Background
Congress created the Medicare Manufacturer Discount Program to require manufacturers to discount certain drugs covered by Medicare Part D beginning in 2025. Congress allowed “specified manufacturers” and “specified small manufacturers” to phase in their discount obligations, with the latter receiving the broader benefit. Eligibility depended on manufacturers’ Part D activity during 2021.
Servier Pharmaceuticals acquired the cancer drug Tibsovo and an existing inventory of tablets from Agios Pharmaceuticals in April 2021. Servier sold the Agios-manufactured inventory during the remainder of that year, while tablets manufactured at Servier’s direction were not dispensed to Part D patients until 2022. CMS classified Servier as a specified manufacturer but not a specified small manufacturer because Servier had no 2021 Part D expenditures attributable to tablets it manufactured. The district court granted summary judgment to the government, and Servier appealed.
The Court’s Holding
The D.C. Circuit affirmed. Reading the statutory definitions together, the court held that expenditures used to determine specified-small-manufacturer status must arise from units of a drug that the manufacturer itself “produced, prepared, propagated, compounded, converted, or processed” and that were dispensed under Part D during 2021. Ownership of a drug product or its new drug application does not permit a company to claim all sales of that drug regardless of who manufactured the units sold.
Servier did not show that it performed any of the listed manufacturing activities on Tibsovo tablets dispensed to Part D patients in 2021. Its ownership of the Tibsovo application did not amount to “propagating” the drug, and its appellate assertions concerning quality control, labeling, and Servier-manufactured tablets were forfeited because they were not properly presented below or contradicted Servier’s earlier factual representations.
The court also rejected Servier’s arbitrary-and-capricious challenges. CMS reasonably used FDA labeler codes to identify manufacturers, and ownership information was immaterial under the court’s interpretation of the statute. CMS did not treat Agios and Servier inconsistently: It attributed tablets manufactured at each company’s direction to that company, but only Agios-manufactured tablets were dispensed under Part D during the controlling year.
Key Takeaways
- Specified-small-manufacturer eligibility turns on who manufactured the drug units actually dispensed under Medicare Part D in 2021, not merely who owned the drug or its regulatory application.
- A midyear acquisition does not automatically transfer the seller’s qualifying Part D expenditures to the acquiring manufacturer.
- Arguments and factual assertions not properly presented to CMS and the district court may be forfeited on appeal.
Why It Matters
The ruling limits access to the broader discount phase-in for drug companies that acquired products or inventory during the statutory reference year. A purchaser cannot count Part D sales of previously manufactured inventory toward specified-small-manufacturer status merely because it acquired the product and its commercial rights.
The decision also illustrates post-Loper Bright review in the D.C. Circuit: The court independently determined the statute’s meaning while separately concluding that CMS’s implementation was not arbitrary or capricious.