Drugmakers Defeat Health Agency in 340B Drug Discount Row (1)

Drugmakers that participate in the federal government’s Section 340B prescription drug program don’t have to supply discounted medications to an unlimited number of contract pharmacies, a federal appeals court said Monday.

“Legal duties do not spring from silence,” and Congress has never imposed on Section 340B-participating drugmakers a duty to supply contract pharmacies, the US Court of Appeals for the Third Circuit said.

The decision is a big win for Sanofi Aventis US LLC, Novo Nordisk Inc., and AstraZeneca Pharmaceuticals LP, which declared in 2020 that they would limit supplies of discounted drugs to pharmacies that distribute them to low-income patients served by certain health-care providers. They were among several drugmakers that balked at continuing unlimited deliveries due to allegedly rife fraud and abuse in the program.

Congress established the 340B program to assist health-care providers in ensuring those low-income patients can access their medications. Under the program, drugmakers need to offer products to hospitals and community health centers serving such patients at deeply discounted prices in exchange for participating in Medicaid and Medicare Part B.

This is the first of a trio of appeals to be decided. Decisions in similar cases are still pending in the US Courts of Appeal for the D.C. and Seventhcircuits. The Third Circuit heard oral arguments on Nov. 15.

Hospitals Decry Decision

A Novo Nordisk spokeswoman told Bloomberg Law the company is pleased with the decision. The company will “continue to support the 340B drug program so that uninsured and vulnerable patients have access to outpatient drugs,” she said.

Sanofi also praised the Third Circuit’s ruling. The company, in an emailed statement, said it hopes “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.”

But groups representing hospitals that rely on the 340B program to help provide affordable care to needy patients decried the Third Circuit’s decision.

“Drug companies do not have the authority to place restrictions on how 340B hospitals ensure that their patients will get the drugs they need,” Chad Golder, the American Hospital Association’s deputy general counsel said in a statement provided to Bloomberg Law. Golder predicted that the D.C. and Seventh Circuits will reach a different outcome.

“The only result of this decision,” Golder said, “will be even greater profits for drug companies and reduced access to medicines for patients.”

America’s Essential Hospitals, which represents more than 300 safety-net hospitals that benefit from the 340B program, called the drugmakers’ restrictions “unconscionable and harmful.”

“Essential hospitals depend on 340B savings to meet their safety net mission, and they extend their reach into communities by partnering with pharmacies to make 340B drugs more accessible,” the group said. “This is consistent with Congress’ intent that the 340B program should make drugs affordable for low-income patients and create savings for hospitals to use for safety net care,” it said.

340B Health is urging the Biden administration to continue its strong defense of the program, the group’s president and CEO Maureen Testoni, said.

Drugmaker-imposed barriers to 340B drugs “will weaken the health care safety net, harm patients with low incomes and those living in rural areas, and drive drug prices even higher, the group said. 340B Health represents public and private nonprofit hospitals and health systems that participate in the 340B drug discount program.

Program Requirements

Under Section 340B, drugmakers that want to take part in Medicare and Medicaid must offer their products at steeply discounted prices to health-care providers, known as “covered entities,” that care for low-income and rural patients. The program enables covered entities to provide prescription drugs at little or no cost.

Few covered entities, however, have in-house pharmacies. Instead, they contract with outside pharmacies to distribute the drugs. In 2010, the US Health and Human Services Department did away with a one-contract-pharmacy-only rule, and “the use of contract pharmacies skyrocketed,” the Third Circuit said.

Several years later, the drugmakers announced their limited delivery policies, and HHS responded with an advisory opinion declaring that Section 340B requires them to deliver discounted drugs to an unlimited number of contract pharmacies. Five months later, the agency issued violation letters to drugmakers that refused to comply.

The agency incorrectly interpreted the law, and the violation letters are void, the court said.

Section 340B says that if drugmakers make drugs available to anyone at any price, they must “offer” those drugs to covered entities at a discount. It never mentions contract pharmacies, nor does the word “offer” imply that drugmakers must deliver drugs to anyone who demands them, the court said. An offer is something presented for acceptance and, even if drugmakers limit their deliveries, they still present drugs to covered entities for acceptance, it said.

The drugmakers’ conditions, moreover, don’t affect covered entities, the court said. These providers can still accept the offers, buy the drugs, and dispense them through either an in-house or contract pharmacy, Judge Stephanos Bibas said.

Judge Cheryl Ann Krause joined.

Judge Thomas L. Ambro dissented from a decision upholding a rule that requires alternative dispute resolution of Section 340B issues. HHS indicated several times over a three-year period that it had withdrawn a notice of proposed rulemaking for the ADR process, he said. The public should be able to take that to mean that the rule was withdrawn, he said.

Jones Day, King & Spalding, and Arnold & Porter Kaye Scholer represent the drugmakers. The US Department of Justice represents HHS.

The case is Sanofi Aventis US, LLC, 3d Cir., No. 21-3167, 1/30/23.