Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-05317/USCOURTS-caDC-98-05317-0/pdf.json

Parties Involved:
National Association of Public Hospitals and Health Systems
Amicus Curiae for Appellant
Donna E. Shalala
Appellee
University Medical Center of Southern Nevada
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 12, 1999 Decided April 13, 1999

No. 98-5317

University Medical Center of Southern Nevada,

Appellant

v.

Donna E. Shalala, Secretary,

United States Department of Health & Human Services,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 97cv00560)

Elliott B. Adler argued the cause and filed the briefs for

appellant.

Robert D. Kamenshine, Attorney, United States Department of Justice, argued the cause for appellee. With him on

the brief were Frank W. Hunger, Assistant Attorney General, Wilma A. Lewis, United States Attorney, and Anthony J.

Steinmeyer, Attorney, United States Department of Justice.

Michael E. Anderson was on the brief for amicus curiae

National Association of Public Hospitals and Health Systems.

Before: Silberman, Ginsburg, and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: University Medical Center of

Southern Nevada (UMC) appeals from the district court's

dismissal, for lack of standing, of its challenge to the Department of Health and Human Service's administration of a drug

discount program. We agree that appellant lacks standing,

albeit on different grounds than those relied on by the district

court, and affirm the dismissal.

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I.

Congress, concerned that many federally funded hospital

facilities serving low-income patients were incurring high

prices for drugs, enacted section 340B of the Public Health

Service Act. 42 U.S.C.A. s 256b (Supp. 1998). Section 340B

requires a manufacturer of "covered outpatient drugs" to

enter into a contract with the Secretary of HHS--a condition

for eligibility for Medicaid matching funds--under which the

manufacturer agrees to provide these drugs to certain "covered entities" at discounted prices.1 A covered entity is one

that meets certain statutory criteria; as relevant here, an

eligible hospital is one that has a "disproportionate share

adjustment" percentage (which is a measure of the number of

low-income patients served by the hospital) greater than 11.75

for the most recent cost reporting period, and that does not

obtain covered outpatient drugs through a group purchasing

organization or other group purchasing arrangement.2 HHS

__________

1 Covered outpatient drugs are those drugs defined under

section 1927(k) of the Social Security Act, 42 U.S.C. s 1396r-8(k)

(1994). See 42 U.S.C. s 256b(a)(3); see also id. at s 1396r-8(a), (c)

(setting forth rebate requirements).

2 The type of covered entity involved in this case is defined in

42 U.S.C. s 256b(a)(4)(L)(i)-(iii). The disproportionate share adjustment is calculated in accordance with 42 U.S.C.

s 1395ww(d)(5)(F) and 42 C.F.R. s 412.106 (1998).

initially interpreted the latter eligibility criterion as barring

only "double dipping"--that is, hospitals could participate in

both the section 340B discount program and a group purchasing organization provided that the hospital did not receive

340B discounts on the same drugs purchased through the

group purchasing organization. As the program matured,

however, HHS subsequently changed its interpretation, concluding that participation in a group purchasing organization

for the purchase of covered outpatient drugs would, after

May 1994, render the hospital ineligible for 340B discounts.

HHS compiled an initial list of qualifying hospitals when

the program went into effect on December 1, 1992, and

updates the list quarterly based on information (including the

hospital's disproportionate share adjustment) contained in

cost reports provided to HHS by the hospital's fiscal intermediary. If cost data show that a hospital has become eligible,

it is added to the list at the beginning of the next quarter;

similarly, if the data show a hospital is no longer eligible, it is

removed from the list at the beginning of the next quarter.

In other words, the hospital's eligibility status is prospective

only. At the start of the program, however, manufacturers

did not yet have in place the mechanism to provide the

discounts to covered entities at the point of sale. HHS

therefore allowed retroactive discounts to allow manufacturers time to integrate the discounts into their drug distribution

system while at the same time ensuring that covered entities

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received the discounts to which they were entitled. If a

hospital had been on the initial list, it would be able to get

discounts from the manufacturer retroactive to December 1,

1992, and hospitals placed on the list subsequently would be

eligible for discounts retroactive to their inclusion on the list,

provided the hospitals requested such retroactive discounts

from the manufacturers before June 13, 1994. After June 13,

1994, discounts could only be obtained at the time of purchase.

Appellant wished to participate in the 340B program, but it

was not included on the initial eligibility list because the cost

report submitted by its fiscal intermediary for the most

recent cost reporting period reflected a disproportionate

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share adjustment of less than the required 11.75 percent.

When the intermediary completed an audit of UMC's 1991

cost report (in circa August 1993), it discovered that the

correct disproportionate share adjustment percentage exceeded that required for eligibility. Both UMC and the intermediary then gave the Health Care Financing Administration

and the Office of Drug Pricing, which oversees the 340B

program, the corrected numbers, and told them that UMC

had a qualifying disproportionate share adjustment percentage. UMC alleged that the government did not respond to

any of this correspondence. When the administrative process

was complete (following the influence of a congressional "intermediary") and HHS had satisfied itself that UMC did

indeed qualify for the 340B program discounts, UMC was

placed on the eligibility list on July 1, 1994. This meant

UMC could only receive discounts on drugs purchased on or

after that date. During the period from December 1992 to

June 1994, UMC had continued to purchase certain covered

outpatient drugs though its group purchasing arrangement.

UMC then filed a complaint in the district court, seeking a

declaratory judgment that HHS was arbitrary and capricious

in not putting UMC on the list earlier, and that UMC is

entitled to retroactive discounts for covered drugs purchased

between December 1, 1992 and June 13, 1994. HHS countered first that UMC lacked standing because the ultimate

relief it seeks--retroactive discounts--cannot be gained by a

judgment against the government. The district court agreed

that UMC did not have standing, but not on the grounds

argued by the government. Rather, the district court concluded that the plain language of the statute excludes from

340B eligibility hospitals that participate in group purchasing

agreements. Since UMC continued to participate in such a

program during the period for which it also claims it should

receive retroactive discounts under section 340B, the district

court thought UMC is statutorily barred from receiving such

discounts. See University Med. Ctr. v. Shalala, 5 F. Supp.2d

4, 8-9 (D.D.C. 1998).

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II.

UMC makes two arguments: the district court erred in

interpreting the statute and therefore erroneously found that

UMC lacked standing, and the district court erred procedurally in granting judgment on the pleadings to the government.3 The government agrees that the district court's interpretation of the group purchasing exclusion in the statute was

erroneous and that UMC is not barred from eligibility by

virtue of its previous participation in a group purchasing

organization. During the time period for which UMC seeks

retroactive discounts, participation in a group purchasing

arrangement was not a per se bar to participation in the 340B

program--only double-dipping was prohibited. It is conceded, therefore, that UMC does not want for standing on

this basis. The government alternatively claims--as it did

below--that UMC lacks standing because the asserted injury

is not redressable. UMC's inability to obtain retroactive

discounts from drug manufacturers, the government contends, will not be affected by any judgment against HHS.4

We start, of course, with the jurisdictional question. A

party invoking federal jurisdiction must show injury-in-fact

that is fairly traceable to the challenged conduct of the

defendant and that is likely to be redressed by a favorable

decision of the court. See Lujan v. Defenders of Wildlife, 504

__________

3 Because we resolve this case on jurisdictional grounds, we do

not reach the merits. We note, however, that UMC misunderstands the district court's role in reviewing agency action. The

district court sits as an appellate tribunal in such a case, and the

question whether HHS acted in an arbitrary and capricious manner

is a legal one which the district court can resolve on the agency

record--regardless of whether it is presented in the context of a

motion for judgment on the pleadings or in a motion for summary

judgment (or in any other Rule 12 motion under the Federal Rules

of Civil Procedure). See Marshall County Health Care Auth. v.

Shalala, 988 F.2d 1221, 1225-26 (D.C. Cir. 1993).

4 The government also argues that even if UMC has standing it

has no valid claim because the Administrative Procedure Act (APA)

provides no remedy for an agency's alleged "negligent" delay in

processing an ultimately granted application.

U.S. 555, 560-61 (1992). The injury must be distinct and

palpable and not merely hypothetical, abstract, or conjectural.

See Allen v. Wright, 468 U.S. 737, 751 (1984); Warth v.

Seldin, 422 U.S. 490, 501 (1975). And "[i]t must be 'likely,' as

opposed to merely 'speculative,' that the injury will be 'redressed by a favorable decision.' " Defenders of Wildlife, 504

U.S. at 561 (quoting Simon v. Eastern Ky. Welfare Rights

Organization, 426 U.S. 26, 41-42 (1976)).

UMC has categorized its injury in varying ways. In its

motion for summary judgment before the district court, UMC

argued that HHS acted unreasonably in failing to place UMC

on the list earlier, thereby depriving UMC of the full benefit

of the discounts available to it under the 340B program.

Thus characterized, UMC appeared to be asserting a moneUSCA Case #98-5317 Document #429056 Filed: 04/13/1999 Page 5 of 8
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tary injury--the denial of discounts as a result of not being

on the list. But in response to HHS's counter-argument that

such an injury is not redressable because it depends on the

actions of the drug manufacturers who were not parties to the

suit, UMC contended before the district court and reiterates

here that its requested relief--a judgment declaring that

UMC was unlawfully excluded from the list--would fully

redress its injury. This is so, appellant insists, because the

"illegal exclusion from the eligibility list, and not the fact that

UMC was forced to pay higher drug prices, is the wrong that

UMC seeks to redress" in this lawsuit. Appellant's shifting

formulation of its injury is understandable. If it were simply

HHS's alleged illegal action--its failure to put UMC on the

list during the now-closed "window" for retroactive discounts--then UMC lacks standing because alleged illegality

without an injury-in-fact does not satisfy standing requirements. See Allen v. Wright, 468 U.S. at 754 (stating that "an

asserted right to have the Government act in accordance with

law is not sufficient, standing alone, to confer jurisdiction on a

federal court"); Steel Co. v. Citizens for a Better Environment, 118 S. Ct. 1003, 1018-19 (1998).

If, on the other hand, the asserted injury is the loss of

discounts during the retroactive period, then UMC's case

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founders because it fails to meet the redressability requirement. Even assuming that appellant could establish "a causal nexus between the agency action" (not putting UMC on the

list during the retroactive period) "and the asserted injury"

(not getting retroactive discounts), Freedom Republicans,

Inc. v. Federal Election Comm'n, 13 F.3d 412, 418 (D.C. Cir.

1994), it still does not show that its claimed injury " 'is likely

to be redressed' " by a declaratory judgment. See Humane

Soc'y v. Babbitt, 46 F.3d 93, 100 (D.C. Cir. 1995) (quoting

National Wildlife Fed'n v. Hodel, 839 F.2d 694, 704 (D.C. Cir.

1998)). Whether UMC can get the retroactive discounts

apparently depends on whether the manufacturers--who are

not parties to this action--could be persuaded to pay them--

presumably based on their contract with HHS to which UMC

is not even a party. If it could be said that UMC was legally

entitled to get the discounts as a result of being placed on the

list effective December 1, 1992, then we might have a different situation. That would force us to ask how likely it was

that appellant would succeed in the second suit. (We are not

aware of a case that presents that situation; we are inclined

to think that a plaintiff should bring in parties like the drug

manufacturers as third-party defendants.) But we do not

have to wrestle with this problem because UMC does not

even claim that it has a contingent legal right against the

drug manufacturers. Even if appellant had a declaratory

judgment that the government unlawfully delayed in placing

UMC on the list, it has never explained how, or under what

legal theory, it would be entitled to recover against the

manufacturers. UMC suggested that because its injury has

two parts--being left off the list and losing the discounts--it

should be allowed to seek redress in two steps, first getting a

declaratory judgment and then suing the manufacturers. But

that is essentially a concession that the redressability requirement cannot currently be met. Redressability must be satisfied now to establish jurisdiction.

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* * * *

As UMC has not shown that HHS has caused it an injury

that we can redress, we affirm the district court's dismissal of

the case.

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