UNITED STAT ES DIS TRICT COURT F OR THE D ISTRIC T OF CO LU M BIA
THE C OA LITI ON F OR CO M M ON SENS E IN GOVERNM ENT P RO CU RE M EN T, P la in t if f, v. Ci vilAc ti on N o. 08 -9 96 (J DB ) UN ITED STA TES OFAM ERIC A a nd UN ITED STA TES D EP AR TM EN T OF DE F EN SE, Defendan t.
M EM OR AN DU M OP IN ION On J anuar

y 28, 2008, Congr ess ena cted the N ational Def ense Authorization Act for F isc a l Y e ar 2 00 8 ( " ND AA -0 8" ). Se c tio n 7 03 of ND AA -0 8 r e qu ir e s th at ph arm a c e uti c a ls p a id fo r b y the De pa rtme nt o f D e fe ns e (" De pa rtme nt" or

" Do D" ) a

nd pr ov ide d thro ug h th e TRI CA RE reta il pharmac y

prog ram be subject to pricingstandards known as F eder al Ceiling Price s. The De pa rtme nt p ro mul g ate d a

fi na l r ule imp le me nti ngse c tio n 7 03 on Ma rc h 1 7, 20 09 . U nd e r t

his rule, pha rmac eutical manuf

actur ers c annot re ceive more than the Fe dera l Ceiling Prices f or ph arm a c e uti c a ls p ur c ha se d b y Do D f or the re ta il p ha

rm a c y pr og ra m, a nd mus t r e fu

nd amou nts in excess of the F eder al Ceiling Price s for pre scriptions filled on or af ter January

28, 2008. Plaintiff Coalition for Common S ense in Gove rnment Procur ement (" Coalition") cha lleng es the Depa rtment' s rule, conte nding that it shoul d be set a side under the Administrative Procedur e Ac t beca use, inter a lia, the Depa

rtment err oneously

interpre ted NDAA -08 to requir e re funds by manufa cture rs to DoD and to r equire the statute' s obligations to apply beg inning on January

28,Although the Coalition originally filed this suit t o challeng e an e arlier DoD attempt at 1 implementing 10 U.S.C. § 1074g (f) , it amended its complaint to challeng e the f inal rule. See A m. Co mp l. [D o c k e t E n tr y 3 2 ]. -2- 20 08 . B e fo re the Court

are the pa

rt ie s c ro ss- mot ion s f

or summa ry jud g me nt. 1 I. T h e C o urt , an d

th e p art i es , h av e b ee nh er e b ef o re . S ee C o al
. fo r C o m m o nS en s e i nGo v 't Procure ment v. United States, 576 F. Supp. 2d 162 (D.D .C. 2008); see a lso Coal. for Common Sense in Gov' t Procureme nt v. Sec' y of Ve tera ns Affa irs, 464 F.3d 1306 ( Fe d. Cir. 2006). A detailed r etellingof the statutory and re g ulatory

background animatingthis case is there fore
unnece ssary . Instead, it is appropriate now to foc us on the Depa rtment' s promulga

tion of the challeng ed rule
. Se c tio n 7 03 of

ND AA -0 8 r e qu ir e s p ha

rm a c e uti c a ls o bta ine d thro ug h th e TRI CA RE r e ta il pharma cy prog ram be subject to Fe dera l Ceiling Prices. It provides in a new 10 U.S.C. § 1074g (f) that [w] ith respec t to any

presc ription filled on or afte r the date of the e nactment of the Natio na l D e fe ns e Autho ri zat ion Ac t f or F isc a l Y e ar 2 00 8, the TRI CA RE r e ta il pharma cy prog ram shall be tr eate d as an e lement of the D epar tment of Def

ense f or purposes of the procur ement of dr ug s by Fe dera l ag encie s under se ction 8126 of title 38 to the ex tent nece ssary to ensure that pharmac euticals pa id for by the De pa rtme nt o f D e fe ns e that are pr ov ide d b y ph arm a c ie s und e r t

he pr og ra m to elig ible cover ed bene ficiar ies under this sec tion are subjec t to the pricing standards in such se ction 8126. And it require s DoD, af

ter c onsultation with ot her a dminist eringag encie s, to "modify the regulations under [10 U.S.C. § 1074g(h)] to implement the require ments of [the new 10 U.S.C. § 10 74 g (f )]. " Natio na l D e fe ns e Autho ri zat ion Ac t f or F isc a l Y e ar 2 00 8, Pub . L . 1 10 -1 81 , 1 22 Stat. 3, 188 (2008). In other wor ds, section 703 re quires that for any presc ription filled on or afte rTh e ru le do e s n ot a ff e c t th e ri g hts or

lia bil iti e s o f a

ny of the oth e r p art ie s th at pa

rt ic ipate 2 in t he re ta il p ha

rm a c y pr og ra m: who le sa le rs , n e tw or

k p ha rm a c ie s, pr ivate ph arm a c y be ne fi t mana g e rs , a

nd TRI CA RE b e ne fi c iari e s. Se e Pl. ' s Me m. i n Su pp . o f P l.' s Mo t. f

or Part ia l Summ. J . (" Pl.'s Mem." ) [Docket Entry 44], at 4 (char

t detailing the parties involved in a r etail phar macy prog ram tra

nsaction). -3- J anuar y 28, 2008, the TRI CARE retail phar macy prog ram is to be tre ated a s an ele ment of DoD for pur poses of drugprocur ement to the extent nece ssary to ensure that drug s paid for by DoD
are su bje c t to F e de ra l Ce ili ngPr ic e s. The De fense Depa

rtment published a notice of proposed f

ormal rulemaking to implement
se c tio n 7 03 in Jul y

20 08 . Se e 73 F e d. Re g . 4 3, 39 4 ( July 25 , 2 00 8) . A ft e r r e c e ivi ngc omm e nts on the proposed r

ule, the De partment published its final rule on Ma rch 17, 2009, to be eff

ective May 26, 2009. See 74 F ed. Reg . 11,279 (Mar ch 17, 2009). The rule re quires phar mace utical manufa cture rs to honor sec tion 703's oblig ation that "T RI CARE retail phar macy network presc riptions are subjec t to Fede ral CeilingPrices." 32 C.F.R. § 199.21(q)( 1)(ii). The rule does 2 so by prohibiting manuf

actur ers f rom rec eivingamounts above the Fe dera l Ceiling Prices f or pharma ceutica ls provided to the re tail pharmac y prog ram. See id. Three provisions acc omplish t his outcome. First, the D efe nse De partment a nd pharma ceutica l manufac turers ma y enter into voluntary

written agree ments in which manufa cture rs agree "to honor the pricingstandards r equire d by 10 U.S.C. § 1074g(f

)." I d. § 199.21(q)( 2)(i). In these a g ree ments, manufac turers " acknow ledg e the e x istence of the [Fede ral Ceiling Price ] obl igation and promise to meet it." 74 F ed. Reg . at 11,286. B y rec og nizi ngthe F e de ra l Ce ili ngPr ic e ob lig atio n, manu fa c tur e rs a lso a g re e to r e fu nd pa y me nts in e xce ss o f t

his price for r etail phar

macy prog ram tra

nsactions occ urringon or af ter the e nactment of

NDAA- 08. See 32 C.F.R. § 199.21(q) (3)( i). I f a ma nufac turer e nters into a voluntary ag ree ment, it rece ives-4-

marke t advantag es: its pharmac euticals may be conside red f

or uniform for

mulary status, and may be ava ilable " throug h reta il network phar macies w ithout preauthorization." I d. § 199.21(q)( 2)(i). Second, if a

manufa cture r does not agree to meet the F eder al Ceiling Price s throug h such
an a g re e me nt, but ne ve rt

he le ss p ro vid e s p ha

rm a c e uti c a ls t

hr ou g h th e re ta il p ha

rm a c y pr og ra m, DoD may obtain ref

unds on transac tions in ex cess of the Fe dera l Ceiling Prices through a debt collection ac tion. See id. § 199.21(q)(3) (i) (" Refund proc edure s . . . . may be esta blished as par

t of the a g ree ment ref

err ed to in para g raph ( q)(2) , or in a sepa rate ag ree ment, or pursua nt to § 199.11.") ; see a lso id. § 199.11 (authority for de bt collection under TRI CARE). The De partment may also obtain ref

unds from re tail pharmac y prog ram sale s occur

ringon or af

ter January

28, 2008, that wer e in excess of the F eder al Ceiling Price s under the sa me authority . See id. § 199.21(q)( 3)(iii); see a lso 74 Fed. Reg . at 11,286 (" [I ]f a manufa cture r wa s paid more than the [Feder al Ceiling Price ] . . . t he tra nsaction re sulted in an overpa y ment . . . . To resolve the overpa y ment, the manufa cture r must pay DoD a r efund of

the amount above the [Fede ral Ceiling Price].") . The De partment, howe ver, ma y waive or compromise the r efund a mount. See 32 C.F.R. § 199.21(q)( 3)(iii)(A)
. F ina lly , th e manu fa c tur e r m ay e sc a pe the F e de ra l Ce ili ngPr ic e s a lto g e the r b y vo luntari ly removingthe drug"f

rom cove rag e in the TRI CARE Pharmacy Be nefit Prog ram." I d. § 199.21(q)( 3)(iii)(C). In eff ect, the pha

rmac eutical manuf

actur er w ould not participate in the TRI CA RE p ro g ra

m. II. Under Fe d. R. Civ. P . 56(c) , summary judgme nt is appropriate when the ple ading s and the evidenc e demonstrate that " there is no ge nuine issue as to any materia l fac t and that the-5-

moving pa

rty is entitled to judgment as a matter of la

w." In a ca se involving r eview of a fina l ag ency action under

the Administrative Proce dure A ct, 5 U.S.C. § 706, however , the standar d set forth in Rule 56(c) does not apply beca use of the limited role of

a cour t in reviewingthe administrative re cord. See Prof' l Drivers Council v. B urea u of Motor Carr ier Safe ty , 706 F.2d 1216, 1229 (D.C. Cir. 1983); Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89-90 (D .D.C. 2006). Under the APA, the ag ency

resolves f

actua l issues to arrive at a dec ision that is s upported by the administrative re cord. Summary judgme nt is the mechanism for de cidingwhether as a matter of law the a g e nc y

a c tio n is su

pp or te d b y the a dmi nis tr ativ e re c or d a nd is o the rw ise c on sis te nt w ith the APA standar d of re view. See Citizens to P rese rve O verton Park, I nc. v. Volpe, 401 U .S. 402, 415 (1971); Sw. Merc handising Corp. v. NL RB, 53 F .3d 1334, 1341 (D.C. Cir. 1995); Richard v. I NS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977). A cour t must "hold unlawful and se t aside ag ency action, finding s, and conc lusions" that are "arb it rary , cap ri cio us , an abu se o f di scr eti on , o r ot herw is e no t i n acco rdan ce wi th law ," 5 U.S.C. § 706(2)(A) , in excess of statutory authority , id. § 706(2)(C), or "w ithout observance of proce dures r equire d by

law," id. § 706(2)(D ). The sc ope of r eview, how ever , is narrow . See Motor Vehicle Mfrs. Ass' n of U.S., Inc. v. State F arm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1 98 3) . It pr e sume s th e a g e nc y ' s a c tio n is va lid . Se e Vo lpe , 4 01 U. S. at 41 5. An d th e " c ourt is not to substi tute its judgment for that of the a g ency ." State F arm, 463 U.S. at 43. B ut the court
mu s t b e s ati s f

ie d th at t h e a g e n c y h a s " ' e xami n e [d ] th e r e le v an t d ata an d arti c u late [d ] a satisfac tory

explanation for its action including a rational connec tion between the fac ts found and the c ho ic e ma de .' " Al ph arm a , Inc . v . L e avitt, 4 60 F .3 d 1 , 6 (D .C. Cir . 2 00 6) (q uo tin gState F arm , 463 U.S. at 43).-6- III . This Court reviews a

n ag ency' s regulations acc ordingto the familiar two- step fra mework articulated in Chevron, U.S.A., Inc. v. Natural Resourc es De f. Council, Inc., 467 U.S. 837 (1984). The first step deter mines "whether

Congr ess has spoken dir ectly to the prec ise question
at is su e ," fo r i f i t ha s, " the c ourt , a s w e ll a s th e a g e nc y , mu st g ive e ff e c t to the un ambi g uo us ly expressed intent of Cong ress." I d.; see a lso New Jersey v. EPA, 517 F.3d 574, 581 (D .C. Cir. 2008). I f, howe ver, the statute is silent or ambiguous on the specific issue, "the question for the
cou rtis whe th er t he agenc y 's ans wer i s b asedon a permi ss ib le c on st ruct io n o f t he s tat ut e." Chevron, 467 U.S. at 843. When an ag ency' s construction of a statute is challeng ed, its "inter pretation need not be the be st o r m os t natur a l on e by g ra mmatic a l or

oth e r s tand ard s . . . . Rathe r [i t] ne e d b e on ly
rea sonable to wa

rra nt defe renc e." Pauley

v. Be thEnergy

Mines, Inc., 501 U.S. 680, 702 (1991) (citations omitted). But de fer ence "' is only appropr iate whe n the ag ency has exercise d its own judgme nt.'" Arizona v. Thompson, 281 F.3d 248, 251 (D .C. Cir. 2002) (quoting Phillips Petroluem Co. v. Fed. E nergy Regulatory

Comm'n, 792 F .2d 1165, 1169 (D.C. Cir. 1986)); see also Tra nsitional Hosps. Corp. v. S halala, 222 F .3d 1019, 1029 (D.C. Cir. 2000). " When . . . the agency 's deci si on is bas ed o n an erro neo us vi ew o f t he l aw, it s d eci si on cann otst and ." Transitional Hosps., 222 F .3d at 1029; see a lso SEC v. Chenery Corp., 318 U.S. 80, 94 (1943) (ag ency "or der ma

y not stand if the ag ency

has misconce ived the law" ). Her e, the pa

rties ra ise two separ ate inter pretive issues r eg arding10 U.S.C. § 1074g(f ). First, how may

the Def ense D epar

tment implement the statute' s require ment that the Depa rtment
no t pa y in e xce ss o f t

he F e de ra l Ce ili ngPr ic e s f or ph arm a c e uti c a ls s old

thr ou g h th e TRI CA RE-7-

r e t a i l p h ar

m a c y p r o g r am ? S e e , e . g . , P l
. ' s M e m . at1 ; D e f
. ' s M e m . i nS u

p p . o f P art i a l S u m m . J. and Opp' n (" Def

.' s Mem.") [Docket Entry

46], at 1. S econd, ma

y the Depa rtment obtain ref

unds from manuf

actur ers on tra

nsactions in excess of the F eder al Ceiling Price s occur ringon or af

ter J an u ary 2 8 , 2 0 0 8 , b u tb ef

o re th e e ff

ec t i v e d at e o f t h e f

i n al ru l e? S ee , e. g. , P l
. 's M em . at1 ; De f. 's Mem. at 2. The Court take s eac h issue in turn. A. 1. The Court beg ins with Chevron step one, and the question whether 10 U.S.C. § 1074g(f

)
mand ate s th at D oD mus t a do pt a pa rt ic ula r r e g ulator

y sc he me . T he Coa lit ion

c on te nd s th at it does not. See, e .g ., Pl.'s Mem. at 19 (NDAA- 08 provides " no mecha nism for applying F eder al Ceiling Price s to retail phar macy sales until DoD made policy choice s in a final rule ") ; id. ("The NDAA c ould not be implemented until DoD chose who should bear the burden of the Fe dera l Ceiling Price standards ( and how) .") ; Summ . J . Hr' gTr. 4:5-9, Oc tober 16, 2009 (" All of the defe cts in the final rule ultimately tie back to a

fundame ntal err or by

the DoD, whic h is the leg al conclusion that the ND AA, by operation of law, imposes an a utomatic leg al re quirement a s of the date of enac tment for manuf

actur ers to pay

rebates [to] DoD." ). The De partment' s interpre tation of the statute is less clea r. In its li tigation papers a nd at the motion hearing , the Depa rtment sug g ests that the provisions of the fina l rule re sulted from the exercise of

its discretion. See, e.g ., Def .' s Mem. at 14 ( " DoD re lied upon its ex pertise in cr afting the provisions of the F inal Rule.") ; id. at 15 (the re g ulation "is ana ly zed under step two of

the Chevron fr amewor

k beca use Cong ress ha s not spoken direc tly to the prec ise question at issue" ); Def .' s Reply in Supp. of Def.' s Mot. for Summ. J . (" Def .' s Reply ") [Docket Entry

52], at 5 ("The-8-

actua l tex t of the F inal Rule and its Preamble a re more than suffic ient to prove that DoD exercised its discre tion and that the Fina l Rule is a product of DoD ' s bring ing its experienc e and expertise to bear

in light of c ompeting inter ests at stake." (quotation omitted)); Summ. J . Hr' gTr. at 33:18-23 (" The Court: Do you ag ree with me that a manuf actur er r efund is not re quired unde r the statute? [DoD counsel]: Ig uess I do ag ree with that . . . .") ; id. at 33:1-2 (" The a g ency exercised its discre tion here . . . ." ). But the D epar

tment sugg ested quite the opposite in the r ule' s preamble: DoD interpr ets the statute as e stablishing the f act of an over pay ment and the ne ed fo r a re fu nd . T he se thi ng s are no t de pe nd e nt o n th e a g re e me nt t o e xist; t he y e xist by operation of law under

the statute. 74 F e d. Re g . at 11 ,2 86 (e mph a sis a dd e d) . T hat vi e w o f t he law i s r e pe ate d at se ve ra l po int s in the pre amble. See, e .g ., id. at 11,284 (" There fore , with respec t to prescr iptions on or after J anuar y 28, 2008, drugcompanies ha d a rig ht to pay ment at the F eder al Ceiling Price and no more." ); id. (" [I ]f a manufa cture r re ceive d more than the Fe dera l Ceiling Price, the transac tion pr od uc e d a n o ve rp ay me nt a nd an o ve rp ay

me nt r e qu ir e s a

re fu nd ." ); id. (" Ho no ri ngthe statut e includes re fundingoverpa y ments that acc rued on or

afte r January

28.") ; id. at 11,286 (" To resolve the overpa

y ment, the manufa cture r must pay DoD a r efund of

the amount above the FCP.") . The thrust of the pr eamble to the r ule, then, is that DoD view ed NDA A-08 a s mandating
manu fa c tur e r r e fu

nd s. Se e Summ. J. H r' gTr . at 32 :13 -1 4 ( no thi ngin t he pr e ambl e is inconsistent with this conclusion that re funds " exis t by operation of law under

the statute" ). The plain languag e of 10 U .S.C. § 1074g(f ) conf irms the Coalition's interpre tation -- and the Depa rtment' s more re cent position offe red in its briefs a nd at the motion hear ing. T he inquiry beg ins with the statutory

languag e. See Ca

rcie ri v. Salazar, 129 S. Ct. 1058, 1063-64 (2009);-9-

Un ite d St ate s v . G on zal e s, 52 0 U .S. 1, 4 ( 19 97 ). Th e statut e re qu ir e s o nly that " the TRI CA RE reta il pharmac y

prog ram . . . be treated as a n element of

the Depa rtment of De fense for pur poses of proc ureme nt . . . to the ext ent nec essar y to ensure that pharmac euticals pa id for by the Depa rtment of De fense . . . are subject to the [Fede ral CeilingPrices]." 10 U.S.C. 1074g (f)
. DoD is instructed to modify its regulations to im plement this statutory require ment. See National Defen se A ut ho ri z ati on Actfor Fis cal Year 2 00 8, P ub . L . 1 10 -18 1, 12 2 S tat . 3 , 1 88 (20 08 ). By its plain terms, then, the statute does not establish a pa rticular r egulatory

scheme . Congr ess has not dictated that manuf

actur ers must pay

the costs associated with the Fe dera l Ceiling Prices, or that they must refund proc eeds in e x cess of this price on re tail pharmac y prog ram tra

nsactions. Nor ha s Congr ess eve n indicated whic h of the five parties that pa rticipate in the r etail phar macy pr og ra m - - m anu fa c tur e rs , who le sa le rs , n e tw or k p ha rm a c ie s, pr ivate ph arm a c y be ne fi t ma

na g e rs , and TRI CARE benefic iaries - - must bear any costs associate d with imposi ngthe Fe dera l Ceiling P ri ce s . R at h er , C o n gre s s co m m an d edDo D t o p ro mu l gat e r egu l at i o n s t o ac h i ev e t h e s t atu t e's g oa ls. In d oin gso , Co ng re ss p ro vid e d " an e xpre ss d e le g atio n o f a uth or ity to t he a g e nc y to elucidate a spec ific provision of the statute by regulation." Chevr on, 467 U.S. at 843-44. He nce, the pla in l angua g e and

str uc tur e of 10 U. S.C. § 1 07 4g (h ) i nd ic ate that Co ng re ss d id n ot s pe ak to the " pr e c ise qu e sti on " of

ho w the De pa

rtme nt s ho uld

imp le me nt t

he statut e ' s r e qu ir e me nts . Ind e e d, the Court

c an im a g ine se ve ra l ot

he r r e g ulator

y sc he me s c on sis te nt w ith10 U. S.C. § 1074g (f) that the Depa

rtment could have chosen. F or example, instead of r equiring pharma ceutica l manufac turers to pa y DoD the amounts in ex cess of the Fe dera l Ceiling Prices, a
ru le c ou ld r e qu ir e manu fa c tur e rs to r e du c e the pr ic e on re ta il p ha rm a c y pr og ra m ph arm a c e uti c a ls prospec tively

until the ex cess pr ocee ds were reimburse d. Or DoD arguably could have adjusted-10-

the re tail pharmac y

mark-ups or

dispensing f

ees to e nsure that the D epar tment did not pay

more tha n th e F e de ra l Ce ili ngPr ic e s. Th e Coa lit ion su g g e sts tw o a dd iti on a l po ssi bil iti e s: " Do D c ou ld have c ontrac ted with pharma cies to purc hase TRI CARE benefic iaries' drug s . . . at the F eder al Ceiling Price ," or

"D oD could have procur ed drug s directly from manuf

actur ers at the Fe dera l Ce ili ngPr ic e and

the n d istri bute d th e dr

ug s to ph arm a c ie s. " Pl. ' s Me m. at 19 -2 0. Al tho ug h th e se methods may

not be the best a

pproac h -- or

even pr actica l -- the statute c erta inly does not prec lude them. The D epar tment impli citly

conce des as much. See Def .' s Reply at 7. 2. Havingconclude d that the statutory languag e does not spea

k to prec isely

how the Depa rtment should implement the statute, the Court ordinarily would move to Chevron step two,
and a sk wh e the r t he a g e nc y ' s inte rp re tatio n o f t he statut e is r e a so na

ble . Se e Che vr on , 4 67 U. S. 843; Transitional Hosps., 222 F.3d at 1028. The Coalition contends, howeve r, that the Court cannot do so he re be cause the rule' s preamble reve als that the ag ency mistakenly

believed that Congr ess mandate d the re quirement of a manufa cture r re fund. See Pl.' s Mem. at 16 (" DoD
announce d its view that the NDAArequire s manufac turers to pa y rebates by

operation of law . . . ." ( citing 74 F ed. Reg . at 11,286)). The discr etion acc orded to a g encie s under Chevr on in interpretinga statute " must be exercised through the eyes of one who re alizes he possesses it." T ransitional Hosps., 222 F.3d at 1029. There fore , an ag ency regulation is invalid "if it 'w as not based on the ag ency' s own judgme nt but rather on the unjustified assumption that it was Cong ress' judgme nt that such a
re g ulatio n is de sir a

ble ' " or mand ate d. Pr ill v. Nat' l L a bo r R e latio ns B d. , 7 55 F .2 d 9 41 , 9 48 (D .C. Cir. 1985) (quotingFCC v. RCA Com mc' ns, 346 U.S. 86, 96 (1953)); see also Peter Pan B usAt the mot ion s h e ari ng , th e De pa rtme nt atte mpt e d to re c on c ile the se dis pa rate 3 ex pl anat io ns , o fferi ng th at i n t he p reambl e th e Dep art men t s im pl y was "in ter

pret in g the s tat ut e." Summ. J . Hr' gTr. at 32:6-7. The Court is not convinced. The me re f act that the a g ency " int e rp re te d" the sta

tut e is o f n o mo me nt. An a g e nc y mus t a lw ay s " int e rp re t" a statut e , b oth wh e re the statut e c omm and s a pa rt ic ula r r e su lt a nd wh e re the a g e nc y

imp le me nts the statut e throug h the exercise of

its discretion. The point here is how the ag ency interpre ted sec tion 1074g (f) when it promulg ated the implementingrule. -11- L ines, Inc. v. F ed. Motor Carr ier Safe ty Admin., 471 F.3d 1350, 1354 (D .C. Cir. 2006); Thompson, 281 F.3d at 259; Tra nsitional Hosps., 222 F.3d at 1029. This is so "e ven thoug h the ag ency might be a

ble to adopt the re g ulation in the exercise of its discre tion." Prill, 755 F.2d at 948; see a lso Thompson, 281 F.3d at 259. Her e, the De partment ha s offe red two opposinginterpre tations of 10 U.S.C. § 1074g(f ). Wherea s the rule' s prea

mble indicates quite plainly that the Depa

rtment interpre ted 10 U.S.C. § 1074g (f) to mandate the ma nufac turer r efund pr ovisions adopted at 32 C.F.R. § 199.21(q), the De p art m en t 's b ri ef

i n g an d ar gu m en t s atth e m o t i o n s h ea ri n g s u gges tth ati tad o p t edth e r u l e's provisions through a

n exercise of

its discretion. The Court, howe ver, c annot cr edit the

3
e xplanatio ns the De pa

rtme nt o ff

e rs in i ts b ri e fi ngand

at th e mot ion s h e ari ng-- " tho se [arg uments] cannot save the r ule." Public Ci tiz en v. F ed. Motor Carr ier Safe ty Admin., 374 F.3d 12 09 , 1 21 8 ( D. C. C ir . 2 00 4) . " Th e e xpe rt ise of the a g e nc y , n ot i ts l awye rs , mu st b e br ou g ht t o be ar o n th is i ssu e in t

he fi rs t in sta

nc e ." I d. An d " ' [t]he c ourt s ma y no t a c c e pt . . . c ouns e l' s p os t ho c ratio na lizatio ns fo r a g e nc y [re g ulatio ns ].' " B ow e n v . G e or g e town U niv . H os p. , 4 88 U. S. 204, 212 (1988) ( quoting B urling ton Truck L ines v. United States, 371 U.S. 156, 168 (1962)) ;
see a lso Chenery

Corp., 318 U.S. at 87-88 (c ourts must confine " revie w to a judg ment upon the validity of the g rounds upon which the [ag ency] i tself base d its action")
.-12-

Henc e, the De partment' s only rele vant interpre tation of 10 U.S.C. § 1074g( f) is the one advanc ed in the rule ' s prea mble -- manuf

actur ers a re subjec t to the refund oblig ations of the statute " by

operation of law." 74 Fe d. Reg . at 11,286. Notably , the Depa rtment admits that nothing in the pr eamble c ontradicts this position. S ee Summ. J . Hr' gTr. at 32:13-14. And indeed, a s review ed above , there is much in the preamble ref lectingthis errone ous interpre tation by DoD at the time it promulg ated the r ule. See, e .g ., 74 Fe d. Reg . at 11,284, 11,286. Be cau s e t h e s t atu t o ry

l an gu age an d

s tru cture co n cl u s i v el y

d em o n s tra t e t h atDo D's interpre tation as ref

lected in the pr eamble is incor rec t, the ag ency ' s decision ca nnot stand and the Court must remand the rule to the Depa rtment. See Prill, 755 F.2d at 948; see also Thompson, 28 1 F .3 d at 25 3, 25 9; T ra ns iti on a l H os ps ., 22 2 F .3 d at 10 29 . O n r e mand , th e De pa rtme nt s ho uld deter mine whether

to adopt the cur

rent iteration of the rule ( or some other approa ch) through the exercise of

its discretion. See Tra

nsitional Hosps., 222 F.3d at 1029 (on r emand " the Secr etar y must make a fr esh dete rmination as to whether she wishes to adopt the [same re g ulatory scheme ]"). B. Th e Court

no w r e tur

ns to C he vr on

ste p o ne to e xami ne the se c on d is su e be fo re the Court : DoD' s conclusion that 10 U.S.C. § 1074g( f) r equire s manufac turers to re fund proc eeds f rom reta il pharmac y

prog ram sale s in ex cess of the Fe dera l Ceiling Prices oc curr ing be tween January 28 , 2 00 8, and

the ru le ' s e ff

e c tiv e date of

Ma y 26 , 2 00 9. Th e re le va

nt s tatut or

y langua g e is q

uit e brief: a ll TRI CARE retail phar macy prog ram drugsales ar e subjec t to the Fede ral CeilingPrices "[ w] it h res pectto any

pres cri pt io n fi ll ed o n o r aft er t he d ate of t he en act men t o f [ NDA A-0 8] ." 10 U. S.C. § 1 07 4g (f

). Th e De pa

rtme nt i nte rp re te d th is l angua g e to r e qu ir e that a ll r e ta il-13-

pharma cy prog ram pre scriptions must be subject to the Fe dera l Ceiling Prices be g inning on ND AA -0 8' s d ate of

e na c tme nt - - Janu ary

28 , 2 00 8. Se e 74 F e d. Re g . at 11 ,2 84 (" Do D i nte rp re ts section 703 as pr ecludingany start date f

or apply ing [the F eder al Ceiling Price s] t o cover ed Retail Pharmacy

Networ k presc riptions filled other than the date of e nactment, January 28, 2008." ( emphasis adde d)); id. (" Nothing in the r ule . . . will operate to chang e the leg al landsca pe that w a s c re ate d, e ff

e c tiv e Janu ary

28 , b y the statut e ." ); id. at 11 ,2 83 (" Th e date of e na c tme nt i s clea rly established as the ' implementation date' of the statutory require ment.")
. No t so , a c c or din gto t

he Coa lit ion . B e c a

us e the statut e " do e s n ot m and ate any re bate pay ments by manufa cture rs . . . , the statute plainly does not mandate rebate pay ments by manufa cture rs as to par

ticular tra nsactions." Pl.'s Mem. at 26. B ut this contention misapprehe nds the issue. The que stion is not whether the statute mandates manufa cture r re funds beg inning on January

28, 2008. Rather, the pr ecise question is whether the statute' s require ment that TRI CARE drugpresc riptions are subjec t to the Fede ral CeilingPrices -- howeve r imp le me nte d b y

the a g e nc y

-- is a c tiv e on

Janu ary 28 , 2 00 8, or

on ly on c e Do D p ro mul g ate s a rule to implement the statute. On this latter question, the statutory languag e is clea

r: " Wit h respe ct to any

presc ription fi l l edo no r a ft er

th e d at e o f t h e e n ac t m en to f [ ND AA -0 8 ] , " p h arm ac eu t i ca l s p urc h as edth ro u gh the re tail pharmac y

prog ram a

re subjec t to the Fede ral CeilingPrices. 10 U.S.C. § 1074g (f) (empha ses adde d). " The wor d ' any ' is usually understood to be a ll inclusive." F in. Planning Ass' n v. SEC, 482 F.3d 481, 488 (D.C. Cir. 2007); see a lso New Yor k v. EPA, 443 F.3d 880, 885 (D .C. Cir . 2 00 6) (s ame ). Th e re fo re , th e mos t natur a l r e a din gof the statut e is t

hat a ll presc riptions "filled on or a fter" J anuar y 28, 2008, are subject to the statutory languag e apply

ing-14-

the Fe dera l Ceiling Prices to re tail pharmac y prog ram tra

nsactions. In other wor ds, the " on or afte r" clause modifies the re st of the statute -- the g rammatica l structure ma ndates that F eder al Ceiling Price s apply

beg inning on January

28, 2008. See United States v. Ron Pair Enter s., I nc., 489 U.S. 235, 241 (1989). The Coalition, however , sug g ests that the " on or af ter" languag e re fer s only

to "the point at which the T RI CARE retail phar macy prog ram . . . must be tre ated . . . a s an ele ment of DoD that do e s p ro c ur e dr

ug s. " Pl. ' s Me m. at 37 . U nd e r i ts r e a din g , " [o]nc e the TRI CA RE r e ta il ph arm a c y pr og ra m is tr e ate d a s a

pr oc ur e me nt p ro g ra

m, t he re are a c tio ns . . . th at are ne c e ssa ry to implement the Fe dera l Ceiling Price sta ndards with re spect to spec ific pre scription transac tions." I d. DoD must cre ate " the par ticular mec hanism throug h which it will apply the standar d" a

nd enter "c ontrac tual ag ree ments pursuant to the re g ulation." I d. But the Coalition' s sugg ested interpr etation contra venes the plain structure of the statute, wh ic h e xpre ssl y

make s a ll p re sc ri pti on s f ill e d a ft e r t

he da te of e na c tme nt o f N DA A- 08 su bje c t to the F e de ra l Ce ili ngPr ic e s. Th e Coa lit ion ig no re s th e fa c t th at th e phra se " the TRI CA RE r e ta il pharma cy prog ram . . . be treated as a n element of

the Depa rtment of De fense for pur poses of procur ement" is not an independe nt clause. I nstead, it is a par

t of a long er c lause de fining how Do D m ay ap p l y th e F ed er al C ei l i n g P ri ce s t o th e r et ai l p h arm ac y p ro gra m . An d

th e C o al i t i o n 's interpre tation ignor es the fa ct that the re tail pharmac y prog ram' s treatment a s an ele ment of the De fe ns e De pa

rtme nt i s n ot a

fr e e -s tand ingstatut or

y c omp on e nt. Rathe r, it i s a me c ha nis m to
ensure that the re tail pharmac y prog ram pha

rmac eutical sa les are subject to the F eder al CeilingThe Coalition ties its alternative interpr etation to the contention that the statute r equire s 4 " Do D t o e nte r i nto c on tr a c tua l a g re e me nts purs ua nt t o th e re g ulatio n, the te rm s o f whic h w ou ld g overn f uture pre scription transac tions. I t is thi s ag ree ment with DoD . . . that trig g ers application of the Fe dera l Ceiling Price sta ndards unde r [NDAA-08]." Pl.' s Mem. at 37-38. B ut this conclusion ignor es the statutory languag e -- nowher e does the statute requir e a c ontrac tual ag ree ment betwee n DoD and a pharma ceutica l manufac turer to implement the F eder al Ceiling Prices. Indeed, suc h a re quirement is belied by the conc lusion that 10 U.S.C . § 1074g (f) does not mandate a

particula r re g ulatory

scheme , as the Court has now f ound. -15- Prices. See 10 U.S.C. § 1074g (f) (TRI CARE retail phar macy is treated a s an ele ment of DoD 4 only "to e nsure that pha

rmac euticals pa id for by

the Depa rtment of De fense . . . are subject to" the Fe dera l Ceiling Prices)
. Nor is the Coalition's inter pretation saved by

ref ere nce to the Me dicaid re bate statute. See 42 U.S.C. § 1396r-8. The Coalition contends that the Medica id statute also has an " on or
a ft e r" pr ov isi on , b ut t

hat pr ov isi on

" do e s n ot e sta

bli shthe date that a

manu fa c tur e r' s r e bate lia bil ity atta c he s. " Pl. ' s Me m. at 38 ; se e 42 U. S.C. § 1 39 6r -8 (a )( 2) (" Para g ra ph(1 ) s ha ll f

ir st
a pp ly to d ru g s d isp e ns e d und e r t

his su bc ha pte r o n o r a ft e r Janu ary

1, 19 91 ." ). B ut t

he Me dic a id rebate statute cr eate s a deta iled scheme tying r ebate liability to the date on whic h a state a nd a pharma ceutica l manufac turer e nter into a re bate a g ree ment. See 42 U.S.C. § 1396r-8(a )(1)
. Al tho ug h th e fi rs t date on wh ic h r e bate lia

bil ity c an atta c h is Janu ary

1, 19 91 , th e statut e
e xplic itl y de ta ils sit

uatio ns in whic h r e bate lia bil ity may atta c h at a

late r d ate . Se e id. (f

or re bate ag ree ments entere d into after Ma rch 1, 1991, r ebate s beg in on date agree ment was e ntere d into; for r ebate ag ree ments entere d into between January 1 and Mar ch 1, 1991, re bates be g in on Janu ary 1, 19 91 ). Se c tio n 1 07 4g (f ) c re ate s n o s uc h s c he me , a nd the re fo re the Me dic a id r e bate statute is inapposite to interpretingthe statute her e.Con g re ss t he re fo re do e s n ot h ave to e xpre ssl y g ra nt t he De pa rtme nt t he a uth or ity to 5 promulg ate a

retroa ctive rule . See Pl.'s Me m. at 40-41. The statute itself made the F eder al Ceiling Price s applicable to retail phar macy transac tions beg inning on January 28, 2008. The Depa rtment' s rule simply

ref lects Cong ress' s express command. The Coalition asserts this argument in the context of challeng ing the rule' s require ment 6 of manufa cture r re funds. This specific challeng e is mooted by the Court' s conclusion that DoD err oneously

interpre ted 10 U.S.C. § 1074g( f) to re quire these ref unds. But the g ener al ar g ument rema ins. Bec ause the Court concludes that Congre ss intended the statute to be e ffe ctive on J anuar y 28, 2008, as the statute plainly states, it is appropriate to addre ss this arg ument now. -16- Do D i s c or

re c t, t he n, that se c tio n 1 07 4g (f

) r e qu ir e s th at F e de ra l Ce ili ngPr ic e s a pp ly to a ll reta il pharmac y

prog ram pre scriptions filled on or af ter January

28, 2008. But, the Coalition

5
c on te nd s, thi s c re ate s a

se c on d p ro ble m - - t o th e e xtent th at 10 U. S.C. § 1 07 4g (f )' s r e qu ir e me nts apply beg inning on January

28, 2008, any

party subject to the F eder al Ceiling Price s would not be on notice of

this obli g ation until after DoD promulg ates a final rule. See Pl.'s Me m. at 34-35.

6 Acc ording ly , the Coalition asserts, requir ing a ny party to pay ref unds for tra

nsactions occ urring befor e the r

ule' s eff ective da te is impermissibly

retroa ctive bec ause " it affe cts past conduc t or transac tions." I d. at 34 (c iting Nat'l MiningAss' n v. Dep' t of Interior, 177 F .3d 1, 8 (D.C. Cir. 1999)). The Coalition is not persuasive on this point. "Retroa ctive rule s ' alter the past leg al conseque nces of

past ac tions.'" Mobile Relay Assocs. v. F CC, 457 F.3d 1, 11 (D.C. Cir. 2006) (quoting Bow en, 488 U.S. at 219 (Sca lia, J . concur ring )). B ut where an ag ency rule " alters the futur e e ff e c t, n ot t he pa st l e g a l c on se qu e nc e s o f a n a c tio n, " id. (q

uo tatio n o mitte d) , o r o nly "upse ts ex pectations based on prior law ," D I RECTV, I nc. v. F CC, 110 F.3d 816, 826 (D.C. Cir. 19 97 ) ( qu otatio n o mitte d) , th e n th e ru le is n ot r e tr oa c tiv e . H e re , a ll p art ie s r e late d to the re ta il ph arm a c y pr og ra m - - m anu fa c tur e rs , who le sa le rs , n e tw or k p ha rm a c ie s, pr ivate ph arm a c y be ne fi tNor c an the Coalition assert that the r ule is retroa ctive mer ely

beca use it "c hang es the 7 le g a l l an d s c a

p e . " N at' l M in in gA s s ' nv . D e p ' t o f L a b o r , 2 9 2 F
. 3 d

8 4 9 , 8 5 9 ( D
. C. Ci r . 2 0 0 2 )
. " [I ]f that wer e all it took to render a rule impermissible under the APA, it would spell the end of informal rule making ." N at' l Cable & Telec omm. Ass'n, 567 F .3d at 670. -17- manag ers, a

nd benef iciarie s -- we re a

war e on January

28, 2008, that 10 U.S.C. § 1074g(f ) applied the F e de ra l Ce ili ngPr ic e s to re ta il p ha rm a c y pr og ra m tr ans a c tio ns a s o f t

hat date . T he statut e plainly say s so. Thus, all parties par ticipated in the re tail pharmac y prog ram ther eaf

ter with the kn ow le dg e that th e ir

tr ans a c tio ns wo uld

be statut or ily

su bje c t to F e de ra l Ce ili ngPr ic e s a nd c ou ld be g overne d by

a future rule implementing10 U.S.C. § 1074g(f ). It is the statute, not the rule, wh ic h ma de tr ans a c tio ns on or a ft e r Janu ary

28 , 2 00 8, su

bje c t to F e de ra l Ce ili ngPr ic e s - - t he ru le only identifies how that statutory require ment is impl emented. H ence , no retroa ctivity problem is presente d. Even if a ny single party

involved in the reta il pharmac y prog ram did not expect to fac e
re fu nd lia bil ity un de r a fi na l r ule , " a ne w r ule is n ot r e tr oa c tiv e ' me re ly be c a us e it .
. . up se ts
e xpe c tatio ns ba se d o n p ri or law. ' " DI REC TV , 1 10 F .3 d at 82 6 ( qu oti ngL and g ra f v . U SIF ilm Prods., 511 U.S. 244, 269 (1994)); see also L andgraf , 511 U.S. at 269 n.24 (" Even
un c on tr ov e rs ia lly

pr os pe c tiv e statut e s ma

y un se ttl e e xpe c tatio ns and imp os e burd e ns on

pa st conduct . . . ." ). Indeed, " [i ]tis often the ca se that a business will under take a cer tain course of conduct ba sed on the c urre nt law, and will then find its expectations frustrated when the law chang es." Chem. Waste Mgmt. v. EPA, 869 F.2d 1526, 1536 ( D.C. Cir. 1989). But " [s] uch
e xpe c tatio ns , h ow e ve r l e g iti mate , c ann ot f ur nis h a su ff ic ie nt b a sis fo r i de nti fy

ingimp e rm iss ibl y retroa ctive rule s." N at' l Cable & Telec omm. Assoc. v. FCC, 567 F.3d 659, 670 ( D.C. Cir. 2009). Henc e, any

rule that DoD might promulg ate a pportioning the burden of the Fe dera l 7-18-

Ceiling Price s for tra

nsactions occ urringon or af ter January

28, 2008, but before a fina l rule,
me re ly " imp a ir [s] the futur e va lue of pa st b arg a ins but ha s n ot r e nd e re d p a st a c tio ns oth e rw ise
sanc tio na ble ." I d. Th e re fo re , th e ru le imp le me nti ng10 U. S.C. § 1 07 4g (f ) i s n ot i mpe rm iss ibl y retroa ctive on this basis either. IV. Be cause DoD improper ly interpre ted 10 U.S.C. § 1074g( f) to re quire manuf actur er ref unds, the Court must remand for the ag ency

to rea ssess the implementing r egulations based on
a pr op e r u nd e rs tand ingof

the law. Th e re re ma ins the qu e sti on , h ow e ve r, wh e the r r e mand sh ou ld be wi th o r w ith out va c atur . T he Coa lit ion c on te nd s th at th e Court

sh ou ld v a c ate the fi na l r

ule
an d s e ta s i d e a l l th e a c t i o n s t ak e nun d e r i t . S e e P l
. ' s O p p ' nt o D e f
. ' s M o t . f o r P art i a l S u m m . J. and Reply

[Docket Entry

49], at 32, 34. Vacatur, howeve r, is not alway s nece ssary . See L ouisiana F ed. L and B ank Ass' n. v. Fa rm Credit Admin., 336 F.3d 1075, 1085 (D .C. Cir. 2003). "T he dec ision whether to vac ate de pends on [1] ' the seriousne ss of the orde r' s deficie ncies (a nd thus the ext ent of doubt whe ther the a g ency chose c orre ctly

) and [2] t he disruptive conse quence s of an inter im chang e that may itself be cha

ng ed.' " A llied-Signa l, I nc. v. U.S. Nucle ar Regulatory Comm'n, 988 F .2d 146, 150-51 (D.C. Cir. 1993) ( quoting Int'l Union, United Mine Workers v. Fe d. Mine Safety

and He alth Admin., 920 F.2d 960, 967 (D .C. Cir. 1985)). Her e, that asse sment counsels ag ainst vacatur of the r ule. T h e a g e n c y' s e r

r o n e o u s i n t e r

p r e t at i o no f

1 0 U
. S
. C
. § 1 0 7 4 g ( f

) i s un qu e s t i o n a

b l y a materia l deficie ncy

in the regulation. But the interpr etation was e rrone ous only beca use the ag ency conclude d that Congr ess mandate d a par ticular re g ulatory

approa ch that the a g ency might
never theless be a

ble to adopt in the exercise of its discretion. See Prill, 755 F.2d at 948 (r emand-19-

automatic in ca ses eve n wher e the a g ency might ultimately

rea dopt the rule). T here fore , there
rema ins a " serious possibilit y " that the Secre tary on rema nd could justify

the rule c halleng ed her e "in a manner that is consistent with the statute" - - " a fa ctor that fa vors re mandingrathe r than
vacating." Milk Train, Inc. v. Ve neman, 310 F .3d 747, 756 (D.C. Cir. 2002); see a lso Fox Te le vis ion

Statio ns , Inc . v . F CC, 28 0 F .3 d 1 02 7, 10 49 (D .C. Cir . 2 00 2) (v a c atur ina pp ro pr iate wh er e n o t"u n l i k el y " age n cy "w i l l b e ab l e t o j u s t i fy

a f u ture d ec i s i o nt o re t ai nth e r u l e") , re h 'g g rante d on other issue, 293 F .3d 537 (D.C. Cir. 2002); L ouisiana F ed. L and B ank, 336 F .3d at 1085 (same) ; WorldC om, I nc. v. F CC, 288 F.3d 429, 434 (D.C. Cir. 2002) (r emand without
vacatur wher e " non-trivial likelihood" that a g ency would be able to justi fy

rule on re mand). He re, Do D m ay c on c lud e on

re mand that th e statut e pe rm itt e d it to a do pt t

he ru le -- a

pla us ibl e re su lt g iven DoD' s prior interpr etation that the statute re quired the r ule and more rec ent position that the re fund appr oach se t out in the rule was pr omulgated in the Depa rtment' s discretion. See Hea rtland Reg ' l Med. Ctr., 566 F.3d at 198 (" When an ag ency may be able rea dily

to cure a defe ct in its ex planation of a decision, the fir st factor

in Allied-Signa l counsels re mand without
vacatur." ). The sec ond Allied-Signa l fac tor -- the disruptive eff ect of vacatur -- a lso weig hs in favor of re mand without vacatur. Vac atingthe rule w ould require the Depa rtment to reimburse the ref unds pharmac eutical c ompanies have now paid to the De partment unde r var ious ag ree ments. An d if the ru le is r e pr omu lg ate d in its c ur re nt f or m, t he De pa rtme nt w ou ld o nc e a g a in h ave to collect r efunds pur suant to 10 U.S.C. § 1074g(f ) for all presc riptions filled on or afte r January 28, 20 08 . Su c h p ote nti a l di sr up tio ns str on g ly

c ouns e l r e mand

wi tho ut v a c atur . Se e Al lie d- Sig na l, 988 F.2d at 151 (vac atur disruptive whe re a g ency would have to r efund f

ees a lrea dy

collecte d).To be sure , the D.C. Circuit has sug g ested that re mand without vacatur might be 8 inappropriate wher e the c ourt does not re ach " the bulk" of a par ty ' s "pote ntially

meritorious c ha lle ng e s. " Ce me nt K iln Re c y c lin gv. EPA , 2 55 F .3 d 8 55 , 8 72 (D .C. Cir . 2 00 1) ; se e a lso Natura l Resource s Def. Counc il v. EPA, 489 F.3d 1250, 1262 (D.C. Cir. 2007). B ut this concern is present only

wher e Allied-Sig nal does not counse l remand w ithout vacatur. See , e.g ., Natura l Re so ur c e s D e f. Counc il, 48 9 F .3 d at 12 61 (r e mand -o nly dis po sit ion

imp ro pe r b e c a

us e un lik e ly that E PA c an ju sti fy

ru le on re mand ); Ce me nt K iln , 2 55 F .3 d at 86 6, 87 2 ( re mand -o nly dispositi on inappropriate bec ause EPA must cre ate ne w re g ulatory scheme ). He re, the AlliedSignal f actor s strong ly

favor rema nd without vacatur . Moreove r, the Court has r eac hed the Coalition's primary

challeng es, and at least some of the Coalition' s remainingchalleng es may be mooted by

the Court' s order

here . See, e.g ., Pl.'s Mem. at 41- 44 (rule violate s notice and comment proc edure s). -20- Indeed, to do other

wise could ser iously , and adve rsely , aff ect c ontinuing oper ation of the TRI CA RE r e ta il p ha

rm a c y pr og ra m. M or e ov e r, va c atur

wo uld po te nti a lly

re nd e r u ne nf or c e a ble the voluntary

ag ree ments that the Depa rtment and pha

rmac eutical manuf

actur ers have ente red into following promulg ation of the rule . These a g ree ments cover almost all of the p h arm ac eu t i ca l s cu rr en t l y d i s p en s edth ro u ghth e T R I C AR E re t ai l p h arm ac y p ro gra m . S ee De f. 's Reply at 14 n.9 (99% of

pharma ceutica ls covere d by voluntary

ag ree ments); Summ. J . Hr' gTr. at 3:16-17 (Coalition has no "r eason to disagree with those fig ures" ). The Court ne ed not wipe out thi s c omp re he ns ive vo luntary sc he me and

se t of f t he su bs tanti a l di sa

rr ay that w ou ld i ne vit a

bly follow. See L ouisiana F ed. L and B ank, 336 F .3d at 1085 (" [V] acatur is sure to be ' disruptive' beca use it would prec lude a se t of voluntary transac tions [ that the par ties] find advantag eous." ). 8 In light of the Allied-Signa l fac tors, then, the Court conc ludes that the better reme dy is to remand to the ag ency

without vacatingthe rule a nd any actions take n pursuant to it. V. Th e Court

c on c lud e s th at D oD e rr on e ou sly int e rp re te d 1 0 U .S. C. § 10 74 g (f ) t o ma nd ate manufa cture r re funds as provide d in the ag ency ' s final rule. B eca use of this err oneous view of-21-

the law, un de r c on tr oll ingD. C. C ir c uit pr e c e de nt t

his Court mus t r e ma

nd fo r t he a g e nc y to consider whether

it wishes to impl ement the r egulatory scheme as an e x erc ise of its discretion or instead to promulg ate a

differ ent rule. Under g overning D.C. Circuit authority , vacatur of the
ru le a lon gwi th r e mand

is n ot w arr ante d. Do D, ho we ve r, c or re c tly int e rp re te d th e statut e to require Fe dera l Ceiling Prices to a pply to retail phar

macy prog ram tra

nsactions occ urringon or afte r January

28, 2008. A sepa

rate order has bee n issued on this date.

/s/ JohnD. B ate s J OHN D. B ATES Un i t edS t at es Di s tri ctJ u d ge
Date: November

30, 2009