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340B “Saga” Works Its Way Through the Courts: What Manufacturers Need to Know

A handful of recent court decisions have brought a small degree of resolution and simultaneously a large degree of uncertainty to what we at Arent Fox affectionately refer to as the “340B Saga.”
On

It’s a dispute lasting years seeking to define the exact contours of the authority of the Health Resources and Services Administration (HRSA) to interpret the 340B Statute concerning (i) participating Covered Entities’ use of “contract pharmacies”, (ii) whether participating drug manufacturers are required to recognize such pharmacies, and (iii) the ability of participating drug manufacturers to place their own administrative conditions on Covered Entity contract pharmacy agents in order to receive drugs at the heavily discounted 340B price on behalf of Covered Entities. However, just like any good saga, there is still much of the story yet to be revealed.

The individual cases at issue are:

  • AstraZeneca Pharms. LP v. Becerra (U.S. District Court for the District of Delaware) (Case 1:21-cv-00027)
  • Eli Lilly & Co. v. U.S. Dep’t of Health & Human Servs. (U.S. District Court for the Southern District of Indiana) (Case 1:21-cv-00081)
  • Sanofi-Aventis U.S., LLC and Novo Nordisk Inc. v. Dep’t of Health & Human Servs. (U.S. District Court for the District of New Jersey) (Cases 3:21-cv-00634 and 3:21-cv-00806)
  • Novartis Pharms. Corp. and United Therapeutics v. Espinosa (U.S. District Court for the District of Columbia) (Cases 1:21-cv-01479 and 1:21-cv-01686)

The cases address common questions concerning the interpretation and implementation of the 340B Statute:

  1. the authority of HRSA to interpret/issue guidance related to the use of contract pharmacies;
  2. the validity of an Advisory Opinion issued by the Department of Health and Human Services (HHS) General Counsel’s office from December 2020 requiring participating drug manufacturers to deliver covered outpatient drugs to contract pharmacies; and
  3. the validity of several “Enforcement Letters” issued to drug manufacturers in May 2021 alleging that manufacturers violated the law by issuing and implementing specific policies ultimately related to the use of contract pharmacies, for which HRSA threatened to impose civil monetary penalties.

Additionally, one case addresses the validity of the so-called “ADR rule” that HRSA was required to issue under the Affordable Care Act back in 2010, but did not promulgate until December 2020. The ADR Rule sought to create an administrative dispute resolution mechanism to resolve disputes between participating manufacturers and Covered Entities related to the 340B program.

Fundamentally, these cases highlight HRSA’s piecemeal, and at times, conflicting interpretation of the 340B Statute. They also demonstrate the limitations the agency faces given the authority provided to it by Congress under the 340B Statute. Those familiar with the 340B Program and the 340B Statute know that fulsome implementing regulations are scant, in part because HRSA’s statutory authority to promulgate regulations is limited to two distinct areas: (i) imposing civil monetary penalties on participating manufacturers for failing to offer the 340B Ceiling Price to Covered Entities, and (ii) creating an administrative dispute resolution process. Given these limitations, Covered Entities and participating manufacturers alike have been forced to rely upon guidance issued by HRSA in the form of notices in the Federal Register, letters to program participants, and other less formal means. At times – such as with respect to the use of contract pharmacies – the agency has altered its view and position, creating confusion and diverging interpretations of the 340B Statute by parties impacted by the statute.

We have summarized the key takeaways from the four cases in the chart below:

Case

Order / Opinion Issued

HRSA Authority

ADR Rule

OIG Advisory Opinion

Enforcement Letter

Case Status

AstraZeneca

June 16, 2021

(with link to Opinion)

Does not directly address the bounds of HRSA authority, but notes that agency’s interpretation of manufacturers’ obligations has “evolved” over time

Not addressed in action before the court

Denied HHS’ motion to dismiss and held that Advisory Opinion is “legally flawed” because it wrongly interprets “unambiguous” statutory language

Not addressed in action before the court

Cross motions for summary judgment before Judge Stark; joint status report filed Nov. 11, 2021

Eli Lilly

Oct. 29, 2021 (with link to Order)

Court upheld HRSA’s authority to interpret the statute in a manner that restricts drug manufacturers’ ability to impose extra conditions on Covered Entities

Not addressed in action before the court

Vacated; not remanded since HHS Office of Inspector General (OIG) voluntarily withdrew Opinion; court held it was arbitrary & capricious and violated Administrative Procedures Act (APA)

Vacated as arbitrary & capricious and violated APA, but not beyond HRSA authority; remanded to HRSA; HRSA can decide whether to re-issue/hand over to OIG to potentially impose CMPs

Appealed to Seventh Circuit, Nov. 16, 2021

Sanofi-Aventis & Novo Nordisk

Nov. 5, 2021 (with link to Opinion)

HRSA has statutory authority to require shipment to at least one contract pharmacy, regardless of manufacturer policy

Did not violate the APA, or Articles II or III of the Constitution

Motion for summary judgment denied as moot since OIG voluntarily withdrew Opinion

Vacated and remanded both letters, but not held to exceed HRSA authority; HRSA can decide whether to re-issue/hand over to OIG to potentially impose CMPs

Appealed to Third Circuit Nov. 19, 2021

Novartis & United Therapeutics

Nov. 5, 2021 (with link to Opinion)

Conflicting holding from the court; found that HRSA’s interpretation that manufacturers cannot impose any conditions as improper; yet would not hold that manufacturers’ policies were expressly “permissible under Section 340B”

Not addressed in action before the court

Not addressed in action before the court

Vacated both letters, but denied injunctive relief and did not hold that manufacturers’ policies were expressly “permissible under Section 340B”

No appeal filed as of Nov. 30, 2021

It is important for participating manufacturers to note that these cases are far from final. Eli Lilly and Sanofi have already appealed. There are other cases brought by other participating manufacturers pending. In addition, at least with respect to the Enforcement Letters, HRSA may reissue letters and ask OIG again to seek civil monetary penalties from manufacturers for failing to offer the ceiling price due to their non-recognition/restrictions on contract pharmacies. Currently, no CMPs have been imposed related to this issue, nor has OIG brought administrative action seeking CMPs yet.

Participating manufacturers contemplating changing current policies or procedures addressing 340B purchases should be sure to consult legal counsel before amending current practices. And stay tuned as the saga continues!

Contacts

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