PFIZER, INC., Plаintiff-Appellant, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, XAVIER BECERRA, in his official capacity as Secretary of Health and Human Services, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES OFFICE OF THE INSPECTOR GENERAL, CHRISTI A. GRIMM, in her official capacity as Principal Deputy Inspector General of and Senior Official in the United States Department of Health and Human Services Office of Inspector General, Defendants-Appellees.
Docket No. 21-2764-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
July 25, 2022
August Term, 2021 (Argued: May 25, 2022)
Before: POOLER, SACK, and NATHAN, Circuit Judges.
Plaintiff-appellant Pfizer, Inc. brought this action in the United States District Court for the Southern District of New York under the Administrative Procedure Act,
DOUGLAS HALLWARD-DRIEMEIER, Ropes & Gray LLP, Washington, DC (Samantha Barrett Badlam, Ropes & Gray LLP, Washington, DC; Joan McPhee, Ropes & Gray LLP, New York, NY; Ilana H. Eisenstein, DLA Piper LLP, Philadelphia, PA, on the brief), for Plaintiff-Appellant;
REBECCA S. TINIO (Benjamin H. Torrance, on the brief), for Damian Williams, United States Attorney for the Southern District of New York, New York, NY, for Defendants-Appellees.
Pfizer, Inc. produces and sells a drug called tafamidis, which treats a rare, progressive heart condition known as transthyretin amyloid cardiomyopathy (“ATTR-CM“). Tafamidis is considered a breakthrough treatment – it is currently the only drug approved by the United States Food and Drug Administration (“FDA“) to treat ATTR-CM. It also carries an extremely high price tag: $225,000 per year.
Because ATTR-CM disproportionately affects older Americans, most ATTR-CM patients are covered by Medicare. Under Medicare‘s pricing formula, patients who use tafamidis are responsible for a co-pay of about $13,000 per year. Concerned that many patients cannot afford this price, Pfizer proposed a program, called the Direct Copay Assistance Program (the “Direct Program“), which would directly cover a patient‘s co-pay if the patient met specified eligibility criteria. Pfizer sought an advisory opinion from the United States Department of Health and Human Services Office of Inspector General (“HHS OIG“) to ensure that its proposal did not run afoul of federal laws.
HHS OIG ultimately issued an unfavorable advisory opinion, concluding that the Direct Program would violate the federal Anti-Kickback Statute (“AKS“),
Factual Background
The following facts, which are substantially undisputed by the parties, are drawn from Pfizer‘s complaint and the administrative rеcord before HHS OIG.
A. Pfizer‘s Drug
ATTR-CM is a rare cardiac condition characterized by deposits of amyloid protein in the heart muscle, “causing the heart to stiffen and thereby limiting its ability to pump blood to the body.” Compl. ¶ 3, at A.12. ATTR-CM patients “experience a progressive decline in function, beginning with fatigue and shortness of breath and ending with potential heart failure, inability to perform even the most basic daily activities, and eventually death.” Id. Without treatment, patients have a median life expectancy of two to three-and-a-half years after diagnosis. An estimated 100,000 to 150,000 Americans, most of whom are elderly, suffer from the condition.
Through nearly two decades of research and testing, Pfizer developed а treatment for ATTR-CM called tafamidis, which it sells under the brand names Vyndaqel and Vyndamax. Tafamidis is not a cure, but it slows the decline in quality of life, reduces hospitalization rates, and typically helps patients live longer. In May 2019, the FDA approved tafamidis for the treatment of ATTR-CM, making it the first, and currently the only, FDA-approved pharmacological treatment for the disease. Other treatments exist, but they are “off-label,” i.e., not approved by the FDA to treat ATTR-CM. Some patients may also have non-pharmacological options, such as an organ transplant.
Pfizer charges $225,000 for a one-year course of tafamidis. According to Pfizer, the price of the drug reflects its “strong efficacy and safety рrofile, its slowing of the decline in functional status and quality of life, and the relatively small population of patients with ATTR-CM.” Compl. ¶ 5, at A.13. The FDA designated tafamidis as an “orphan drug,” which is a special classification that offers financial incentives, including potential market exclusivity, for the development of treatments for rare disease. Pfizer asserts that such drugs have nonetheless become increasingly expensive for pharmaceutical companies to develop. Id. ¶ 32, at A.21. Pfizer also contends that the “off-label” options for treating ATTR-CM are more expensive than tafamidis, as is a heart or liver transplant. Id. ¶ 5, at A.13; A.79-80. HHS, on the other hand, cites a 2020 study concluding that tafamidis is “the most expensive сardiovascular drug ever launched in the United States.”1
B. The Direct Copay Assistance Program
Because ATTR-CM disproportionately affects older persons, most ATTR-CM patients are beneficiaries of Medicare.2 Almost all Medicare plans provide coverage for tafamidis, but under Medicare Part D – which covers outpatient prescription drugs – beneficiaries remain responsible
From the government‘s perspective, as explained by HHS OIG, this cost-sharing structure “expos[es] [Medicare] beneficiaries to the economic effects of drug pricing” and thereby acts as “a market safeguard that Congress included [in Medicare Part D] to protect against inflated drug prices.” OIG Advisory Op. No. 20-05, 17-18 (Dep‘t of Health & Human Servs. Sept. 18, 2020), at A.224-25. The government provides a subsidy to assist lowеr-income Medicare beneficiaries, but only if they fall below 150% of the federal poverty level, or an annual income of $19,140. Survey data suggests that, in 2016, approximately 29% of Part D participants qualified for this subsidy.3
Under the payment structure outlined above, Medicare beneficiaries who use tafamidis are responsible for a co-pay of approximately $13,000 per year. Pfizer‘s concern is that many “middle-income” Medicare patients, who do not otherwise qualify for co-pay assistance options, will be unable to afford that price. Compl. ¶ 7, at A.13-14. Even if the company cut the price of tafamidis in half, Pfizer contends, the Medicare co-pay would be approximately $8,000, which remains a significant financial barrier for many patients. Id. ¶ 53, at A.28. Pfizer pointed to one study indicating that 49% of cancer patients failed to refill their prescriptions when the out-of-pocket costs exceeded $2,000.4
To address this concern, Pfizer proposed the Direct Copay Assistance Program. Through this program, Pfizer would cover almost the entirety of a Medicare beneficiary‘s co-pay for tafamidis so long as: (1) the patient was prescribed tafamidis to treat ATTR-CM, (2) the patient is a U.S. resident, and (3) the patient meets program criteria for financial need, which are tailored to address the burden that “middle-income” patients face in acquiring tafamidis. Patients who are eligible for the Direct Program would be responsible for only $35 per month, with Pfizer covering the remainder of the approximately $13,000 annual co-pay. The federal government, through Medicare, would pick up the rest of the $225,000 tab.
Pfizer emphasized, both in its submissions to HHS and in its complaint in the district court, that it would not use the Direct Program to solicit new patients for tafamidis – a patient would only become eligible for the Direct Program after a physician prescribes the treatment. Compl. ¶ 63, at A.30; A.81. Pfizer also stated that the Direct Program provides no financial incentive to physicians to favor a tafamidis prescription. Compl. ¶ 65, at A.31; A.84.
The statutory scheme at issue is the federal Anti-Kickback Statute,
Procedural History
A. HHS OIG Advisory Opinion
On June 27, 2019, Pfizer submitted a request to HHS OIG for an advisory opinion on the legality of the Direct Program. On December 9, 2019, HHS OIG informed Pfizer that it had reached an unfavorable opinion and would issue an advisory opinion to that effect if Pfizer did not voluntarily withdraw the request. In response, Pfizer sought further consultation with the agency to explain “why there was little risk of fraud or abuse” with the Direct Program, and how the program would be limited to patients who “had been prescribed tafamidis by their physician[] and were only unable to access their medication due to financial need.” Compl. ¶¶ 106-07, at A.43. Nevertheless, on May 26, 2020, HHS OIG informed Pfizer that its position remained unchanged. Pfizer did not withdraw its request, and the agency issued its advisory opinion on September 18, 2020.
In the advisory opinion, HHS OIG explained that the Direct Program “plainly would” involve prohibited conduct under the AKS: Pfizer proposes to “provide remuneration in the form of a valuable Subsidy Card to eligible Medicare beneficiaries,” which would in turn “induce that beneficiary to purchase [tafamidis] by removing the financial impediment” of the cost-sharing obligation. OIG Advisory Op. No. 20-05, 14-16, at A.221-23. The agency concluded that the Direct Program “would present more than a minimal risk of fraud and abuse under the Federal anti-kickback statute,” and is indeed “highly suspect . . . because one purpose of the [Direct Program] – perhaps the primary purpose – would be to induce Medicare beneficiaries to purchase [Pfizer‘s] federally reimbursable Medications.” Id. at 16, at A.223. The agency “[did] not express any opinion as to the appropriateness of [tafamidis‘s] list price,” but noted that the Direct Program “would effectively abrogate statutory cost-sharing requirements under the Medicare Part D program,” and consequently “drive up costs to the Medicare program.”5 Id. at 17-18, at A.224-25.
Meanwhile, on June 26, 2020, Pfizer filed this action in the United States District Court for the Southern District of New York challenging, in relevant part, HHS OIG‘s advisory opinion on the Direct Program as contrary to law under the Administrative Procedure Act,
On September 30, 2021, the district court granted summary judgment to the government on the APA claim. Pfizer, Inc. v. U.S. Dep‘t of Health & Human Servs., No. 1:20-CV-4920, 2021 WL 4523676 (S.D.N.Y. Sept. 30, 2021). Pfizer‘s primary argument is that the Direct Program must be administered with a “corrupt” intent in order to violate the AKS, and Pfizer defines “corrupt” intent as a quid pro quo that “improperly or corruptly” skews the patient‘s decision-making. See Appellant‘s Br. 10, 20. The district court disagreed, finding nothing in the text of the AKS that is “amenable to a reading that there be corruption involved.” Id. at *11. Rather, the district court reasoned, the plain meaning of the terms “remuneration” and “induce” describe a payment that persuades another to take a certain course of action. Id. at *11-13. The district court concluded: “Because the stated intent of the payments Pfizer proposes here [is] to increase the number of Medicare beneficiaries who purchase the drug, the Court is unable to . . . issue judgment in [Pfizer‘s] favor on the APA claim, since the AKS prohibits all remuneration that induces purchases of drugs like tafamidis . . . .” Id. at *15.
Pfizer appeals.
DISCUSSION
I. Standard of Review
“On appeal from a grant of summary judgment in a challenge to agency action under the APA, we review the administrative record and the district court‘s decision de novo.”6 Yale-New Haven Hosp. v. Leavitt, 470 F.3d 71, 77 (2d Cir. 2006) (internal quotation marks omitted). Under the APA, agency actions – including advisory opinions – must be set aside if they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
II. APA Claim
A. Textual Arguments
When interpreting a statute, “[w]e begin with the text.” Facebook, Inc. v. Duguid, 141 S. Ct. 1163, 1169 (2021); see also Katz v. Focus Forward, LLC, 22 F.4th 368, 372 (2d Cir. 2022) (“If thе statutory language is unambiguous, we construe the statute
The AKS provides, in relevant part:
(2) Whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person –
. . . .
(B) to purchase ... any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program,
shall be guilty of a felony and upon conviction thereof, shall be fined not more than $100,000 or imprisoned for not more than 10 years, or both.
a. “[A]ny remuneration . . . to induce”
Pfizer first contends that the phrase “any remuneration . . . to induce” necessarily connotes a quid pro quo, and that quid pro quos are “designed to corrupt the recipient‘s behavior.” Appellant‘s Br. 26. The district court disagreed that a quid pro quo is required for AKS liability, reasoning that “the plain meaning of the word ‘inducement’ implies a ‘one-way’ transaction, where the requestor simply gets someone to take an action.” Pfizer, 2021 WL 4523676, at *13. For the purposes of this appeal, we do not need to decide whether the AKS contains a quid pro quo element. HHS OIG expressly stated in the advisory opinion that the Direct Program would “operate as a quid pro quo,” in that Pfizer “would offer remuneration . . . to the beneficiary in return for the beneficiary purchasing [tafamidis].” OIG Advisory Op. No. 20-05, 14, at A.221. “Quid pro quo” translates literally to “something for something.” See BLACK‘S LAW DICTIONARY (11th ed. 2019) (defining “quid pro quo” as “[a]n action or thing that is exchanged for another action or thing of more or less equal value; a substitute“). We have no doubt that at least some kind of quid pro quo, direct or indirect, exists here. See Appellees’ Br. 25 n.5 (“[W]hether there was a quid pro quo in this case – in the sense of an exchange of one thing for another – is not at issue.“).
However, we do not think it is the case, as Pfizer suggests, that every quid pro quo is inherently corrupt. There are, of course, many such transactions made without corrupt intеnt. A commercial contract, for example, is literally a quid pro quo – a “this for that.” Arguing that “quid pro quo” necessarily implies corruption, Pfizer points to a case in the bribery context where we explained that “[t]he ‘corrupt’ intent necessary to a bribery conviction is in the nature of a quid pro quo requirement.” United States v. Alfisi, 308 F.3d 144, 149 (2d Cir. 2002). But the question in Alfisi was how “bribery” should be defined for the purposes of criminal liability under
Pfizer further argues that the word “induce,” even on its own, implies a corrupting influence or ill motive, but we find no
Pfizer relies heavily on two cаses to argue that the word “induce” implies corruption. Neither supports its position.
In United States v. Zacher, 586 F.2d 912 (2d Cir. 1978), this Court considered a case in which a nursing home administrator accepted supplemental payments from families of Medicaid patients equal to the difference between the Medicaid reimbursement rate and the private pay the nursing home ordinarily charged. We concluded that the defendant was not liable for accepting bribes under the AKS because the payments merely “influenc[e]d [the defendant] to admit the patient,” rather than “induc[ing] him to act dishonestly.” Id. at 916. We further noted that “[k]ickbacks, rebates and bribes,” as prohibited under the AKS, “each involve a corrupt payment.” Id. But the appeal in Zacher “turn[ed] on the question of whеther the payments received by [the defendant] can be considered bribes within the meaning of th[e] [AKS],” not whether any payment prohibited by the AKS must involve dishonesty. Id. at 914 (emphasis added). Moreover, in Zacher we interpreted the original 1972 version of the AKS, which prohibited only kickbacks, bribes, or rebates. Congress did not expand the statute to cover “any remuneration” until the statute was amended in 1977. See Pub. L. No. 95-142, § 4(a), 91 Stat. 1175, 1180 (1977). Zacher‘s reading of the 1972 statute thus gives us little guidance on resolving the current appeal.
Pfizer argues that the 1977 amendment is immaterial to our consideration of Zacher, because it did not alter the statute‘s original focus on corrupt payments. But the plain meaning of “remuneration” is clearly broader than a kickback, bribe, or rebate: “Remuneration” means “[p]ayment; compensation, esp[ecially] for a service that someone has performеd,” and the modifier “any” further broadens the scope of the phrase. BLACK‘S LAW DICTIONARY (11th ed. 2019).7
Pfizer‘s second case, United States v. Krikheli, 461 F. App‘x 7 (2d Cir. 2012), was an unpublished summary order affirming the jury instructions for an AKS charge. The district court instructed the jury that “[t]o induce a person means to attempt to gain influence over the reason or judgment of that person,” and the government needed to prove “that the remuneration was offered or paid as a quid pro quo in return for the referring of the patient.” Id. at 11. A panel of this Court concluded that those instructions “accurately described the law.” Id. Even treating this non-precedential case as though it
b. “([I]ncluding any kickback, bribe, or rebate)”
Pfizer next argues that the parenthetical following “any remuneration” – “(including any kickback, bribe, or rebate)” – limits the statute to corrupt payments. As an initial matter, the district court disagreed with Pfizer as to whether the term “rebate” implies corrupt intent: The court reasoned that the plain meaning of “rebate” is neutral, Pfizer, 2021 WL 4523676, at *12 (quoting BLACK‘S LAW DICTIONARY (11th ed. 2019), which defines “rebate” as “[a] return of part of a payment, serving as a discount or reduction“), whereas Pfizer insists that the term “rebate” in the AKS refers to a particular kind of corrupt payment for Medicаre and Medicaid services.
Even if Pfizer were correct on that score, the Supreme Court has made clear that the word “includes,” when used in a statute, “is usually a term of enlargement, and not of limitation.” Burgess v. United States, 553 U.S. 124, 131 n.3 (2008) (internal quotation marks omitted); see also Google LLC v. Oracle Am., Inc., 141 S. Ct. 1183, 1197 (2021) (explaining that, for a statutory provision involving the fair use doctrine, the “provision‘s list of factors is not exhaustive” because it uses “the words ‘include’ and ‘including‘“); Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 162 (2012) (“[T]he definition [of a ‘sale’ in a section of the Fair Labor Standards Act of 1938] is introduced with the verb ‘includes’ instead of ‘means.’ This word choice is significant because it makes clear that the examples enumerated in the text are intended to be illustrative, not exhaustive.“). Therefore, the listed examples of “kickback, bribe, or rebate” in the AKS do not limit thе meaning of “any remuneration“; they are merely non-exhaustive examples.
Pfizer counters with two canons of statutory interpretation, ejusdem generis and noscitur a sociis. We do not think either is applicable. Ejusdem generis refers to the understanding that “[w]here general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.” Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 114-15 (2001) (internal quotation marks omitted). This canon applies only where the general phrase follows the specific list of items, making it a “residual” phrase. See id. (applying ejusdem generis to a statute listing “seamen, railroad employees, or any other class of workers engaged in foreign or
Noscitur a sociis refers to the rule that “an ambiguous term may be ‘given more precise content by the neighboring words with which it is associated.‘” United States v. Stevens, 559 U.S. 460, 474 (2010) (quoting United States v. Williams, 553 U.S. 285, 294 (2008)). “Any remuneration,” however, is not ambiguous, at least in this context, and it therefore must be read according to its plain meaning.
c. “[W]illfully”
Pfizer‘s final textual argument is that the “willful” mens rea required by the AKS suggests “an element of corruption or improper influence,” because a “willful” act is one taken with a “bad purpose.” Apрellant‘s Br. 34 (quoting Bryan v. United States, 524 U.S. 184, 191 (1998)). But a “bad purpose” is not synonymous with a corrupt intent – it is more accurately understood as “a voluntary, intentional violation of a known legal duty.” United States v. Bishop, 412 U.S. 346, 360 (1973); see also Cheek v. United States, 498 U.S. 192, 200-01 (1991) (explaining that “willfully,” as defined by a “bad purpose,” does not require “proof of any motive other than an intentional violation of a known legal duty” (quoting United States v. Pomponio, 429 U.S. 10, 12 (1976))). According to a contemporaneous House Budget Committee report, Congress added the willfulness element to the AKS to avoid punishing “an individual whose conduct, while improper, was inadvertent.” H.R. Rep. 96-1167, at 59 (1980). In other words, the AKS does not apply to those who are unaware that such payments are prohibited by law and accidentally violate the statute.8 Contrary to Pfizer‘s assertion, the mens rеa element goes no further.
B. Other Arguments
Pfizer makes several additional arguments, beyond the text of the AKS, as to why the statute should be read with an element of “corrupt” intent. We find none to be persuasive.
a. Relationship with Other Statutes
Pfizer argues that the AKS, with its criminal penalties, should be read more narrowly than the Beneficiary Inducement Statute (“BIS“),
offers to [transfer] or transfers remuneration to any individual eligible for benefits under [a federal or state healthcare program] that such person knows or should know is likely to influence such individual to order or receive from a partiсular provider, practitioner, or supplier any item or service for which payment may be made, in whole or in
part, under [a federal or state healthcare program].
We find no reason to interpret the AKS by reference to the text of the BIS. The AKS is not simply a narrower version or criminal counterpart of the BIS – although the two statutes have similar subject matter, they prohibit different activities. The AKS focuses on induced purchases of federally reimbursable goods or services, whereas the BIS prohibits improperly influencing a beneficiary‘s choice of the “particular provider, practitioner, or supplier” from whom they purchase such goods or services.
Furthermore, unlike the statutory provisions at issue in United States v. Sun-Diamond Growers of California, 526 U.S. 398 (1999), upon which Pfizer heavily relies, the BIS and AKS were not enacted through the same bill, or even close in time. See id. at 404. The Supreme Court has cautioned against finding “[n]egative implications raised by disparate provisions” when “the two relevant provisions were not considered or enacted together.” Gomez-Perez v. Potter, 553 U.S. 474, 486 (2008); see also Lindh v. Murphy, 521 U.S. 320, 330 (1997) (“[N]egative implications raised by disparate provisions are strongest when the portions of a statute treated differently had already been joined together and were being considered simultaneously when the language raising the implication was inserted.“). Thus, there is little utility in comparing the language of the BIS to that of the AKS.
Pfizer also urges us to read a corruption element into the AKS‘s relationship with the False Claims Act (“FCA“),
b. Overcriminalization
Pfizer next contends that the agency‘s interpretatiоn of the AKS “criminalizes a range of ‘beneficial activities‘” and leads to an “absurd and unjust result.” Appellant‘s Br. 38 (quoting Clinton v. City of New York, 524 U.S. 417, 429 (1998)), 46.10 Pfizer raises several hypothetical parties who it claims are at risk of liability under the agency‘s reading of the AKS, such as a generous family member who helps to cover the cost of medical treatment. Although the AKS is broad, however, it is not limitless. As discussed, a person must “knowingly and willfully” provide prohibited remuneration to be liable, which means she must have offered the payment with the intent to violate a known legal duty. It seems very unlikely to us that a charitable or concerned family member who is merely trying to help a loved one would meet that mens rea element.
In addition, to violate the AKS, one must intend to induce the purchase of a federally reimbursable healthcare product. See
c. Advisory Opinion Process
Finally, Pfizer argues that the HHS OIG advisory opinion process is rendered superfluous by the district court‘s “far-reaching interpretation of the AKS as prohibiting any conceivable influence on a prescribing decision[, which] essentially means that the offer of anything of value is inevitably within the statute‘s reach.” Appellant‘s Br. 40. If the statute has no discernible bounds, Pfizer reasons, then there is no need for an administrative process to clarify which programs are prohibited.
CONCLUSION
We have considered the plaintiff‘s remaining arguments on appeal and conclude that they are without merit. We therefore AFFIRM the judgment of the district court.