Judge halts 340B dispute rule, siding with Eli Lilly in lawsuit over program

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A federal judge sided with drugmaker Eli Lilly over whether the Department of Health and Human Services followed federal law when it finalized a 340B dispute resolution process. (Pixabay)

A federal judge blocked the Biden administration from implementing a controversial rule to handle disputes over the 340B drug discount program, handing drugmakers a major win in an escalating feud over the program.

The opinion, issued late Tuesday, grants a preliminary injunction sought by Eli Lilly, which sued the feds over the rule. The ruling comes as Lilly and several other drugmakers restricted sales of drugs discounted under the 340B program to contract pharmacies, which are third parties that dispense the products on behalf of the covered entities.

The ruling from the U.S. District Court for the Southern District of Indiana focused on whether the Department of Health and Human Services (HHS) followed federal law when the rule was finalized last December.

The decision puts on hold a key mechanism that hospitals, community health centers and other 340B providers had planned to use to challenge drug companies that restricted sales of discounted products to contract pharmacies. Drug companies offer discounts to safety net providers in the program in exchange for participating in Medicaid and Medicare.

RELATED: HHS seeks to delay controversial community health center 340B insulin rule until July

Congress directed HHS to put together the rule when it passed the Affordable Care Act in 2010, but the rule wasn’t proposed until 2016. The rule was later withdrawn in 2017.

HHS issued the final rule in 2020 “without providing any additional notice or comment period,” the ruling from Judge Sarah Evans Barker said.

“Apparently anticipating some pushback by interested parties, the preamble to the [administrative dispute resolution (ADR)] rule included a statement that the [proposed rule] was never withdrawn, but instead merely paused as part of a freeze of regulatory actions implemented by the Trump administration on Jan. 20, 2017,” the opinion said.

The lawsuit filed by Eli Lilly said the removal of the rule from the unified regulatory agenda for HHS, which outlines rules being considered by the agency, required HHS to do another comment period before releasing a final regulation.

But HHS responded that because it never gave a withdrawal notice, the rule itself was never actually withdrawn. However, the opinion said that since the rule was listed as “withdrawn” in August 2017, it “would have led to a reasonable observer to believe the ADR rule had in fact been withdrawn.”

The ruling is the latest legal blow to provider groups that have been fighting Lilly and several other companies over restrictions to contract pharmacies.

Last month, a federal judge dismissed a lawsuit from a series of hospital groups that called for HHS to immediately quash the drug companies’ moves. The ruling said that the covered entities had to use the dispute resolution process.

The Pharmaceutical Research and Manufacturers of America (PhRMA), a drug industry lobbying group, also sued HHS in federal court in January over the ADR rule. PhRMA charged that the rule circumvents the president’s role in appointing and the Senate's in confirming any board members for the ADR panel.