ‘‘same position,’’

id., may be examples of parties whose interests sufficiently

align with some statutory schemes to confer prudential

standing, but the court sees no reason to consider them the

only parties so situated.

Accordingly, we hold that Amgen’s interests are sufficiently

aligned with the purpose of § (t)(6) in ensuring the access of

Medicare beneficiaries to new technology, and, consequently,

it has prudential standing to sue the Secretary and the

Administrator.

III.

That Amgen has prudential standing does not resolve this

appeal, however. Another threshold issue is whether the

court has jurisdiction to entertain Amgen’s complaint. The

Administrator and Secretary contend that adjustments to

OPPS rates are not subject to judicial review. This court

may affirm the dismissal of a complaint on different grounds

than those relied upon by the district court. See Bennett v.

Spear, 520 U.S. 154, 166 (1997). The court’s jurisdiction is a

pure question of law, and as the merits do not hinge on any

fact-finding or discretionary balancing of competing interests,

a remand to the district court is unnecessary. Compare

McGraw–Hill Cos., Inc. v. Proctor & Gamble Co., 515 U.S.

1309, 1311 (1995); EEOC v. Nat’l Children’s Ctr., Inc., 98

F.3d 1406, 1411 (D.C. Cir. 1996).

Under § (t)(2)(E), the Medicare Act authorizes the Secretary to make adjustments to the payments hospitals receive

under the outpatient prospective payment system:

(E) The Secretary shall establish, in a budget neutral

manner, outlier adjustments under paragraph (5) and

transitional pass-through payments under paragraph (6)

and other adjustments as determined to be necessary to

ensure equitable payments, such as adjustments for certain classes of hospitals.

42 U.S.C. § 1395l(t)(2)(E). Regarding judicial review of the

Secretary’s adjustments, the Medicare Act provides, in pertinent part:

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 11 of 23
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There shall be no administrative or judicial review under

section 1395ff, 1395oo, of this title, or otherwise, of —

(A) The development of the [prospective payment]

classification system under paragraph (2), including

the establishment of groups and relative payment

weights for covered OPD [outpatient department] services, of wage adjustment factors, other adjustments,

and methods described in paragraph (2)(F) [regarding

measures to control ‘‘unnecessary increases in the

volume of covered OPD services’’];

Id. § 1395l(t)(12)(A) (hereafter ‘‘§ (t)(12)(A)’’). In order to

determine whether the court has jurisdiction to consider

Amgen’s complaint, the court must determine first, whether

the ‘‘other adjustments’’ of which § (t)(12)(A) precludes review include the ‘‘other adjustments as determined to be

necessary to ensure equitable payments’’ authorized by

§ (t)(2)(E), and second, whether the Secretary may use the

equitable adjustment authority under § (t)(2)(E) to alter a

payment amount to which a hospital would have been otherwise been entitled pursuant to the pass-through provision in

§ (t)(6). Because we hold that § (t)(12)(A) precludes review

of the equitable adjustments made pursuant to § (t)(2)(E),

and that the Secretary, through CMS, acted within the authority under § (t)(2)(E) in adjusting the pass-through payment amount for Aranesp, our review of DHHS’s decision is

at an end.

There is a ‘‘strong presumption that Congress intends

judicial review of administrative action,’’ Bowen v. Michigan

Academy of Family Physicians, 476 U.S. 667, 670 (1986), and

it can only be overcome by a ‘‘clear and convincing evidence’’

that Congress intended to preclude the suit. Abbott Laboratories v. Gardner, 387 U.S. 136, 141 (1967) (quoting Rusk v.

Cort, 369 U.S. 367, 380 (1962)). The presumption is particularly strong that Congress intends judicial review of agency

action taken in excess of delegated authority. See Leedom v.

Kyne, 358 U.S. 184, 190 (1958); Aid Ass’n for Lutherans v.

U.S. Postal Service, 321 F.3d 1166, 1173 (D.C. Cir. 2003).

Such review is favored, the court stated in Dart v. United

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 12 of 23
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States, 848 F.2d 217, 221 (D.C. Cir. 1988), ‘‘if the wording of a

preclusion clause is less than absolute.’’

The court therefore turns to the statute’s ‘‘language, structure and purpose, its legislative history, and whether the

claims can be afforded meaningful review.’’ Thunder Basin

Coal Co. v. Reich, 510 U.S. 200, 206 (1994). That Congress

intended to preclude judicial review of the Secretary’s adjustments to prospective payment amounts is ‘‘clear and convincing’’ from the plain text of § (t)(12) alone. The text of

§ (t)(12)(E) stipulates that ‘‘there shall be no administrative

or judicial review’’ of ‘‘other adjustments.’’ The legislative

history reflects this stipulation. See H.R. REP. 105–149 at

724. That Congress would use such language of prohibition

is unsurprising, for piecemeal review of individual payment

determinations could frustrate the efficient operation of the

complex prospective payment system. Cf. Block v. Community Nutrition Inst., 467 U.S. 340, 348 (1984). Payments to

hospitals are made on a prospective basis, and given the

length of time that review of individual payment determinations could take, review could result in the retroactive ordering of payment adjustments after hospitals have already

received their payments for the year. Moreover, both the

pass-through and equitable adjustments to payment rates are

subject to a budget-neutrality requirement under § (t)(2)(E),

such that judicially mandated changes in one payment rate

would affect the aggregate impact of the Secretary’s decisions

by requiring offsets elsewhere, and thereby interfere with the

Secretary’s ability to ensure budget neutrality in each fiscal

year. Other circuits have noted the havoc that piecemeal

review of OPPS payments could bring about, see Skagit

County Pub. Hosp. Dist. No. 2 v. Shalala, 80 F.3d 379, 386

(9th Cir. 1996); American Soc’y of Cataract & Refractive

Surgery v. Thompson, 279 F.3d 447, 454 (7th Cir. 2002), and

this court has noted similar concerns with respect to the

prospective payment system the Medicare A program utilizes

to reimburse hospitals for the costs of providing inpatient

care. See Methodist Hosp. of Sacramento v. Shalala, 38 F.3d

1225, 1232–33 (D.C. Cir. 1994); County of Los Angeles v.

USCA Case #03-5046 Document #803275 Filed: 02/13/2004 Page 13 of 23
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Shalala, 192 F.3d 1005, 1019 (D.C. Cir. 1999), cert. denied,

520 U.S. 1204 (2000).

In light of the presumption that Congress rarely intends to

foreclose review of action exceeding agency authority, however, see Leedom, 358 U.S. at 190; Aid Ass’n, 321 F.3d at 1173;

Dart, 848 F.2d at 221, we construe § (t)(12)(E) to prevent

review only of those ‘‘other adjustments’’ that the Medicare

Act authorizes the Secretary to make; in other words, the

preclusion on review of ‘‘other adjustments’’ extends no further than the Secretary’s statutory authority to make them.

First, the reference to ‘‘other adjustments’’ in § (t)(12)(A)

appears alongside other components of outpatient prospective

payments that are contemplated by the Act, such as the

establishment of ‘‘relative payment weights’’ and ‘‘wage adjustment factors.’’ The canon of statutory construction, noscitur a sociis, i.e., a word is known by the company it keeps,

cf. Washington State Dept. of Social and Health Services v.

Guardianship Estate of Keffeler, 537 U.S. 371, 384–85 (2003),

which is ‘‘often wisely applied where a word is capable of

many meanings in order to avoid giving unintended breadth

to the Acts of Congress,’’ Jarecki v. G.D. Searle & Co., 367

U.S. 303, 307 (1961), suggests that the reference to ‘‘other

adjustments’’ in § (t)(12)(A) should similarly be confined to

those ‘‘other adjustments’’ otherwise provided for in the Act,

and at least creates sufficient ambiguity to trigger the presumption that judicial review of allegedly ultra vires agency

action is favored. Second, the text in § (t)(12)(A) — ‘‘other

adjustments’’ — matches the language of ‘‘other adjustments

as determined to be necessary to ensure equitable payments’’

in § (t)(2)(E), implying that Congress intended to reference

adjustments made pursuant to that subsection. Third, the

interference with the administration of the Medicare B program that would result from judicial review pertaining to the

overall scope of the Secretary’s statutory adjustment authority, as opposed to case-by-case review of the reasonableness or

procedural propriety of the Secretary’s individual applications, would be sufficiently offset by the likely gains from

reducing the risk of systematic misinterpretation in the administration of the Medicare B program. In the similar

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context of prospective payments to hospitals providing inpatient services under the Medicare A program, which also

operates under budget-neutrality constraints, review of the

validity of certain system-wide determinations by the Secretary has been held to be available notwithstanding an express

preclusion on review of individual determinations, see Universal Health Services of McAllen, Inc. v. Sullivan, 770 F. Supp.

704, 711–12 (D.D.C. 1991), aff’d, 978 F.2d 745 (table) (D.C.

Cir. 1992).

Proceeding, then, on the basis that § (t)(12)(A) precludes

judicial review of any adjustment made by the Secretary

pursuant to the equitable adjustment authority under

§ (t)(2)(E), but not of those for which such authority is

lacking, the court turns to the question of whether § (t)(2)(E)

authorizes the type of adjustment the Secretary, acting

through CMS, made here. This requires consideration of the

merits of Amgen’s claim that the Secretary’s decision to

eliminate pass-through payments for Aranesp violated

§ (t)(6), which dictates the manner in which such payments

are to be calculated. If a no-review provision shields particular types of administrative action, a court may not inquire

whether a challenged agency decision is arbitrary, capricious,

or procedurally defective, but it must determine whether the

challenged agency action is of the sort shielded from review.

Otherwise, agencies could characterize reviewable or unauthorized action as falling within the scope of no-review provisions

whose application to such action Congress did not intend. In

such cases, the determination of whether the court has jurisdiction is intertwined with the question of whether the agency

has authority for the challenged action, and the court must

address the merits to the extent necessary to determine

whether the challenged agency action falls within the scope of

the preclusion on judicial review.

Most apposite is Comsat Corp. v. FCC, 114 F.3d 223 (D.C.

Cir. 1997). The Communications Act of 1934 provides the

Federal Communications Commission with authority to make

certain amendments to fees, and includes in the same paragraph a provision stipulating that ‘‘amendments pursuant to

this paragraph shall not be subject to judicial review.’’ 47

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U.S.C. § 159(b)(3) (2004). The court held that it had jurisdiction to review whether the Commission’s fee changes fell

within the scope of the Commission’s authority under the

paragraph, and that the Commission’s position that it was

acting pursuant to authority shielded from review did not end

the matter: ‘‘the statute merges consideration of the legality

of the Commission’s action with consideration of this court’s

jurisdiction in cases in which the challenge to the Commission’s action raises the question of the Commission’s authority

to enact a particular amendment. Where, as here, we find

that the Commission has acted outside the scope of its

statutory mandate, we also find that we have jurisdiction to

review the Commission’s action.’’ 118 F.3d at 226–27. Similarly, in E.I. du Pont de Nemours & Co v. Train, 430 U.S.

112, 124–25 (1977), involving a challenge to regulations promulgated by the Environmental Protection Agency pursuant

to the Federal Water Pollution Control Act, the Supreme

Court faced a statutory scheme whereby review was available

in the Court of Appeals for agency action taken pursuant to a

particular section of the Act, but the parties were in disagreement regarding whether that section authorized the agency to

issue regulations. The Supreme Court held that ‘‘the issue of

jurisdiction is intertwined with the issue of EPA’s power to

issue the regulations’’ and proceeded to address the merits.

Id. at 125.

The court therefore must determine whether § (t)(2)(E)

authorizes the Secretary to alter a pass-through payment

otherwise required by § (t)(6). If it does, review is precluded. If it does not, because the court construes § (t)(12)(A) as

only shielding from review ‘‘other adjustments’’ contemplated

by the Medicare Act, the preclusion of review would not apply

to shield the Secretary’s unauthorized action. The effect of

the interplay of these statutory provisions is also to render

irrelevant Amgen’s contentions that the Secretary’s elimination of the pass-through payment for Aranesp was arbitrary,

capricious, and procedurally deficient. If the Secretary is

authorized to alter pass-through payments, judicial review is

precluded and it does not matter how the Secretary made the

decision. If the Secretary is not so authorized, even a

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procedurally proper and reasonably explained decision would

be contrary to law because it would be ultra vires.

On the merits, Amgen’s statutory claim is defeated by the

text of § (t)(2)(E). The plain meaning of the Secretary’s

equitable adjustment authority permits the type of adjustment that the Secretary, acting through CMS, made here.

Under § (t)(2)(E), the Secretary may make ‘‘other adjustments’’ to hospital payments beyond those already allowed

under by the statute, ‘‘as determined to be necessary to

ensure equitable payments.’’ It is difficult to see how a

decision by the Secretary to adjust pass-through payments

for a specific treatment downward, based on the Secretary’s

conclusion that the treatment is too costly relative to its

benefits, would not lie at the heart of such authority. The

text of § (t)(2)(E), by authorizing the Secretary to adjust

payments where ‘‘necessary to ensure equitable payments,’’

manifests Congress’s recognition that the payment system

might otherwise sometimes produce inequitable results. The

House and Conference Reports to the Balanced Budget Act

of 1997, Pub. L. No. 105–33, 111 Stat. 251 (1997), state that

that Act ‘‘giv[es] the Secretary discretion in determining the

adjustment factors that will be applied to OPD prospective

rates.’’ H.R. REP. 105–149 at 1323 (1997), H.R. CONF. REP.

No. 105–217 at 785 (1997). That discretion is what was

exercised here.

Amgen presents several arguments for why the Secretary’s

decision to alter Aranesp pass-through payments is not the

sort of ‘‘adjustment’’ authorized under § (t)(2)(E), but none

are persuasive. It relies primarily on a textual argument

relating to the words ‘‘shall’’ and ‘‘other.’’ Amgen maintains

that § (t)(6), which sets forth the means for calculating passthrough payments, provides in § (t)(6)(A) that the Secretary

‘‘shall’’ make pass-through payments, as does § (t)(2)(E), and

describes the manner of their calculation. Focusing on the

specificity of § (t)(6)’s instructions — that pass-through payments shall equal 95% of the wholesale cost of the drug or

biological minus the payment amount under the prospective

payment system, §§ (t)(6)(D) & 1395(u)(o); that the payments

shall continue for no fewer than two years and no more than

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three, § (t)(6)(C); and that all pass-through payments shall

be reduced pro rata in the event that total pass-through

payments exceed a fixed percentage of total payments for

that year, § (t)(6)(E) — Amgen contends that the Secretary

acted unlawfully in using the equitable adjustment authority

to override the ‘‘clear statutory mandate’’ to make passthrough payments in the prescribed manner. Amgen points

to the pro rata reductions required by § (t)(6)(E) and shielded from review by § 1395l(t)(12)(E), and contends that because pro rata reductions to avoid budgetary overruns are the

only reductions to pass-through payments addressed in

§ (t)(6), the Secretary’s authority to reduce pass-through

payments is correspondingly limited. Amgen also contends

that the legislative history of § (t)(2)(E) supports its reading

of the word ‘‘shall.’’ Prior to 1999, § (t)(2)(E) provided that

‘‘the Secretary shall establish other adjustments, in a budget

neutral manner, as determined to be necessary to ensure

equitable payments, such as outlier adjustments or adjustments for certain classes of hospitals.’’ This language was

changed in the Balanced Budget Refinement Act of 1999,

Pub. L. No. 106–113, 113 Stat. 1501 (1999), so that § (t)(2)(E)

now provides that ‘‘the Secretary shall establish TTT outlier

payments TTT pass-through payments TTT and other adjustments as determined to be necessary to ensure equitable

payments.’’ Amgen contends that the new language, by

changing outlier payments from an example of an equitable

adjustment the Secretary may consider into an adjustment

the Secretary ‘‘shall establish,’’ reduced the Secretary’s discretion, both for outlier payments and pass-through payments. The Secretary’s discretionary authority, Amgen

maintains, is therefore limited to ‘‘other’’ adjustments —

adjustments to rates ‘‘other’’ than those already adjusted by

the outlier and pass-through payment provisions.

This line of reasoning reads too much into the ‘‘shall’’ in

§§ (t)(2)(E) and (t)(6)(A). In the Balanced Budget Refinement Act, Congress made outlier and pass-through payments

mandatory, but they are mandatory only in the same sense

that regional adjustments in § (t)(2)(D) and the use of past

cost data in § (t)(2)(C) are mandatory: they are part of

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default OPPS rate calculations subject to later adjustment.

Congress’ amendments to § (t)(2)(E) do not mean that Congress also eliminated the Secretary’s discretion to make

further equitable adjustments to payment rates already adjusted through the outlier or pass-through provisions. Similar uses of the statutory term ‘‘shall’’ elsewhere for the

Medicare B program suggest the opposite. Almost every

provision in § 1395l(t)(2) governing OPPS payments requires

that the Secretary ‘‘shall’’ compute payment amounts in a

certain manner: the Secretary ‘‘shall’’ develop a classification

system for covered services, § (t)(2)(A); ‘‘shall’’ use median

or mean cost data to establish payment weights for those

services, § (t)(2)(C); ‘‘shall’’ determine wage adjustment factors, § (t)(2)(D). Other than the Secretary’s authority to

group clinically similar services together for payment purposes pursuant to § (t)(2)(B), OPPS payments are calculated

almost entirely based on steps the Secretary ‘‘shall’’ take. If

use of the word ‘‘shall’’ makes those payments final, there

would be nothing left for the Secretary to adjust pursuant to

§ (t)(2)(E), for ‘‘other’’ adjustments would violate a ‘‘shall’’

provision. Congress’ use of the term ‘‘shall’’ to describe

OPPS calculations throughout § (t)(2) thus contemplates the

qualification that initial payment amounts are subject to later

adjustment, subject to the Secretary’s ‘‘discretion.’’ H.R.

REP. 105–149 at 1323, H.R. CONF. REP. No. 105–217 at 785.

The Balanced Budget Refinement Act used the same terminology in adding pass-through and outlier payments to the

initial calculation of OPPS payments, and there is nothing in

the Act to suggest that Congress intended to bar adjustments

by the Secretary.

Congress’ recent amendment to § 1395l(t)(6) in § 622 of

the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108–173, highlights the

Secretary’s flexibility under § (t)(2)(E). As amended,

§ (t)(6)(F) bars the Secretary, after the date of enactment

(December 8, 2003), from calculating pass-through payments

for drugs or biologicals in future rates using a ‘‘functional

equivalence’’ standard, although determinations of ‘‘functional

equivalence’’ made prior to the date of enactment may still be

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used in future rates so long as they are made only to

determine eligibility for pass-through adjustments and not to

calculate other OPPS payments. Id. at § 622; 42 U.S.C.

§ 1395l(t)(6)(F)(ii). The amendment only applies ‘‘on or after

December 8, 2003’’, id., so it does not apply retroactively of

its own force to the 2003 OPPS rates at issue here. The new

limitation on the future application of a ‘‘functional equivalence’’ standard to pass-through payments, however, by permitting the continuation of some such calculations made ‘‘prior to December 8, 2003,’’ § (t)(6)(F)(ii)(I), contemplates the

Secretary’s authority to apply such a standard in the first

instance. Yet if Amgen’s interpretation of §§ (t)(2)(E) and

(t)(6)(A) were correct, and the ‘‘clear statutory mandate’’ by

which § (t)(6) sets pass-through payments cannot be altered,

there would be no opportunity to apply a ‘‘functional equivalence’’ standard to pass-through payments to begin with:

payment amounts would have been finally set under

§ (t)(6)(D), which sets total payments for pass-through drugs

and biologicals at 95% of wholesale costs. Congress did not

enact such an inflexible system.

Nor, as Amgen contends, does a flexible understanding of

the Secretary’s equitable adjustment authority under

§ (t)(2)(E) render superfluous § (t)(12)(E), which prevents

review of only certain decisions related to the calculation of

pass-through payments. Amgen maintains that if the Secretary could make equitable adjustments to pass-through payments, it would be redundant for the Medicare Act also to

exempt decisions about matters such as the duration of

payments or the application of any pro rata reduction from

judicial review, because the Secretary could make all such

decisions as ‘‘equitable adjustments’’ under § (t)(2)(E) and

shield them from review under § (t)(12)(A). This is not a

redundancy at all; the initial setting of OPPS rates and later

adjustments are different decisions. Amgen does not point to

any concrete way in which the Secretary could use the

equitable adjustment authority to shield a calculation or

decision for which the Medicare Act contemplates review.

Section (t)(12)(E) is not exhaustive; it lists calculations the

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Secretary would make while setting pass-through payments

in the first instance. The fact that Congress also used

§ (t)(12)(A) to shield any later adjustments to those initial

rates pursuant to § (t)(2)(E) is not a redundancy. Nor, for

that matter, is the breadth of the no-review provisions surprising, given Congress’ reasons for limiting review. See

Skagit County Pub. Hosp. Dist. No. 2 v. Shalala, 80 F.3d 379,

386 (9th Cir. 1996); American Soc’y of Cataract & Refractive

Surgery v. Thompson, 279 F.3d 447, 454 (7th Cir. 2002); cf.

Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225,

1232–33 (D.C. Cir. 1994); County of Los Angeles v. Shalala,

192 F.3d 1005, 1019 (D.C. Cir. 1999), cert. denied, 520 U.S.

1204 (2000).

The Secretary’s equitable adjustment authority that enables the adjustment of OPPS payments otherwise set by the

Medicare Act, including pass-through payments, would not, as

Amgen contends, give the Secretary the absurdly broad

power to make drastic adjustments, such as the elimination of

the entire pass-through program, and term it an ‘‘equitable

adjustment,’’ thereby undermining the mandatory nature of

the pass-through payment system while evading judicial review. Limitations on the Secretary’s equitable adjustment

authority inhere in the text of § (t)(2)(E), which only authorizes ‘‘adjustments,’’ not total elimination or severe restructuring of the statutory scheme. As in MCI Telecommunications

Corp. v. American Tel. & Tel. Co., 512 U.S. 218, 225 (1994),

where the Supreme Court held that the Federal Communication Commission’s authority to ‘‘modify’’ certain requirements

could not reasonably be read to encompass the power to make

‘‘basic and fundamental changes in the scheme’’ such as

eliminating them entirely, similar limits inhere in the term

‘‘adjustments’’ to those the Supreme Court found in the word

‘‘modify.’’ The statutory requirement that the Secretary

‘‘shall’’ develop certain aspects of the payment system is

qualified by the Secretary’s authority to ‘‘adjust[ ]’’ those

payment amounts, but a more substantial departure from the

default amounts would, at some point, violate the Secretary’s

statutory obligation to make such payments and cease to be

an ‘‘adjustment[ ].’’ Because the Secretary would, in that

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event, exceed his statutory authority under § (t)(2)(E), the

preclusion on judicial review in § (t)(12)(A) would not apply.

Cf. Leedom v. Kyne, 358 U.S. at 190; United States v. Dart,

848 F.2d at 223. But because the adjustment to which

Amgen objects, involving only the payment amount for a

single drug, does not work ‘‘basic and fundamental changes in

the scheme’’ Congress created in the Medicare Act, MCI

Telecommunications Corp., 512 U.S. at 225, but is rather of

the sort contemplated by the plain text of § (t)(2)(E), the

court has no occasion to engage in line drawing to determine

when ‘‘adjustments’’ cease being ‘‘adjustments.’’

Finally, the court does not reach the question of whether

review of Amgen’s constitutional claim is barred, as it is not

properly before us. Amgen contends in its reply brief that

the court has jurisdiction to review Amgen’s constitutional

claim that the administrative process violated its due process

rights under the Fourteenth Amendment irrespective of

whether § (t)(12)(A) shields the adjustment from review.

The court has ‘‘repeatedly held that an argument first made

in a reply brief ordinarily comes too late for our consideration.’’ Students Against Genocide v. Department of State,

257 F.3d 828, 842 (D.C. Cir. 2001); see also Bd. of Regents of

the Univ. of Washington v. EPA, 86 F.3d 1214, 1221 (D.C.

Cir. 1996). There is no reference in the district court’s

opinion to Amgen’s constitutional claim, and Amgen’s main

brief mentions neither its constitutional claim nor the district

court’s failure to address it. Instead, Amgen’s main brief

seeks reversal only of the district court’s ruling on prudential

standing under the Medicare Act and the APA, notwithstanding the irrelevance of such a requirement to constitutional

claims, see Clarke, 479 U.S. at 400 n.16, and its awareness of

the Secretary’s arguments in the district court that judicial

review of Amgen’s complaint, which included a constitutional

claim, was precluded. The Secretary’s brief on appeal does

not address whether the court has jurisdiction of the constitutional claim made in Amgen’s complaint, as Amgen mentions

that claim for the first time in its reply brief. Under these

circumstances, the court has no occasion to make exception to

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its usual refusal to address contentions raised for the first

time in a reply brief.

Accordingly, we affirm the dismissal of Amgen’s complaint.

Although we hold that Amgen has prudential standing to

bring its complaint, we also hold that the court lacks jurisdiction under § (t)(12)(A) to consider Amgen’s complaint challenging the Secretary’s exercise of the equitable adjustment

authority under § (t)(2)(E).

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