Professionals and Patients for Customized Care v. Shalala
56 F.3d 592 (1995)
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Rule of Law:
An agency guidance document is not a substantive rule requiring notice-and-comment rulemaking under the Administrative Procedure Act (APA) if it does not establish a binding norm on the agency or the public and genuinely leaves the agency and its decisionmakers free to exercise discretion.
Facts:
- Pharmacies have historically engaged in 'traditional compounding,' the state-regulated practice of a pharmacist creating a specific medication for an individual patient based on a physician's prescription.
- In contrast to compounding pharmacies, drug manufacturers and their products are subject to rigorous federal oversight by the Food and Drug Administration (FDA).
- By the 1990s, the FDA observed that some establishments with pharmacy licenses were purchasing bulk drug substances and creating drug products in large quantities before receiving any prescriptions, then marketing these products.
- The FDA suspected these establishments were using the 'compounding' label to circumvent federal regulations applicable to drug manufacturers.
- In 1992, the FDA issued Compliance Policy Guide 7132.16 (CPG 7132.16) without following the APA's public notice-and-comment procedures.
- The CPG listed nine non-exhaustive factors that the FDA 'will consider' to determine if a pharmacy's activities resemble drug manufacturing, while explicitly stating that the FDA retains discretion in initiating enforcement actions.
- Following the issuance of the CPG, the FDA notified some members of Professionals and Patients for Customized Care (P2C2) that their activities were more consistent with drug manufacturing than traditional compounding.
Procedural Posture:
- Professionals and Patients for Customized Care (P2C2) sued the Food and Drug Administration (FDA) in federal district court.
- The district court denied the FDA's motion to dismiss for lack of standing and ripeness.
- After denying cross-motions for summary judgment, the case proceeded to a two-day bench trial.
- The district court entered a judgment for the FDA, holding that CPG 7132.16 was not a substantive rule and was therefore exempt from APA notice-and-comment requirements.
- P2C2, as appellant, appealed the district court's judgment to the U.S. Court of Appeals for the Fifth Circuit.
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Issue:
Does the Food and Drug Administration's Compliance Policy Guide 7132.16 (CPG 7132.16), which identifies factors for distinguishing traditional pharmacy compounding from drug manufacturing, constitute a substantive rule that is invalid for failure to undergo notice-and-comment rulemaking under the Administrative Procedure Act?
Opinions:
Majority - Wiener
No. The Food and Drug Administration's Compliance Policy Guide 7132.16 is not a substantive rule because it does not create a binding norm and preserves the agency's enforcement discretion; therefore, it is exempt from the Administrative Procedure Act's notice-and-comment requirements. The court reasoned that the key distinction between a substantive rule and a non-binding policy statement lies in whether the rule has a 'binding effect' and removes agency discretion. The FDA consistently characterized the CPG as a 'policy' guide, which, while not conclusive, is given some deference. More importantly, the CPG's plain language uses discretionary terms like 'may' and 'inordinate amounts' rather than establishing fixed, mandatory criteria. Unlike rules that set a precise threshold triggering automatic agency action, the CPG's nine-factor list is explicitly non-exhaustive and leaves the ultimate enforcement decision to the FDA's sound discretion. The agency's implementation of the CPG in warning letters did not treat it as a binding law, but rather as internal guidance to identify potential violations of the underlying Food, Drug, and Cosmetic Act. Thus, the CPG is properly classified as a policy statement or interpretive rule that clarifies existing law rather than creating new legal obligations.
Analysis:
This case provides a clear framework for distinguishing between substantive rules and non-binding policy statements under the APA, reinforcing the two-part test focusing on 'binding effect' and 'agency discretion.' It clarifies that an agency can issue detailed guidance to channel its enforcement priorities without triggering notice-and-comment, as long as the guidance uses discretionary language and avoids creating rigid, automatic triggers for action. This decision grants agencies significant leeway to inform the public and their own staff about enforcement policies. It signals to regulated parties that the specific language and practical implementation of such guidance are critical in determining its legal status.
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