Astra USA, Inc. et al. v. Santa Clara County, California

Oral argument transcript · No. 09-1273 · October Term 2010 · argued January 19, 2011 · the petitioner won

Decision: votes, opinion and citations · Official transcript (PDF) · Argument audio at the Supreme Court

Advocates

• Lisa S. Blatt, Washington, D.C., for the petitioner
• Ginger D. Anders, Assistant to the Solicitor General, amicus curiae supporting the petitioner
• David C. Frederick, Washington, D.C., for the respondent

Transcript

From the Court's official transcript; speaker labels as in the transcript, with advocates' full names from its list of appearances.

Chief Justice Roberts: We'll hear argument next this morning in Case 09-1273, Astra USA v. Santa Clara County. Ms. Blatt. ORAL ARGUMENT OF LISA S. BLATT ON BEHALF OF THE PETITIONERS

Lisa S. 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 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 Alderson Reporting Company deal between you. And Congress may have specified some terms to include, but -­

Lisa S. 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 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? Alderson Reporting Company

Lisa S. Blatt: Right. Well -­

Justice Sotomayor: Discretion that is consistent with normal contract principles.

Lisa S. 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's a bilateral agreement, it's 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 Alderson Reporting Company 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 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?

Lisa S. 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 Alderson Reporting Company of action jurisprudence and it -- it conflicts with congressional intent in all events. But one of the harms, and sort of illustrating just 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's 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 Scalia: Private enforcement.

Lisa S. 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 disruption, are that Congress gave manufacturers, but not 340B entities, a private reimbursement remedy and a private -­

Chief Justice Roberts: Is it -- I'm not sure of the answer, but is it different in this case or Alderson Reporting Company 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's, say, an agreement between the Federal Government and a State?

Lisa S. Blatt: Well, all your Medicaid cases, obviously, under State plans -­

Chief Justice Roberts: Yes.

Lisa S. Blatt: -- 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. So -­

Justice Ginsburg: Ms. Blatt, would you explain the function that the contract mechanism serves? I mean, you could just have this -- you could just have the statute say: Thou shalt not charge more than the ceiling price. Period. Alderson Reporting Company What -- what is accomplished by having the contract reflecting the terms of the statute?

Lisa S. Blatt: Well, I don't think it's 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 difference between our position and the Government, because the Government is absolutely correct that it's 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 -- a pharmaceutical manufacturer doesn't want to participate in the program, they're not covered. And in a typical regulation and I think general sort of 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 Alderson Reporting Company manifestation both by the Secretary who signed the agreement and the contractors, the pharmaceutical companies who signed the agreement.

Justice Kennedy: Before the statute was amended by I think the Patient Protection Act and there was a breach of the agreement, did the government assess penalties?

Lisa S. Blatt: Well -­

Justice 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.

Lisa S. Blatt: It has got a lot of remedies. It has -- but it -­

Justice Kennedy: What was the contract remedy that it had at the time this case arose, which was before the -- these mechanisms.

Lisa S. Blatt: Yes. They're -- right. We are 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, a right of audit. It can bring suits under the False Claims Act and can terminate Alderson Reporting Company 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 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 program, both programs are parallel and that both use agreement, one is the Medicaid rebate agreement. In this case, it's the pharmaceutical -­

Justice 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?

Lisa S. Blatt: Well, the Government says a contract is not a contract even though it says it's a contract. Our position is this a contract.

Justice Scalia: That doesn't make much sense, does it?

Lisa S. Blatt: The -- the Government sees this, Alderson Reporting Company 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 agreement; 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 Scalia: What did the manufacturer promise in exchange for a contract? You do need consideration. What did they promise that they weren't already obliged to do by law?

Lisa S. 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 -­ it's a pretty substantial -­

Justice Breyer: So what is Santa Clara County supposed do? They -- they think they're being overcharged. And in your opinion, they -- the company Alderson Reporting Company doesn't, but they do. So what are they supposed to do if they're right? How do they get the money?

Lisa S. 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's how, as a practical matter, it's been enforced.

Justice Breyer: I'm interested in procedurally what are they supposed to do?

Lisa S. Blatt: Oh, pick up the phone and either call the manufacturer, the prime vendor -­

Justice Breyer: The manufacturer says: Okay, you're wrong. I'm not; I'm undercharging you. Now what happens.

Lisa S. Blatt: Ultimately, if they can't get the Secretary to -­

Justice Breyer: He's busy.

Lisa S. Blatt: If she's busy and won't return the calls, Congress said you can't enforce it -­

Justice Breyer: Well, Why can't they -- can they, for example, file a claim with the -- with the Alderson Reporting Company 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?

Lisa S. Blatt: There's just -- right now, there's just an informal, non-mandatory -­

Justice 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?

Lisa S. 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 Breyer: But normally under the law from Marbury v. Madison onward, where there's a wrong, there's a remedy.

Lisa S. Blatt: But -­

Justice Breyer: And the remedy could be administrative, could be judicial, et cetera. But you're saying there's none?

Lisa S. Blatt: No. I think 30 years have said Alderson Reporting Company 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 Breyer: But in such cases, there very often is an administrative remedy -­

Lisa S. Blatt: That's true.

Justice 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.

Lisa S. Blatt: There's always an APA action against the Secretary. I just think -­

Justice Breyer: Is there here? You said there was.

Lisa S. Blatt: Well, I think it would be hard to bring an APA action.

Chief Justice Roberts: What about a False Claims Act action?

Lisa S. Blatt: Yes. 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 Alderson Reporting Company briefs.

Justice 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.

Lisa S. Blatt: Well, it's not a private party. It's the private party who's 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 Ginsburg: Even if the United States doesn't take over the case, just lets the qui tam relator -­

Lisa S. Blatt: Right.

Justice Ginsburg: -- proceed?

Lisa S. Blatt: Yes, that's right. It's 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 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, Alderson Reporting Company 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've 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?

Lisa S. Blatt: Yes. And there is -­

Chief Justice Roberts: Yes?

Lisa S. Blatt: If it's 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's 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 Alderson Reporting Company 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 breath 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, the party's intent. But when you're talking in haec verba, and this could not be more precise because it's the exact -­ it's actually not even 340B. The allegation is it's a violation of the Medicaid Rebate Act pricing reporting requirements. It's -- congressional intent is all that matters.

Justice 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?

Lisa S. Blatt: It is a contract executed by HRSA, the administrator of -- an agency within, and he or she, whoever the administrator is at the time, enters it on behalf of the Secretary. So the -­ Alderson Reporting Company

Justice Scalia: On behalf of the -­

Lisa S. Blatt: So it's in the name of the Secretary.

Justice Scalia: It's in the name of the Secretary?

Lisa S. Blatt: It says -- I mean, it's in the Pet. App. starting at around 169. It says the Secretary. And you don't have the signature page, but I've seen them. They're all signed by the administrator of HRSA, which is the -- the organization within HHS, not CMS but HHS, that runs the 340B program. But if I could -- actually, I'll just save the remainder for rebuttal.

Chief Justice Roberts: Thank you, counsel. Ms. Anders. ORAL ARGUMENT OF GINGER D. ANDERS ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONERS

Ginger D. 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 Alderson Reporting Company program from a regulatory scheme into a contractual one. Like a Medicare provider -­

Chief Justice Roberts: Is it -- is it a contract at all?

Ginger D. Anders: It's 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 Alito: Well, how do we distinguish between what you call an ordinary contract and this sort of a contract, if it's any kind of contract?

Ginger D. 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 -- 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 Sotomayor: Counsel, are you telling Alderson Reporting Company me you're taking -- then your -- then your 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, and 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?

Ginger D. 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 manufacturers to simply mark the opt-in.

Justice Sotomayor: Well, that begs the question 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 half of your -- other half of your position was that this is not a third-party intended beneficiary. All the terms of the contract are between Alderson Reporting Company the manufacturer and the Secretary and the obligations to the Secretary, not the obligations to the third parties.

Ginger D. 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's 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 Sotomayor: Is there a different -­

Justice Ginsburg: You mean -- you mean there's no negotiated element to it? It's what the statute -- it's the same as Ms. Blatt said? It's -- the contract repeats the words, the terms of the statute, and that's it; is that what you mean? Alderson Reporting Company

Ginger D. Anders: That's right. This isn't a negotiated agreement. The Secretary has simply repeated the terms of the statute in the agreement. That's exactly right.

Chief Justice Roberts: You could do this, I guess, by regulation, right?

Ginger D. Anders: I think that would be one way.

Chief Justice Roberts: Issue a regulation saying manufacturers who participate in this program agree to do, you know, whatever your contract says.

Ginger D. 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 -- the entire area is regulated by breach of contract law rather than by the, you know, hundreds of pages of regulations and statutory provisions that govern the providers' rights there.

Justice 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 Alderson Reporting Company involving actions brought by States, In re Pharmaceutical Industry Average Wholesale Price Litigation in the District of Massachusetts?

Ginger D. Anders: We do agree with the Petitioners that -- 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 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?

Ginger D. Anders: No. That's actually an important point. I think in the Medicaid context the States have a cooperative relationship with the Federal Government. And so they receive some of these funds directly, and they have -- in fact, in the Medicaid Act, it is contemplated that they have their own enforcement Alderson Reporting Company responsibilities. So when States bring State law fraud suits, State law FCA suits, they actually -- they consult intensively with HHS. And so, in that respect, those suits represent the government's -­

Justice Sotomayor: An implied cause of action? Is that what you're saying those State suits are?

Ginger D. Anders: Those are actually State law suits that were involved in the Average Wholesale Price -­

Justice Sotomayor: How is that regulatory scheme any different than the one involving the PPA?

Ginger D. Anders: Well, the Medicaid Act itself gives States an enforcement 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 Breyer: Suppose that the State of California says we'd like our counties to be able to enforce this. Then what happens?

Ginger D. Anders: Under the Medicaid Act, there would be -­

Justice Breyer: Well, suppose that California -- if California wants to say we could bring this suit like Massachusetts did, you agree they could. Alderson Reporting Company 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?

Ginger D. Anders: Well, we think it's very different when you have covered entities -­

Justice Breyer: Well, what's the difference between -­

Ginger D. Anders: -- bringing even a fraud suit.

Justice Breyer: What's the difference between a State doing it itself through its attorney general and the State saying we'd like the county to do it through its county attorney?

Ginger D. Anders: Well, there's consultation with the Federal Government at the front end when the State -- 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, you know, thousands of them, potentially bringing suit in different -­

Justice Breyer: All right. 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'd like each county affected to enforce it. Do you have the authority? Is there any Alderson Reporting Company reason you wouldn't say go ahead?

Ginger D. Anders: Well, in that sort of situation, you might be able to have a State law fraud suit -­

Justice 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?

Ginger D. Anders: Well, in the covered entity context, the concern is that, because you have so many of them, if you -- if you start permitting covered entities to bring suit, you know, this is essentially a pre-emption 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's also important to point out that the recently enacted Affordable Care Act will provide the exclusive administrative remedy for claims exactly like Respondent's once HHS puts that into Alderson Reporting Company 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 the claims itself.

Chief Justice 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?

Ginger D. 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 Ginsburg: Ms. Blatt said nothing has been done. It just went into effect on January 1st, but are there -- are there plans to implement it?

Ginger D. Anders: Yes. The agency is moving ahead with that. The agency has already issued an advanced notice of proposed rulemaking back in the fall. Alderson Reporting Company 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 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?

Ginger D. 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 Roberts: Thank you, counsel. Mr. Frederick. ORAL ARGUMENT OF DAVID C. FREDERICK ON BEHALF OF THE RESPONDENT Alderson Reporting Company

David C. 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 Scalia: Well, wait. Is the -­

David C. Frederick: We submit that the answer is no.

Justice 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 Alderson Reporting Company 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?

David C. Frederick: Justice Scalia, you find the intent in part II(a) of the agreement, which is set forth in the petition appendix. And in part II(a), 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 -­

Justice Scalia: Yes, you didn't -- you didn't hear my question.

David C. Frederick: -- who are specified in the agreement.

Justice Scalia: My question was the mere fact that 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 a right to sue.

David C. Frederick: Well, that's not the standard, Justice Scalia.

Justice Scalia: Well, I thought the -­ Alderson Reporting Company

David C. 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 Ginsburg: Mr. Frederick -­

Justice Sotomayor: Can you tell me where -­

Justice Ginsburg: -- 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 430B -­

David C. Frederick: The 340B entities.

Justice Ginsburg: We never envisioned making them the beneficiaries and -- and allowing them to sue. That would be quite disruptive of our program. That, I thought, was the position the Government took.

David C. 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. Alderson Reporting Company

Justice 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, Restatement of Contracts. But what he said the question is whether or not did the parties intend -- and it's 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.

David C. 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 Alderson Reporting Company claim to be so disruptive is that all we're arguing for is the bargain that the manufacturers agreed to undertake.

Justice Alito: Could that be -- could there be -­

David C. Frederick: That bargain was -- was the discount. It's 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 Alito: Well, could there be -­

Justice Sotomayor: Third-party -- I'm sorry.

Justice 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?

David C. Frederick: Yes.

Justice Alito: So if there were -­

David C. 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 Alderson Reporting Company 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 are 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 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?

David C. 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 Alito: There's -­

Justice Sotomayor: Counsel -- I'm sorry. I don't understand the distinction that you're ignoring in the law. I thought it was very clear that proof that you merely received the benefit in a -- by a contract is not proof that the parties intended to confer on you an enforceable right; is that correct? Is that the Alderson Reporting Company statement of the common law?

David C. 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 Sotomayor: No matter how -­

David C. Frederick: -- because they have access to this market.

Justice Sotomayor: No matter how you want to draw this line, if the issue is what's the objective intent 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 informal 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? Alderson Reporting Company

David C. 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 shalt 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 Breyer: Well, that's true -- that's true, you know, 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. And what the Government is arguing is, sure, the point you make favors you, but 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 that Alderson Reporting Company it incorporated here, didn't want a private person to be able to enforce it. And the second one is it's going to create a mess. All right? So they say those are two background features here that favor them. So what's your response?

David C. 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's a canard, because what we're 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 Alderson Reporting Company in this suit.

Chief Justice 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.

David C. Frederick: Well -­

Chief Justice Roberts: That strikes me as an argument in favor of leaving the enforcement with the Secretary.

David C. Frederick: No, I think it's 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 Roberts: It doesn't have to be a class action, does it?

David C. 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 Roberts: That's why it was Alderson Reporting Company brought as a class action?

David C. 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 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's 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 -- the lawyer says make me an assistant AG for this purpose. And I launch the lawsuit in the name of California, and then I can get to the same place. What do you think of that?

David C. Frederick: I don't know that the State -- because these are entities that are not defined in the agreement. The -- 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 Alderson Reporting Company 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 States' 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 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, say the drug manufacturers and then HHS.

David C. 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 in bringing these kinds of Alderson Reporting Company claims. And to the extent that that analysis bears out anything, it 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 that.

Justice 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's a different situation. And what it said, it's 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, their point is that the States are explicitly given authority for enforcement in that.

David C. Frederick: Well, the -­ Alderson Reporting Company

Justice Scalia: And here the entities you're representing are not.

David C. 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, and 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 Scalia: The big -- the 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, have a role to play. Alderson Reporting Company

David C. 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 an FAA contract with a local airport authority does not deny a third-party beneficiary right to sue if there is an adverse effect 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. I think the -- this Court's -­

Chief Justice 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 Alderson Reporting Company right of action jurisprudence of the last 30 years. You're on stronger ground before that.

David C. 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. And -­

Chief Justice Roberts: Well, but 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.

David C. 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 have long -­

Justice Ginsburg: The result is the same, Mr. Frederick. And that's -- I mean, it was a central point in this last brief. You can 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 statute. So it would Alderson Reporting Company be passing strange if Congress, as we now read Congress, said 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 the -- I mean, that is what stands out about this case. And 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?

David C. 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 have dealt with, a -- an outside entity has been forced to comply with a statute or law.

Justice Ginsburg: But the statute wouldn't apply to someone who doesn't want to be in the program.

David C. Frederick: But the -- 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 Alderson Reporting Company not sign the agreement. And they have the right, under the provisions allowing termination, to terminate the agreement at will with no reason whatsoever. But -­

Chief Justice Roberts: But so do the -­ it's the same situation with the States under Spending Clause legislation. They don't have to sign up, but if they do, then the issue is, is there an implied right of action on the beneficiaries? And our cases for the last 25, 30 years have said no.

David C. 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. The remedies -­

Justice Ginsburg: But we're told that whatever you say -- that's all we're talking about. We are told that computing the price is a very intricate business and that many of these disputes have been about what is -- what should the ceiling price be.

David C. Frederick: There -­

Justice Ginsburg: There would not -- the ceiling price is out there, and there's no dispute about it. It's just a question of getting the manufacturers to charge that price and not a higher price. The Alderson Reporting Company question is: What is the ceiling price?

David C. 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 these 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 that somehow they can't be brought -­

Justice Ginsburg: But that's -- and then they have control over them. And they don't have control over these suits.

David C. 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're talking about benefit of the bargain. The manufacturers agreed by contract they were only Alderson Reporting Company going to charge a ceiling price, and we assert, based on, you know, quite extensive reports by officers of Inspectorate General that they have not been charging that price. They've been charging in excess of that price, and all we're 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 Alderson Reporting Company 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 Ginsburg: Do you take the position that nothing has changed as a result of the new legislation? That is, Ms. Anders told us that this statute is going into -- to become effective. There's going to be procedures, better procedures than there were before. Is there still this third-party beneficiary suit, despite the possibility of going to the agency?

David C. 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 Alderson Reporting Company 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 Roberts: Thank you, Mr. Frederick. Ms. Blatt, you have 3 minutes remaining. REBUTTAL ARGUMENT OF LISA S. BLATT ON BEHALF OF THE PETITIONERS

Lisa S. Blatt: Yes. If I could 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 Alderson Reporting Company clinics. And I'd also -- probably even 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's 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 manufacturer price that determines the State rebate program -- 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 manufacturer 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 -- or entity is bad for the States. And that's not disputed. He just says it's hypothetical. But he's asked for millions and millions and millions and millions and more millions of Alderson Reporting Company transactions that go to that very pricing component. Common law. 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's 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's the same. We just think because it's in haec verba with the statute, it's congressional intent that's controlling, not the parties. I could talk about States if you want. Otherwise, I'm happy to just ask for the decision to be reversed. All right. Then we would ask that the decision be reversed. (Laughter.)

Chief Justice Roberts: Thank you, counsel. Counsel. The case is submitted. (Whereupon, at 12:05 p.m., the case in the above-entitled matter was submitted.)