Federal Courts in Maryland and California Block Trump Administration’s Most Favored Nation Drug Pricing Rule on Procedural Grounds

Two district courts recently dealt what may become fatal blows to the Trump administration’s Most Favored Nation (MFN) rule for Medicare Part B drug payment. As noted in our summary (available here), the MFN rule was published as an interim final rule with comment period rather than a proposed rule, leaving it vulnerable to an Administrative Procedure Act (APA) challenge. Multiple organizations, including the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Innovation Organization (BIO), filed lawsuits challenging the controversial drug price reduction initiative that was scheduled to take effect on January 1, 2021.

On December 23, Judge Catherine Blake of the District Court for the District of Maryland granted a nationwide temporary restraining order in the suit brought by the Association of Community Cancer Centers, the National Infusion Center Association, the Global Colon Cancer Association, and PhRMA. Ass’n of Cmty. Cancer Ctrs. v. Azar, No. 20-cv-3531, 2020 U.S. Dist. LEXIS 241732 (D. Md. Dec. 23, 2020). Judge Blake found that the MFN rule was promulgated without adequate notice and comment procedures and that the government’s rationale for dispensing with such procedures was insufficient under the APA.

On December 28, Judge Vince Chhabria of the District Court for the Northern District of California largely adopted Judge Blake’s reasoning and granted a nationwide preliminary injunction in the suit brought by the California Life Sciences Association, Biocom California, and BIO. Cal. Life Scis. Ass’n v. CMS, No. 20-cv-08603, 2020 U.S. Dist. LEXIS 242991 (N.D. Cal. Dec 28, 2020). Judge Chhabria held that the California plaintiffs were “virtually certain” to prevail on their APA claim because the agency did not publish a notice of proposed rulemaking.

The government’s assertions that the COVID-19 pandemic’s recent surge was increasing the financial burden on Medicare beneficiaries failed to convince either court that a good cause exception to the APA should apply. The courts also found that the $5 billion reduction in Medicare Part B reimbursements in the first year alone, as estimated by the government, would drastically reduce revenues for providers and could qualify as irreparable harm. Finally, both courts found that the balance of equities and public interest favored granting the TRO and preliminary injunction, especially because of the MFN rule’s predicted disruption on provider businesses and patient treatments.

As a result of these court decisions, the MFN rule will not go into effect on January 1, 2021. It remains to be seen whether the Trump administration will attempt to salvage the MFN rule in its waning days or whether the incoming Biden administration will pick up the reins and seek to begin notice and comment rulemaking for this controversial initiative. As of our writing, the court in Maryland has directed the parties to submit a proposed schedule for further proceedings.  The government has the option to file an interlocutory appeal but has not done so yet. As always, we will continue to monitor and report on federal and state efforts to address drug prices.