ASTRA USA v. SANTA CLARA COUNTY
In 2005, Santa Clara County, Calif., filed a class-action lawsuit based on U.S. Department of Health and Human Services reports, alleging that pharmaceutical companies have systemically overcharged hospitals and clinics, making them pay millions of dollars more than necessary for prescription drugs. The Inspector General's report also argued that the government is ill- equipped to ensure that clinics are being charged correctly. The U.S. District Court for the Northern District of California dismissed the case, but in March 2008, the U.S. Court of Appeals for the Ninth Circuit overturned the decision.
Can health care providers sue drug makers for overcharging public hospitals for prescription drugs?
Legal provision: Public Health Services Act
No. The Supreme Court ruled in a unanimous opinion by Justice Ruth Bader Ginsburg that health care providers cannot sue drug makers for overcharging public hospitals for prescription drugs. Justice Elena Kagan did not take part in consideration of the case.
OPINION OF THE COURT
ASTRA USA, INC. V. SANTA CLARA COUNTY
563 U. S. ____ (2011)
SUPREME COURT OF THE UNITED STATES
ASTRA USA, INC., et al., PETITIONERS v. SANTA CLARA COUNTY, CALIFORNIA
on writ of certiorari to the united states court of appeals for the ninth circuit
[March 29, 2011]
Justice Ginsburg delivered the opinion of the Court.
Section 340B of the Public Health Services Act, 42 U. S. C. A. §256b (Oct. 2010 Supp.), imposes ceilings on prices drug manufacturers may charge for medications sold to specified health care facilities. Those facilities, here called “340B” or “covered” entities, include public hospitals and community health centers, many of them providers of safety-net services to the poor. The §340B ceiling-price program (340B Program) is superintended by the Health Resources and Services Administration (HRSA), a unit of the Department of Health and Human Services (HHS). Drug manufacturers opt into the 340B Program by signing a form Pharmaceutical Pricing Agreement (PPA) used nationwide. PPAs are not transactional, bargained-for contracts. They are uniform agreements that recite the responsibilities §340B imposes, respectively, on drug manufacturers and the Secretary of HHS. Manufacturers’ eligibility to participate in state Medicaid programs is conditioned on their entry into PPAs for covered drugs purchased by 340B entities.
It is conceded that Congress authorized no private right of action under §340B for covered entities who claim they have been charged prices exceeding the statutory ceiling. This case presents the question whether 340B entities, though accorded no right to sue for overcharges under the statute itself, may nonetheless sue allegedly overcharging manufacturers as third-party beneficiaries of the PPAs to which the manufacturers subscribed. We hold that suits by 340B entities to enforce ceiling-price contracts running between drug manufacturers and the Secretary of HHS are incompatible with the statutory regime.
Congress placed the Secretary (acting through her designate, HRSA) in control of §340B’s drug-price prescriptions. That control could not be maintained were potentially thousands of covered entities permitted to bring suits alleging errors in manufacturers’ price calculations. If 340B entities may not sue under the statute, it would make scant sense to allow them to sue on a form contract implementing the statute, setting out terms identical to those contained in the statute. Though labeled differently, suits to enforce §340B and suits to enforce PPAs are in substance one and the same. Their treatment, therefore, must be the same, “[n]o matter the clothing in which [340B entities] dress their claims.” Tenet v. Doe, 544 U. S. 1, 8 (2005).
The 340B Program is tied to the earlier-enacted, much larger Medicaid Drug Rebate Program. Adopted by Congress in 1990, the Medicaid Rebate Program covers a significant portion of drug purchases in the United States. See GAO, J. Dicken, Prescription Drugs: Oversight of Drug Pricing in Federal Programs 1 (GAO–07–481T, 2007) (testimony before the Committee on Oversight and Government Reform, House of Representatives).[Footnote 1] To gain payment under Medicaid for covered drugs, a manufacturer must enter a standardized agreement with HHS; in the agreement, the manufacturer undertakes to provide rebates to States on their Medicaid drug purchases. 104 Stat. 1388–143, as amended, 124 Stat. 3290, 42 U. S. C. A. §1396r–8(a). The amount of the rebates depends on the manufacturer’s “average” and “best” prices, as defined by legislation and regulation. §1396r–8(c), (k).
Calculation of a manufacturer’s “average” and “best” prices, undertaken by the pharmaceutical company, is a complex enterprise requiring recourse to detailed information about the company’s sales and pricing. §1396r–8(k); 42 CFR §447.500–520 (2010). To enable HHS to calcu- late the rebate rate for each drug, manufacturers submit the relevant data to HHS on a quarterly basis. §1396r–8(b)(3). With exceptions set out in the legislation, HHS is prohibited from disclosing the submitted information “in a form which discloses the identity of a specific manufacturer … [or] prices charged for drugs by such manu-facturer.” §1396r–8(b)(3)(D).
Under §340B, added in 1992, 106 Stat. 4967, as amended, 124 Stat. 823, manufacturers participating in Medicaid must offer discounted drugs to covered entities, dominantly, local facilities that provide medical care for the poor. See §256b(a); §1396r–8(a)(1). The 340B Program, like the Medicaid Drug Rebate Program, employs a form contract as an opt-in mechanism. The 340B Program also draws on the larger scheme’s pricing methodology. In their 340B Program contracts with HHS, called Pharmaceutical Pricing Agreements (PPAs), see supra, at 1, manufacturers agree to charge covered entities no more than predetermined ceiling prices, derived from the “average” and “best” prices and rebates calculated under the Medicaid Drug Rebate Program. §256b(a)(1); see App. to Pet. for Cert. 165a–171a (PPA §I–II).[Footnote 2]
If a manufacturer overcharges a covered entity, HRSA may require the manufacturer to reimburse the covered entity; HRSA may also terminate the manufacturer’s PPA, §1396r–8(b)(4)(B)(i), (v); App. to Pet. for Cert. 174a (PPA §IV(c)), which terminates as well the manufacturer’s eligibility for Medicaid coverage of its drugs, §1396r–8(a)(1), (5). Currently, HRSA handles overcharge complaints through informal procedures. Manufacturer Audit Guidelines and Dispute Resolution Process, 61 Fed. Reg. 65412 (1996). The 2010 Patient Protection and Affordable Care Act (PPACA), Pub. L. 111–148, 124 Stat. 119, provides for more rigorous enforcement. The PPACA directs the Secretary to develop formal procedures for resolving overcharge claims. Id., at 826, 42 U. S. C. A. §256b(d) (3)(A). Under those procedures, which are not yet in place, HRSA will reach an “administrative resolution” that is subject to judicial review under the Administrative Procedure Act (APA), 5 U. S. C. §701 et seq. See 124 Stat. 827, 42 U. S. C. A. §256b(d)(3)(C). In addition to authorizing compensation awards to overcharged entities, the PPACA provides for the imposition of monetary penalties pay- able to the Government. Id., at 824–825, 42 U. S. C. A. §256b(d)(1)(B)(ii), (vi).
Respondent Santa Clara County (County), operator of several 340B entities, commenced suit against Astra and eight other pharmaceutical companies, alleging that the companies were overcharging 340B health care facilities in violation of the PPAs to which the companies subscribed. The County styled its suit a class action on behalf of both 340B entities in California and the counties that fund those entities. Asserting that the 340B entities and the counties that fund them are the intended beneficiaries of the PPAs, the County sought compensatory damages for the pharmaceutical companies’ breach of contract.
The District Court dismissed the complaint, concluding that the PPAs conferred no enforceable rights on 340B entities. Reversing the District Court’s judgment, the Ninth Circuit held that covered entities, although they have no right to sue under the statute, could maintain the action as third-party beneficiaries of the PPAs. 588 F. 3d 1237, 1241 (2009).
We granted certiorari, 561 U. S. ___ (2010),[Footnote 3] and now reverse the Ninth Circuit’s judgment.
As the County conceded below and before this Court, see 588 F. 3d, at 1249; Tr. of Oral Arg. 45, covered entities have no right of action under §340B itself. “[R]ecognition of any private right of action for violating a federal statute,” currently governing decisions instruct, “must ultimately rest on congressional intent to provide a private remedy.” Virginia Bankshares, Inc. v. Sandberg, 501 U. S. 1083, 1102 (1991). See also Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 164 (2008); Alexander v. Sandoval, 532 U. S. 275, 286 (2001). Congress vested authority to oversee compliance with the 340B Program in HHS and assigned no auxiliary enforcement role to covered entities.
Notwithstanding its inability to assert a statutory right of action, the County maintains that the PPAs implementing the 340B Program are agreements enforceable by covered entities as third-party beneficiaries. A nonparty becomes legally entitled to a benefit promised in a contract, the County recognizes, only if the contracting parties so intend. Brief for Respondent 31 (citing Restatement (Second) of Contracts §302(1)(b) (1979)). The PPAs “specifically nam[e]” covered entities as the recipients of discounted drugs, the County observes; indeed the very object of the agreements is to ensure that those entities would be “charge[d] … no more than the ceiling price.” Brief for Respondent 33. When the Government uses a contract to secure a benefit, the County urges, the intended recipient acquires a right to the benefit enforceable under federal common law. Id., at 30. But see 9 J. Murray, Corbin on Contracts §45.6, p. 92 (rev. ed. 2007) (“The distinction between an intention to benefit a third party and an intention that the third party should have the right to enforce that intention is emphasized where the promisee is a governmental entity.”).
The County’s argument overlooks that the PPAs simply incorporate statutory obligations and record the manufacturers’ agreement to abide by them. The form agreements, composed by HHS, contain no negotiable terms. Like the Medicaid Drug Rebate Program agreements, see supra, at 3, the 340B Program agreements serve as the means by which drug manufacturers opt into the statutory scheme. A third-party suit to enforce an HHS-drug manufacturer agreement, therefore, is in essence a suit to enforce the statute itself. The absence of a private right to enforce the statutory ceiling price obligations would be rendered meaningless if 340B entities could overcome that obstacle by suing to enforce the contract’s ceiling price obligations instead. The statutory and contractual obligations, in short, are one and the same. See Grochowski v. Phoenix Construction, 318 F. 3d 80, 86 (CA2 2003) (when a government contract confirms a statutory obligation, “a third-party private contract action [to enforce that obligation] would be inconsistent with … the legislative scheme … to the same extent as would a cause of action directly under the statute” (internal quotation marks omitted)).
Telling in this regard, the County based its suit on allegations that the manufacturers charged more than the §340B ceiling price, see, e.g., Third Amended Complaint in No. 3:05–cv–03740 (ND Cal.), ¶1, 65, not that they violated any independent substantive obligation arising only from the PPAs.[Footnote 4] Repeatedly, the County acknowledged that §340B is the source of the contractual term allegedly breached. See, e.g., id., ¶28 (“[Section] 340B requires pharmaceutical manufacturers to ensure that §340B Participants pay no more than the ‘ceiling price’ … for any pharmaceutical product.”); id., ¶36 (“Under both §340B and the PPA, [drug manufacturers] are required to ensure that the §340B Participants … pay no more for any product than the §340B ceiling price.”).
The Ninth Circuit determined that “[p]ermitting covered entities to sue as intended beneficiaries of the PPA is … wholly compatible with the Section 340B program’s objectives” to ensure “that drug companies comply with their obligations under the program and provide [the required] discounts.” 588 F. 3d, at 1251. Suits like the County’s, the Court of Appeals reasoned, would spread the enforcement burden instead of placing it “[entirely] on the government.” Ibid. (citing Price v. Pierce, 823 F. 2d 1114, 1121 (CA7 1987)). But spreading the enforcement burden, the United States stressed, both in the Ninth Circuit and in this Court, is hardly what Congress contemplated when it “centralized enforcement in the government.” Brief for United States as Amicus Curiae 32; see Brief for United States as Amicus Curiae in No. 09–15216 (CA9), p. 13 (County’s challenge is at odds with Congress’ unitary administrative and enforcement scheme).[Footnote 5]
Congress made HHS administrator of both the Medicaid Drug Rebate Program and the 340B Program, the United States observed, Brief for United States as Amicus Curiae 33–34, and “[t]he interdependent nature of the two programs’ requirements means that an adjudication of rights under one program must proceed with an eye towards any implications for the other,” id., at 34. Far from assisting HHS, suits by 340B entities would undermine the agency’s efforts to administer both Medicaid and §340B harmoniously and on a uniform, nationwide basis.[Footnote 6] Recognizing the County’s right to proceed in court could spawn a multitude of dispersed and uncoordinated lawsuits by 340B entities. With HHS unable to hold the control rein, the risk of conflicting adjudications would be substantial.
As earlier noted, see supra, at 3, the Medicaid Rebate Program’s statute prohibits HHS from disclosing pricing information in a form that could reveal the prices a manufacturer charges for drugs it produces. §1396r–8(b)(3)(D).[Footnote 7] This ban on disclosure is a further indication of the incompatibility of private suits with the statute Congress enacted. If Congress meant to leave open the prospect of third-party beneficiary suits by 340B entities, it likely would not have barred the potential suitors from obtaining the very information necessary to determine whether their asserted rights have been violated.[Footnote 8]
It is true, as the Ninth Circuit observed, that HHS’s Office of the Inspector General (OIG) has published reports finding that “HRSA lacks the oversight mechanisms and authority to ensure that [covered] entities pay at or below the … ceiling price.” 588 F. 3d, at 1242 (quoting OIG, D. Levinson, Deficiencies in the Oversight of the 340B Drug Pricing Program ii (OEI–05–02–00072, Oct. 2005)). See also 588 F. 3d, at 1242–1243 (citing OIG, D. Levinson, Review of 340B Prices 11 (OEI–05–02–00073, July 2006) (estimating that covered entities overpaid $3.9 million in June 2005 alone)). But Congress did not respond to the reports of inadequate HRSA enforcement by inviting 340B entities to launch lawsuits in district courts across the country. Instead, in the PPACA, Congress directed HRSA to create a formal dispute resolution procedure, institute refund and civil penalty systems, and perform audits of manufacturers. 124 Stat. 823–827, 42 U. S. C. A. §256b(d). Congress thus opted to strengthen and formalize HRSA’s enforcement authority, to make the new adjudicative framework the proper remedy for covered entities complaining of “overcharges and other violations of the discounted pricing requirements,” id., at 823, 42 U. S. C. A. §256b(d)(1)(A), and to render the agency’s resolution of covered entities’ complaints binding, subject to judicial review under the APA, id., at 827, 42 U. S. C. A. §256b(d)(3)(C).
* * *
For the reasons stated, the judgment of the U. S. Court of Appeals for the Ninth Circuit is
Justice Kagan took no part in the consideration or decision of this case.Footnote 1
“In 2004, Medicaid … prescription drug spending reached $31 billion,” GAO, J. Dicken, Prescription Drugs: Oversight of Drug Pricing in Federal Programs 4 (GAO–07–481T, 2007) (testimony before the Committee on Oversight and Government Reform, House of Representatives), while in 2003, 340B entities “spent an estimated $3.4 billion on drugs,” id., at 5.Footnote 2
The 340B Program also covers over-the-counter medications for which there are no Medicaid rebates. 42 U. S. C. A. §256b(a)(2)(B) (Oct. 2010 Supp.). For such drugs, §340B prescribes a substitute calculation method. §256b(a)(2)(B)(i).Footnote 3
U. S. Courts of Appeals have divided on the circumstances under which suits may be brought by alleged third-party beneficiaries of Government contracts. Compare 588 F. 3d 1237, 1244 (CA9 2009) (case below) (“Any intended beneficiary has the right to enforce the obligor’s duty of performance … .”), with Grochowski v. Phoenix Construction, 318 F. 3d 80, 85–86 (CA2 2003) (“there is no presumption in favor of a right to bring suit” as third-party beneficiary of a government contract), and Dewakuku v. Martinez, 271 F. 3d 1031, 1042 (CA Fed. 2001) (rejecting third-party suit).Footnote 4
Whether a contracting agency may authorize third-party suits to enforce a Government contract is not at issue in this case. Cf. Brief for United States as Amicus Curiae 22. We can infer no such authorization where a contract simply incorporates statutorily required terms and otherwise fails to demonstrate any intent to allow beneficiaries to en-force those terms. Permitting such a suit, it is evident, would “allo[w] third parties to circumvent Congress’s decision not to permit private enforcement of the statute.” Id., at 23–24; cf. Brief for United States as Amicus Curiae in No. 09–15216 (CA9), p. 21 (“In drafting and entering into [PPAs], HHS never imagined that a 340B entity could bring a third-party beneficiary lawsuit like [the County]’s.”).Footnote 5
The County notes that in In re Pharmaceutical Industry Average Wholesale Price Litigation, 263 F. Supp. 2d 172 (Mass. 2003), the United States urged that the statute establishing the Medicaid Drug Rebate Program, §1396r–8, does not preempt States from maintaining state-law fraud claims based on fraudulent reporting of “best prices” to HHS. Brief for Respondent 22–23. See Brief for United States as Amicus Curiae in No. 1:01–cv–12257 (D Mass.), pp. 6–9 (observing that States make their own payments to manufacturers and have long played a role in identifying and prosecuting Medicaid fraud). We take no position on this issue.Footnote 6
Because the Ninth Circuit focused on the 340B Program in isolation, it failed to recognize that the interests of States under the Medicaid Drug Rebate Program and covered entities under the 340B Program may conflict. For example, “average” prices are used both to set the amount manufacturers must pay in Medicaid rebates and to establish §340B ceiling prices. §1396r–8(c); §256b(a)(1). Typically, the lower the “average” price, the lower a product’s price to a 340B entity. Brief for United States as Amicus Curiae in No. 09–15216, p. 31. But the higher the “average” price, the more a State Medicaid agency typically receives in rebates from the manufacturers. Ibid. HHS can use its expertise to ascertain and balance the competing interests. Id., at 31–32. Courts as first-line decisionmakers are not similarly equipped to deal with the whole picture.Footnote 7
HHS interprets this provision, the United States informs us, as pro-hibiting the agency from disclosing to covered entities the ceiling prices calculated based on information submitted by the manufacturers. Brief for United States as Amicus Curiae 28.Footnote 8
Going forward, the 2010 Patient Protection and Affordable Care Act, Pub. L. 111–148, 124 Stat. 119, in conjunction with the new administrative adjudication process directed by the Act, will require HHS to give covered entities access to some of the information submitted by manufacturers. Id., at 826, 42 U. S. C. A. §256b(d)(3)(B)(iii).
ORAL ARGUMENT OF LISA S. BLATT ON BEHALF OF PETITIONERS
Chief Justice John G. Roberts: We'll hear argument next this morning in Case 09-1273, Astra USA v. Santa Clara County.
Ms Blatt: Thank you, Mr. Chief Justice, and may it please the Court:
There are three reasons why section 340B entities do not have a cause of ation to enforce the pharmaceutical pricing agreement between the Secretary and manufacturers.
The first reason is that this common law breach of contract suit is indistinguishable from an implied right of action to enforce the statute, a right Respondent concedes it does not have.
Justice Sonia Sotomayor: I don't understand that.
A private contract is just that.
Two parties go into the contract.
They set the terms of their deal.
No one forced the manufacturers to enter into this deal.
So why isn't the issue exactly what the circuit court said: What was the intent of the parties to the contract?
You want to make it Congress's intent, but this is a private deal between them.
And Congress may have specified some terms to include; but--
Ms Blatt: Yes.
And the -- what is being challenged here is the contractual term that incorporates in haec verba the manufacturer's ceiling price obligations under the act, and a third party beneficiary's suit to enforce the contract asserts the same right, seeks the same remedy, and causes all the same disruptions as a right of action to enforce the statute.
And another way of saying that is, if the case begins with the premise that Congress foreclosed 340B entities from bringing an implied right of action through the front door, Congress did not leave the back door open to essentially the same suit.
Justice Sonia Sotomayor: --How do you answer the point that, if Congress wanted to make this a pure regulatory statute, it wouldn't have even required a contract?
It would have just passed a statute that says anyone who wants to -- to sell to the -- to the States or to the 340B entities, you can't charge more than this price?
Why do we even need a contract, unless inherent with it is some discretion in the agency who's administering it?
Ms Blatt: Well--
Justice Sonia Sotomayor: --discretion that is consistent with normal contract principles?
Ms Blatt: --Right.
Well, our position is obviously that the parties had no discretion to confer Article III power on courts to enforce an act of Congress, and this is.
But the -- the basic answer is that there has always been a huge difference between the settled rule that parties to a statutory contract are enforceable -- they have a cause of action to enforce the contract, because Congress spoke with unambiguously clear language that the parties could sue.
That's the way statutory contracts must work.
They must be enforceable.
But your answer, sort of as a practical matter, what's the difference, is this is a -- this is a contract, and we do think that the Federal law of contracts and contractual remedies flow between the parties to the contract.
It is a bilateral agreement, it is not a regulation and the Secretary made specific enforceable promises.
And there's obviously no even operation of the statutory mandate without the contract.
But the reverse, in terms of the -- the long-settled rule that parties must be able to sue to enforce a contract, there's an equally settled rule that beneficiaries under a statute do not have the right to enforce it unless there's a cause of action.
Now, the test that I think Respondent advocates and that the Ninth Circuit applied is a test this Court has long since discarded, which is: Well, I'm a beneficiary, and this is a good idea, and this is sensible.
Even if you don't buy our test of you have to imply the implied right of action, these lawsuits are neither sensible nor a good idea and not what Congress intended.
And here's why.
And it is basically the second and third reasons.
So no matter how you come at this case and the lens through which you look at this, I think everyone should come out to the same place, which is that neither Congress nor the Secretary nor the manufacturers signed up to what is in essence -- would be over 14,000 lawsuits against 500 manufacturers challenging the pricing for over 35,000 medications under Medicaid.
Justice Sonia Sotomayor: Your adversary claims you gave up your argument that the contract doesn't make the manufacturers a third-party intended beneficiary.
Have you given up that argument?
Ms Blatt: No.
I think that the -- that the whole thrust of the petition -- and obviously the primary argument is that this flouts the implied right of action jurisprudence and it -- it conflicts with congressional intent in all events.
But one of the harms and just sort of illustrating how bad the decision was is this conferred rights that the parties never imagined and that the Secretary did not -- did not intend.
But I -- I think that in our view, even if the Secretary had wanted to, it is not the Secretary's decision nor was it the manufacturers' decision to go contract by contract and say this multi-billion dollar health care program that incorporates another, even bigger multi-billion dollar health care program, we're going to turn this over to Federal enforcement, when on the face of the statute reflects a deliberate decision by Congress to withhold--
Justice Antonin Scalia: Private enforcement.
Ms Blatt: --Private enforcement -- to withhold a private remedy in favor of 340B entities and instead channel exclusive authority to the Secretary to enforce it.
And those three specifics, in addition to the disruptions, are that Congress gave manufacturers but not 340B entities a private reimbursement remedy and a private--
Chief Justice John G. Roberts: Is it -- I'm not sure of the answer, but is it different in this case or unusual that the agreement is between the Federal Government and private entities, as opposed to what I think is the more typical situation in which these cases come up, where it is, say, an agreement between the Federal Government and the State?
Ms Blatt: --Well, all your Medicaid cases obviously under State plans, and a lot of your implied right of action jurisprudence is dealing with spending clause legislation as to State entities.
But there are a number, a number -- the Rehabilitation Act, the Davis-Bacon Act, and a fair number of health care programs -- where the government contracts with private parties as a public welfare mechanism to get to what I think are conceded are beneficiaries.
Here, there's a number of beneficiaries.
It's not just the 340B entities.
It's the patient population that's being served, and obviously, the Federal fisc.
Justice Ruth Bader Ginsburg: Ms. Blatt, would you explain the function that the contract mechanism serves?
I mean, you could just have the -- just have the statute say, thou shalt not charge more than the ceiling price, period.
What if -- what is accomplished by having the contract reflecting the terms of the statute?
Ms Blatt: Well, I don't think it is any different than Mobil Oil or Jackson Transit, where Congress wants to specify the terms of the contract and the contract incorporates in haec verba the statutory terms.
And if there's a breach of that, there are contractual remedies that flow.
But I agree with you that there's not a whole lot of difference between our position and the government, because the government is absolutely correct that it is in haec verba and identical, and the statutory obligation that we're talking about that's incorporated into the contract is that a certain ceiling price must be charged.
But the -- the other sort of practical function is only manufacturers who enter into this contract are subject to these price controls.
So if they -- if a pharmaceutical manufacturer doesn't want to participate in the program, they're not covered.
And in a typical regulation and I think sort of general spending clause analysis, someone who accepts Federal funding has considered sort of implicit consent to the funding obligations because they're taking the money.
But here's there's an express manifestation, both by the Secretary who signed the agreement and the contractors, the pharmaceutical companies who signed the agreement.
Justice Anthony Kennedy: Before the statute was amended by the -- I think the Patient Protection Act and there was a breach of the agreement, did the government assess penalties?
Ms Blatt: Well--
Justice Anthony Kennedy: Because -- and the reason I'm asking this is that you indicate that the government had a contract remedy.
It seemed to me it had a regulatory remedy.
Ms Blatt: --It has got a lot of remedies.
It has -- but it--
Justice Anthony Kennedy: What was the contract remedy that it had at the time this case arose, which was before the -- these--
Ms Blatt: --Yes.
They're -- right.
We're still -- today is no different than yesterday, because nothing has happened to implement the 2010 health care reform except that there are now more civil monetary penalties than there were.
But the government has statutory penalties, civil monetary penalties, the right of audit.
It can bring suits under the False Claims Act and can terminate both this agreement and the Medicaid rebate agreement.
But as a -- the government has contractual remedies, too.
I mean, why Congress, I think -- a sensible inference for why Congress -- Congress picked contracts is that this is -- this piggybacks off the Medicaid rebate program and that uses contracts.
And that instead -- that in turn, rather, used contracts because the States had negotiated rebate agreements with drug companies way before 1990.
And so Congress continued the contract feature.
And then, since the pricing components under this program are the same pricing components under the Medicaid rebate programs, both programs are parallel and they both used agreement.
One is the Medicaid rebate agreement.
In this case, it's the pharmaceutical--
Justice Antonin Scalia: Ms. Blatt, you said that there's not a whole lot of difference between your position and the government's.
What is the difference between your position and the government's?
Ms Blatt: --Well, the government says a contract is not a contract even though it says it's a contract.
Our position is that it's a contract.
Justice Antonin Scalia: That doesn't make much sense, does it?
Ms Blatt: The government sees this, I think, as just a unilateral, that the manufacturers walked in and said: We're here and happy to be bound.
But the agreement on its face says: The Secretary makes the following agreements; the Secretary promises this.
The most important promise the Secretary made to manufacturers is that the Secretary said that she would not terminate the agreement without good cause, 60 days' notice, and certain conduct that the manufacturer did would not constitute grounds for termination.
Justice Antonin Scalia: What did the manufacturer promise in exchange for the contract?
You do need consideration.
What did they promise that they were not already obliged to do by law?
Ms Blatt: Well, the billions and billions in price discounts they were not obliged to do unless they -- they signed the contract.
But the contract goes through a ton of manufacturer responsibilities.
The manufacturer -- if the Secretary thinks that there is reimbursement that's owed, the Secretary can order reimbursement, and the manufacturer has -- it's a pretty substantial--
Justice Stephen G. Breyer: So what is Santa Clara County supposed do?
They think they're being overcharged.
And in your opinion -- the company doesn't, but they do.
So what are they supposed to do if they're right?
How do they get the money?
Ms Blatt: --Well, the way they have been getting the money, and for better or worse until 2010, they have been at the mercy of the vastly larger Medicaid rebate program, which is run on behalf of the States.
And because this program is so small compared to that program, all the enforcement activity, which is all the False Claims Act settlements that Respondent cites in his brief, that is how, as a practical matter, it's been enforced.
Justice Stephen G. Breyer: I'm interested in procedurally what are they supposed to do?
Ms Blatt: Oh, pick up the phone and either call the manufacturer, the prime vendor--
Justice Stephen G. Breyer: The manufacturer says: Okay, you're wrong; I'm not; I'm undercharging you.
Now what happens?
Ms Blatt: --Ultimately, if they can't get the Secretary to--
Justice Stephen G. Breyer: He's busy.
Ms Blatt: --If she's busy and won't return the calls, Congress said: You can't enforce it.
Justice Stephen G. Breyer: Why can't they -- can they, for example, file a claim with the -- with the Secretary and say: We would like the Secretary to order them to give us the money; they're violating this?
They go to an administrative law judge.
Is there an administrative remedy of some kind that would be reviewable in the courts for reasonableness?
Ms Blatt: There's just -- right now, there's just an informal, non-mandatory--
Justice Stephen G. Breyer: Okay.
So why is it reasonable, then, to think that the Secretary would have entered into a contract which is going to benefit them and there's no remedy?
Ms Blatt: --Because the statute itself said: We're going to go out of our way to give manufacturers remedies, make this confidential; manufacturers have rights of audit, but 340B entities don't.
The Secretary: Here's a vast arsenal of things at your disposal, and it's channeled through that regulatory regime.
Justice Stephen G. Breyer: But normally under the law from Marbury v. Madison onward, where there's a wrong, there's a remedy.
Ms Blatt: But--
Justice Stephen G. Breyer: And the remedy could be administrative, could be judicial, et cetera.
But you're saying there's none?
Ms Blatt: --No.
I think 30 years have said that we're not going down that road.
I mean, in Gonzaga, there was a breach of the statutory provision, and students presumably are harmed when private information gets disclosed.
But every private right of action case where you've said no, the argument has been--
Justice Stephen G. Breyer: But in such cases, there very often is an administrative remedy--
Ms Blatt: --That's true.
Justice Stephen G. Breyer: --and the person always -- any individual in the United States can go ask any agency to do anything, and there is even review in instances of a refusal to withhold -- a withholding of action.
Ms Blatt: There's always an APA action against the Secretary--
Justice Stephen G. Breyer: Is there here?
You said there was.
Ms Blatt: --Well, I think it would be hard to bring an APA action.
Chief Justice John G. Roberts: What about a False Claims Act action?
Ms Blatt: Yes.
And False Claims Acts are brought.
There's a lot of them and there's a multitude of settlements that are outlined in the briefs.
Justice Ruth Bader Ginsburg: Well, to the extent that you're objecting to the disruption of the Secretary, there is disruption when it's a private party bringing a False Claims Act.
Ms Blatt: Well, it is not a private party.
It is the private party who is assigned the claim.
I mean, the case is brought in the name of, and it is a case by the United States.
And that's significant because the United States has complete and total control over that case.
Here, the problem -- it's bad enough--
Justice Ruth Bader Ginsburg: Even if the United States doesn't take over the case, this works to keep them related?
Ms Blatt: --Right.
Yes, that's right.
It is still brought in the name of the United States with heightened pleading requirements, and they actually have to allege a knowing false statement.
Chief Justice John G. Roberts: You -- you emphasize that the contract has the language in haec verba of the statute.
What if -- what if it doesn't?
The statute imposes certain provisions.
The pricing I guess is the key one.
But in a private deal when you're arranging for the delivery of, you know, pharmaceuticals, you could have a lot of provisions.
It's got to be delivered by this much.
You have got to have this much inventory.
You've got to -- whatever.
I mean, what if the contract here included terms beyond those in the statute?
Could those be enforced by the third-party beneficiaries?
Ms Blatt: Yes.
And if there's--
Chief Justice John G. Roberts: Yes?
Ms Blatt: --If it is not enforced in the statute -- only if, and I think it's significant that plaintiffs always lose under a third-party beneficiary because the bar is so high.
The government always enters into contracts on behalf of somebody, and the government rarely intends to confer enforceable rights, and the parties rarely do it.
But if you had an express provision outside the statute that said, we intend to confer enforceable rights on third parties, and it is not an enforcement of the statute at all, then all your jurisprudence for determining congressional intent aren't being subverted and aren't being undermined.
I could give you an example.
I mean, it could be anywhere from something just completely outside the statute.
Together, the pharmaceutical companies could say: We hereby agree to make a contribution every year to the clinic or hospital for a holiday gift.
That would be an odd contract.
I don't see the Secretary entering into third-party beneficiary contracts.
A much more efficient way would just be to contract with the entity itself.
But I think this is just another way of saying that a lot of the energy and breadth in the court of appeals would be saved in going through why the common law doesn't confer it because congressional intent, by and large, is going to line up with the Secretary of the party's intent.
But when you're talking about in haec verba, and this could not be more precise because it is the exact -- it's actually not even 340B, the allegation is it is a violation of the Medicaid Rebate Act pricing reporting requirements.
It is congressional intent is all that matters.
Justice Antonin Scalia: Is this a contract with the Secretary or a contract with the United States executed on behalf of the United States by the Secretary.
Ms Blatt: It is a contract executed by HRSA, the administrator of the agency within, and he or she, whoever the administrator is at the time, enters it on behalf of the Secretary.
So it's in the name of the Secretary.
Justice Antonin Scalia: It is in the name of the Secretary?
Ms Blatt: It is in the Pet App. starting at around 169.
It says the Secretary.
You don't have the signature page, but I've seen them.
They're all signed by the administrator of HRSA, which is the organization within HHS, not CMS but HHS, that runs the 340B program.
But if I could -- actually, I'll just save the remainder of my time.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF GINGER D. ANDERS, ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING PETITIONERS
Ms Anders: Mr. Chief Justice, and may it please the Court:
The pharmaceutical pricing agreement should not be construed to permit 340B entities to bring suit to enforce drug manufacturers price reporting requirements for two reasons.
First, the PPA is not an ordinary contract and it does not transform the 340B program from a regulatory scheme into a contractual one.
Like a Medicare provider--
Chief Justice John G. Roberts: Is it a contract at all?
Ms Anders: --It is not an ordinary contract in that it doesn't give rise to contract rights in the -- in the regulated entities.
This is very similar to Medicare provider agreements, in which a health care provider who wants to enter into the Medicare program and provide services agrees, signs an agreement in which he agrees to abide by the statutes and regulations set forth in the Medicare program and in return for that agreement is given the opportunity to participate in the Medicaid -- in the Medicare program.
Justice Samuel Alito: Well, how do we distinguish between what you call an ordinary contract and this sort of a contract, if it is any kind of contract?
Ms Anders: Well, I think when the statute directs an agency to enter into an agreement for the sole purpose of memorializing the parties' opt-in to the regulatory scheme and directs what the terms shall be, so here provides statutorily what the reporting requirements will be, that's when the contract is simply a regulatory mechanism.
Justice Sonia Sotomayor: Counsel, are you telling me you're taking -- then you're co-counsel is right; you're agreeing with her totally -- if Congress wrote the statute, said these are the terms we want to give you in a contract, you figure out how to implement and enforce this, the Secretary says I don't have the resources to enforce this, I'm going to write a contract that gives the 340B entities a private cause of action, the manufacturers can take it or leave it, you're taking the position that the Secretary is without authority to do this?
Ms Anders: I think it would be a difficult question.
I think it would be a difficult argument to say that the Secretary was completely without authority.
I think what has happened here is the Secretary has reasonably interpreted the statute in providing for an agreement between the Secretary and the manufacturer to simply mark the opt-in.
Justice Sonia Sotomayor: Well, that begs the exception that Justice Alito asked you, which is if we go your route, which is, is this a regulatory or some sort of other contract, how do we tell the difference, and do we need to go that far?
Isn't your position -- I thought the other half of your position was that this is not a third-party intended beneficiary.
All the terms of the contract are between the manufacturer and the Secretary and the obligations to the Secretary, not the obligations to the third parties.
Ms Anders: That's exactly right.
I think, to take the first part of your question, I think the Court can tell when this is a regulatory contract when the statute itself simply directs the agency to enter into an agreement that -- that contains the terms that are set forth in the statute.
And when you look at the statutory scheme as a whole, it is a regulatory scheme.
The government is not acting as a contracting party here.
It is acting as a regulator.
It has the authority to impose administrative penalties which would be reviewed under the APA.
There's no transaction that's taking place with the government.
The only rules governing the conduct are statutory.
So that's why we think you can tell that this is not an ordinary contract.
It's a regulatory one.
Justice Ruth Bader Ginsburg: You mean there's no negotiated element to it?
It's what the -- it is the same as Ms. Blatt said?
The contract repeats the words, the terms of the statute, and that's it?
Is that what you mean?
Ms Anders: That's right.
This isn't a negotiated agreement.
This is the Secretary has simply repeated the terms of the statute in the agreement.
Chief Justice John G. Roberts: You could do this, I guess, by regulation, right?
Ms Anders: I think--
Chief Justice John G. Roberts: Issue a regulation saying manufacturers who participate in this program agree to do, you know, whatever your contract says.
Ms Anders: --I think that would be one way to do it, yes.
Throughout this area, though, Congress has often used agreements to mark entry into the regulatory scheme, including in the Medicare provider area, where you do have these agreements with health care providers.
But it would be very odd then to say that the entire area is regulated by breach of contract law rather than by the hundreds of pages of regulations and statutory provisions that govern the providers rights there.
Justice Samuel Alito: Could you tell us whether you agree with the Petitioner's argument in part D of its brief that private suits would seriously disrupt the comprehensive statutory scheme, in light of the position that the government has taken in other litigation involving actions brought by States, In re Pharmaceutical Industry Average Wholesale Price Litigation in the District of Massachusetts?
Ms Anders: We do agree with the Petitioners that permitting third-party beneficiary suits here, if you construe this as a contract, would interfere with the government's ability to administer the statutory scheme.
This is a national pricing scheme that's put together by the Medicaid Rebate Act, which has -- which is heavily regulated.
Allowing 14,000 covered entities to bring individual suits in different courts without HHS consultation, without the benefit of the government's input, could lead to substantial dis-uniformity despite the fact that these are supposed to be national prices.
Justice Sonia Sotomayor: You're walking away from your position in the District of Massachusetts?
The States do not have, according to you, the right to enforce the rebate program?
Ms Anders: No.
That's actually an important point.
I think in the Medicaid context the states have a cooperative relationship with the Federal Government.
They receive some of these funds directly.
They have -- in fact, in the Medicaid Act it is contemplated that they have their own enforcement responsibilities.
So when states bring State law fraud suits, State law SCA suits, they actually -- they consult intensively with HHS.
And so in that respect those suits represent the Government's--
Justice Sonia Sotomayor: An implied cause of action?
Is that what you're saying those state suits are?
Ms Anders: --Those are actually State law suits that were involved in the Average Wholesale Price--
Justice Sonia Sotomayor: How is that regulatory scheme any different from the one involving the PPA?
Ms Anders: --Well, the Medicaid Act itself gives States an enforce responsibility and says that they are to use their efforts to find fraud and the prosecute it.
And so States actually have a whole body of State law, State law false claims act--
Justice Stephen G. Breyer: Suppose that the State of California says we would like our counties to be able to enforce this.
Then what happens?
Ms Anders: --Under the Medicaid Act there would be--
Justice Stephen G. Breyer: Well, suppose that California -- if California wants to say, we could bring this suit like Massachusetts did, you agree, they could.
And then they say, all right, but we don't have the time; we want the counties to do it.
Couldn't they do that?
Ms Anders: --Well, we think it is very different when you have covered entities.
Justice Stephen G. Breyer: What's the difference between a State doing its itself through its attorney general and the State saying we would like the county to do it through its county attorney?
Ms Anders: Well, there's consultation with the Federal Government at the front end when the State brings a suit.
And so the government has a chance to coordinate, to avoid dis-uniformity.
But when you have covered entities, thousands of them, potentially bringing suit--
Justice Stephen G. Breyer: California comes to you tomorrow and says, the attorney general says, you know, this is a problem, you don't have time to enforce this, there should be some enforcement and we want to enforce it, and, moreover, we would like each county affected to enforce it.
Do you have the authority?
Is there any reason you wouldn't say go ahead?
Ms Anders: --Well, in that sort of situation you might be able to have a State law fraud suit.
Justice Stephen G. Breyer: I'm trying to analogize it to the Massachusetts one.
You say they can just go ahead and do it, and they say: You know, Santa Clara County is just as big as Rhode Island.
And you say the AG of Rhode Island can bring the suit, am I right?
And so why can't the -- why can't Santa Clara do it?
Ms Anders: Well, in the covered entity context, the concern is that, because you have so many of them, if you start permitting covered entities to bring suit, this is essentially a preemption question, but you then have 50 different State regimes, State court regimes, put onto, grafted onto, the Medicaid rebate requirements.
This is supposed to be a uniform pricing scheme.
And so once the requirements become dis-uniform, it becomes very difficult for HHS to administer the scheme in the way that it's supposed to.
I think it is also important to point out that the recently enacted Affordable Care Act will provide the exclusive administrative remedy for claims exactly like Respondents' once HHS puts that into effect.
So Congress in looking at the scheme, to the extent it had concerns about enforcement by covered entities, the way it reacted was not to create a private right of action or provide for breach of contract enforcement, but was simply to give the agency enhanced authority in order to adjudicate--
Chief Justice John G. Roberts: It identified the problem that the individual beneficiaries did not have a remedy?
They -- or that courts had indicated that they didn't and they thought there should be a remedy?
Ms Anders: --There were -- there were OIG reports raising concerns with oversight and enforcement at a general level, and the way Congress reacted to that was to put in place this administrative remedy which will allow covered entities to bring these claims and will allow HHS to have the first opportunity to determine the meaning of the AMP and best price requirements, and to take into account--
Justice Ruth Bader Ginsburg: Ms. Blatt said nothing has been done.
It just went into effect in January 1, right?
But are there -- are there plans to implement it?
Ms Anders: --Yes.
The agency is moving ahead with that.
The agency has already issued an advanced notice of proposed rulemaking back in the fall.
And it has solicited comments about how the -- the administrative scheme should look.
That comment period has closed, and so now the agency is in the process of -- of moving forward with the regulatory--
Justice Sonia Sotomayor: So I understand your position clearly, In a regulatory contract situation like this one the Secretary is without authority to decide he or she can't enforce the statute and to confer expressly by contract third-party beneficiary rights to the -- to the people receiving the benefit?
That's the position you're taking?
If the Secretary had written a provision into this contract telling 340B entities you can sue, that would have been, according to you, ultra vires?
Ms Anders: --I think it would be difficult to say that the agency would have been totally without authority to do that.
It's not a question you have to answer here, because I think the PPA clearly shouldn't be construed to confer third-party beneficiary rights because that would be inconsistent with the statutory scheme.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF DAVID C. FREDERICK ON BEHALF OF RESPONDENT
Mr. Frederick: Thank you, Mr. Chief Justice.
I'd like to start with Ms. Blatt's answer to your question about whether a provision of the agreement here could confer third-party beneficiary rights.
She said yes, so long as the wording wasn't specifically prescribed by Congress.
In so doing, she concedes that this is a contract, that normal rules of contract law apply, that the fact that the Secretary has entered into the contract is of no moment, and that third-party beneficiary rights are an inherent part of normal contract principles.
So now we're left with the question, does it matter that Congress wrote the particular words that the Secretary used in the agreement?
Justice Antonin Scalia: Well, wait--
Mr. Frederick: We submit that the answer is no.
Justice Antonin Scalia: --Third-party beneficiary rights are part of normal contracts, but the third-party beneficiary has rights under -- under the normal contract only when the parties intend him to have rights.
It's not that every -- every contract which -- which has a benefit for some person allows that person to sue.
There has to be an intent.
And I -- I have trouble finding that intent here, either on the -- on the part of the Secretary -- would the Secretary have had that intent when -- when Congress clearly did -- did not have the intent to allow private individuals to sue?
Mr. Frederick: Justice Scalia, you find the intent in part 2A of the agreement which is set forth in the petition appendix.
And in part 2A, the manufacturer who agrees voluntarily to enter into this agreement agrees that the entity -- that the entity will be charged only a set ceiling price.
That is a voluntary agreement of a duty by the manufacturer that runs to the third-party beneficiary covered entities -- in the agreement.
Justice Antonin Scalia: Yes, you didn't hear my question.
My question was the mere fact there's a duty to a third party in the normal contract does not give that third party the right to sue, only if the contracting parties intend the third-party beneficiary to have the right to sue.
Mr. Frederick: Well, that's not the standard, Justice Scalia.
Justice Antonin Scalia: Well, I--
Mr. Frederick: The standard for a third-party beneficiary as set forth in the restatement and as recognized by this Court is whether or not the parties objectively intended to create intended third-party beneficiaries whose right to bring the suit would enforce the contract, and that's precisely what we have here.
Justice Sonia Sotomayor: Could you tell me where--
Justice Ruth Bader Ginsburg: Mr. Frederick, I thought when this case went back to the -- to the district court the -- the agency's position was, this is a total surprise to us, 14,000 suits or whatever it is.
No, we never -- we never envisioned making the individual whatever you call them -- the 430 B--
Mr. Frederick: The 340B entities.
Justice Ruth Bader Ginsburg: --We never envisioned making them beneficiaries and -- and allowing them to sue.
That would be quite disruptive of our program.
That, I thought was the position the government took.
Mr. Frederick: The government cannot argue for subjective intent of an agreement written 18 years ago.
This Court's decisions in contract have always held that the objective intent as expressed by the words of the contract are what courts are to construe.
Justice Anthony Kennedy: Well, I -- I don't understand why what Justice Scalia said isn't the same as what you said.
You said no, Justice Scalia, a restatement of contract.
But what he said, the question is whether or not did the parties intend, and it is an objective intent, to confer these rights on a third person.
And -- and you said no, no, that's not it.
But then it seems to me that your answer that you gave was just what Justice Scalia said.
I -- I missed something.
Mr. Frederick: Okay.
Here's what I think I misunderstood perhaps from Justice Scalia's question.
For third-party beneficiary rights to create an enforceable breach of contract claim, the parties to the contract do not have to have a provision in the contract saying
"and therefore the intended third parties get to bring a breach of contract claim. "
That's never been the accepted law.
The law has always said if the parties intend to create third-party beneficiaries and bringing of that suit to enforce the contract would be within the objective intent of the parties, such a suit is permissible.
Now, I want to caution that what is different about this suit from the kinds of implied rights of action suits that the drug companies here claim to be so disruptive, is that all we're arguing for is the bargain that the manufacturers agreed to undertake.
Justice Samuel Alito: Could there be--
Mr. Frederick: That bargain was the discount.
It is the delta between what the counties paid and what they should have paid under the discount program ceiling price arrangement in the plain terms of the agreement.
Justice Samuel Alito: --Well, could there be--
Justice Sonia Sotomayor: --Third-party beneficiaries -- I'm sorry.
Justice Samuel Alito: --Could there be a third-party -- a suit by an intended beneficiary and a purported intended beneficiary, if it is clear that Congress intended to the extent it can intend something for those beneficiaries to get the benefit of the price, but did not intend for them to be able to sue?
Mr. Frederick: Yes.
Justice Samuel Alito: So if there were--
Mr. Frederick: I think indirectly here, Justice Alito, that the patients here certainly are incidental beneficiaries, insofar as those who can't afford to pay for the drugs get them for free at the county's expense.
This is county money that we're talking about here.
Or if they have some limited insurance, they're able to get the drugs at a discount.
So they are certainly incidental beneficiaries, but because they're not named and because the intent of the program is to provide the 340B entities with discounted drugs so they can extend scarce dollars farther, they have no right to sue.
Justice Samuel Alito: --If there were a provision in the law saying expressly there is no private right of action under this statute, would you be able to make the same argument?
Mr. Frederick: No.
Our argument rests on the silence of contract with respect to how enforcement would concur.
It has long been the case, though, that where the parties intend to displace a third-party beneficiary's rights, the objective intent of the -- of the agreement is what is -- understood.
Justice Sonia Sotomayor: Counsel -- I'm sorry.
I don't understand the distinction that you are ignoring in the law.
I thought it was very clear that proof that you merely received the benefit by a contract is not proof that the parties intended to confer on you an enforceable right; is that correct?
Is that the statement of the common law?
Mr. Frederick: That is how the restatement frames it.
It's a -- it is a difficult line I think sometimes to understand the difference between an intended beneficiary and an incidental beneficiary.
Certainly the manufacturers here are incidental beneficiaries--
Justice Sonia Sotomayor: No matter how--
Mr. Frederick: --because they have access to this market.
Justice Sonia Sotomayor: --No matter how you want to draw this line, if the issue is, what's the objective intents about enforceability, if I look at the PPA, it makes the manufacturer's obligation one-way to the government to provide the pricing information.
It gives only the government the right to institute the formal dispute resolution system that the contract specifies.
This is not the new law.
This is the PPA as it existed at the time.
It gives only the Secretary other enforcement rights.
What am I missing?
Where in the contract is there one provision, one sentence, one anything that requires the manufacturers, other than the price benefit, to do something that could be characterized as enforcement?
Mr. Frederick: But that is the key, Justice Sotomayor.
The price discount is where all the action is in this program.
These prices, between 1990 and 1992, were being raised by the drug manufacturers as against these entities, and the whole point of Congress enacting this statute was to confer the same discounted drug program to the covered entities as had been done through contracts to the State Medicaid rebate program.
And that's why the provision in the amendment -- sorry, in the agreement that says, thou shall not charge the covered entities more than the ceiling price, is exactly where you find the intended third-party beneficiary rights, because that's their money that's being spent.
It's not Federal--
Justice Stephen G. Breyer: That's true of -- I was thinking maximum resale price maintenance.
You could -- the distributor and the manufacturer agree on the maximum resale price.
Pretty unlikely that they intend the consumers who are intended to benefit to be able to have a lawsuit.
And I think, well, gee, I don't know.
What the Government is arguing is, sure, the point you make favors you.
They say there are two major points here that favor them about background.
I want to hear what your reply is.
One of them is Congress, in the statute it incorporated here, didn't want a private person to be able to enforce it.
And the second one is it is going to create a mess.
So they say those are two background features here that favor them.
So what's your response?
Mr. Frederick: --Number one, there's no evidence that Congress intended there to be a departure from normal operating contract principles, and this Court, in Winstar, in Mobil Oil, in Jackson Transit, in Central Airlines, all said that when Congress uses contracts or agreements, it intends to incorporate the full cluster of the common law rights as they've existed.
And third-party beneficiary rights have been recognized for 350 years, even before the founding of this republic.
Now, as to the disruption, I think it is a canard, because what we are talking about here is one price that would govern all 14,500 covered entities.
So if Santa Clara gets the discount price for Lipitor, say, that is the best price, and it will be charged and chargeable to all of the 340B entities across the nation.
So in terms of administrability, one suit actually can solve the deficiencies in the government enforcement program, and the government can participate in this suit.
Chief Justice John G. Roberts: Well, which way does that cut?
That seems to me to put an awful lot of power and authority in the hands of one beneficiary and one lawyer saying -- all they have to do is filing a suit saying, look, we get a hundred doses of Lipitor from this program; we think we should get less.
And if they win, the whole country's -- the pricing of Lipitor under this program has changed.
Mr. Frederick: Well--
Chief Justice John G. Roberts: That strikes me as an argument in favor of leaving the enforcement with the Secretary.
Mr. Frederick: --No, I think it is an argument that may misunderstand some of the benefits that class action practice can provide, where there is a uniform way of analyzing the problem, because these prices, Mr. Chief Justice--
Chief Justice John G. Roberts: It doesn't have to be a class action, does it?
Mr. Frederick: --Well, it doesn't.
This was brought as one for the efficiency purpose of obtaining exactly the effect that you are identifying, which is that if it is more efficient--
Chief Justice John G. Roberts: That's why it was brought as a class action?
Mr. Frederick: --Well, it was brought as a class action because the County of Santa Clara stands in exactly the same position as the other 57 counties of California and the other counties in the United States who are overpaying for drugs that the manufacturers are--
Justice Stephen G. Breyer: What do you think about -- is the -- I'm not sure I'm right at all here, but as I understand the development of this argument today, it is open to you and the other 57 counties to go to the State AG, and you say, you bring the lawsuit, okay?
Or make us -- make me a lawyer -- says, make me an assistant AG for this purpose.
And I launch the lawsuit in the name of California, and I can get to the same place.
What do you think of that?
Mr. Frederick: --I don't know that the State, because these are entities that are not defined in the agreement -- this is a different agreement than under the Medicaid rebate agreement, which is set forth in the joint appendix, where the States are the third-party beneficiaries of those agreements.
I'm not sure that the State actually has standing to bring these particular claims.
That is not something that has been tested.
But what I would say is that if you reject our argument here, you are substantially undercutting the ability of the States to bring the same kinds of overcharging claims against drug manufacturers under the Medicaid rebate program.
That's what the State's amicus brief here makes clear.
The SG has a very fuzzy footnote at the very end of the government's brief that does not set forth a clear standard that differentiates why 340B entities' third-party beneficiary rights are any different from States' rights under the Medicaid rebate program.
Justice Ruth Bader Ginsburg: I thought it was because the States have been given a role in the statute itself, where the 340B entities have not.
I thought that was the -- the government's position, that the States have a role in the Medicaid program and that's an entirely different thing than this program, where these entities have no statutory role, says the drug manufacturers and then this -- HHS.
Mr. Frederick: Justice Ginsburg, I don't think that was the basis for Judge Saris's opinion in the District of Massachusetts, which looked at the third-party beneficiary theory of the States in giving them a place at the table and bringing these kinds of claims.
And to the extent that that analysis bears out anything, it's -- tends to cast doubt on the government's theory that these are somehow regulatory contracts that suggest a blurring of the normal lines between regulation and contract.
That theory, the regulatory contract theory, has been rejected by this Court in Winstar and in Mobil Oil, where the government tried to argue that because it was implementing regulatory policy through contracts, somehow normal contract principles don't apply, and this Court rejected--
Justice Antonin Scalia: --But the government's footnote doesn't -- doesn't rely on the contract.
It says that -- and it wasn't purporting to say the basis that the court applied in the District of Massachusetts case, but it was explaining why, in the government's view, it is a different situation.
And what it said is it is a different situation, not because of a different contract, but because in that other situation, Medicaid -- the Medicaid rebate -- Medicaid generally is, quote, "a cooperative Federal-State program".
I mean, the point is that the States are explicitly given authority for enforcement in that.
Mr. Frederick: --Well--
Justice Antonin Scalia: And here the entities you're representing are not.
Mr. Frederick: --Justice Scalia, and that is why resort to the normal canons of construction that this Court has long applied to government contracts is what is most pertinent here.
The government, I don't think, can point to a specific provision of the cooperative Federalism that empowers States to engage in any greater enforcement power than a normal third-party beneficiary under this Court's normal cases.
In fact, back to Central Airlines and American Surety, which, a hundred years ago, recognized a third-party beneficiary's right to bring suit on a breach of contract and held that the absence of a specific enforcement power in the statute was not enough to deny the normal operation of law for the breached party to sue for that breach.
That's common in the law.
Justice Antonin Scalia: A big -- a big difference, it seems to me, Mr. Frederick, is that the States are sovereign.
They can enforce their own laws.
The entities at issue here are not sovereigns.
They're not enforcing their own laws.
They are trying to enforce Federal law.
But under the -- under the Medicaid program, the States, using their own fraud -- fraud actions, whatever else, had a role to play.
Mr. Frederick: Well, Justice Scalia, I think if you took that argument to its logical extreme, you would have come to a different answer in the Arthur Andersen case, where there, you recognized a third-party beneficiary's right to invoke a statute to get an arbitration agreement upheld.
And I think you would have come to a different result in the Miree v. DeKalb County case in which the Court said that just because there is a FAA contract with a local airport authority does not deny a third-party beneficiary rights to sue if there is an adverse affect on adjoining land because you would have said that because the adjoining land owner had no specific enforcement authority, that person or entity would be out of luck.
Chief Justice John G. Roberts: That's Miree, that's 1977.
And a lot of your argument, it seems to me, is in the earlier world of implied right of action jurisprudence that has changed dramatically in the last 30 years.
And what concerns me is when you are talking about the same language, the mere fact that the Government has decided to go through a contractual mechanism to advance this program doesn't allow you to use that to get an end run around all of the implied right of action jurisprudence of the last 30 years.
You're on stronger ground before that.
Mr. Frederick: Well, let me address that directly, Mr. Chief Justice, because Justice Rehnquist, who was not any fan of implied rights of action, was the author for the Court's opinion in the Miree decision.
Chief Justice John G. Roberts: And that was pretty well -- that analysis was certainly consistent with the established jurisprudence in this area then.
But it started changing very quickly thereafter.
I think about 1980.
And then consistently went in the other direction, to the point now where I think the jurisprudence is pretty clear that we're not going to imply a private right of action at all.
Mr. Frederick: We're not asking you to imply a private right of action, Mr. Chief Justice.
We're asking you to honor contract principles that--
Justice Ruth Bader Ginsburg: The result is the same, Mr. Frederick.
And that's the central point since last brief, and call it whatever you want, it's -- Congress has not provided for a private right of action to enforce the terms of the statute.
The contract embodies the terms of the statute.
So it would be passing strange if Congress, as we now read Congress, says we want private parties out of this, this is to be between the agency and the manufacturer to say.
The same exact result.
The same aim can be achieved through this third-party beneficiary route.
And I think that said, that is what stands out about this case.
So how do you respond to that?
What's the difference between suing because the statute has been violated and suing because the contract has been violated?
Mr. Frederick: --A contract is a voluntary agreement entered into between the drug manufacturer and the Secretary.
The manufacturer can choose not to participate.
So in every one of the implied right of action cases that you dealt with, an outside entity has been forced to comply with a statute or law.
Justice Ruth Bader Ginsburg: But the statute wouldn't apply to someone who doesn't want to be in the program.
Mr. Frederick: Justice Ginsburg, those cases all involve the imposition of duties on the part of an entity or actor out in society.
Here we're talking about voluntary action.
The drug manufacturers can decide not to participate and not sign the agreement.
And they have the right under the provisions allowing termination to terminate the agreement at will with no reason whatsoever.
Chief Justice John G. Roberts: It is the same situation with the states under spending clause legislation.
They done have to sign up.
But if they do, then the issue is, is there an implied right of action on the beneficiaries.
Our cases for the last 25, 30 years have said no.
Mr. Frederick: But the remedy is different, Mr. Chief Justice.
And that is a key difference.
All we're talking about here as a remedy is the difference between what they promised to charge and what they actually charged.
Justice Ruth Bader Ginsburg: Whatever you're saying, that's all we're talking about, we are told that computing the price is a very intricate business.
And many of these disputes have been about what is -- what should the ceiling price be.
The ceiling price is out there, there is no dispute about it.
It is just a question of getting the manufacturers to charge that price and not a higher price.
The question is what is the ceiling price?
Mr. Frederick: And there are two ways to calculate it.
Under the more complicated formula that is designed to enhance the profits of the drug companies, it is a more complicated endeavor.
All of those cases, Justice Ginsburg, all of them, have been with the simple formula, which is has the drug company given its best price to some other purchaser in the market.
That's where the false claims act cases that they acknowledge do not create such an intrusion into the program--
Justice Ruth Bader Ginsburg: --control over them.
And they don't have control over these suits?
Mr. Frederick: --Well, no, the difference in a qui tam case, as your question earlier to my colleague earlier acknowledged, Justice Ginsburg, is the government doesn't have to intervene in a False Claims Act case.
What's different there is that there has to be some inside whistleblower who can pass through the very difficult hurdles of a False Claims Act case; whereas here we are talking about benefit of the bargain.
The manufacturers agreed by contract they were only going to charge a ceiling price, and we assert based on -- you know -- quite extensive reports by Officers of Inspector General that they have not been charging that price.
They've been charging in excess of that price, and all we are asking for is the delta.
And the government in its Massachusetts submissions has acknowledged that this type of best price litigation is not so complicated because all one needs to do is figure out did the drug companies sell the particular drug to some other entity for a lower price; and if that's so, that's the price you apply across the board to all the 340B entities.
The argument about distraction and intrusion, Justice Ginsburg, I would respectfully submit is a gross overstatement of what actually happens in this type of litigation.
And to the extent that there are complexities, the complexities are introduced by the drug companies for the sole purpose of masking what price they are charging to the 340B entities.
Because all these various mechanisms, the bundling of drugs, the use of kickbacks and payments to purchasers, are all designed to mask what the true price of the drug is.
And if Congress intended anything in the program, and in getting the Secretary to implement this program through statutes, it was that the 340B entities who are providing drugs and medical service to the poorest of our citizens should be entitled to the benefits of the collective market created by these 340B drug purchases.
And that's all that we're asking for here.
Justice Ruth Bader Ginsburg: You take the position that nothing has changed as a result of the new legislation, that is, Ms. Anders told us that this statute told us that this statute's going -- to become effective, there's going to be procedures, better procedures than there were before.
Is it still this third-party beneficiary suit, despite the possibility of going to the agency?
Mr. Frederick: We don't know, Justice Ginsburg, is the simple and plainest answer I can give you.
And the reason we don't know is because the Secretary has already missed the first statutory deadline for issuing implementing regulations.
There was no statement of rules in the notice of proposed rulemaking, as is ordinarily the case for agencies.
The Secretary simply put out for comment that we are going to develop procedures and rules.
So we don't know whether or not the Secretary will express some further intent as to how these new rules are to apply.
But I would submit that this Court's cases are very clear, that a later enactment of Congress is not intent of what an earlier Congress has stated; and the absence of any specific remedial provision coupled with the use of agreements carries with it the ordinary presumption that Congress intended for that cluster of common law rights to be associated with the agreement.
And that's certainly been the way this Court has enforced contracts involving the government itself.
If there are no further questions, we'll submit.
Chief Justice John G. Roberts: Thank you, Mr. Frederick.
Ms. Blatt, you have 3 minutes remaining.
REBUTTAL ARGUMENT OF LISA S. BLATT ON BEHALF OF PETITIONERS
Ms Blatt: Yes.
If I may just talk about the drug companies, Lipitor, and the common law; and if you want, I can also talk about States.
We take, obviously, deep umbrage at the suggestion that the drug companies are somehow against these clinics.
Any Internet search will show you that the amount of discounts given under this program equals the amount of free drugs that are given to these same clinics.
And I'd also, probably a better response is you can look at any rebate release issued by the Secretary of HHS or any page of their CFR, and if you think it's simple, I would be shocked.
On Lipitor, it is not the case that the Central District of California decides nationwide what the price of Lipitor is.
The -- under the other side's view, the Southern District of Texas, the Northern District of New York, and the District in Alabama would all decide.
And what's really bad -- it is bad enough to have 14,000 suits over 35,000 drugs; but what he's talking about, best price, and average manufactured price that determines the States' rebate programs because the rebate program is a rebate, and the ceiling price program is a ceiling price.
When one of the pricing components goes up, such as average manufacture price, the States benefit.
They get more money.
But generally, 340B entities, their ceiling price goes up.
So what's good for the 340B company -- entity is bad for the States.
And that's not disputed.
He just says it is hypothetical.
But he's asked for millions and millions and millions and millions and more millions of transactions that go to that very pricing component.
On pages 9 to 11a of the petition appendix is a good three or four citations to the third-party beneficiary Federal common law.
And the courts go out of their way to say it is not enough to be a direct beneficiary.
The analysis is exactly the same under implied right of action.
Is there clear and unambiguous intent to confer enforceable rights?
It is the same.
We just think because it is in haec verba with the statute, it's congressional intent that controlling, not the parties.
I can talk about States if you want.
Otherwise I'm happy to just ask for the decision to be reversed.
Then we would ask the decision be reversed.
Chief Justice John G. Roberts: Thank you, counsel, counsel.
The case is submitted.
Ms Ruth Bader Ginsburg: Section 340B of the Public Health Services Act places ceilings on the prices drug manufacturers may charge for medications sold to facilities called 340B entities, namely public hospitals, and community health centers that provides services to the poor.
A manufacturer opts into the ceiling price program by signing a form contract composed by the Department of Health and Human Services (HHS), called the Pharmaceutical Pricing Agreement or PPA.
The question presented, may a 340B entity, although not of colleague to the manufacturer, HHS contract.
Nevertheless, it sued to enforce PPA-prescribed ceiling prices.
On behalf of a class comprising 340B entities in California and the counties that fund them, Santa Clara County sued Astra and eight other drug manufacturers.
The County alleged that the defendant manufacturers charged 340B entities more than the PPA-permitted ceiling prices.
Reversing the District Court's dismissal of the County's complaint, the Court of Appeals for the Ninth Circuit held that 340B entities can sue to enforce the PPAs as third party beneficiaries.
The District Court, in our judgment got it right.
Third-party beneficiary suits to enforce 340B may not be maintained.
It is undisputed that the health care facilities have no right of action on the 340B itself.
The County urges however that when a contract is designed to secure a benefit for a third party, here, controlled prices for drug purchases, the intended beneficiary acquires a common law right to enforce that benefit.
The County's argument overlooks that PPAs simply incorporate statutory obligations, and record manufacturers' consent to abide by them.
Containing no negotiable terms, the form agreements serviced a device by which drug manufacturers opt into the 340B program.
A third party-suit to enforce the PPA is essentially a suit to enforce 340B itself.
Important to our decision, the 340B program is tied to the earlier-enacted, much larger Medicaid Drug Rebate Program.
To gain payment of the Medicaid for covered drugs, a manufacturer must into -- enter into a form agreement with HHS undertaking to provide rebates to States on the drug purchases.
The 340B program replicates the rebate programs opt-in contract mechanism, and the 340B ceiling prices are derived from "average" and "best" prices and rebate rates calculated under the Medicaid Rebate Program.
Determining a manufacturer's average and best prices is a complex enterprise that requires recourse to detailed information about the company's sales and pricing.
That information generally, is not available to 340B entities, for Congress has prohibited HHS from disclosing pricing information in a form that could reveal for the manufacturer charges for drugs it produces.
If Congress meant to allow third-party beneficiary suits by 340B entities, it likely would not have barred potential suitors from obtaining the very information necessary to determine whether their asserted rights have been violated.
Moreover, Congress made HHS the administrator of both the Medicaid Rebate Program and the 340B Program.
Interest of States under the Rebate Program sometimes conflict with the interest of 340B entities.
To ensure operation of the two programs harmoniously, and on a uniform nationwide basis, HHS must hold the control rein.
For these reasons, developed more expansively in the Court's opinion, we reverse the judgment of the Court of Appeals, our decision is unanimous.
Justice Kagan took no part in the consideration or decision of the case.