UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA,

Plaintiff,

v. Civil Action No. 1:21-cv-1395 (CJN)

XAVIER BECERRA, et al.,

Defendants.

MEMORANDUM OPINION

A trade association known as Pharmaceutical Research and Manufacturers of America, or

PhRMA for short, challenges a final rule promulgated by the Department of Health and Human

Services relating to drug rebates under Medicaid. See generally Compl., ECF No. 1. The

Government argues that PhRMA lacks Article III standing for two reasons. Id. First, as the

Government sees it, PhRMA has failed to satisfy a fundamental prerequisite to establish

associational standing: identifying in its Complaint at least one member of the association that has

standing to sue. Id. Second, the Government contends that PhRMA fails to demonstrate that any

member will suffer Article III injury from the final rule. Id. The Court denies the Government’s

motion for the reasons that follow.

I. Background

Medicaid, “a cooperative federal-state program” established in 1965, “provides federal

funding for state medical services to the poor.” Frew ex rel. Frew v. Hawkins,

(2004). A state need not participate in the Medicaid program.

Yet when a state does, it must

1 offer Medicaid plans that meet certain federal statutory and regulatory requirements to receive

federal funds. See Cookeville Reg’l Med. Ctr. v. Leavitt,

(D.C. Cir. 2008).

In 1990, Congress passed legislation that permitted participating states to begin offering

outpatient prescription drug coverage as part of their Medicaid plans. See 42 U.S.C. §

1396d(a)(12); Pharm. Rsch. & Mfrs. of Am. v. Walsh,

(2003). To manage the

costs of covering prescription drugs, Congress conditioned receipt of federal funds on a cost-

saving measure that requires drug manufacturers to participate in something called the Medicaid

Drug Rebate Program. See Walsh,

.

The Rebate Program specifies that for a prescription drug to be eligible for federal

Medicaid dollars, its manufacturer must pay rebates to “participating states to reduce the costs of

dispensed outpatient drugs that a state expends under its Medicaid plan.” Mallinckrodt ARD LLC

v. Verma,

, 154, 158 (D.D.C. 2020). The idea behind the Rebate Program is

straightforward: ensure that state Medicaid programs receive the same discounts that

manufacturers provide to commercial purchasers. To achieve that end, the Medicaid statute

provides that the amount a drug manufacturer must rebate to the states is the difference between a

drug’s “average manufacturing price” and the lowest available price for the drug on the

commercial market, which is known as the “best price.” 42 U.S.C. § 1396r-8(c)(1); 42 U.S.C. §

1396r(c)(1)(C).

Calculating the best price gets tricky when considering recent developments. Over the last

several decades, high out-of-pocket costs in the form of large deductibles and co-payments for

patients with commercial health insurance plans have kept some of those patients from purchasing

the medications their doctors have prescribed. See Compl. ¶¶ 32–33. These “health-plan-imposed

costs,” as PhRMA sees it, “have a rationing effect” in that “they deter patients from purchasing

2 drugs” that they otherwise would have purchased but-for the high associated costs. Id. ¶ 3. In

response, drug manufacturers offer financial assistance that helps patients with commercial health

insurance plans afford the out-of-pocket costs their insurers set for certain drugs. Id. ¶ 2. These

financial support programs are known as “patient assistance programs.” Id.

According to PhRMA, commercial health insurers have caught on to the patient assistance

programs and, seeking to pocket some of the financial support, have devised schemes known as

“accumulator adjustment programs.” Id. PhRMA alleges that accumulator adjustment programs

enable insurers, working with companies that manage prescription drug benefits on their behalf,

to refuse to count toward satisfaction of a patient’s annual deductible and co-payment a drug

manufacturer’s financial assistance to that patient. Id. ¶¶ 4–5. From PhRMA’s perspective, the

accumulator adjustment programs result in “prescription abandonment, non-adherence to

prescribed medication regimens, poor health outcomes, and unnecessary medical spending by

patients.” Id. ¶ 39.

In June 2020, the Department of Health and Human Services took up this issue. HHS

published that month a proposed rule addressing, among other things, the impact of accumulator

adjustment programs on the “best price” determination. See Revising Medicaid Drug Rebate and

Third Party Liability Requirements,

(June 19, 2020). The proposed rule sought

to revise the agency’s regulations to require that a drug manufacturer ensure that “the full value of

the assistance or benefit is passed on to the . . . patient” before the manufacturer may exclude the

discount from its “best price” calculation. Id. at 37299. Put differently, manufacturers would have

to include the value of assistance they provide to patients through the patient assistance programs

in their best price determinations, unless they ensure that the full value of their assistance stays

3 with the patient and is not captured by the patient’s health insurer through an accumulator

adjustment program. Id.;

(c)(8)-(11).

PhRMA submitted comments expressing its opposition to the proposed rule. See Compl.

¶ 42. The association noted that it is “a voluntary, non-profit organization representing the

country’s leading research-based pharmaceutical and biotechnology companies,” and that the

proposed rule “could potentially reduce the availability of patient assistance, which could, in turn,

inhibit the ability of patients to pay their out-of-pocket costs.”

Several of PhRMA’s members

submitted comments agreeing with the association’s views and voicing opposition to the proposed

rule.1

After reviewing the public comments, HHS adopted its proposal in a final rule published

in December 2020. See Revising Medicaid Drug Rebate and Third Party Liability (TPL)

Requirements,

(Dec. 31, 2020). The agency noted that the comments from

drug manufacturers spanned an array of concerns, including (1) the rule’s impact on patients, (2)

the agency’s legal authority to enact the rule, (3) mechanisms to assist manufacturers with

compliance with the rule, (4) the viability of manufacturer assistance programs on an ongoing

basis, and (5) the affect of the rule on other programs. Id. at 87049. In addition to addressing

those concerns, the agency also explained that it would delay the rule’s launch date until January

1 Amgen, for instance, voiced its opposition to the “proposed modifications to the regulatory exclusions of manufacturer-sponsored co-payment assistance programs . . . because the proposal would harm patients, is based on incorrect factual assumptions, has no basis in the [] statute, and could not be operationalized by manufacturers even if finalized.” Administrative Record (“AR”), ECF No. 19-1 at 9169. Bristol-Myers Squibb likewise commented that it opposed the “proposal to require manufacturers to include in their calculation of Best Price assistance provided to patients unless they can ‘ensure’ that the full value of this assistance goes solely to patients” in part because the “proposal would discourage manufacturers from providing patient assistance, to the detriment of patients.” AR at 35289. And Eli Lilly noted its position that the proposed rule would prove “harmful to patients, could inhibit participation in [Medicaid programs], and is incompatible with the Medicaid statute.” AR at 43419. The company further remarked that it did “not believe that subsequent attempts by others in the payment and supply chain to effectively ‘steal’ [] benefits from patients should somehow render those patient benefits constructive price concessions.” Id.

4 1, 2023, in light of industry concerns about implementing the rule during the COVID-19 pandemic.

Id. at 87053.

PhRMA filed this lawsuit soon after, asserting that the rule exceeds the agency’s statutory

authority and runs afoul of the Administrative Procedure Act. See Compl. ¶ 71; 5 U.S.C §

706(2)(A), (C). In particular, PhRMA alleges that the rule forces its members to “either risk

paying higher Medicaid rebates . . . or forego offering financial assistance to patients,” id. ¶ 65,

and that it creates a new compliance burden on drug manufacturers, id. ¶ 66. PhRMA claims that

the rule leaves its members with three choices: (1) design and implement operational changes to

their patient assistance programs to ensure that the full value of the assistance stays with the patient

rather than being passed to commercial health insurers, (2) retain their current assistance programs

and accept the additional compliance costs that the rule imposes, or (3) stop offering patient

assistance altogether, leaving some patients unable to afford the out-of-pocket costs required for

manufacturers’ products under their insurance plans. See Compl., ¶¶ 45–46.

The Government has moved to dismiss PhRMA’s Complaint, arguing that PhRMA lacks

Article III standing. See Def.’s Mot.

II. Legal Standard

Federal Rule of Civil Procedure 12(b)(1) requires dismissal of a complaint if the Court

lacks “subject-matter jurisdiction.” See Fed. R. Civ. P. 12(b)(1). When ruling on a motion filed

under Rule 12(b)(1), the Court must “treat the complaint’s factual allegations as true” and must

afford the plaintiff “the benefit of all inferences that can be derived from the facts alleged.” Delta

Air Lines, Inc. v. Export–Import Bank of U.S.,

(D.D.C. 2015) (quotation

omitted). Although the Court need not accept inferences unsupported by the factual allegations,

the Court “may consider such materials outside the pleadings as it deems appropriate to resolve

5 the question whether it has jurisdiction to hear the case.” XP Vehicles, Inc. v. Dep’t of Energy,

(D.D.C. 2015) (quotation omitted). The Court may even consider the

administrative record to determine whether the plaintiff has standing. Am. Chemistry Council v.

Dep’t of Transp.,

(D.C. Cir. 2006); Haase v. Sessions,

(D.C.

Cir. 1987) (quotation omitted) (“In 12(b)(1) proceedings, it has been long accepted that the

judiciary may make appropriate inquiry beyond the pleadings to satisfy itself on authority to

entertain the case.”).

III. Associational Standing

The Constitution of the United States limits the “judicial Power” to resolving “Cases” and

“Controversies.” U.S. Const. art. III, § 2. A plaintiff must establish standing to satisfy the case-

or-controversy requirement. See Lance v. Coffman,

(2007) (per curiam). To

establish standing, a plaintiff must demonstrate injury in fact, causation, and redressability.

Spokeo, Inc. v. Robins,

(2016); TransUnion LLC v. Ramirez,

(2021); see also Ann Woolhandler & Caleb Nelson, Does History Defeat Standing

Doctrine?,

(2004).

In this case, PhRMA seeks to invoke “associational standing.” Associational standing

refers to the doctrine that “sometimes permits an entity to sue over injuries suffered by its members

even when . . . the entity itself alleges no personal injury.” Ass’n of Am. Physicians & Surgeons

v. United States Food & Drug Admin.,

(6th Cir. 2021) (applying the associational

standing doctrine but questioning its basis and current framework).

For an association to bring suit on behalf of its members, it must meet three requirements.

Am. Chemistry Council v. Dep’t of Transp.,

(D.C. Cir. 2006). First, the

association must show that the “interests” that the suit “seeks to protect are germane to the

6 organization’s purpose.” Hunt v. Wash. State Apple Advert. Comm’n,

(1977).

Second, it must show that “neither the claim asserted nor the relief requested requires the

participation of individual members in the lawsuit.” Id.2 And third, the association must show

that “its members would otherwise have standing to sue in their own right.” Id.; Nat. Res. Def.

Council v. E.P.A.,

(D.C. Cir. 2007).3

The third requirement gives rise to the most judicial scrutiny and requires courts “to

vigilantly ensure that an association’s members have incurred a personal injury.” Ass’n of Am.

Physicians & Surgeons,

. To satisfy the third requirement, the association must

“identify a member who has suffered (or is about to suffer) a concrete and particularized injury

from the defendant’s conduct.”

The remedy sought by the association must also redress the

alleged harm. Id.; see also Brandon L. Garrett, The Constitutional Standing of Corporations,

, 138 (2014) (noting the importance of the association’s requested remedy to the

associational standing analysis).

IV. PhRMA Has Standing to Challenge the Final Rule

The Government asserts two reasons why PhRMA lacks standing. First, the Government

argues that PhRMA has failed “to establish associational standing because it does not identify [by

name in its Complaint] any specific members who have standing to challenge the” rule. Def.’s

2 The Government does not challenge either the first or second requirements. See Def.’s Mot at 14. Nor could it. PhRMA sets out to protect interests germane to the association’s purpose and does so via a facial challenge to a final rule based in large part on the administrative record. 3 An association “may have standing in its own right to seek judicial relief from injury to itself and to vindicate whatever rights and immunities the association itself may enjoy.” Warth v. Seldin,

(1975). An association, in other words, has standing when the challenged action itself injures the association’s economic or missional interests. See Katherine Mims Crocker, An Organizational Account of State Standing,

, 2069 (2019). This form of standing is known as organizational standing rather than associational standing. Havens Realty Corp. v. Coleman,

, 379 n.19 (1982) (“[O]rganizations are entitled to sue on their own behalf for injuries they have sustained.”). PhRMA has made clear that it does not rely on organizational standing to sue on its own behalf. See Pl.’s Response to Def.’s Mot. to Dismiss, ECF No. 16 at 13 n.2; see California v. Texas,

, 2116 (2021).

7 Mot. at 14. Second, assuming that PhRMA overcomes the first hurdle, the Government contends

that the association’s “allegations would still be insufficient because the harms it asserts are not

cognizable and not fairly traceable to the” rule. Id. at 16.

When it comes to the Government’s first argument, it is hardly clear when an association

has made sufficiently “specific allegations establishing that at least one identified member had

suffered or would suffer harm.” Summers v. Earth Island Inst.,

(2009). As the

Government recognizes, courts “in this district have split on the issue of whether they must require

an association to identify an injured member by name at the motion-to-dismiss stage of litigation.”

Def.’s Reply in Supp. of Mot. to Dismiss, ECF No. 18 at 7 n.2. Some courts require that an

association identify by name in its complaint one of its members that has standing. See Conf. of

State Bank Supervisors v. Off. of Comptroller of Currency,

(D.D.C.

2018); W. Wood Preservers Inst. v. McHugh,

(D.D.C. 2013). Others require

less, and permit suits to proceed even if the association does not identify “specific, injured

members by name” in its complaint. Ranchers-Cattlemen Action Legal Fund, United

Stockgrowers of Am. v. United States Dep’t of Agric., No. CV 20-2552 (RDM),

,

at *7 (D.D.C. Sept. 29, 2021); Ass’n of Am. Physicians & Surgeons, Inc. v. Sebelius,

(D.D.C. 2012) (“[T]he plaintiff need not identify an affected member by name.”). Courts

of Appeals have also applied different tests. See Bldg. & Const. Trades Council of Buffalo, New

York & Vicinity v. Downtown Dev., Inc.,

(2d Cir. 2006) (“[T]he defendants cite

to no authority—nor are we aware of any—that supports the proposition that an association must

‘name names’ in a complaint in order properly to allege injury in fact to its members.”); Am. Coll.

of Emergency Physicians v. Blue Cross & Blue Shield of Georgia,

, 241 n.8 (11th

Cir. 2020) (per curiam) (“[R]equiring specific names at the motion to dismiss stage is

8 inappropriate.”); Hancock Cty. Bd. of Suprs v. Ruhr,

(5th Cir. 2012) (“We

are aware of no precedent holding that an association must set forth the name of a particular

member in its complaint in order to survive a Rule 12(b)(1) motion to dismiss based on a lack of

associational standing.”). But see S. Walk at Broadlands Homeowner’s Ass’n, Inc. v. OpenBand

at Broadlands, LLC,

(4th Cir. 2013); New Jersey Physicians, Inc. v. President

of U.S.,

(3d Cir. 2011); Waskul v. Washtenaw Cty. Cmty. Mental Health,

(6th Cir. 2018); Prairie Rivers Network v. Dynegy Midwest Generation, LLC,

(7th Cir. 2021) (“On the face of PRN’s complaint, we cannot assure ourselves

that at least one individual member—and not those individual members as a group—has standing

to sue.”).

So must PhRMA identify by name in its Complaint at least one of its members that has

standing to challenge the final rule? The Court concludes that when an association brings a lawsuit

on behalf of its members the complaint, including material incorporated by reference (as well the

administrative record), must identify by name at least one member that has standing to challenge

the defendant’s conduct. An association therefore need not “name names” within the four corners

of the complaint itself. See Fac. v. New York Univ.,

, 76 (2d Cir. 2021) (noting that

“[i]t is possible to be more specific—even if ‘naming names’ and submitting individual affidavits

is not required”). But the complaint, together with materials incorporated by reference, must

provide the Court with sufficient information to identify by name at least one member that

possesses standing to sue. Ctr. for Biological Diversity v. Nishida, No. CV 21-119 (RDM),

, at *2 (D.D.C. Mar. 4, 2021); Am. Petroleum Inst. v. Johnson,

(D.D.C. 2008). “[C]ryptic” reference to the identity of members of an association will not

9 suffice. Coal. for ICANN Transparency Inc. v. VeriSign, Inc.,

(N.D.

Cal. 2006).

PhRMA satisfies this test here. The Complaint includes a link to PhRMA’s website, see

Compl. ¶ 18, which lists its members, including Eli Lily, Bristol Myers Squibb, and Amgen, see

https://www.phrma.org/About. Though none of those companies is expressly mentioned in the

Complaint, the administrative record and the comments referenced in the Complaint tell a different

story.4 Eli Lily, Bristol Myers Squibb, and Amgen, among others, commented on the agency’s

proposed rule and stated that each would be harmed if the rule were to go into effect. See AR

035289 (noting that Bristol Myers Squibb warned the agency that the proposed rule could

“discourage manufacturers from providing patient assistance”); AR 043419 (showing that Eli Lilly

explained that the proposed rule would “[p]enaliz[e] manufacturers who seek to ameliorate

deficiencies in commercial insurance benefit designs by forcing them to give away product to

Medicaid”); AR 009179 (demonstrating that Amgen told the agency that compliance with the

proposed rule would be “impossible to operationalize” from a compliance perspective). Based on

those comments, PhRMA has explained how the “challenged agency action affects or injures one

or more of its members,” has identified at least one of those members, and has pointed to “evidence

4 PhRMA references in its Complaint comments submitted in response to the proposed rule. See Compl. ¶ 44 (referencing “many comments received [by the agency] sounding the alarm about the [proposed rule]”); Strumsky v. Washington Post Co.,

(D.D.C. 2012) (quotation omitted) (noting that “a document need not be mentioned by name to be considered ‘referred to’ or ‘incorporated by reference’ into the complaint”); Mpoy v. Rhee,

, 291 n.1 (D.C. Cir. 2014). Not only did PhRMA reference the comments in the Complaint, but they were submitted during the rulemaking process and are accessible to the public. What’s more, the agency has full awareness of the comments referenced in the Complaint. One might even say that the public comments and the agency’s response to them qualify as public records. And “[p]ublic records are subject to judicial notice on a motion to dismiss when referred to in the complaint and integral to the plaintiff’s claim.” Owens v. BNP Paribas, S.A.,

(D.C. Cir. 2018); Kaspersky Lab, Inc. v. United States Dep’t of Homeland Sec.,

(D.C. Cir. 2018) (quotation omitted) (“A federal court may take judicial notice of a fact that is not subject to reasonable dispute if it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.”). Plus, the comments appear in the administrative record, which the Court may consider when deciding whether the plaintiff has standing. Am. Chemistry Council,

.

10 in the administrative record” that shows the challenged agency action actually affects the identified

member. Hearth, Patio & Barbecue Ass’n v. EPA,

(D.C. Cir. 2021). PhRMA

therefore has associational standing to pursue this lawsuit on its members behalf. Sierra Club v.

E.P.A.,

(D.C. Cir. 2002).5

But are the alleged harms to PhRMA’s members sufficient to satisfy Article III? PhRMA

asserts two harms allegedly attributable to the final rule. First, it claims that its members must

“either risk paying higher Medicaid rebates . . . or forego offering financial assistance to patients.”

Compl. ¶ 65. Second, it claims that the rule will impose a “new compliance burden on

manufacturers.” Id. ¶ 23.

These allegations assert cognizable harms that can be traced to the final rule. If the rule

goes into effect, manufacturers will have to either discontinue their financial assistance programs

or risk paying higher Medicaid rebates. That choice constitutes an injury-in-fact traceable to the

agency’s rule sufficient to establish Article III standing. See Grocery Mfrs. Ass’n v. E.P.A.,

(D.C. Cir. 2012) (noting that the costs accompanying an agency’s rule can give rise

to Article III standing). Even HHS in the final rule acknowledged that “patient assistance programs

5 The Complaint here is quite similar to the one in Pharmaceutical Research and Manufacturers of America v. Walsh,

(2003). In Walsh, the state of Maine had encouraged drug companies to enter into rebate agreements favorable to Mainers.

at 653–54. If a company refused, Maine subjected that company’s Medicaid sales to “prior authorization,” reducing the company’s sales and market share in the Pine Tree State.

at 655–56. PhRMA sought injunctive and declaratory relief barring the implementation and enforcement of Maine’s statutory scheme.

PhRMA’s Complaint, however, did not mention by name any of the association’s members. PhRMA instead specified that the association represents “leading research-based pharmaceutical and biotechnical companies” and serves those companies as their “principal policy advocate.” PhRMA’s Compl. in Pharm. Rsch. & Manufacturers of Am. v. Concannon, No. CIV. 00-157-B-H,

(D. Me. Oct. 26, 2000), at ¶¶ 6–7 (The Complaint is on file with Federal Records Center). The association further clarified that it brought “suit on behalf of its members,” and that “[a]t least one of PhRMA’s members possesse[d] standing to sue in its own right.” Id. ¶ 8. Neither the district court, the court of appeals, nor the United States Supreme Court declined to entertain PhRMA’s challenge on standing grounds. See Pharm. Rsch. & Manufacturers of Am. v. Concannon, No. CIV. 00-157-B-H,

(D. Me. Oct. 26, 2000), rev’d sub nom. Pharm. Rsch. & Mfrs. of Am. v. Concannon,

(1st Cir. 2001), aff’d sub nom. Pharm. Rsch. & Mfrs. of Am. v. Walsh,

(2003). That should come as no surprise. The record before the district court allowed for PhRMA’s members to be specifically identified. See Concannon,

at *2 (mentioning Boehringer Ingelheim Pharmaceuticals, Inc. and Pfizer).

11 serve as important marketing tools for manufacturers to start a patient on a therapy, and to promote

and maintain adherence once patients are taking their medications.” 85 Fed. Reg. at 87099.

Manufacturers will also have to implement new regulatory requirements and incur new compliance

burdens in the face of the obligations imposed by the rule, especially if they wish to attempt to

avoid the choice discussed above. See 85 Fed. Reg. at 37299 (specifying that the agency’s rule

excludes manufacturer-sponsored assistance from best price only if manufacturers “ensure[] the

full value of the assistance or benefit is passed on to the consumer or patient”).

The Government’s argument that PhRMA attempts “to assert claims not on behalf of the

unnamed drug manufacturers it represents, but on behalf of the patients with which the

manufacturers do business,” doesn’t hold water. Def.’s Mot. at 17. PhRMA seeks to protect the

interests of its members in continuing to operate patient assistance programs without the risk of

having to pay higher Medicaid rebates, and also to be free from any increased compliance burdens

that accompany the rule. Just because the patients with whom the manufacturers do business might

benefit from PhRMA’s challenge does mean that the only injury allegedly caused by the rule is

suffered by patients.

The Government is also wrong to argue that “any manufacturer’s decision to continue

providing patient discounts . . . looks like a self-inflicted injury” not traceable to the final rule.

Def.’s Mot. at 17. An injury counts as self-inflicted for purposes of standing “where the plaintiff’s

claimed injury [i]s clearly independent of agency action.” Scahill v. D.C.,

(D.D.C. 2017), aff’d,

(D.C. Cir. 2018); Ciox Health, LLC v. Azar,

, 51 (D.D.C. 2020) (quotation omitted) (“To the extent that injury is self-inflicted, it must be

so completely due to the complainant’s own fault as to break the causal chain.”). The

manufacturers would not elect to eliminate or modify their patient assistance programs

12 “independent of” the final rule (or at least, the Complaint reasonably alleges that to be the case).

It is rather the rule, PhRMA reasonably alleges, that could cause manufacturers to stop offering

financial assistance to patients.

V. Conclusion

For the foregoing reasons, the Government’s Motion to Dismiss for Lack of Standing is

DENIED. PhRMA’s Motion for a Briefing Schedule is DENIED as MOOT. The Parties are

ORDERED to Confer and Propose a Briefing Schedule in wake of this Memorandum Opinion.

An Order will be entered contemporaneously with this Memorandum Opinion.

DATE: December 1, 2021 CARL J. NICHOLS United States District Judge

13