An appellate court ruled Monday that the Biden administration can’t require drugmakers to provide 340B-discounted products to “an unlimited number” of contract pharmacies, a point in the pharma industry’s favor as stakeholders await two other appeals courts considering similar cases.
Three judges from the U.S. Court of Appeals for the Third Circuit wrote that the Department of Health and Human Services (HHS) didn't have the congressional authority to require discounts across all 340B hospitals’ partnered community and specialty pharmacies.
The ruling enjoined HHS from enforcing its Advisory Opinion and the subsequent Violation Letters sent to several drugmakers that threatened fines for restricting sales to the contract pharmacies.
“Legal duties do not spring from silence,” the three-judge panel wrote in its decision (PDF). “Congress never said that drug makers must deliver discounted Section 340B drugs to an unlimited number of contract pharmacies. So by trying to enforce that supposed requirement, the government overstepped the statute’s bounds.”
Monday’s decision follows back-and-forth victories for pharma companies and HHS among the lower courts. It combined petitions brought by three drugmakers: Sanofi, Novo Nordisk and AstraZeneca.
In statements, the three companies each said they were “pleased” with the court’s decision and that they plan to continue participating in the 340B drug program, at least to the extent that they are required.
“AstraZeneca’s products have been—and will continue to be—available to all covered entities at or below applicable statutory ceiling prices through either their own on-site dispensing pharmacy or a designated contract pharmacy,” the drugmaker said in an emailed statement. “AstraZeneca maintains that its approach to contract pharmacy arrangements fully complies with all operative requirements.”
“[Sanofi 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,” Sanofi said in an emailed statement.
The judges noted in their decision that hospitals’ use of contract pharmacies “skyrocketed” after 2010 when new guidance from HHS saying that 340B-covered entities could use an unlimited number of contract pharmacies preceded a twentyfold increase.
Hospitals, meanwhile, have aligned with HHS in pushing back against the nearly 20 drugmakers that have implemented restrictions.
In November, the American Hospital Association (AHA) released a report arguing that the restrictions reduced access to care, particularly in rural areas. They also noted that the average 340B critical access hospital with 25 beds reported annual losses of $507,000 due to the restrictions, while the average 340B disproportionate share hospital saw nearly $3 million in annual losses.
Drug companies have said their restrictions are intended to prevent duplicative delivery of discounts under 340B and Medicaid. Hospitals maintain that the move is a push for greater profits.
“The AHA disagrees with the Third Circuit’s decision,” Chad Golder, deputy general counsel at the AHA, said in an emailed statement. “As we have explained in numerous amicus briefs, drug companies do not have the authority to place restrictions on how 340B hospitals ensure that their patients will get the drugs they need. We expect the two other courts of appeals that are currently considering the issue will agree. The only result of this decision will be even greater profits for drug companies and reduced access to medicines for patients.”
Beth Feldpush, senior vice president of policy and advocacy at America’s Essential Hospitals, said in an online statement that the decision from the Third Circuit’s appeals court “allows drug companies to continue their unconscionable and harmful restrictions.”
She also said that hospitals’ partnerships with community pharmacies increase treatment accessibility, “consistent with Congress’ intent that the 340B program should make drugs more affordable for low-income patients and create savings for hospitals to use for safety net care.”
Maureen Testoni, CEO and president of 340B Health, an industry group representing 340B facilities, tempered the disappointment somewhat by highlighting language in the court’s decision recognizing “that companies must offer their drugs at 340B pricing to all eligible covered entities, which could require preserving discounts through these pharmacy partners in certain instances.”
Still, she agreed that permitting drugmakers’ restrictions would have negative impacts on underserved patient groups and push drug prices higher.
“We await decisions from the other two appeals courts on this crucial issue, and we urge the Biden administration to continue a strong defense of its interpretation of the 340B law,” she said in an emailed statement.