No. 09-1273

.~;preme Court, U.$.FILED

Sn tl~e uOreme aurt of tl e nite tate

ASTRA USA, INC., ET AL.,

Vo

COUNTY OF SANTA CLARA,

Petitioners,

Respondent.

On Petition for a Writ of Certiorari tothe United States Court of Appeals

for the Ninth Circuit

BRIEF OF PHARMACEUTICAL RESEARCH ANDMANUFACTURERS OF AMERICA (PhRMA) AS

AMICUS CURIAE IN SUPPORT OF PETITIONERS

DIANE E. BIERIMELISSA B. KIMMELPHARMACEUTICALRESEARCH ANDMANUFACTURERS OFAMERICA950 F Street, NWSuite 300Washington, DC 20004(202) 835-3400

PAUL D. CLEMENTCounsel of Record

JEFFREY S. BUCHOLTZJOHN D. SHAKOWCANDICE CHIUKING & SPALDING LLP1700 Pennsylvania Ave., NWWashington, DC 20006(202) 737-0500PClement@kslaw.com

Counsel for Amicus Curiae Pharmaceutical Research andManufacturers of America (PhRMA)

May 21, 2010

Blank Page

TABLE OF CONTENTS

INTEREST OF AMICUS CURIAE ..........................1

INTRODUCTION AND SUMMARY OFARGUMENT .......................................................2

ARGUMENT ..............................................................5

I. THE DECISION BELOW END-RUNSTHIS COURT’S LIMITS ON IMPLIEDPRIVATE RIGHTS OF ACTION ........................5

A. The Ninth Circuit Fashioned AFederal Common Law Claim ToCircumvent The Absence Of AStatutory Right Of Action ............................5

B. The Ninth Circuit Erred By CreatingA Damages Remedy Based On ItsView Of The Policies At Issue ......................8

II. THE DECISION BELOW WILLUNDERMINE THE REGULATORYSCHEME ........................................................... 13A. Private Enforcement Upends HHS’s

Exclusive And Expert Oversight OverThe 340B Ceiling Price Components .........13

B. Private Enforcement Will GenerateConfusion And Conflicting Standards .......15

C. States And 340B Entities HaveConflicting Interests That FurtherUndermine The Ninth Circuit’sSimplistic Model Of Third-PartyBeneficiary Suits ........................................21

CONCLUSION ......................................................... 22

ii

TABLE OF AUTHORITIES

Cases

Alexander v. Sandoval,532 U.S. 275 (2001) ......................................passim

Ashcroft v. Iqbal,129 S. Ct. 1937 (2009) ...........................................6

Buck v. Am. Airlines, Inc.,476 F.3d 29 (1st Cir. 2007) ...................................7

Cent. Bank of Denver, N.A. v. First InterstateBank of Denver, N.A.,511 U.S. 164 (1994) ............................................... 5

Correctional Services Corporation v. Malesko,534 U.S. 61 (2001) .................................................6

Cort v. Ash,422 U.S. 66 (1975) ................................................. 5

Erie R. Co. v. Tompkins,304 U.S. 64 (1938) ................................................. 8

Gonzaga Univ. v. Doe,536 U.S. 273 (2002) ............................................... 5

Grochowski v. Phoenix Constr.,318 F.3d 80 (2d Cir. 2003) ....................................7

Hodges v. The Atchison, Topeka & Santa FeRy. Co.,728 F.2d 414 (10th Cir. 1984) ...............................7

Hoopes v. Equifax, Inc.,611 F.2d 134 (6th Cir. 1979) .................................7

J.I. Case Co. v. Borak,377 U.S. 426 (1964) ............................................... 5

111

Nw. Airlines, Inc. v. Transp. Workers Union ofA~no ,

451 U.S. 77 (1981) ................................................. 8

O’Melveny & Myers v° FDIC,512 U°S. 79 (1994) ........................................... 8, 12

Sosa v. Alvarez-Machain,542 U.S. 692 (2004) ............................................... 5

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,552 U.S. 148 (2008) ............................................... 6

Touche Ross & Co. v. Redington,442 U.S. 560 (1979) ........................................... 5, 6

Vt. Agency of Nat. Res. v. U.S. ex rel. Stevens,529 U.S. 765 (2000) .............................................10

Wilkie v. Robbins,551 U.S. 537 (2007) ............................................... 6

Wilson v. Libby,535 F.3d 697 (D.C. Cir. 2008) ...............................9

Statutes

31 U.S.C. §

31 U.S.C. §42 U.S.C. §

42 U.S.C. §Pub. L. No.

3729(a) ...................................................11

3730(d)(2) ..............................................11

256b(b) ...................................................15

1396r-8(b) .............................................. 14

109-171, § 6001(c)(3)(B) ........................ 14

Other Authorities

42 C.F.R. §§ 447.500-447.520 .................................. 1472 Fed. Reg. 39,142 (July 17, 2007) .........................18

iv

U.S. Dep’t of Justice, Fraud Statistics,http://www.justice.gov/opa/pr/2008/November/fraud-statistics 1986-2008.htm .........11

INTEREST OF AMICUS CURIAE1

The Pharmaceutical Research andManufacturers of America ("PhRMA") is avoluntary, nonprofit association representing thenation’s leading research-based pharmaceutical andbiotechnology companies. See http://www.phrma.org/member_company_list (listing approximately 40members, international affiliates, and researchassociates). PhRMA’s mission is to advocate insupport of public policies that encourage thediscovery of life-saving and life-enhancing newmedicines for patients by pharmaceutical andbiotechnology research companies. PhRMAmembers invested approximately $45.8 billion in2009 in the discovery and development of newmedicines. See 2009 Industry Profile, available athttp://www.phrma.org/profiles_and_reports.

PhRMA closely monitors legal issues that impactthe pharmaceutical and biotechnology industries.To that end, PhRMA has frequently participated incases before this Court. See, e.g., Merck & Co., Inc v.Reynolds, 130 S. Ct. __ (2010) (No. 08-905); eBay Inc.v. MercExchange, L.L.C., 547 U.S. 388 (2006) (No.05-130).

1 Counsel of record for all parties were given timely notice ofamicus curiae’s intention to file this brief as required by Rule37.2(a) and have consented to its filing. Letters reflecting suchconsent are on file with the Clerk’s Office. No counsel for aparty authored this brief in whole or in part, and no counsel orparty made a monetary contribution intended to fund itspreparation or submission. No person other than amicuscuriae, its members, or its counsel made a monetarycontribution to the preparation or submission of this brief.

This petition is of critical importance to the drugand biologic industries. By holding that 340Bentities have a cause of action under federal commonlaw to seek damages as third-party beneficiaries ofcontracts between the Department of Health andHuman Services ("HHS") and drug manufacturers,the decision below exposes PhRMA members to anonslaught of litigation that they -- like HHS --could not have imagined. See U.S. CA9 Br. 21. The340B program and the Medicaid drug rebateprogram from which the 340B program borrows itspricing inputs are vast in scope and rife withtechnical complexity. If the decision below is leftunreviewed, judicially-created damages suits willwreak havoc in this important field, underminingthe uniformity and predictability that Congresssought to achieve by delegating the administrationof these programs to HHS. PhRMA is filing thisbrief to underscore why certiorari is needed.

INTRODUCTION ANDSUMMARY OF ARGUMENT

In creating the 340B program, Congress soughtto conserve federal resources and maximizehealthcare coverage by allowing certain favoredpurchasers to buy drugs at a discount. Congress didnot, however, provide a private cause of action toallow 340B entities to enforce the statute’s discountpricing provisions through damages suits. Thatshould be the end of the story. The law is now clearthat unless Congress intends to create a cause ofaction, "a cause of action does not exist and courtsmay not create one." Alexander v. Sandoval, 532U.S. 275, 286-87 (2001).

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For the Ninth Circuit, however, Congress’sfailure to provide a damages remedy was a point ofdeparture. The court below viewed Congress’sfailure to provide a cause of action as an invitationto augment Congress’s work via the federal commonlaw. That maneuver is out of step with the entirethrust of this Court’s recent jurisprudence onimplied causes of action, the limited scope of federalcommon law, and the proper role of the Article IIIcourts. Limits on courts’ authority to infer rights ofaction from silent federal statutes are hardlymeaningful if courts can simply retreat to federalcommon law to fashion the same remedy. Thedecision below exemplifies a view of the role of thefederal courts in our system of separated powersthat this Court laid to rest long ago.

The Ninth Circuit’s circumvention of this Court’simplied rights of action precedents is especiallyproblematic because of the nature of the regulatoryscheme at issue here. Congress implemented the340B program using pricing metrics --"AverageManufacturer Price" ("AMP") and "Best Price" ("BP")-- that it adopted unchanged from the Medicaiddrug rebate program. Injecting uncertainty andpotential inconsistency into the determination ofthose pricing metrics through judicially-createdfederal common law claims will undermine theorderly and reasonable administration of not onlythe 340B program, but also the far larger Medicaidrebate program. AMP and BP are not self-evidentmechanical computations; to the contrary, the rulesof their calculation in the dynamic and complexpharmaceutical marketplace require the applicationof thoughtful policy judgments. Congress madeclear that those judgments were to be made by HHS

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subject to APA review, not by the federal courts in afreewheeling exercise in federal common law. Andjudgments about how to determine AMP and BPnecessarily must apply to both programs. A drugcannot have one AMP (or BP) for a 340B purchaserand a different amount or calculation methodologyfor a state Medicaid agency. Moreover, the NinthCircuit’s focus on the 340B purchasers as theintended beneficiaries ignores the interrelationshipbetween the interests of 340B purchasers and theStates: a higher AMP benefits States by raisingtheir Medicaid rebate payments but harms 340Bentities by raising the ceiling price for theirpurchases. HHS can make a single determinationsubject to review under APA principles that giveappropriate deference to HHS. Private damagesactions can neither yield a single determination norprovide for appropriate deference. Congress’sdecision to confer the administration of theseprograms to HHS should be respected rather thantreated as an invitation for judicial creativity.

The Ninth Circuit’s decision exposes drugmanufacturers to the threat of lawsuits by over14,500 340B entities, relating to thousands of drugproducts, challenging AMP and BP as reported toHHS in scores of months and quarters, andinvolving billions in purchases. All of this would begoverned by the vagaries of federal common law.Neither party to the Pharmaceutical PricingAgreements could have imagined that petitionerscould face such an onslaught of burdensome andunpredictable litigation. Such litigation will harmthe public interest by embroiling both Medicaid andthe 340B program in confusion and uncertainty, ifnot outright inconsistent judicial directives. And

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nothing in Congress’s enactments provides anywarrant for such litigation. For all these reasons,this Court should grant certiorari.

ARGUMENT

I. THE DECISION BELOW END-RUNS THISCOURT’S LIMITS ON IMPLIED PRIVATERIGHTS OF ACTION.

A. The Ninth Circuit Fashioned A FederalCommon Law Claim To Circumvent TheAbsence Of A Statutory Right Of Action.

The decision below is inconsistent with the entirethrust of four decades of this Court’s jurisprudenceconcerning implied rights of action and relatedissues. In devising a private right of action in theconceded absence of a statutory right of action, theNinth Circuit "revert[ed] in this case to theunderstanding of private causes of action that heldsway 40 years ago." Sandoval, 532 U.S. at 287. Itmay once have been this Court’s view that courts’duty was "to provide such remedies as are necessaryto make effective the congressional purpose"reflected by a statute. J.I. Case Co. v. Borak, 377U.S. 426, 433 (1964). But that view has long sincebeen "abandoned." Sandoval, 532 U.S. at 287.

Since Cort v. Ash, 422 U.S. 66 (1975), this Courthas consistently and with increasing vigor rejectedjudicial efforts to read remedies into federal statutesthat Congress did not put there. See, e.g., Sosa v.AlvarezoMachain, 542 U.S. 692, 727 (2004); GonzagaUniv. v. Doe, 536 U.S. 273, 285 (2002); Sandoval,532 U.S. at 287-88; Cent. Bank of Denver, N.A. v.First Interstate Bank of Denver, N.A., 511 U.S. 164,173 (1994); Touche Ross & Co. v. Redington, 442

6

U.S. 560, 568 (1979). That restraint is more than atrend. It is a reflection of core separation of powersprinciples: Private rights of action to enforce federallaw, like substantive federal law itself, must becreated by Congress. See Sandoval, 532 U.S. at 286;Touche Ross, 442 U.S. at 578. A contrary viewwould amount to judicial encroachment onCongress’s purview over the remedies available forviolations of federal statutes. Today "it is settledthat there is an implied cause of action only if theunderlying statute can be interpreted to disclose theintent to create one." Stoneridge Inv. Partners, LLCv. Scientific-Atlanta, Inc., 552 U.S. 148, 164 (2008).

The Court has applied these settled principleseven in cases involving alleged constitutionalviolations. In Correctional Services Corporation v.Malesko, 534 U.S. 61 (2001), this Court declined toinfer a Bivens damages remedy for allegedconstitutional violations by a government contractoroperating a halfway house. Citing Sandoval, theCourt explained that it had "abandoned" the Borakunderstanding of private rights of action "decadesago" and "retreated from our previous willingness toimply a cause of action where Congress has notprovided one." 534 U.S. at 67 n.3. The Court hasonly reinforced this reluctance to infer privatestatutory and constitutional rights of action sinceMalesko. See, e.g., Wilkie v. Robbins, 551 U.S. 537(2007); see also Ashcroft v. Iqbal, 129 S. Ct. 1937,1948 (2009) ("implied causes of action aredisfavored").

This Court has thus been clear and consistent:Absent congressional intent to create a cause ofaction, "a cause of action does not exist and courts

may not create one." Sandoval, 532 U.S. at 286-87(emphases added). Other courts of appeals havecorrectly grasped and applied that message. SeeGrochowski v. Phoenix Constr., 318 F.3d 80, 86 (2dCir. 2003); Hodges v. The Atchison, Topeka & SantaFe Ry. Co., 728 F.2d 414, 416 (10th Cir. 1984);Hoopes v. Equifax, Inc., 611 F.2d 134, 135 (6th Cir.1979); cf. Buck v. Am. Airlines, Inc., 476 F.3d 29, 37(1st Cir. 2007) (refusing "to abet a blatant evasion ofthe implied right of action doctrine" through state-law mechanisms).

The Ninth Circuit, in contrast, created a privatecause of action here despite conceding that thestatute did not. The court below lost sight of thefundamental point that whether a cause of actionexists turns on whether Congress created one. Thecourt concluded that "[a]lthough the statutemandating the [Pharmaceutical Pricing Agreement]does not create a federal private cause of action,allowing [respondent’s] contract claim to go forwardis consistent with Congress’ intent in enacting thelegislative scheme." Pet. App. 29a. That is a non-sequitur. If Congress had intended to create theclaim that respondent seeks to bring, it would haveprovided an express cause of action. Congress didnot enact such a cause of action, and the courts lackthe authority to create it. See Sandoval, 532 U.S. at286-87.

This Court did not take pains to articulate andreinforce these limits in decisions like Sandoval,Stoneridge, and Malesko just so the lower courtscould nullify their practical effect by a simple resortto federal common law. If the decision below iscorrect, the analysis of whether a federal statute

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creates a private damages action is largelyacademic; the conclusion that there is no statutorycause of action simply clears the way for therecognition of a federal common law cause of action.This gets matters backwards. This Court has, ifanything, been more clear that the resort to thefederal common law is disfavored. See, e.g.,O’Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994).Indeed, federal common law is a uniquely poorsource of authority to trump the remediesdetermination made by Congress. While it remainsa slight overstatement that "[t]here is no federalgeneral common law," Erie R. Co. v. Tompkins, 304U.S. 64, 78 (1938), any residual common-lawauthority in the federal courts is limited and"subject to the paramount authority of Congress,"Nw. Airlines, Inc. v. Transp. Workers Union of Am.,451 U.S. 77, 95 (1981). Because the federal commonlaw authority is strictly limited, lower courts shouldbe doubly loath to use that disfavored device tofashion the disfavored remedy of an implieddamages action to enforce a federal statute andevade this Court’s precedents. But that is preciselywhat the Ninth Circuit accomplished in the decisionbelow.

B. The Ninth Circuit Erred By Creating ADamages Remedy Based On Its View OfThe Policies At Issue.

The Ninth Circuit’s decision appears to havebeen based on that court’s view that the 340Bstatutory scheme does not provide adequateenforcement measures and thus that it was"sensible" to enlist 340B entities to assist theGovernment with enforcement. See Pet. App. 27a.

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The Ninth Circuit emphasized that the 340B statute"does not ’expressly provide’ any remedies to coveredentities." Pet. App. 25a. And it suggested thatHHS’s authority to enforce the 340B programrequirements against manufacturers was less thanrobust. See Pet. App. 26a. The court thus viewedempowering respondent as a private attorneygeneral as "one way of ensuring that drug companiescomply with their obligations," rather than’"plac[ing] the entire burden of enforcement’ on thegovernment." Pet. App. 27a (quoting Price v. Pierce,823 F.2d 1114, 1121 (7th Cir. 1987)).

The Ninth Circuit’s approach was whollymisplaced. The determination of how to structure aproper enforcement scheme is for Congress. Thecourts’ job is to ascertain the remedies that Congresscreated. It is not to second-guess or try to improveupon Congress’s judgment armed with nothing morethan federal common law and a view of what is"sensible." See Sandoval, 532 U.S. at 286-87. Inemphasizing that Congress had not provided anyexpress remedies to 340B entities, the court belowseemed motivated by a sense that some remedy mustexist. But the absence of a statutory remedy is arational determination, not an invitation forsupplementation via federal common law. "Indeed,it is where Congress has intentionally withheld aremedy that we must most refrain from providingone because it is in those situations that’appropriate judicial deference’ is especially due . . ." Wilson v. Libby, 535 F.3d 697, 709 (D.C. Cir.2008) (quoting Schweiker v. Chilicky, 487 U.S. 412,423 (1988)), cert. denied, 129 S. Ct. 2825 (2009).

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The Ninth Circuit failed to recognize two criticalfacts that in the Bivens context would be called"special factors counseling hesitation." First, inexamining the statutory remedies specific to the340B program in isolation, the Ninth Circuit failedto recognize that the 340B program is inextricablylinked to the Medicaid rebate program. AMP andBP were created under the Medicaid rebate programbefore the 340B program existed. They continue tobe determined under that program and then simplycarried over to serve the 340B program.Accordingly, the strength of the statutory remediesspecific to the 340B program is largely beside thepoint as a practical matter, because the Medicaidrebate program is indisputably subject to vigorousenforcement by the Government. See U.S. CA9 Br.28. Congress’ decision not to create a private rightof action for 340B entities was perfectly sensiblebecause those entities in effect piggyback on thework done in the Medicaid rebate program toestablish the prices used in the 340B program.There was and is no need for a separate mechanism,specific to the 340B program, to duplicate theenforcement structure in place to police compliancewith Medicaid.

Second, in fashioning a federal common lawremedy for third-party beneficiaries of governmentcontracts, the Ninth Circuit ignored the existence ofa wholly separate statutory regime designed toaddress the government contracts field: the FalseClaims Act ("FCA"). The FCA expressly creates aprivate right of action for damages, and quite apowerful one at that. Anyone can sue as a "relator"in the name of the United States, even withoutsuffering individual injury. See Vt. Agency of Nat.

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Res. v. U.S. ex rel. Stevens, 529 U.S. 765 (2000). TheFCA provides for penalties on top of treble damages.31 U.S.C. § 3729(a). Prevailing relators collect up to30% of the "proceeds of the action or settlement" as abounty, plus their attorney’s fees. Id. § 3730(d)(2).The Government has obtained billions of dollarsunder the FCA in recent years. See U.S. Dep’t ofJustice, Fraud Statistics, http ://www.j ustice, gov/op a!prl//fraud-statistics 1986-2008.htm.

The point is not that respondent has a valid FCAremedy. If respondent could comply with all thedemands of the FCA, including Fed. R. Civ. P. 9(b)’sparticularized pleading standard for fraud and§ 3729(b)(3)’s demanding standard for scienter, itpresumably would be pursuing the treble damagesremedy provided by Congress.2 Rather, the point isthat when Congress has enacted a statutory schemeto ensure fair dealing in contractual undertakingswith the Government -- especially one that allowsnon-contracting parties to sue in certain specificallydesignated situations, subject to specific limitsthere is no role for a federal court to augment that

2 Respondent initially sued petitioners under California’s FalseClaims Act, which tracks the federal FCA. See Pet. App. 99a-100a, 105a. After the district court dismissed the state FCAclaim, respondent devised its third-party beneficiary theoryand added a breach of contract claim. See Pet. App. 100a.After the district court held that respondent could not satisfyFed. R. Civ. P. 9(b) and dismissed the state FCA claim a secondtime, respondent abandoned that claim. See Pet. App. 7a.Respondent has not acquired a more substantial basis for itsclaims as this litigation has extended into its sixth year andconsumed extensive resources; the court below recognized that"the nature of the breaches [respondent] will seek to prove isunclear." Pet. App. 29a.

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system by authorizing third-party beneficiaries tobring common law actions. The creation of federalcommon law is not simply disfavored, see O’Melveny& Myers, 512 U.S. at 87, but entirely inappropriatewhen an express cause of action occupies the field.

Finally, the Ninth Circuit’s insistence thatempowering 340B entities to sue will "help" theGovernment is mystifying. The Government, inresponse to the court’s request, explained its viewthat "permitting [respondent’s] challenge wouldconflict with Congress’s comprehensiveadministrative and enforcement scheme, and accord[respondent] contract rights never intended by thePPA’s signatories." U.S. CA9 Br. 13. It isremarkable enough that the court below believedthat it knew better than the Government whetherfederal common law enforcement by 340B entitieswould be a "sensible" bolstering of the Government’senforcement authorities. See Pet. App. 27a. But itis truly astonishing that the court reached thatconclusion without so much as ~nentioning theGovernment’s statement that "HHS never imaginedthat a 340B entity could bring a third-partybeneficiary lawsuit like [respondent’s]." U.S. CA9Br. 21.3

3 It goes without saying that drug manufacturers, the otherparties to the PPA, also never "intended to grant covered[340B] entities enforceable rights" or foresaw third’partybeneficiary litigation of this type. See Pet. App. 13a.

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II. THE DECISION BELOW WILLUNDERMINE THE REGULATORYSCHEME.In addition to running counter to this Court’s

recent jurisprudence, the Ninth Circuit’s decisionwill have sweeping ramifications on the regulatoryscheme. While the Ninth Circuit suggested that the"ceiling prices" charged by drug manufacturers to340B entities escape all oversight, the reality is fardifferent. Manufacturers are required by law toreport to HHS the two core components of the 340Bceiling price -- AMP and BP. And HHS has theauthority -- the exclusive authority -- to audit thosereported price components. The regulatory schemethus not only provides a mechanism for oversight of340B ceiling prices, but it squarely delegatesoversight responsibility to HHS. Congress correctlyrecognized that HHS is uniquely equipped tonavigate the technical complexities of drug pricing,make reasonable policy judgments, balancecompeting interests, and impose uniform standards.By inviting the courts into the determination ofAMP and BP at the behest of purported third-partybeneficiaries, the decision below threatens far-reaching uncertainty, disuniformity, anddestabilization.

A. Private Enforcement Upends HHS’sExclusive And Expert Oversight OverThe 340B Ceiling Price Components.

The 340B ceiling price is calculated from aformula based on the two inputs challenged byrespondent -- AMP and BP. Both inputs are part ofthe detailed Medicaid regulatory scheme. Congressrequires drug manufacturers to report AMP and BP

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at specified intervals to CMS as part of the Medicaidoutpatient drug rebate program. See 42 U.S.C.§ 1396r-8(b)(3)(A). Congress has also directed HHSto promulgate regulations offering guidance on howto calculate AMP. See Pub. L. No. 109-171,§ 6001(c)(3)(B); 42 C.F.R. §§ 447.500-447.520.Moreover, Congress has supplied HHS with variousenforcement tools to audit and investigatemanufacturers’ reported AMP and BP figures. See42 U.S.C. § 1396r-8(b)(3)(A)-(B). HHS may levymonetary penalties if the figures are untimely orfalse, see id. § 1396r-8(b)(3)(B)-(C), or work with theDepartment of Justice to pursue False Claims Actremedies. See id. § 1396r-8(b)(3)(C)(ii). And HHScan impose the ultimate sanction -- it can terminatethe manufacturer’s eligibility for Medicaid for goodcause. See id. § 1396r-8(b)(4)(B).

The Ninth Circuit examined only the authoritiescreated by the 340B statute itself, see Pet. App. 25a-27a, and its apparent belief that the 340B statutedoes not give HHS robust enforcement authoritiesthus misses the point. AMP and BP originated inthe Medicaid rebate program before the 340Bprogram was created in 1992. AMP and BP aredetermined and reported to CMS under theMedicaid rebate program. The ceiling price for the340B program simply borrows these inputs fromMedicaid. The Government’s amicus brief explainedthat "[b]y focusing on [the Health Resources andServices Administration] and the 340B statute,[respondent] ignores the important role that CMSand the Social Security Act play in the 340BProgram." U.S. CA9 Br. 27. Although respondent isa 340B entity rather than a state Medicaid agency,"to the extent that [respondent] is challenging

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manufacturers’ AMP and Best Price calculations,[respondent] is actually challenging figures reportedto CMS as part of the Medicaid Rebate Program."Id. And the Government explained that, whatevermay be the case with respect to the 340B programand HRSA in isolation, the Medicaid rebate program"has clearly been committed to CMS’scomprehensive regulatory authority." Id.

As noted, however, the Ninth Circuit did notaddress the substance of the Government’s amicusbrief, and it made the same error as respondent byfailing to recognize that CMS’s oversight of theMedicaid rebate program amounts to oversight ofthe calculation of the 340B ceiling price. For thesame reason, the court below failed to understandthat the use of Medicaid pricing inputs in the 340Bprogram means that "allowing suits like this wouldthreaten the orderly operation of both programs."Id. at 19 (emphasis in original). Simply put, if acourt orders a manufacturer to calculate AMP or BPin a particular way at the instance of a 340B entity,that same calculation will necessarily apply in theMedicaid rebate program. See 42 U.S.C. § 256b(b).There can only be one AMP and BP at a time for agiven drug.

B. Private Enforcement Will GenerateConfusion And Conflicting Standards.

Private enforcement of the 340B program thataims to test its AMP and BP components cannotfunction in practice.

As an initial matter, the scope of the programsand operations implicated by this suit is massive.Approximately 150 innovator drug manufacturers

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determine and report BP every calendar quarter formore than 6,300 drug products. Thesemanufacturers and many more calculate and reportAMP every month and every quarter for over 25,000products. For each dosage form and strength of aninnovator prescription drug, a manufacturer musttherefore report four BPs and 16 AMPs every year.Many PhRMA members calculate and report over 50of these Medicaid price points each reporting period.In 2003, drug manufacturers paid out over $6.5billion in Medicaid rebates; 340B discounts in thesame period totaled approximately $600 million.4The effect of AMP and BP in the Medicaid rebateprogram is thus an order of magnitude larger thanin the 340B program.

The litigation burdens imposed by respondent’sclaims are staggering. Respondent challenges allAMPs and BPs reported by nine largemanufacturers over the course of seven and a halfyears. See Pet. App. 74a. This claim implicatesmore than five thousand separate prices reported toCMS for hundreds of drug products. To support itsallegation that petitioners overcharged it inunspecified ways, respondent seeks "[a]llinformation underlying [petitioners’]determinations of AMP and BP." Id. This,moreover, is but the "first stage of discovery." Id.Respondent then will have 40 pages to frame theadditional discovery that it will seek at "Stage Two."Pet. App. 77a. If the decision below is permitted tostand, the entire industry will be subjected to

4 In 2009, the U.S. pharmaceutical and biotechnologyindustries paid out over $8.3 billion in Medicaid drug rebates.

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disruptive and extraordinarily expensive third-partybeneficiary fishing expeditions for years to come.

As burdensome as such litigation will be formanufacturers, the burden alone is not the worstproblem. Private litigation also will generateuncertainty and inconsistency that will makeongoing compliance with Medicaid rebate programobligations nearly impossible. Determining AMPand BP is extremely complex and technical. Thefigures are calculated in dollars to six decimal places-- to one ten-thousandth of a penny. Manufacturershave entire departments devoted to the calculationof government-reportable prices. They enlistexpensive and sophisticated computer systems totrack sales, customers, adjustments, discounts,rebates, price concessions, and other data just forthis purpose. Manufacturers also employ legal andcompliance officers trained specifically in theadministration of pricing reporting requirements,who issue and oversee detailed internal policies andprocedures. HHS is far better equipped to grasp andnavigate these complexities than courts equippedonly with federal common law.

Manufacturers must try to interpret ambiguousprogram requirements, often without clear (or any)HHS guidance. For example, manufacturers arerequired to allocate so-called "bundled" discountsacross affected products. Yet important questionsabout what kinds of arrangements actuallyconstitute bundles and how the attendant priceconcessions are to be allocated in practice remainunanswered and largely uncommented upon. WhereHHS has yet to issue guidance on a specificinterpretive issue, preserving the exclusivity of

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HHS’s oversight takes on even greater importance.HHS instructs that in such a situation, themanufacturer "may make reasonable assumptions inits calculations" of AMP and BP. Medicaid DrugRebate Agreement § II(i). A "reasonable"assumption cannot be distinguished from an"unreasonable" one without specialized expertiseand a deep understanding of the industry. Andcoherent guidance as to the proper treatment ofambiguous issues can only emerge if there is a singleinterpreter. HHS possesses that expertise andunderstanding, and HHS is the only entity in aposition to provide uniform and definitive answers.

The Government itself has not yet come close todefinitively resolving all the difficult questions thatcan arise in calculating AMP and BP. The tacitpremise of respondent’s claim appears to be thatAMP and BP are governed by simple formulae, butthat is very far from the truth. As the Governmentexplained in the court below, "manufacturers mustcontend with many difficult issues of interpretation,including questions surrounding the definition of a’wholesaler,’ questions about the meaning of ’retailclass of trade,’ and questions about a variety ofcomplex pricing arrangements." U.S. CA9 Br. 4-5.The broad definitions in the Medicaid rebate statuteand the agreements thereunder raise as manyquestions as they answer. CMS has issued"Releases" containing ad hoc guidance over theyears, but those Releases did not purport to providecomprehensive instructions. See U.S. CA9 Br. 5.There were no regulations from the 1991 inceptionof the program until 2007. See 72 Fed. Reg. 39,142(July 17, 2007). Although the 103-page preambleand regulations published in 2007 went some

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distance toward clarifying matters, they leftsignificant interpretive issues and practicalcomplexities unaddressed. See U.S. CA9 Br. 29("even working within CMS guidance, a number ofdifficult interpretive questions can arise"). And nowthe health care reform bills enacted in March 2010have raised many new questions.

But if the issues are left to HHS, there is at leastthe possibility of clear answers ultimately emerging.The agency can provide guidance and the agency’sposition could be tested, subject to appropriatedeference, under the APA. Under the NinthCircuit’s approach, every one of these unanswereddetails would be the subject of litigation. Withcourts guided by nothing more than the federalcommon law and their own conception of what issensible, inconsistent rulings are certain to emerge.

But this is not a program where uncertain andinconsistent results can be tolerated. There can onlybe one AMP and one BP, applicable to both the 340Bprogram and Medicaid. There cannot be differentAMPs or BPs for a given drug in a given reportingperiod in different jurisdictions. This unitary,national system cannot be governed by multiplecourts issuing disparate orders about how todetermine these price points. Even where the courtorders are not diametrically opposed -- one courtholding that sales to specialty pharmacies areincluded in AMP, and another court holding theopposite -- it suffices for the orders to be evenslightly different to destroy the nationwideuniformity on which these programs are premised.Given the wide scope for judgment calls in grayareas, it would not take much litigation to produce

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different judicially-approved methodologies thatwould make nationwide uniformity impossible.Court orders arising out of this kind of litigationmight also contradict CMS guidance, makingsimultaneous compliance with judicial and executivepronouncements impossible and putting drugmanufacturers in an untenable bind.

In short, the reality of AMP and BP dictatesflexibility and reliance on HHS’s unique, centralizedexpertise. The type of mass litigation pursued byrespondent, in contrast, presumes that if onlymanufacturers are dragged through enoughdiscovery, 340B entities and courts will be able toascertain the "correct" figures and that anydeparture from those figures reflects a breach ofcontract. Once the regulatory scheme is understood,however, it is crystal clear that opening the door toprivate enforcement through damages actions is notat all compatible with the orderly operation of eitherthe 340B program or the Medicaid rebate program.The Ninth Circuit was able to declare thatrecognizing a federal common law claim was "whollycompatible with the Section 340B program’sobjectives," Pet. App. 26a, only because it did notaddress the Government’s explanation of how the340B program takes its pricing inputs from theMedicaid rebate program such that "allowing suitslike this would threaten the orderly operation ofboth programs." U.S. CA9 Br. 19 (emphasis inoriginal).

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C. States And 340B Entities HaveConflicting Interests That FurtherUndermine The Ninth Circuit’sSimplistic Model Of Third-PartyBeneficiary Suits.

The Ninth Circuit’s notion that 340B entities arethe intended beneficiaries of the 340B contracts failsto appreciate the complexity of the regulatoryregime generally and the interrelationship betweenthe Medicaid rebate program and the 340B programin particular. The Government uses AMP both toset the amount manufacturers must pay in Medicaidrebates to States and to establish the 340B ceilingprice that may be charged to 340B entities. Theinterests of States and 340B entities in this respectare often directly opposite. In most circumstances,the lower the AMP, the lower a product’s price to a340B entity. Conversely, in most circumstances, thehigher the AMP, the more a state Medicaid agencyreceives in rebates from manufacturers. On themyriad issues for which there is no definitivestatutory or regulatory guidance, 340B entities willadvocate an interpretation that reduces AMP, whileStates will advocate an interpretation that increasesit.

Thus, this is not a simple matter where theGovernment insists on a provision in a contract forthe exclusive benefit of an identifiable third party.The critical pricing metrics that respondent seeks toattack are not designed for 340B entities’ benefit,but are the product of a more complicated regulatorysystem that serves multiple ends. Resolution of thecompeting demands in that complex program shouldbe undertaken deliberately by the political branches.

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It should not be displaced by a crazy-quilt of judicialdecisions driven by a race to litigate.

The Ninth Circuit recognized that the relevantstatute did not provide an express cause of action.Rather than accept the consequences of Congress’sdecision not to authorize private damages actionsand follow this Court’s lead in swearing "off thehabit of venturing beyond Congress’s intent," theNinth Circuit could not resist respondent’s"invitation to have one last drink." Sandoval, 532U.S. at 287. That decision would merit correctioneven if the decision did not threaten immediate andsevere disruption to important health careprograms. The scale and immediacy of the harmthat the decision below will cause reinforces theneed for this Court’s review now.

CONCLUSIONThe petition for a writ of certiorari should be

granted.

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Respectfully submitted,

May 21,2010

Paul D. ClementCounsel of Record

Jeffrey S. BucholtzJohn D. ShakowCandice ChiuKING & SPALDING LLP1700 Pennsylvania Ave., NWWashington, DC 20006

Diane E. BieriMelissa B. KimmelPHARMACEUTICALRESEARCH ANDMANUFACTURERS OFAMERICA950 F Street, NWSuite 300Washington, DC 20004

Counsel for Amicus CuriaePharmaceutical Research andM~n uf~cturer~ o£Amerie~

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