Government Appeals Decisions in Contract Pharmacy Litigation 340B | Bass, Berry & Sims APIs


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

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

Manufacturer’s Policies Limiting Use of Model 340B Contract Pharmacy

At issue is the ability of 340B providers to access reduced prices for drugs dispensed by contract pharmacies. The question hinges on the scope of manufacturers’ obligations under Law 340B. The law requires manufacturers to enter into agreements with HHS under which the amount a 340B supplier must pay for an outpatient drug cannot exceed the reduced 340B ceiling price. The law 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 administer or dispense in multiple settings, including outpatient clinics, in-house retail pharmacies, and contract pharmacies that dispense 340B medications in the provider’s name to the provider’s patients. .

Beginning in the summer of 2020, several manufacturers announced policies to restrict access to 340B prices for drugs ordered by a 340B supplier to be shipped to a contracted pharmacy for distribution. Some manufacturer policies have eliminated access to 340B pricing, while others impose data sharing requirements as a condition of access to discounted pricing for contract pharmacy use. Some policies impact all types of providers, while other policies are limited to hospitals and continue to provide access to 340B pricing for Federally Licensed Health Centers (FQHCs) and other eligible providers. 340B based on their federal beneficiary status.

The following manufacturers have announced policies for purchasing drugs to be dispensed by contract pharmacies: Abbvie, Amgen, AstraZeneca, Boehringer Ingelheim, Eli Lilly, Merck, Novartis, Novo Nordisk, Sanofi, UCB and United Therapeutics.

HRSA Enforcement of Law 340B

The vendors argued that the law does not allow manufacturers to restrict a vendor’s access to 340B pricing based on method of distribution. The federal government has given its consent on several occasions. On December 30, 2020, the HHS General Counsel issued a Advisory opinion (AO), finding that manufacturers are required to offer 340B prices even though 340B suppliers “use contract pharmacies to help dispense these drugs to their patients.”

On May 17, 2021, HRSA began sending execution letters to manufacturers, advising them that their policies limiting access to 340B violate the 340B Act. HRSA advised that failure to correct the violations could result in the imposition of CMP. On September 22, 2021, HRSA sent follow-up letters to the manufacturers advising them that due to their continued refusal to comply with the law, HRSA has referred their actions to the OIG for consideration of the imposition of CMP.

Legal Challenges to Applying HRSAs

Five manufacturers have filed lawsuits against HRSA, challenging the agency’s enforcement letters to date. A U.S. District Court judge for the District of Delaware first ruled on the matter in June 2021, discovery The HHS AO is “legally flawed”. Although the court found that HHS’s interpretation of the law was admissible, the court held that there could be more than one admissible interpretation and, therefore, challenged the AO’s characterization of the law with regard to the obligations of drug manufacturers as being unambiguous. In response to the decision, HRSA took of the AO “in an effort to avoid unnecessary confusion and litigation”, while noting that the withdrawal does not impact ongoing enforcement efforts related to the use of contract pharmacies.

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

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

  • On October 29, 2021, a U.S. District Court Judge for the Southern District of Indiana find that the HRSA’s enforcement letter did not exceed the agency’s authority; and that the agency’s interpretation of the law was the most reasonable. However, in light of the evolution of HRSA’s position over the years regarding the use of the contracted pharmacy, the court found the performance letter to be arbitrary and capricious under the Administrative Procedures Act ( APA) and therefore invalid. On November 10, 2021, the plaintiff manufacturer appealed to the United States Court of Appeals for the Seventh Circuit. The government filed a notice of appeal on December 28, 2021. On January 4, 2022, the Seventh Circuit issued an order consolidating the appeals stating that a review of the record raised questions as to whether the district court’s judgment was subject to appeal. The circuit court suspended the suspension of the briefing pending a further court order.
  • On November 5, 2021, a U.S. District Court Judge for the District of New Jersey issued a consolidated decision decision regarding policies from two manufacturers, concluding that Law 340B permits contract pharmacy agreements and that the policies violated the law because manufacturers cannot unilaterally restrict access to 340B pricing. At the same time, however, the court partially reversed the enforcement letters, challenging HRSA’s finding that manufacturers owe suppliers credits or refunds and face CMPs. The court found an unanswered question about whether HRSA can require manufacturers to deliver their drugs to unlimited pharmacies under contract. Instead of deciding the matter, the court sent it back to the agency for further consideration. On November 19, 2021, one of the plaintiffs filed a notice of appeal with the United States Court of Appeals for the Third Circuit. The government filed a notice of appeal on December 28, 2021.
  • On November 5, 2021, a judge of the United States District Court for the District of Columbia issued a consolidated decision decision regarding the policies of two manufacturers, concluding that they do not violate Law 340B. The court overturned the HRSA’s enforcement letters, challenging the HRSA’s position that the law does not prohibit manufacturers from imposing any conditions of access to the 340B pricing. However, the court declined to declare the manufacturer’s policies acceptable, leaving unanswered whether the law allows the specific conditions under the manufacturers’ policies. On December 28, 2021, the government filed a notice of appeal with the United States Court of Appeals for the District of Columbia Circuit.

Implications for using the 340B Contract Pharmacy

Given that the government and the manufacturers have appealed in three separate cases in three different U.S. circuit courts, it could take months for the courts to resolve the issue surrounding the extent of the manufacturers’ obligations under the law 340B. While stakeholders await further action from the courts, vendors continue to urge the government to take enforcement action against manufacturers who deny access to 340B prices for use in contract pharmacies. Suppliers are waiting to see if the OIG will impose CMPs on manufacturers for 340B surcharges.

Some stakeholders have also raised questions about whether Congress will need to step in and amend Statute 340B to clarify manufacturers’ obligations. Litigation surrounding the 340B contract pharmacy model has highlighted these issues, with judges in several cases suggesting that Congress should consider whether manufacturers must offer 340B prices for use in an unlimited number of contract pharmacy arrangements. The courts also highlighted the question of whether it was necessary for Congress to grant HHS the authority to administer the 340B program through regulations.

As the courts continue to consider the scope of manufacturer’s obligations and the future of the 340B contract pharmacy model, vendors should track cases in which 340B pricing is not available for purchases that would otherwise qualify for the using the 340B. This information could be helpful in potential refunds if the government ultimately prevails in the litigation. Providers should also consider reporting 340B rate denials to HRSA, as the agency uses this information to support its enforcement actions.


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