A recent U.S. Supreme Court ruling confirms that the 340B administrative dispute resolution process is constitutional, government lawyers told a federal district judge this month.

340B Dispute Resolution Process is Constitutional, Feds Tell Court

A recent U.S. Supreme Court ruling about administrative law judges who hear patent disputes confirms that rules establishing the 340B program’s administrative dispute resolution (ADR) process are constitutional, government lawyers told a federal district judge this month.

Under the 340B ADR final rule and the 340B statute, the U.S. Health and Human Services (HHS) secretary “may freely exercise discretionary review” of ADR panel decisions, even though the rule didn’t establish a formal mechanism for appeals to the secretary, the U.S. Justice Department (DOJ) said in a Sept. 9 brief in a drug industry lawsuit challenging both the ADR rule and 340B program guidance governing drug company audits of 340B covered entities.

The HHS secretary “also may freely remove ADR board members at will,” DOJ said.

Pharmaceutical Research and Manufacturers of America (PhRMA) sued HHS over the ADR rule in January in the U.S. District Court for the District of Maryland. It argues in part that the rule violates the U.S. Constitution’s appointments clause, because the rule gives ADR panelists power to render final decisions without review by a presidentially appointed, Senate-confirmed officer.

The Supreme Court handed down a split decision in June in United States v. Arthrex, the case involving patent disputes. Five of the nine justices agreed that Patent Trial and Appeal Board decisions couldn’t be enforced because PTAB judges were “lower officers” exercising power reserved for “principal officers.” The remedy, the majority said, was not to strike down the law that created PTAB, but to send the patent dispute at issue to the Patent and Trademark Office Director, a principal officer, for review.

In its brief in the 340B ADR case, DOJ said the 340B statute “contains no restraint on the Secretary’s ability to direct and supervise the ADR Board through review of panel decisions or removal from office at will.”

“The absence of any statutory constraint on discretionary review by the Secretary of final decisions of his subordinates makes the ADR rule analogous to the ArthrexCourt’s statutory fix,” DOJ said.

During a public webinar earlier this month, former U.S. Health and Human Services Department General Counsel Robert Charrow said, before the ADR rule can take full effect, it needs “one slight tinker” to bring it in accordance with the Supreme Court’s Arthrex decision. Charrow said that, per the high court ruling, HHS should make 340B ADR decisions reviewable by an HHS principal officer nominated by the President and confirmed by the Senate.

Two of the drug manufacturers suing HRSA over its 340B contract pharmacy requirements, Eli Lilly and Sanofi, also are challenging the ADR file rule in the lawsuits. In March, a federal district judge granted Lilly’s motion for a preliminary injunction preventing HHS and HRSA from implementing or enforcing the ADR regulations against Lilly. The judge said Lilly was likely to prevail ultimately “in establishing that HHS failed to comply with the APA’s [Administrative Procedure Act’s] procedural requirements in promulgating the final ADR Rule.”

PhRMA also is challenging the ADR process on APA grounds. PhRMA’s next brief is due on Oct. 12. Oral arguments will be scheduled at the judge’s discretion sometime after that.

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