Drug makers that participate in the federal government’s Section 340B prescription drug program do not have to supply discounted drugs to an unlimited number of contract pharmacies, a federal appeals court said Monday.
“Legal obligations do not arise from silence,” and Congress never imposed on Section 340B drug manufacturers an obligation to supply contract pharmacies, the U.S. Court of Appeals for the Third Circuit said.
The decision is a big win for
Congress created the 340B program to help health care providers provide access to drugs for these low-income patients. Under the program, drugmakers must offer products to hospitals and community health centers serving such patients at deeply discounted prices in exchange for participation in Medicaid and Medicare Part B.
This is the first of three pending appeals. Decisions in similar cases are still pending in the US Courts of Appeals for the DC and Seventh Circuits. The Third Circuit heard oral arguments on November 15.
Hospitals reject the decision
A spokesperson for Novo Nordisk told Bloomberg Law that the company was pleased with the decision. The company will “continue to support the 340B drug program so that uninsured and vulnerable patients can access outpatient drugs,” she said.
Sanofi also praised the Third Circuit’s decision. The company said in an emailed statement that it hopes “this decision, as well as the recent series of investigative reports revealing excessive abuse and misuse of the 340B program by certain hospitals, encourages all stakeholders to work to enact reforms that are desperately needed to return the program to its original intent of providing of 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 condemned the Third Circuit’s decision.
“Drug companies do not have the power to impose restrictions on how 340B hospitals ensure their patients get the drugs they need,” Chad Golder, deputy general counsel of the American Hospital Association, said in a statement provided to Bloomberg Law. Golder predicted the D.C. and Seventh Circuits would reach a different result.
“The only result of this decision,” Golder said, “will be even greater profits for drug companies and reduced access to drugs for patients.”
America’s Major Hospitals, which represents more than 300 protected-network hospitals that benefit from the 340B program, called the drugmakers’ restrictions “unconscionable and harmful.”
“Major hospitals depend on 340B savings to fulfill their safety net mission, and they are expanding their reach into communities by partnering with pharmacies to make 340B drugs more affordable,” the group said. “This is consistent with Congress’ intent for the 340B program to 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, said the group’s president and CEO Maureen Testoni.
Drugmaker-imposed barriers to 340B drugs “will weaken the health care safety net, harm low-income and rural patients, and drive up drug prices even more, the group said.” 340B Health represents public and private not-for-profit hospitals and health systems that participate in the 340B drug rebate program.
Under Section 340B, drugmakers who want to participate in Medicare and Medicaid must offer their products at deeply discounted prices to health care providers, known as “covered entities,” who care for low-income and rural patients. The program allows covered entities to provide prescription drugs at low or no cost.
However, few covered entities have in-house pharmacies. Instead, they contract with outside pharmacies to distribute the drugs. In 2010, the U.S. Department of Health and Human Services eliminated the single-contract pharmacy rule, and “the use of contract pharmacies has skyrocketed,” the Third Circuit said.
A few years later, drug manufacturers announced their limited supply policies, and HHS responded with an advisory opinion stating that Section 340B required them to supply discounted drugs to an unlimited number of contract pharmacies. Five months later, the agency issued violation letters to drugmakers who refused to comply.
The agency misinterpreted the law and the violation letters are void, the court said.
Section 340B states that if drug manufacturers 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” mean that drugmakers must supply drugs to anyone who asks for them, the court said. An offer is something presented for acceptance, and even if drug manufacturers limit their supply, they still present drugs to covered entities for acceptance, it said.
Also, the terms of drug manufacturers do not affect covered persons, the court said. Those providers can still accept the bids, buy the drugs and dispense them through an in-house or contract pharmacy, Judge Stefanos Bibas said.
Judge Cheryl Ann Krause concurred.
Justice Thomas L. Ambro dissented in a decision that upheld a rule requiring alternative dispute resolution under section 340B. 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 accept that the rule has been withdrawn, he said.
Jones Day, King & Spalding and Arnold & Porter Kaye Scholer represent the drug makers. The US Department of Justice represents HHS.
The case is Sanofi Aventis US, LLC, 3d Cir., No. 21-3167, 01/30/23.