Drugmakers participating in the federal government’s Section 340B prescription drug program don’t have to offer discounted drugs to an unlimited number of contract pharmacies, a federal appeals court said Monday.
The U.S. Court of Appeals for the Third Circuit said that “legal liability does not arise from silence” and that Congress never imposed an obligation to supply contract pharmacies on drugmakers participating in Section 340B.
This decision is a huge victory
Congress created the 340B program to assist health care providers in ensuring that low-income patients have access to their medicines. Under the program, drugmakers are required to supply products at heavily discounted prices to hospitals and community health centers serving such patients in exchange for participation in Medicaid and Medicare Part B.
It is the first of three appeals pending. Decisions in similar cases are still pending in the U.S. District Court of Appeals and the Seventh Circuit Court of Appeals. The Third Circuit heard oral arguments on Nov. 15.
Hospital rejects decision
A Novo Nordisk spokeswoman told Bloomberg Law the company was pleased with the decision.The company will “Continue to support the 340B drug program so that uninsured and vulnerable patients have access to outpatient medications,” she said.
Sanofi also praised the Third Circuit’s ruling.In an emailed statement, the company said it hopes to “This decision, along with a series of recent investigative reports exposing the overuse and misuse of the 340B program by some hospitals, encourages all stakeholders to work towards implementing much-needed reforms that will return the program to its original purpose – to provide quality and affordable care To the most vulnerable in our communities. “
But groups representing hospitals that rely on the 340B program to help provide affordable care to patients in need condemned the Third Circuit’s decision.
“Pharmaceutical companies have no authority to limit how 340B hospitals ensure patients get the medicines they need,” Chad Gold, deputy general counsel for the American Hospital Association, said in a statement provided to Bloomberg Legal. Golder predicts that DC and the Seventh Circuit will come to different results.
“The only outcome of this decision,” Gold said, “will be more profits for drug companies and less access to medicines for patients.”
American Basic Hospitals, which represents more than 300 safety-net hospitals that benefit from the 340B program, called the drugmaker’s restrictions “irrational and harmful.”
“Essential hospitals rely on 340B savings to meet their safety net mandate, and they are extending their reach into the community by partnering with pharmacies to make 340B drugs more accessible,” the group said. “This is consistent with Congress’ intent that the 340B program should make drugs affordable for low-income patients and save hospitals money to spend on safety net care,” it said.
Maureen Testoni, president and CEO of 340B Health Group, said she is urging the Biden administration to continue to vigorously defend the plan.
Drugmakers’ barriers to 340B drugs “will weaken the health care safety net, hurt low-income patients and those living in rural areas, and drive up drug prices,” the group said. 340B Health represents public and private organizations involved in the 340B drug discount program Not-for-profit hospitals and health systems.
program requirements
Under Section 340B, drugmakers who want to participate in Medicare and Medicaid must offer their products at deeply discounted prices to health care providers (called “covered entities”) that serve low-income and rural Patients provide medical services. The program enables covered entities to provide prescription drugs at little or no cost.
However, few covered entities have in-house pharmacies. Instead, they contract with outside pharmacies to distribute the drugs. In 2010, when the U.S. Department of Health and Human Services repealed the single-pharmacy rule, “the use of contract pharmacies exploded,” the Third Circuit said.
A few years later, drugmakers announced their limited delivery policies, and HHS responded with an advisory declaring that Section 340B required them to deliver discounted drugs to an unlimited number of contract pharmacies. Five months later, the agency issued violation letters to drugmakers who refused to comply.
The court said the agency misinterpreted the law and the offending letter was invalid.
Section 340B states that if drugmakers offer drugs to anyone at any price, they must “provide” those drugs at a discounted price to covered entities. The court said it never referred to contract pharmacies, nor did the word “provide” imply that drugmakers must provide the drug to anyone who needs it. It said an offer is something made for acceptance, and that even if drugmakers limit their deliveries, they would still make drugs available to covered entities for acceptance.
In addition, the court said the drugmaker’s conditions would not affect the covered entities. Judge Stephanos Bibas said those providers could still accept quotes, buy the drugs and fill them through in-house or contract pharmacies.
Joined by Judge Cheryl Ann Krause.
Judge Thomas L. Ambro dissented from the decision upholding the rule requiring alternative dispute resolution for Section 340B issues. HHS said several times over the three-year period that it had withdrawn its notice of proposed rulemaking for the ADR process, he said. The public should be able to take that to mean the rule has been revoked, he said.
Jones Day, King & Spalding and Arnold & Porter Kaye Scholer represented the drugmakers. The U.S. Department of Justice represents HHS.
The case is Sanofi Aventis US, LLC, 3d Cir., No. 21-3167, 1/30/23.
