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Court Sides with Drug Manufacturers in Ongoing 340B Litigation

Over the last year, covered entities participating in the 340B Drug Pricing Program (340B Program) have anxiously monitored a flurry of litigation that could determine the scope of the 340B Program. The litigation and related enforcement actions were prompted by multiple drug manufacturers which, beginning in 2020, asserted that discounted 340B pricing would no longer be available for their drugs when the drugs are dispensed through covered entity arrangements with contracted pharmacies, or, in some cases, to limit 340B covered entities to arrangements with a single contract pharmacy.

Last week, a district court sided with one of the drug manufacturers and rejected the Government’s motion to dismiss, concluding that the 340B statute did not unambiguously support the use of 340B contract pharmacies. In response, the Government posted a notice stating that, while it does not agree with the court’s decision, it is withdrawing its prior Advisory Opinion upholding the use of contract pharmacies, although enforcement actions against drug manufacturers will continue. (See AstraZeneca Pharmaceuticals LP v. Azar et al, No. 21-cv-00027-LPS (D. Del. Jan. 12, 2021.) (Notice of Withdrawal, June 18, 2021, ECF No. 81-1.)

Agency Actions Support the Availability of 340B Pricing

The federal Government has consistently opposed the actions of the drug manufacturers to limit 340B pricing for contract pharmacies. Guidance from the agency responsible for administering the 340B Program, the Health Resources and Services Administration (HRSA), expressly permits 340B covered entities to dispense 340B drugs through one or more contracted pharmacies. On December 30, 2020, the Department of Health and Human Services (HHS) Office of General Counsel issued Advisory Opinion 20-06 (Advisory Opinion), concluding that drug manufacturers must deliver covered outpatient drugs at no more than the 340B ceiling price for those drugs to contract pharmacies acting as agents of a covered entity.

In addition, HRSA sent letters (violation letters) to six drug manufacturers on May 17, 2021 stating that the manufacturers’ policies limiting access to 340B pricing to covered entities that operate by dispensing covered outpatient drugs through contracted pharmacies “have resulted in overcharges and are in direct violation of the 340B statute.” The violation letters requested the manufacturers respond by June 1, 2021 with a plan for remedying the overcharges, and threatened potential civil monetary penalties.

In addition, in January 2021, HRSA also promulgated a long-awaited final rule establishing a new Administrative Dispute Resolution (ADR) process that would hear pricing disputes between drug manufacturers and covered entities.

Ongoing Litigation

Multiple drug manufacturers, and one pharmaceutical association, have sued the Government alleging that the Advisory Opinion violated the Administrative Procedure Act (APA) or that the promulgation of the ADR final rule violated the APA, and in some instances, drug manufacturers brought claims related to the Advisory Opinion and the ADR final rule. Although each litigation alleges similar claims, the actions have not been consolidated and are being heard by different federal district courts.

In addition to the Agency actions, 340B covered entities have also filed multiple suits against the Secretary of HHS demanding an adequate remedy be developed to allow covered entities to remedy manufacturer overcharges. These lawsuits have been stayed following the promulgation by HRSA of the ADR final rule, which is currently being challenged.

District Court Opinion

On June 16, 2021, a federal judge in the U.S. District Court for the District of Delaware issued an opinion rejecting the Government’s motion to dismiss the lawsuit of one of the drug manufacturers, and weighed each side’s interpretation of how the 340B statute applies to contract pharmacies. In the opinion, the court focused on the fact that the statute does not address “whether a covered entity must have an in-house pharmacy for purchasing discounted drugs from manufacturers, or whether the covered entity may use an outside, third-party pharmacy to make purchases” and concluded that because the statute is ambiguous, the Government’s interpretation is not the only permissible reading.

Withdrawal of Advisory Opinion

Following the court’s opinion, the Office of the General Counsel (OGC) of HHS filed notice on Friday, June 18, 2021 (Notice) in multiple pending drug manufacturer lawsuits withdrawing the Advisory Opinion “in light of ongoing confusion about the scope and impact of the Opinion.” (See Notice of Withdrawal, reflected above). The Notice further stated “OGC maintains that the Opinion was not intended to impose new, binding obligations on regulated entities, and we respectfully disagree with the decision of the District Court.” Finally, OGC noted that HRSA’s ongoing enforcement efforts pursuant to the 340B statute will not be impacted by the Notice “including HRSA’s May 17, 2021 violation letters concerning restrictions placed on contract pharmacy arrangements. HRSA’s enforcement process operated independently from the issuance of the Opinion, and operates independently from the Opinion’s withdrawal.”

The District Court opinion and the withdrawal of the Advisory Opinion do not settle the present dispute regarding the availability of 340B Drugs purchased by covered entities and dispensed through contract pharmacies.

Next Steps

As reflected in the Notice, the decision of a single district court (rejecting a motion to dismiss) will not resolve the present dispute about the availability of 340B pricing for drugs purchased by covered entities through contract pharmacies. 

© 2021 Foley & Lardner LLPNational Law Review, Volume XI, Number 173
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About this Author

Anil Shankar, Foley Lardner, Health Care Lawyer, Attorney, Legislation
Partner

Anil Shankar is a Partner with Foley & Lardner LLP. He focuses his practice on complex regulatory and reimbursement matters, with a particular focus on the Medicaid program and issues affecting safety net providers. He has conducted extensive research and advised clients with regard to the implementation and development of Medicaid demonstration projects, and has analyzed opportunities for, and helped to implement, Medicaid supplemental payments. Mr. Shankar routinely advises clients on new developments in the Medicaid program, including issues related to Medicaid...

213-972-4584
Samantha A. Robbins, Foley Lardner Law, Dispute resolution Lawyer, legal intern with Autism Speaks
Associate

Samantha Robbins is an associate and litigation attorney with Foley & Larder LLP. She is a member of the firm’s Business Litigation & Dispute Resolution Practice. Her experience includes working on pro bono assignments and promoting health policy legislation. 

Prior to joining Foley, Ms. Robbins was a Foley summer associate in the Washington, D.C. office, where she assisted on various legal matters with partners and associates. Ms. Robbins was a legal intern with Autism Speaks, where she researched and documented the effects of the...

202-295-4776
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