340B Litigation

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Brief Summary: This case challenges the Department of Health and Human Services announcement that drug manufacturers had to supply 340B priced drugs to all  340B covered entities.

Overview: On December 30, 2020, Health Resources and Service Administration (“HRSA”) general counsel issued an advisory opinion that stated the 340B program allowed covered entities to distribute drugs from multiple contract pharmacies and, therefore, manufacturers were required to sell drugs at 340B prices to all those pharmacies.

On May 17, 2021, the HRSA office began sending enforcement letters to manufacturers stating manufacturers were not following the 340B program and were required to sell drug to all 340B contracted pharmacies at 340B pricing. The letters stated that failure to comply could result in a $5,883 fine per each overcharge.

On June 18, 2021, the HRSA office voluntarily revoked the advisory opinion after a Delaware District Court held that the opinion was legally flawed because it was not within the scope of the 340B statute nor was it a reasonable interpretation of the statute. However, the HRSA office stated that the revocation of the advisory opinion did not impact the May 17 enforcement letters.

Eli Lily & Co. v. U.S. Dept. Health & Human Services: Eli Lilly sued HHS in the United States District Court Southern District of Indiana regarding the Dec. 30, 2020, advisory opinion and May 17, 2021, enforcement letter alleging that both documents violated the APA. The Court held that the advisory opinion and enforcement letter were arbitrary and capricious under the APA.

First, the Court held that the advisory opinion was arbitrary and capricious because the advisory opinion’s interpretation was based on the plain meaning of the 340B statute. The Court reasoned that HRSA could not rely on the plain meaning of the statute because the statute was silent as to whether drug pricing extended to an unlimited number of contract pharmacies. The Court noted that had the advisory opinion been based on the agency’s exercise of its discretion in interpreting the statute the outcome may have been different.

Second, the Court reasoned that the May 17 letter was arbitrary and capricious because HRSA’s previous position was that it could not enforce potential violations of the 340B statute. Thus, the Court held that the change in position was arbitrary and capricious because HRSA did not acknowledge or justify its change in position. However, the Court did also hold that Lily’s practice of only providing 340B pricing to in-house pharmacies, wholly-owned pharmacies, or a single pharmacy was not in accordance with the 340B statute because it allowed drug manufacturers to unilaterally impose additional conditions to access discounted medications. Thus, in that regard HRSA’s interpretation, although not enforceable, was correct.

The full opinion can be found here.

AstraZeneca v. U.S. Dept. Health & Human Services:  On February 16, 2022, the United States District Court for the District of Delaware vacated HHS’s 2021 enforcement letter to AstraZeneca, holding that HHS did not comply with the Administrative Procedure Act when it issued the letter. In the letter, HHS had asserted that the company violated its obligations under the 340B drug pricing program. The same court had previously concluded that a 2020 HHS advisory opinion stating that drug makers must provide drugs discounted under 340B to contract pharmacies was based on HHS’s flawed interpretation of 340B. Specifically, HHS had argued that it was Congress’s intent for the 340B pricing to apply to all contract pharmacies. However, the Court held that Congress did not intend to require drug manufacturers to facilitate 340B pricing to all contract pharmacies because Congress had narrowly identified only 15 types of covered entities that the 340B statute applies to. “Because the [2021 enforcement letter] rests on essentially the same flawed statutory interpretation that the Court already rejected, the [letter] cannot stand,” the court wrote. Read the opinion here.  

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