346 F. Supp. 3d 121
D.C. Cir.2018Background
- Cares Community Health is a Federally Qualified Health Center (FQHC) operating a pharmacy that dispenses Medicare Part D drugs and also participates in the 340B discounted-drug program.
- Cares had a pharmacy provider agreement with Part D plan sponsor Humana; Humana sought to reduce Part D reimbursement for "340B pharmacy services," prompting arbitration where the arbitrator declined to resolve the federal-law question.
- Cares sued HHS, the HHS Secretary, and the CMS Administrator under the Administrative Procedure Act (APA), alleging (1) unlawful withholding of agency action under 5 U.S.C. § 706(1) and (2) arbitrary and capricious agency action under § 706(2)(A), claiming CMS has a nondiscretionary duty to require Part D contracts to pay FQHCs "not less than" non‑FQHCs.
- Cares sought declaratory relief that the FQHC payment requirement applies to Part D, injunctive relief requiring CMS to include that term in future Part D contracts, and an order requiring CMS to ensure payment parity under existing contracts.
- Defendants moved to dismiss under Rules 12(b)(1) and 12(b)(6); the court found Cares has Article III standing (except as to modifying existing non-party contracts) but held Cares failed to state a claim and dismissed under 12(b)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FQHC "pay not less than" requirement in 42 U.S.C. § 1395w-27(e)(3)(A) applies to Part D prescription drugs | The statutory payment requirement applies to Part D via incorporation and should prevent sponsors from pocketing 340B discounts; CMS has a nondiscretionary duty to include the term in Part D contracts | The statutory text limits the payment requirement to FQHC "services," which excludes prescription drugs; Congress did not require CMS to include the term in Part D contracts | The court held the statute’s text confines the requirement to FQHC services (not Part D drugs); Cares failed to state a claim. |
| Whether CMS unlawfully withheld agency action (APA § 706(1)) by not including the payment term in Part D contracts | CMS has a clear, discrete duty to enforce payment parity in Part D contracts; withholding is reviewable | No nondiscretionary duty exists because the payment term does not apply to Part D drugs; thus no unlawful withholding | Dismissed: no nondiscretionary duty shown; unlawful withholding claim fails. |
| Whether CMS acted arbitrarily and capriciously under APA § 706(2)(A) by entering into Part D contracts without the term | Entering contracts without the payment term was arbitrary and capricious given statutory purpose and 340B context | Agency action was lawful because the statute’s definition of services excludes Part D drugs; no arbitrary-and-capricious violation alleged | Dismissed: plaintiff did not show the agency acted arbitrarily and capriciously. |
| Standing and redressability for requested relief modifying existing non‑party contracts | Cares alleges concrete economic injury from reduced Part D payments and seeks relief that would correct that injury | Defendants argue injury stems from private sponsor conduct and courts cannot rewrite existing non‑party contracts | Court found Cares has Article III standing for most relief (economic injury, causation, redressability) but lacks standing to seek modification of existing contracts binding solely non‑parties. |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing requires injury, causation, redressability)
- Renal Physicians Ass'n v. U.S. Dep't of Health & Human Servs., 489 F.3d 1267 (plaintiff can assume a third party will comply with a court-declared legal duty)
- Nat'l Wrestling Coaches Ass'n v. Dep't of Educ., 366 F.3d 930 (standing to challenge government action that permits third-party conduct)
- Friends of the Earth, Inc. v. Laidlaw Env'l Servs., 528 U.S. 167 (plaintiff must demonstrate standing for each form of relief sought)
- Marx v. Gen. Revenue Corp., 568 U.S. 371 (textual reading controls even when some surplusage might result)
- Chickasaw Nation v. United States, 534 U.S. 84 (surplusage canon not dispositive when cross-references are numerical)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: legal conclusions not entitled to assumed truth)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)