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Third Circuit Rules on Manufacturer Restrictions on
Contract Pharmacies
The first of three pending appeals on whether a pharmaceutical
manufacturer can limit distribution of covered 340B drugs to
contract pharmacies resulted in a clear victory for pharmaceutical
manufacturers. The Third Circuit resolved conflicting decisions
among district courts within the Third Circuit by ruling that the
340B program did not require pharmaceutical manufacturers to
distribute or deliver drugs purchased by 340B covered entities to
all contract pharmacies that the entity had partnered with.
Sanofi-Aventis U.S., LLC v. HHS, Case No. 21-3167
(1/30/2023). The court rejected the government’s contrary
interpretation that would have required manufacturers to deliver
drugs to any location designated by the covered entity.
Both cases were filed by manufacturers after the government sent
letters stating that manufacturers had violated the 340B program by
restricting the delivery of drugs to a covered entity’s
contract pharmacies. The manufacturers prevailed in AstraZeneca
Pharms. LP v. Becerra, 2022 WL 484587 (D. Del. Feb. 16, 2022),
and the government prevailed in Sanofi-Aventis U.S., LLC v.
HHS, 570 F. Supp. 3d 129 (D.N.J. 2021).
The Third Circuit decision focused on the statutory language
requiring that manufacturers “shall offer” drugs that are
available to anyone at any price to “covered entities”
for “purchase” at a discount. 42 U.S.C. §256b(a)(1).
The court observed that “nowhere” did Section 340B
mention contract pharmacies, and further, that neither the word
“offer” nor the word “purchase” implied any
specific requirement for delivery or distribution. The court held
that 340B “imposes a price term for drug sales to covered
entities, leaving all other terms blank.” The court rejected
the government’s interpretation that would have given covered
entities discretion to fill in the blanks on delivery or
distribution so long as they foot the bill. Said the court,
“when Congress’s words run out, covered entities may not
pick up the pen.”
Not All Statutory Interpretation Issues Were
Resolved
The Third Circuit noted that its decision did not necessarily
give manufacturers the right to impose any and all conditions on
the use of contract pharmacies. The court noted that it might come
to a different result if a drug maker barred all use of contract
pharmacies, where a covered entity that lacks an in-house pharmacy
would have no way to dispense the drugs and so could not in
practice “accept” them. But it refused to speculate on a
situation that had not been presented.
Pending Appeals Could Create Circuit Conflicts
Two other circuits are considering the same issue on appeal. The
government has appealed from a decision in the District of Columbia
that two manufactures’ policies of restricting the use of
contract pharmacies did not violate the 340B statute. Novartis
Pharmaceuticals Corp. v. Espinosa, Nos. 21-cv-1479 (DLF),
21-cv-1686 (DLF) (D.D.C. Nov. 5, 2021) (appeal pending).
The Seventh Circuit also heard argument in October of 2022 in a
manufacturer’s appeal from an Indiana decision that upheld the
government’s interpretation, but no opinion has been issued.
Eli Lilly and Company v. Becerra, Case No.
21-3128 (7th Cir.).
States Weigh In
States have also recently weighed in on the treatment and
availability of 340B covered drugs dispensed by contract
pharmacies.
In December of 2022, a court upheld 38 Ark. Code Ann. §
23-92-604(c) from a challenge by the Pharmaceutical Manufacturers
Association that the law was preempted by the Federal 340B statute.
Pharma v. McClain, Case No. 4:21-CV-864-BRW (E.D. Ark.
12/12/22). The law prohibits pharmaceutical manufacturers from
denying or prohibiting “340B drug pricing for an
Arkansas-based community pharmacy that receives drugs purchased
under a 340B drug pricing contract pharmacy arrangement with an
entity authorized to participate in 340B drug pricing.” The
court held that the 340B program did not preclude states from
protecting state interest related to the distribution of
pharmaceuticals within the state. The case is on appeal to the
Eighth Circuit.
Finally, in a policy that became effective on January 1, 2023,
Pennsylvania issued guidance that appears to eliminate Medicaid
reimbursement for 340B covered drugs dispensed by contract
pharmacies. That guidance can be found here: MAB2022122201.pdf (pa.gov). The policy arises
out of ongoing tension between the Medicaid rebate program and 340B
discounted pricing, because a manufacturer is obligated to offer
rebates or discounts under only one of these programs on drug
purchases. Failure of state Medicaid programs to earn rebates for
drugs that are purchased under the 340B program but reimbursed
under the Medicaid program has led to conflicts over, essentially,
whether 340B covered entities or state Medicaid programs should
receive the financial benefit of Federal drug discounting programs.
In addition, both states and manufacturers have alleged significant
documentation errors by covered entities and their contract
pharmacies in identifying 340B covered drugs that are dispensed to
Medicaid beneficiaries, leading to protracted disputes and requests
for recoupment by manufacturers.
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