Drugmakers get mixed bag in lawsuit rulings over 340B contract pharmacy moves

A federal judge found drug companies cannot unilaterally restrict sales of products discounted under the 340B program to contract pharmacies.

But a separate ruling found that manufacturers don’t have to provide discounts.

The opinions, released late Friday, are the latest in a legal fight between six drugmakers and the Biden administration over whether they must offer discounted products to contract pharmacies. Federal judges issued separate rulings in lawsuits filed by Novo Nordisk, Sanofi, Novartis and United Therapeutics.

The lawsuits were filed in response to Health Resources and Services Administration’s (HRSA's) decision in May to warn the six drugmakers—Eli Lilly, Sanofi, United Therapeutics, Novartis, AstraZeneca and Novo Nordisk—to walk back the restrictions imposed in summer 2020.

But some of the drugmakers argued in federal lawsuits that they have the right under the 340B statute to restrict access to contract pharmacies to help avoid duplicative discounts for Medicaid and 340B.

Drugmakers agree to participate in 340B and offer discounts to safety net providers in exchange for participation in Medicare and Medicaid, but the industry has criticized an increase in contract pharmacies used by covered entities and question whether the discounts benefit patients. 340B advocates charge that the discounts help fuel major benefits to patients and are needed to help safety net providers that operate on thin margins.

The federal judge in the Sanofi and Novo Nordisk lawsuit ruled that HRSA did have the administrative authority to issue the warning letters back in May. The agency also didn’t have to give the drugmakers time to comment before the letters were issued, like HRSA must offer for new rules.

U.S. District Court Judge Freda Wolfson agreed with the Department of Human Services (HHS) that the companies “cannot impose restrictions on offers to covered entities and that their policies must cease.” However, it disagreed with HHS that the companies must give credits or refunds to the covered entities or face monetary penalties for their actions.

The ruling referenced a Government Accountability Office report that found contract pharmacy arrangements can increase the rate of fraud in 340B.

“A limitless number of contract pharmacies (or perhaps even a lesser number) may render the overall statutory scheme unworkable,” the ruling added.

HHS may need to develop new benchmarks for the number of contract pharmacy sites a covered entity should have.

RELATED: HRSA intends to fine 6 drugmakers over 340B contract pharmacy violations

The penalty letters, therefore, should be partially vacated and remanded so HHS can get a better idea of the role of contract pharmacies and for Congress to step in on the issue.

The ruling is like one filed late last month in a lawsuit filed by Eli Lilly also over the HRSA warnings. The federal judge in that case, Sarah Evans Barker, also found the letters should be vacated because HHS has suddenly changed its views over whether to clamp down on the drugmaker restrictions.

Barker also called for Congress to step in and settle the issue via new legislation. Bipartisan lawmakers have asked HHS to quash the drugmaker moves but so far legislation has not been introduced to make a fix.

While other rulings have been amenable to HHS’ arguments that drugmakers must offer 340B discounts to contract pharmacies, a ruling in a separate lawsuit brought by United Therapeutics and Novartis found the opposite.

That ruling, released Friday (PDF), by U.S. District Court Judge Dabney Friedrich, found that the 340B statute’s “plain language, purpose and structure” don’t prohibit manufacturers form attaching any conditions to the sales of covered drugs through a contract pharmacy. However, they don’t permit all conditions.

Friedrich also found that drug manufacturers have highlighted “credible evidence” that HRSA’s recent guidelines that permit covered entities to use multiple contract pharmacies to distribute discounted drugs “increased the potential for fraud in the 340B program,” the ruling said.

The ruling found any enforcement action against drugmakers must “rest on a new statutory provision, new legislative rule or a well-developed legal theory.”

The 340B advocacy group 340B Health blasted the ruling in a statement Friday.

“Two federal courts have firmly stated that drug companies participating in 340B do not have the right to unilaterally impose restrictions on the provisions of price discounts,” said 340B Health President and CEO Maureen Testoni. “Those courts have also upheld the government’s ability to enforce the law.”