1. This case concerns the scope of "line extension" drugs for purposes of the Medicaid Drug Rebate Program, which Congress enacted to control the cost to Medicaid of rising drug prices. The program requires a drug manufacturer to pay an "additional rebate" on Medicaid sales when the price of its drug increases above the rate of inflation. 42 U.S.C. § 1396r-8(c)(2). Under the rebate program as initially designed, the additional rebate for a drug is the amount by which the drug's current average price exceeds its price when first marketed, adjusted for inflation. Id. § 1396r8(c)(2)(A)-(B).

But because a separate rebate attaches to each dosage form and strength of a drug, drugmakers could circumvent their additional rebate obligations by marketing new dosage forms and strengths of an existing drug. Even if the new dosage form or strength only slightly modified the original drug without producing clinical benefits, the new formulation would reset the drug's base date for purposes of the additional rebate calculation.

To close this loophole, Congress amended the Medicaid statute to establish a special additional rebate calculation for certain "line extension" drugs. The "line extension" additional rebate is the higher of two amounts. The first amount is the normal additional rebate calculation for the line extension drug: the amount by which the current average price of the line extension drug exceeds its inflation-adjusted price when first marketed. The second amount reflects how much the original drug has increased over inflation, and is obtained by multiplying the highest additional rebate for any strength of the original drug, expressed as a percentage, by the price of the line extension drug. Id. § 1396r-8(c)(2)(C). The "line extension" additional rebate calculation thus negates any advantage that a drug manufacturer might gain from the gamesmanship of releasing its existing products in slightly altered new formulations.

The Medicaid statute carefully delineates when the special calculation applies: only "[iJn the case of a drug that is a line extension of a single source drug or an innovator multiple source drug that is an oral solid dosage form." Id. § 1396r8(c)(2)(C)G). The statute defines the term "line extension" to mean, "with respect to a drug, a new formulation of the drug, such as an extended release formulation." Id. § 1396r-8(c)(2)(C)(iii). The statute also defines the terms "single source drug" and "innovator multiple source drug" to refer only to drugs approved by the Food and Drug Administration (FDA) "under a new drug application." Id. § 13896r-8(k)(7)(A)(ii), (iv). In other words, the "line extension" additional rebate calculation applies only when a drug in an oral solid dosage form is marketed in a new formulation that is also in an oral solid dosage form and that has changed so little from the original formulation that no New Drug Application is required for FDA approval, only a Supplemental New Drug Application.

Despite Congress's restriction of the "line extension" additional rebate calculation to carefully delimited circumstances, and departing from its own prior, longstanding interpretation, the Centers for Medicare and Medicaid Services (CMS) promulgated a final Rule in 2020 vastly expanding the line extension provision's scope. See Medicaid Program; Revising Medicaid Drug Rebate Requirements, 85 Fed. Reg. 87,000 (Dec. 31, 2020). First, the Rule adopts a sweeping definition

Whether the Centers for Medicare and Medicaid Services exceeded its statutory authority by expanding the definition of 'line extension' drug beyond Congress's intended scope in the Medicaid Drug Rebate Program