On January 31, the U.S. Court of Appeals for the Third Circuit found in favor of pharmaceutical manufacturers in the ongoing dispute over whether manufacturers may restrict the shipment of reduced-price drugs to contract pharmacies of health care entities that participate in the prescription drug discount program established under Section 340B of the federal Public Health Service Act. Following the court’s decision, Bayer and EMD Serono became the latest manufacturers to announce that they would be imposing such restrictions.
In its decision, the Court rejected claims by the Department of Health and Human Services (HHS) that the 340B statute prohibits drug manufacturers from restricting the shipment of 340B drugs to contract pharmacies. The Court noted that “[n]owhere does Section 340B mention contract pharmacies” and found that the 340B statute does not require drug manufacturers to deliver 340B drugs to “an unlimited number of contract pharmacies.” Of note, the decision was rendered by a three-judge panel consisting of one judge nominated by President Trump, one by President Obama and one by President Clinton. The Third Circuit is the first to weigh in, of the three appeals courts that are considering this issue. Similar cases are pending in front of the District of Columbia Court of Appeals and the Seventh Circuit Court of Appeals.
Manufacturers began imposing such restrictions in the summer of 2020, citing concerns about diversion of drugs to ineligible patients as well as about duplicate discounting, which occurs when a 340B priced drug is also subject to a Medicaid rebate and is prohibited by law. HHS responded by issuing violation letters advising manufacturers that their restrictions were in direct violation of the 340B statute. A total of 21 manufacturers have imposed restrictions on the shipment of 340B priced drugs to covered entity contract pharmacies, and HHS has issued violation letters to 11 of them.
A number of manufacturers filed lawsuits challenging HHS’ actions. Decisions in three of those lawsuits—brought by AstraZeneca, Sanofi Aventis and Novo Nordisk—were appealed to the Third Circuit. In addition to expressly finding that the restrictions imposed by the manufacturers do not violate Section 340B, the Third Circuit also held that the violation letters that HHS issued to those three manufacturers are unlawful, and enjoined HHS from enforcing them.
As noted above, this issue is still pending in front of two additional courts of appeals. However, this was generally viewed as a significant victory for the pharmaceutical industry and a major setback for HHS (and covered entities), although it will likely spur additional calls for Congress to intervene in this issue.