In a win for the pharmaceutical industry, the United States Court of Appeals for the Third Circuit recently ruled that the government cannot force drugmakers to provide 340B discount drugs to “an unlimited number” of contract pharmacies.
According to the decision, the Department of Health and Human Services (HHS) did not have congressional authority to require discounts at all 340B hospitals’ partnered community and specialty pharmacies.
Additionally, the Court found that the dispute over the Advisory Opinion is not moot, as the government suggests, even though they rescinded the Opinion after an unfavorable court ruling. This Court found that HHS “has ‘not altered its position’ on the use of contract pharmacies” and it still says that “drug makers must deliver their drugs to an unlimited number of contract pharmacies” and takes enforcement actions in line with that view.
The Court also noted that the Agency’s interpretation of 340B is “entitled to respect…, but only to the extent that” it has “the power to persuade.” The Court went on to opined that the Agency’s interpretation is unpersuasive, and therefore, no deference is required.
The Court found that the parties focused on Section 340B’s “shall offer” provision, which necessitates that if drug makers make drugs available to anyone at a price, those drugs must be offered to “covered entities” at a discount. However, Section 340B does not mention contract pharmacies, nor does “offer” imply that goods must be delivered “wherever and to whomever the buyer demands.” They note that even if drug makers limit where they will deliver drugs, the drugs are still presented for acceptance by covered entities. The delivery conditions of the manufacturers also do not prohibit covered entities from accepting the offers made by the manufacturers – “each can still buy and dispense unlimited discounted drugs by having them delivered to an in-house or contract pharmacy.”
The Court also covered the “purchased by” language in the 340B statute, saying that it also does not restrict or create delivery requirements. Instead, the provision only imposes “a price term for drug sales to covered entities, leaving all other terms blank.” The Court did not find HHS’ argument persuasive that covered entities get to determine those blanks if they are paying for the drugs.
This means that the Advisory Opinion issued by HHS (withdrawn on June 18, 2021) and subsequent violation letters with threatened fines are not within the Agency’s purview. The court noted that “by trying to enforce that supposed requirement [that drug makers must deliver discounted Section 340B drugs to an unlimited number of contract pharmacies], the government overstepped the statute’s bounds.”
Conclusion
The three companies involved in the case – Sanofi Aventis US LLC, Novo Nordisk Inc., and AstraZeneca Pharmaceuticals LP – are pleased with the outcome of this case. Sanofi hopes that “this decision, as well as the recent string of investigative reports uncovering excessive abuse and misuse of the 340B program by certain hospitals, encourages all stakeholders to work to enact reforms badly needed to bring the program back to its original intent—delivering quality and affordable care to the most vulnerable people in our communities.”
The American Hospital Association is not pleased with the decision, saying, “drug companies do not have the authority to place restrictions on how 340B hospitals ensure that their patients will get the drugs they need.”
Two other appeals courts are currently reviewing similar cases. Chad Golder, AHA deputy general counsel, predicts that the D.C. and Seventh Circuits – where the two cases are – will come to a different conclusion.