The 340B statute “is silent as to the role that contract pharmacies may play in connection with covered entities’ purchases of 340B drugs," a judge ruled Wednesday in a suit filed by AstraZeneca.

340B Entity Groups Accentuate Positives in 340B Contract Pharmacy Court Opinion

Groups representing 340B covered entities are emphasizing the positives in what they say was a federal judge’s otherwise disappointing opinion Wednesday on whether drug makers must offer 340B ceiling prices when covered entities use contract pharmacies.

The groups’ message is, the government lives on to fight another day, and so do we.

AstraZeneca, the drug company whose lawsuit against the government led to Wednesday’s court ruling, says it is pleased with the decision.

U.S. Chief District Judge Leonard Stark of District of Delaware held on June 16 that the government’s contention that the 340B statute requires manufacturers to sell their products at or below 340B ceiling price for shipment to contract pharmacies “is legally flawed.”

So too, Stark said, is manufacturer AstraZeneca’s contention that the 340B statute limits covered entities to buying covered outpatient drugs exclusively through their in-house pharmacies.

Congress was silent about the role that contract pharmacies may play in purchases of 340B drugs, Stark said. “There is more than one permissible interpretation of the statute.”

The judge denied the government’s motion to dismiss AstraZeneca’s lawsuit against it. Both sides’ motions for a judgement in their favor are still pending. Stark gave both sides until the end of today, June 18, to tell him what relief he should grant AstraZeneca in light of his decision Wednesday, what form that order should take, and “how, if at all, this case should now proceed.”

Stark’s ruling has cast a shadow over the U.S. Health and Human Services Department’s (HHS) ability to compel AstraZeneca and five other drug manufacturers to resume offering 340B pricing on drugs shipped to contract pharmacies unconditionally. On May 17, the department’s Health Resources and Services Administration (HRSA) sent letters to the six companies telling them that their contract pharmacy policies have resulted in overcharges and are in direct violation of the 340B statute. HRSA told the companies they must immediately begin offering 340B pricing on their drugs to covered entities through their contract pharmacy arrangements, and credit or refund all entities for overcharges. Failure to comply could result in civil monetary penalties, it said.

AstraZeneca, Eli Lilly, Sanofi, Novo Nordisk, and Novartis are suing HHS and HRSA over HHS’s conclusion in a December 2020 legal advisory opinion that the 340B statute requires manufacturers to offer 340B prices when covered entities use contract pharmacies. Most, if not all, have amended or are in the process of amending their lawsuits to include claims challenging HRSA’s May 17 demand letters.

Judge Stark’s Ruling

The main takeaway from Stark’s opinion Wednesday is that, when it comes to 340B contract pharmacy, there is more than one permissible way to interpret what the law requires.

Stark said HHS’s December advisory opinion on 340B contract pharmacy “is legally flawed” because it “wrongly determines” that the 340B statute unambiguously mandates that manufacturers have to offer 340B pricing when entities use contract pharmacies.

He referred to a point that hospital groups, participating as friends of the court, made during a May 27 hearing.

“If AstraZeneca is right, then drug manufacturers participating in the 340B program do not have to provide discounted pricing for any drugs delivered to contract pharmacies, while if the government is right, then those same manufacturers must give discounted pricing for all drugs prescribed by covered entities, even those delivered to an unlimited number of contract pharmacies or through any other system for obtaining drugs,” the judge said.

“In the court’s view, the statute does not compel either interpretation, yet both are plausible.”

Stark pointed out that the 340B statute “is silent as to the role that contract pharmacies may play in connection with covered entities’ purchases of 340B drugs. Pharmacies are not mentioned anywhere in the statutory text….When a statute does not even include a single reference to the pertinent word (e.g., pharmacy), it is highly unlikely (if not impossible) that the statute conveys a single, clear, and unambiguous directive with respect to that word.”

“Congress could have explicitly stated that drug manufacturers are required to deliver 340B drugs to an unlimited number of contract pharmacies,” the judge said. “Instead, Congress was silent on the issue, and the statute is ambiguous.”

Stark said, “if the statute offers any clues on the issue, they militate against the view set out” in the HHS advisory opinion. He said the advisory opinion “expressly relies on the assumption that contract pharmacies act as agents of covered entities.” But he said neither the 340B statute’s reference to covered outpatient drugs “purchased by a covered entity,” nor its definition of covered entity, “speaks about covered entities’ agents.”

“If Congress intended to include agents within the definition of ‘covered entity,’ it evidently knew how to do so,” he said. “It is hard to believe that Congress enumerated 15 types of covered entities with a high degree of precision and intended to include contract pharmacies as a 16th option by implication.”

References to contractors and purchasing agents in other federal health care statutes “also cut against HHS’s position,” Stark said. He said they show that “Congress knows how to write statutes that cover agents and contractors, but it did not do so in the 340B statute.”

340B’s legislative history also undercuts HHS’s position, Stark said.

Stark pointed to Congress’ decision in 2010 to amend the 340B statute to require manufacturers to offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price.

When Congress added the 340B must-offer requirement, he said, “it specifically contemplated including language referring to drugs ‘purchased and dispensed by, or under a contract entered into for on-site pharmacy services with’ covered entities.”

“That omission suggests that Congress did not intend to require manufacturers to deliver 340B drugs to an unlimited number of contract pharmacies,” Stark said.

“Both parties agree that only Congress may add requirements to the 340B statute. Yet both parties’ interpretations of the statute effectively, and impermissibly, add requirements to it,” the judge said. “Under the government’s interpretation, pharmaceutical manufacturers are required to deliver 340B drugs to an unlimited number of contract pharmacies. Under AstraZeneca’s interpretation, covered entities are required to purchase their 340B drugs through in-house pharmacies. Neither requirement is contained in the statute, nor (therefore) compelled by it.”

“Given the ambiguous statutory language, HHS could reasonably choose to opine that manufacturers are not required to deliver 340B drugs to an unlimited number of contract pharmacies when the covered entities themselves never possess the drugs,” Stark said. “Of course, the statutory language does not compel this, just as it does not compel the view articulated in the [advisory] opinion. The point is, once more, that Congress simply has not spoken on the issue.”

“If the [advisory] opinion had endorsed AstraZeneca’s view of its obligations under the 340B statute, it is possible that covered entities would have brought their own suit against HHS to challenge that interpretation,” the judge said. “In that hypothetical case, the outcome would have been the same as the one reached here, because the statutory language does not speak to covered entities’ use of contract pharmacies. The text no more compels AstraZeneca’s interpretation than the government’s alternative interpretation.”

Stark said he “does not take lightly” warnings from the government, hospital groups, and others that repudiating HHS’s position “may make it more difficult for covered entities to serve uninsured or underinsured patients, many of whom live in low-income or rural communities.”

“Congress may very well want pharmaceutical manufacturers to deliver 340B drugs to an unlimited number of contract pharmacies as a condition for manufacturers participation in the Medicare Part B and Medicaid programs,” he said. “But that kind of policymaking is for Congress, not the court. The only issue before the court is whether Congress has spoken clearly and unambiguously on this arrangement. It has not.”

Groups’ Reactions

The American Hospital Association (AHA) and hospital group 340B Health both emphasized that Stark said it was reasonable to argue that the 340B statute requires drugmakers to honor 340B contract pharmacy arrangements.

Wednesday’s “indeterminate ruling at least confirms that the requirement to provide 340B discounts for drugs dispensed through a community pharmacy is a reasonable interpretation of the law,” AHA General Counsel Melinda Hatton said. “And, we continue to believe that it is not only reasonable but is also the correct interpretation.”

340B Health President and CEO Maureen Testoni said that while her group was disappointed that Stark did not dismiss AstraZeneca’s “harmful” lawsuit, “we appreciate the judge acknowledging that HHS made a ‘reasonable interpretation’ of the 340B statute when it determined that drug companies must offer 340B pricing to covered entities on drugs dispensed at community pharmacies. We look forward to HHS continuing its pursuit of enforcement actions against companies that are violating federal law.”

As we reported Wednesday, America’s Essential Hospitals said it was disappointed by the opinion. “We believe the law is clear: Drug manufacturers must provide 340B discounts on prescription drugs dispensed through any means, including contract pharmacies,” said Beth Feldpush, the group’s Senior Vice President of Policy and Advocacy.

Pharmaceutical Research and Manufacturers of America (PhRMA) did not respond to a request for comment on the ruling.

Attorneys’ Reactions

We also sought reactions to Stark’s opinion from several attorneys whose practices include the 340B program.

Helen Pfister, Partner, Manatt Health

Score one for the pharmaceutical industry. While Wednesday’s decision doesn’t settle anything, in dismissing HHS’s motion for summary judgment, the judge in the case emphatically disagreed with the government’s contention that the advisory opinion the HHS Office of General Counsel issued last December merely restated a position on contract pharmacy arrangements that the federal government has held for years.

That said, the judge also noted that the 340B statute “no more compels AstraZeneca’s interpretation than the government’s alternative interpretation,” so what the court’s ultimate decision may be is far from clear. In addition, the other courts hearing similar cases could well come to different conclusions.

The bottom line is that it’s likely to be quite a while before manufacturers or covered entities have a clear answer on whether the restrictions some manufacturers have imposed on the distribution of drugs through 340B contract pharmacies are permissible or not.

Richard Church and Andrew Ruskin, Partners, K&L Gates

The Delaware opinion is most noteworthy as the first substantive ruling on the question from any of the various courts in which this is issue is being litigated.  It is important to note how limited the ruling in fact is, though. The court has not determined whether HRSA had authority to establish the contract pharmacy model. It has simply concluded that in this first court’s view the 340B statute alone does not require manufacturers to participate in the contract pharmacy model.

Of note, the court went out of its way to point out that if the HHS general counsel opinion had concluded exactly the opposite—that the 340B statute mandated the elimination of contract pharmacies—covered entities would have won a lawsuit on this point for the same reason because in this court’s view the statute also does not clearly preclude HHS from permitting contract pharmacies.

Todd Nova, Shareholder, Hall Render

The ruling is obviously notable, and is a positive development for the manufacturer, but at this stage is largely procedural in its finding. The court did not necessarily rule on the merits of contract pharmacies, but rather on the stated basis of the Advisory Opinion. As a result, it wouldn’t be surprising to see HRSA’s Office of Pharmacy Affairs slightly modify its language to address the Court’s findings without materially altering the Opinion’s intended purpose. Ultimately, this delays resolution on the matter at hand but it is by no means dispositive.

An attorney who represents 340B covered entities who requested anonymity

I think there is reason to be hopeful. HHS argued that the 340B statute compels manufacturers to offer 340B drugs through contract pharmacies, and AstraZeneca argued that the 340B statute prohibits HHS from requiring manufacturers from honoring contract pharmacy agreements. The court stated that the statute is ambiguous and doesn’t compel either HHS’s interpretation or AstraZeneca’s interpretation. So, the good news is that the court didn’t accept AstraZeneca’s argument.

It would have been great if the court had ruled that the 340B statute requires manufacturers to honor contract pharmacy arrangements. But the decision could have been worse because the court could have held that the statute prohibits them.

I think, ultimately, the 2010 contract pharmacy guidelines will be evaluated under [an administrative law standard] giving HHS some deference.

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