Vanda Pharmaceuticals Inc. v. Centers for Medicare & Medicaid Services, et al.

This case addresses the “line extension” provision of the Medicaid rebate statute. For a decade, CMS construed the statute as written, covering drugs introduced as gamesmanship to avoid a penalty provision. Recently, however, CMS adopted a regulatory definition of “line extension” that, by the agency’s own admission, was “much broader” than its earlier views. In so doing, CMS failed to recognize a key statutory constraint on its authority. Per Congress, the “line extension” provision applies to “a single source drug or an innovator multiple source drug.” 42 U.S.C. § 1396r-8(c)(2)(C)(i). Congress established that “the term ‘line extension’ means, with respect to a drug, a new formulation of the drug.” Id. § 1396r-8(c)(2)(C). The new formulation, accordingly, must be the same drug as the original. Congress tethered this inquiry to “a new drug application approved by” FDA. Id. §§ 1396r-8(k)(7)(A)(ii) & (iv). If a drug is approved pursuant to its own New Drug Application, it is not the same “drug” and thus not a “line extension.” The court of appeals disregarded this express statutory definition as “wandering on the periphery.” App., infra, 21a. The questions presented are:

1. Does a decision that upholds an agency statutory interpretation merely because it is “perfectly sensible” or “reasonable and consistent with the statutory framework” comport with Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024)?

2. Is an agency free to disregard reliance interests engendered by its prior interpretation of the statute it administers simply because that interpretation was announced in a non-binding document like a notice of proposed rulemaking?