The Eighth Circuit Court of Appeals recently ruled that the State of Arkansas is able to block manufacturers from limiting the availability of discounted drugs at certain pharmacies. The decision follows a case filed by the Pharmaceutical Research and Manufacturers of America (PhRMA) against the Arkansas Insurance Department Commissioner Alan McClain, alleging that federal law and the Section 340B Program preempts an Arkansas law that prohibited manufacturers from limiting covered entities’ ability to contract with outside pharmacies. The Eastern District of Arkansas found that the Arkansas law was not preempted by federal law and the Eighth Circuit affirmed that finding.
Under the 340B Program, pharmaceutical manufacturers can provide covered entities (or qualified health care providers) with pricing discounts on certain drugs that are prescribed to individuals and families whose incomes fall below the federal poverty level. Covered entities have long contracted with outside pharmacies to distribute and dispense drugs under the program. In 2020, however, drug manufacturers started to implement policies that limited – or outright prohibited – covered entities from contracting with outside pharmacies to distribute drugs under the 340B program. As referenced above, in 2021, the Arkansas General Assembly passed Act 1103, which prohibited manufacturers from limiting a covered entity’s ability to contract with outside pharmacies.
In filing the lawsuit, PhRMA argued that Section 340B preempts the Arkansas law through field and obstacle preemption and the Arkansas law is further preempted by the Federal Food, Drug, and Cosmetic Act through impossibility preemption.
The Eighth Circuit notes as the Third Circuit found, the 340B Program is “silent about delivery” and distribution of drugs to patients. As noted in the decision, the distribution chain of pharmaceuticals is “complex” and “contract pharmacies are not the only third parties involved in getting 340B drugs from manufacturers to patients,” as wholesalers can also be involved. The 340B law does address drug wholesalers but does not mention pharmacies or how drugs are to be delivered by pharmacies to patients.
The decision notes that “since the 1990s, covered entities have contracted with outside pharmacies to handle the acquisition, distribution, and dispensation of 340B drugs.” When a covered entity contracts with an outside pharmacy, the pharmacy does not become a beneficiary of the 340B program but the covered entity retains legal title to the 340B drugs. “The pharmacy becomes an agent of the covered entity with the authorization to ‘dispense 340B drugs to patients of the covered entity pursuant to a prescription.’” The Court, therefore, decides that as Congress did not legislate the issue of pharmacy distribution in the 340B Program, “Section 340B is not intended to preempt the field.”
With respect to obstacle preemption, PhRMA argues that state law conflicts with federal law and as such, state law must give way and federal law will preempt. However, the Court finds that the Arkansas law “does not create an obstacle for pharmaceutical manufacturers to comply with 340B,” but instead does the opposite: “Act 1103 assists in fulfilling the purpose of 340B.”
Finally, the Court rejects the impossibility preemption argument as well, saying that the Arkansas law does not make it impossible for drug manufacturers and wholesale distributors to comply with the FDCA’s Risk Evaluation and Mitigation Strategies (REMS) Program. The decision notes, “If a 340B drug is also subject to REMS safety requirements and the covered entity wants to contract with a pharmacy for dispensation, the covered entity bears the responsibility of contracting with a pharmacy that meets the REMS requirements” and that “Just because a medication is subject to multiple legal requirements does not make it impossible to comply with Act 1103.”