Government Appeals Decisions in 340B Contract Pharmacy Litigation

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On December 28, 2021, the federal government submitted notices to appeal three federal district court decisions related to the use of contract pharmacies under the federal 340B drug pricing program. The appeals are the latest actions in an ongoing dispute between 340B providers, drug manufacturers, and the federal government regarding the scope of the 340B program.

To date, 11 drug manufacturers have announced policies that restrict access to 340B pricing for drugs dispensed through pharmacies under contract with 340B providers (often referred to as contract pharmacies). The Health Resources and Services Administration (HRSA) has issued enforcement letters to seven manufacturers and has referred six manufacturers to the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) to evaluate the imposition of civil monetary penalties (CMPs). Five manufacturers have brought lawsuits against HHS challenging the agency’s enforcement actions in three federal district courts.

Manufacturer Policies Limiting Use of 340B Contract Pharmacy Model

At issue is the ability of 340B providers to access discounted pricing for drugs dispensed through contract pharmacies. The question rests on the scope of manufacturers’ obligations under the 340B statute. The statute requires manufacturers to enter into agreements with HHS under which the amount a 340B provider must pay for an outpatient drug cannot exceed the discounted 340B ceiling price. The statute also requires manufacturers to offer outpatient drugs to 340B providers at or below the ceiling price if the drug is made available to other purchasers.

Providers participating in the 340B program can access 340B savings by purchasing drugs at 340B prices to be administered or dispensed in several settings, including outpatient clinics, in-house retail pharmacies, and contract pharmacies that dispense 340B drugs on the provider’s behalf to the provider’s patients.

Beginning in the summer of 2020, several manufacturers announced policies to restrict access to 340B pricing for drugs ordered by a 340B provider to be shipped to a contract pharmacy location for dispensing. Some manufacturer policies have eliminated access to 340B pricing, whereas others impose data-sharing requirements as a condition of accessing discounted pricing for contract pharmacy use. Certain policies impact all provider types, whereas other policies are limited to hospitals and continue to provide access to 340B pricing for federally-qualified health centers (FQHCs) and other providers that qualify for 340B based on their federal grantee status.

The following manufacturers have announced policies related to purchases of drugs to be dispensed through contract pharmacies: AbbVie, Amgen, AstraZeneca, Boehringer Ingelheim, Eli Lilly, Merck, Novartis, Novo Nordisk, Sanofi, UCB, and United Therapeutics.

HRSA Enforcement of 340B Statute

Providers have argued that the statute does not permit manufacturers to restrict a provider’s access to 340B pricing based on the method of dispensing. The federal government has agreed on multiple occasions. On December 30, 2020, the HHS General Counsel issued an Advisory Opinion (AO), finding that manufacturers are required to offer 340B pricing even if 340B providers “use contract pharmacies to aid in distributing those drugs to their patients.”

On May 17, 2021, HRSA began sending enforcement letters to manufacturers, notifying them that their policies restricting 340B access violate the 340B statute. HRSA indicated that failure to correct the violations might result in the imposition of CMPs. On September 22, 2021, HRSA sent follow-up letters to manufacturers notifying them that, due to their continued refusal to comply with the statute, HRSA referred their actions to the OIG to consider the imposition of CMPs.

Legal Challenges to HRSA Enforcement

Five manufacturers have brought lawsuits against HRSA, challenging the agency’s enforcement letters to date. A judge in the U.S. District Court for the District of Delaware first weighed in on the issue in June 2021, finding HHS’s AO to be “legally flawed.” Although the court found HHS’s interpretation of the statute to be permissible, the court held that there could be more than one permissible interpretation and, therefore, took issue with the AO’s characterization of the statute with respect to drug manufacturers’ obligations as unambiguous. In response to the decision, HRSA withdrew the AO “in the interest of avoiding confusion and unnecessary litigation,” while noting that the withdrawal does not impact ongoing enforcement efforts related to contract pharmacy use.

Since then, three District Courts have weighed in on HRSA’s enforcement letters. Two courts issued mixed decisions, agreeing with HRSA that the manufacturer policies unlawfully restricted access to 340B pricing but invalidating aspects of HRSA’s enforcement letters. One court found that the manufacturers’ policies did not violate the statute.

Below is a summary of the three decisions and the status of the cases:

  • On October 29, 2021, a judge in the U.S. District Court for the Southern District of Indiana found that HRSA’s enforcement letter did not exceed the agency’s authority and that the agency’s interpretation of the statute was the most reasonable. However, in light of HRSA’s changing position over the years regarding contract pharmacy use, the court found the enforcement letter arbitrary and capricious under the Administrative Procedures Act (APA) and, therefore, invalid. On November 10, 2021, the manufacturer plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit. The government submitted a notice to appeal on December 28, 2021. On January 4, 2022, the Seventh Circuit issued an order consolidating the appeals specifying that a review of the record raised questions as to whether the district court’s judgment is appealable. The Circuit Court suspended suspending briefing pending further court order.
  • On November 5, 2021, a judge in the U.S. District Court for the District of New Jersey issued a consolidated decision regarding two manufacturers’ policies, finding that the 340B statute permits contract pharmacy arrangements and that the policies violated the statute because manufacturers cannot unilaterally restrict access to 340B pricing. At the same time, however, the court partially vacated the enforcement letters, taking issue with HRSA’s conclusion that the manufacturers owe credits or refunds to providers and face CMPs. The court found an unanswered question as to whether HRSA can require manufacturers to deliver their drugs to unlimited contract pharmacies. Instead of deciding the question, the court remanded it to the agency for further consideration. On November 19, 2021, one of the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Third Circuit. The government submitted a notice to appeal on December 28, 2021.
  • On November 5, 2021, a judge in the U.S. District Court for the District of Columbia issued a consolidated decision regarding two manufactures’ policies, finding that they do not violate the 340B statute. The court set aside HRSA’s enforcement letters, taking issue with HRSA’s position that the statute does not prohibit manufacturers from imposing any conditions on access to 340B pricing. However, the court declined to declare the manufacturer policies permissible, leaving unanswered the question of whether the statute allows the specific conditions under the manufacturers’ policies. On December 28, 2021, the government submitted a notice of appeal to the U.S. Court of Appeals for the District of Columbia Circuit.

Implications for 340B Contract Pharmacy Use

Given that both the government and manufacturers have appealed in three separate cases to three different U.S. Circuit Courts, it could take months before the courts provide a resolution to the question surrounding the scope of manufacturer obligations under the 340B statute. While stakeholders await further action by the courts, providers continue to urge the government to take enforcement action against manufacturers denying access to 340B pricing for use in contract pharmacies. Providers are waiting to see if the OIG will impose CMPs against manufacturers for 340B overcharges.

As the courts continue to consider the scope of manufacturer obligations and the future of the 340B contract pharmacy model, providers should track instances in which 340B pricing is unavailable for purchases that would otherwise be eligible for 340B use. Such information could be helpful in potential refunds if the government ultimately prevails in the litigation. Providers should also consider reporting denials of 340B pricing to HRSA, as the agency uses this information to support its enforcement actions.

If you have any questions about the 340B contract pharmacy model and related litigation, please contact the authors.

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Firm Publication

On December 28, 2021, the federal government submitted notices to appeal three federal district court decisions related to the use of contract pharmacies under the federal 340B drug pricing program. The appeals are the latest actions in an ongoing dispute between 340B providers, drug manufacturers, and the federal government regarding the scope of the 340B program.

To date, 11 drug manufacturers have announced policies that restrict access to 340B pricing for drugs dispensed through pharmacies under contract with 340B providers (often referred to as contract pharmacies). The Health Resources and Services Administration (HRSA) has issued enforcement letters to seven manufacturers and has referred six manufacturers to the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) to evaluate the imposition of civil monetary penalties (CMPs). Five manufacturers have brought lawsuits against HHS challenging the agency’s enforcement actions in three federal district courts.

Manufacturer Policies Limiting Use of 340B Contract Pharmacy Model

At issue is the ability of 340B providers to access discounted pricing for drugs dispensed through contract pharmacies. The question rests on the scope of manufacturers’ obligations under the 340B statute. The statute requires manufacturers to enter into agreements with HHS under which the amount a 340B provider must pay for an outpatient drug cannot exceed the discounted 340B ceiling price. The statute also requires manufacturers to offer outpatient drugs to 340B providers at or below the ceiling price if the drug is made available to other purchasers.

Providers participating in the 340B program can access 340B savings by purchasing drugs at 340B prices to be administered or dispensed in several settings, including outpatient clinics, in-house retail pharmacies, and contract pharmacies that dispense 340B drugs on the provider’s behalf to the provider’s patients.

Beginning in the summer of 2020, several manufacturers announced policies to restrict access to 340B pricing for drugs ordered by a 340B provider to be shipped to a contract pharmacy location for dispensing. Some manufacturer policies have eliminated access to 340B pricing, whereas others impose data-sharing requirements as a condition of accessing discounted pricing for contract pharmacy use. Certain policies impact all provider types, whereas other policies are limited to hospitals and continue to provide access to 340B pricing for federally-qualified health centers (FQHCs) and other providers that qualify for 340B based on their federal grantee status.

The following manufacturers have announced policies related to purchases of drugs to be dispensed through contract pharmacies: AbbVie, Amgen, AstraZeneca, Boehringer Ingelheim, Eli Lilly, Merck, Novartis, Novo Nordisk, Sanofi, UCB, and United Therapeutics.

HRSA Enforcement of 340B Statute

Providers have argued that the statute does not permit manufacturers to restrict a provider’s access to 340B pricing based on the method of dispensing. The federal government has agreed on multiple occasions. On December 30, 2020, the HHS General Counsel issued an Advisory Opinion (AO), finding that manufacturers are required to offer 340B pricing even if 340B providers “use contract pharmacies to aid in distributing those drugs to their patients.”

On May 17, 2021, HRSA began sending enforcement letters to manufacturers, notifying them that their policies restricting 340B access violate the 340B statute. HRSA indicated that failure to correct the violations might result in the imposition of CMPs. On September 22, 2021, HRSA sent follow-up letters to manufacturers notifying them that, due to their continued refusal to comply with the statute, HRSA referred their actions to the OIG to consider the imposition of CMPs.

Legal Challenges to HRSA Enforcement

Five manufacturers have brought lawsuits against HRSA, challenging the agency’s enforcement letters to date. A judge in the U.S. District Court for the District of Delaware first weighed in on the issue in June 2021, finding HHS’s AO to be “legally flawed.” Although the court found HHS’s interpretation of the statute to be permissible, the court held that there could be more than one permissible interpretation and, therefore, took issue with the AO’s characterization of the statute with respect to drug manufacturers’ obligations as unambiguous. In response to the decision, HRSA withdrew the AO “in the interest of avoiding confusion and unnecessary litigation,” while noting that the withdrawal does not impact ongoing enforcement efforts related to contract pharmacy use.

Since then, three District Courts have weighed in on HRSA’s enforcement letters. Two courts issued mixed decisions, agreeing with HRSA that the manufacturer policies unlawfully restricted access to 340B pricing but invalidating aspects of HRSA’s enforcement letters. One court found that the manufacturers’ policies did not violate the statute.

Below is a summary of the three decisions and the status of the cases:

  • On October 29, 2021, a judge in the U.S. District Court for the Southern District of Indiana found that HRSA’s enforcement letter did not exceed the agency’s authority and that the agency’s interpretation of the statute was the most reasonable. However, in light of HRSA’s changing position over the years regarding contract pharmacy use, the court found the enforcement letter arbitrary and capricious under the Administrative Procedures Act (APA) and, therefore, invalid. On November 10, 2021, the manufacturer plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit. The government submitted a notice to appeal on December 28, 2021. On January 4, 2022, the Seventh Circuit issued an order consolidating the appeals specifying that a review of the record raised questions as to whether the district court’s judgment is appealable. The Circuit Court suspended suspending briefing pending further court order.
  • On November 5, 2021, a judge in the U.S. District Court for the District of New Jersey issued a consolidated decision regarding two manufacturers’ policies, finding that the 340B statute permits contract pharmacy arrangements and that the policies violated the statute because manufacturers cannot unilaterally restrict access to 340B pricing. At the same time, however, the court partially vacated the enforcement letters, taking issue with HRSA’s conclusion that the manufacturers owe credits or refunds to providers and face CMPs. The court found an unanswered question as to whether HRSA can require manufacturers to deliver their drugs to unlimited contract pharmacies. Instead of deciding the question, the court remanded it to the agency for further consideration. On November 19, 2021, one of the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Third Circuit. The government submitted a notice to appeal on December 28, 2021.
  • On November 5, 2021, a judge in the U.S. District Court for the District of Columbia issued a consolidated decision regarding two manufactures’ policies, finding that they do not violate the 340B statute. The court set aside HRSA’s enforcement letters, taking issue with HRSA’s position that the statute does not prohibit manufacturers from imposing any conditions on access to 340B pricing. However, the court declined to declare the manufacturer policies permissible, leaving unanswered the question of whether the statute allows the specific conditions under the manufacturers’ policies. On December 28, 2021, the government submitted a notice of appeal to the U.S. Court of Appeals for the District of Columbia Circuit.

Implications for 340B Contract Pharmacy Use

Given that both the government and manufacturers have appealed in three separate cases to three different U.S. Circuit Courts, it could take months before the courts provide a resolution to the question surrounding the scope of manufacturer obligations under the 340B statute. While stakeholders await further action by the courts, providers continue to urge the government to take enforcement action against manufacturers denying access to 340B pricing for use in contract pharmacies. Providers are waiting to see if the OIG will impose CMPs against manufacturers for 340B overcharges.

As the courts continue to consider the scope of manufacturer obligations and the future of the 340B contract pharmacy model, providers should track instances in which 340B pricing is unavailable for purchases that would otherwise be eligible for 340B use. Such information could be helpful in potential refunds if the government ultimately prevails in the litigation. Providers should also consider reporting denials of 340B pricing to HRSA, as the agency uses this information to support its enforcement actions.

If you have any questions about the 340B contract pharmacy model and related litigation, please contact the authors.

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