Opinion ID: 7267
Heading Depth: 3
Heading Rank: 2

Heading: Binding Effect of CPG 7132.16

Text: 31 A touchstone of a substantive rule is that it establishes a binding norm. As the Eleventh Circuit has observed: 32 The key inquiry ... is the extent to which the challenged policy leaves the agency free to exercise its discretion to follow or not to follow that general policy in an individual case, or on the other hand, whether the policy so fills out the statutory scheme that upon application one need only determine whether a given case is within the rule's criteria. As long as the agency remains free to consider the individual facts in the various cases that arise, then the agency action in question has not established a binding norm. 28 33 P2C2 argues that CPG 7132.16 establishes a binding norm, as it imposes on compounding pharmacists significant new obligations. Most of these new obligations are manifested in the nine factors, which, according to P2C2, are tantamount to binding norms. The district court found that the nine factors merely provide guidance to help FDA agents distinguish traditional compounding from drug manufacturing, and that the factors are not finally determinative of whether a particular pharmacy is violating the Act. According to the court, enforcement actions are brought only for violations of the Act, and CPG 7132.16 merely restates a long-standing FDA position regarding the traditional practice of pharmacy; it does not represent a change in FDA policy and does not have a significant effect on pharmacy practice or traditional compounding. To ascertain whether CPG 7132.16 creates binding norms, we first consider its plain language and then address the manner in which it had been implemented by the FDA. 34
35 CPG 7132.16 provides, in pertinent part, that: 36 FDA may, in the exercise of its enforcement discretion, initiate federal enforcement actions against entities and responsible persons when the scope and nature of a pharmacy's activity raises the kind of concerns normally associated with a manufacturer and that results in significant violations of the new drug, adulteration, or misbranding provisions of the Act. In determining whether to initiate such an action, the agency will consider whether the pharmacy engages in any of the following acts: 37 1. Soliciting business ... to compound specific drug products.... 38 2. Compounding, regularly, or in inordinate amounts, drug products that are commercially available in the marketplace and that are essentially generic copies of commercially available, FDA-approved drug products. 39 3. Receiving, storing, or using drug substances without first obtaining written assurance from the supplier that each lot of the drug substance has been made in an FDA-approved facility. 40 4. Receiving, storing, or using drug components not guaranteed or otherwise determined to meet official compendia requirements. 41 5. Using commercial scale manufacturing or testing equipment for compounding drug products. 42 6. Compounding inordinate amounts of drugs in anticipation of receiving prescriptions in relation to the amounts of drugs compounded after receiving valid prescriptions. 43 7. Offering compounded drug products at wholesale to other state licensed persons or commercial entities for resale. 44 8. Distributing inordinate amounts of compounded products out of state. 45 9. Failing to operate in conformance with applicable state law regulating the practice of pharmacy. 46 The foregoing list of factors is not intended to be exhaustive and other factors may be appropriate for consideration in a particular case. 47 We observe initially the statement in CPG 7132.16 that the FDA will consider the nine factors in determining whether to initiate an enforcement action against a pharmacy. We also note that, even though the mandatory tone of the factors is undoubtedly calculated to encourage compliance, CPG 7132.16 affords an opportunity for individualized determinations. It expressly provides that [t]he foregoing list of factors is not intended to be exhaustive, recognizes that other factors may be appropriate for consideration in a particular case, and states that, even if the factors are present, the FDA retains discretion whether to bring an enforcement action. 29 In this regard, CPG 7132.16 is analogous to the rule reviewed in Guardian Federal Savings & Loan Ass'n v. Federal Savings & Loan Insurance Corp., 30 which the D.C. Circuit held to be a statement of policy, exempt from APA notice-and-comment requirements. 31 48 The substantive content of the limits themselves also favors a finding that CPG 7132.16 does not create binding norms. The rule does not contain specifications of precise quantities or limits that, once exceeded, trigger a mandatory FDA response. The factors provide, for example, that only the compounding or distributing of inordinate amounts of drugs is impermissible, but nowhere does the rule further define inordinate amounts. As such, CPG 7132.16 leaves to the sound discretion of the FDA the determination when a particular quantity has exceeded the amount considered to be within the bounds of traditional compounding. The fact that none of the nine factors listed in CPG 7132.16 establish fixed criteria to control the agency's decisions distinguishes CPG 7132.16 from other FDA rules that have been held to be substantive. 32 49 P2C2 relies primarily on two cases, Bellarno International Ltd. v. FDA, 33 and Community Nutrition Institute v. Young, 34 but both are easily distinguished. 35 In those two cases, and unlike here, FDA rules were found to create binding norms, for they removed all discretion from the agency by creating a statutory scheme that reduced the agency's role to that of mechanically determin[ing] whether a given case is within the rule's criteria. 36 50 At issue in Community Nutrition was an FDA action level, which provided that [a]ny food that contains aflatoxin in excess of 20 [parts per billion (ppb) ] is ... considered by FDA to be adulterated under section 402(a)(1) ... and therefore may not be shipped in interstate commerce. 37 The action level established a statutory scheme whereby once a precise level of aflatoxin was detected, the FDA had no choice but to detain the food. The FDA conceded at oral argument that it would be daunting to try to convince a court that the agency could prosecute a producer for shipping corn with less than 20 ppb, and the court noted that this type of cabining of an agency's prosecutorial discretion can in fact rise to the level of a substantive ... rule. 38 51 The FDA's discretion was similarly restricted in Bellarno International, which concerned a FDA import alert that ordered the automatic[ ] detention of all pharmaceuticals classified by tariff regulations as American Goods Returned (AGR), i.e., pharmaceuticals initially produced in the United States, exported for distribution abroad, and subsequently returned for sale in the United States. As in Community Nutrition, once a precisely defined criterion was satisfied--in Community Nutrition, 20 ppb of aflatoxin; in Bellarno International, that the pharmaceutical was an AGR--then a prescribed FDA action automatically followed. Consequently, the rule reduced the function of the FDA to that of rote determin[ation] whether a given case is within the rule's criteria. 39 When viewed in light of the rules in Community Nutrition and Bellarno International, it is clear that the nine factors identified in CPG 7132.16 are not the type of criteria that courts have traditionally characterized as binding norms. 40 52
53 P2C2 urges that, even if the plain language of the rule does not create a binding norm, the agency has treated CPG 7132.16 as though it establishes binding norms, and thus we should hold that it does. P2C2 reminds us that the pertinent inquiry is not only what CPG 7132.16 states that the agency will do, but also  'what the agency does in fact.'  41 54 P2C2 relies on numerous informal agency communications as evidence that the FDA has treated CPG 7132.16 as establishing a binding norm. P2C2 cites in particular to evidence that, since CPG 7132.16's promulgation: (1) the FDA has used the nine factors listed in CPG 7132.16 when inspecting pharmacies, and has relied on those factors to determine whether federal enforcement actions were warranted; (2) in numerous letters the FDA has warned pharmacists that they were engaged in drug manufacturing, rather than traditional compounding, because they were conducting some, or all, of the activities listed in CPG 7132.16, and (3) the FDA has furnished copies of CPG 7132.16 to pharmacists who inquired about the legal restrictions on drug compounding. P2C2's reliance is misplaced. 55 The fact that FDA inspectors refer to CPG 7132.16 to help determine whether a pharmacy is engaged in traditional compounding or drug manufacturing is not particularly probative whether the rule is substantive. We would expect agency employees to consider all sources of pertinent information in performing that task, whether the information be contained in a substantive rule, an interpretive rule, or a statement of policy. Indeed, what purpose would an agency's statement of policy serve if agency employees could not refer to it for guidance? 56 More probative of the nature of CPG 7132.16, however, is the language used by the FDA in warning letters to pharmacies. In one such letter, the FDA wrote that firms engaged in activities that exceed the limits of CPG 7132.16 are considered manufacturers and are subject to all the provisions of the Act. We would not dispute that if this statement were viewed in a vacuum, one could be led to conclude that the FDA was in fact treating CPG 7132.16 as a binding norm. But statements are not to be considered out of context or in isolation, and in that very same letter the FDA clearly stated that CPG 7132.16 was only used by the agency as internal guidance. Moreover, informal communications often exhibit a lack of precision of draftsmanship and such internal inconsistencies are not unexpected, which is why such documents are generally entitled to limited weight. 42 We cannot conclude, in light of all of the other circumstances, that these warning letters are sufficient to transform CPG 7132.16 into a substantive rule. 57 As with that use of CPG 7132.16, we do not find particularly probative the fact that the FDA enclosed copies of CPG 7132.16 in letters responding to some pharmacists' questions regarding the legality of compounding activities. In that correspondence, the agency pointed out that CPG 7132.16 is policy and explained further that [t]his document includes a list of factors which the FDA feels differentiates [sic] traditional compounding from drug manufacturing. The FDA noted in particular that [t]his list is not intended to be exhaustive, and other situations or factors may be considered in particular cases. By so doing, the letters made clear that CPG 7132.16 was used for guidance, but that the FDA retained discretion to conduct an individualized inquiry and to consider other factors outside the list. CPG 7132.16, for example, provides that pharmacies engaged in nontraditional compounding are subject to certain provisions of the Act, and the FDA explains in warning letters that a pharmacy's compounding may be subject to regulation under the Act. 58 We cannot conclude that the FDA has treated the factors in CPG 7132.16 as binding norms. Rather, the agency has used CPG 7132.16 for guidance to help identify those pharmacies that might be engaged in drug manufacturing activities under the guise of compounding. 59