Both sides are claiming victory after Federal Judge Sarah Evans Barker’s ruling Friday in Eli Lilly’s lawsuit against HHS and HRSA.

340B Stakeholders Size Up Friday’s Mixed Decision in Lilly’s 340B Contract Pharmacy Lawsuit

Both sides are claiming victory after a federal judge’s ruling Friday in Eli Lilly’s lawsuit against federal health agencies in defense of its policies on 340B pricing when covered entities use contract pharmacies.

U.S. Senior Judge’s Sarah Evans Barker ruled on Oct. 29 that the U.S. Health Resources and Services Administration’s (HRSA) May 17 letter telling Lilly its contract pharmacy actions “have resulted in overcharges and are in direct violation of the 340B statute” was arbitrary and capricious in violation of the Administrative Procedure Act (APA).

Seven other drug manufacturers have 340B contract pharmacy policies comparable to Lilly’s—AstraZeneca, Boehringer Ingelheim, Merck, Novartis, Novo Nordisk, Sanofi, and United Therapeutics. All but Merck have received nearly identical cease and desist letters from HRSA (and Merck has been widely expected to get one soon too). AstraZeneca, Boehringer Ingelheim, Novartis, Novo Nordisk, Sanofi, and United Therapeutics are all suing the government over the letters, and Barker’s ruling Friday will figure in those cases.

Some Good News for HRSA and Entities

Barker’s ruling, however, also contained good news for HRSA and entities.

Barker held that HRSA’s finding that Lilly has broken the law “neither exceeds the agency’s statutory authority nor is contrary to law.” She also said “the fairest and most reasonable interpretation of the 340B statute” would not let manufacturers unilaterally restrict drug distribution in ways that frustrate 340B’s purpose. 

Barker ruled that the government violated the APA because HRSA did not acknowledge its change in position regarding its ability to enforce contract pharmacy arrangements.  

Barker set aside and vacated HRSA’s May 17 letter to Lilly and sent it back to the agency “for further consideration/action consistent with the opinions explicated” in her order. Ryan White Clinics for 340B (RWC-340B), which filed two amicus briefs in the Lilly case and was the first organization to sue the government to prod HRSA to enforce the contract pharmacy requirements, believes “the remedy for this administrative oversight is simply for HRSA to issue an acknowledgement and explanation of its change of position in an amended cease-and-desist letter to Lilly.”

Appealing Barker’s decision to the U.S. Seventh Circuit Court of Appeals is another possibility. But HRSA may choose the simpler route of revising its letter or issuing a broadly applicable clear statement on its enforcement authority.

To complicate matters, the federal district judge assigned to Sanofi and Novo Nordisk’s 340B contract pharmacy lawsuits told the parties in Sanofi’s case last month that she would hand down her decision on or before this week Friday, Nov. 5. If U.S. District Judge Freda Wolfson’s ruling diverges from Barker’s ruling, 340B contract pharmacy’s status will be even less certain.

The judge assigned to Novartis and United Therapeutics’ cases said during a hearing last month she would try “to get out an opinion shortly.” She is also assigned to Boehringer Ingelheim’s case and drug industry vendor Kalderos’ lawsuits seeking to vacate federal health agency findings that manufacturers violate the 340B statute when they deny or impose conditions on 340B pricing when covered entities use contract pharmacies.

Barker’s Ruling

Barker ruled for Lilly on its claim that HRSA’s May 17 letter was arbitrary and capricious. But she ruled against Lilly and for the government on Lilly’s claims that the letter was contrary to law or in excess of statutory authority, was unconstitutional, and was issued without following the APA’s notice and comment procedures.

Although the 340B statute “does not unambiguously require drug manufacturers to deliver drugs to an unlimited number of contract pharmacies,” Barker said, “the statute, correctly construed, does not permit drug manufacturers, such as Lilly, to impose unilateral extra- statutory restrictions on its offer to sell 340B drugs to covered entities utilizing multiple contract pharmacy arrangements.”

Barker voided HRSA’s May 17 findings against Lilly because, she said, HRSA has espoused the conflicting views that (1) manufacturers must comply with 340B statutory requirements regardless of how entities dispense drugs, (2) HRSA lacks authority to issue binding contract pharmacy regulations and operates instead with guidance that limits its enforcement authority, and (3) it is up to the 340B administrative dispute resolution (ADR) process to determine whether Lilly’s policies are legal or illegal.

Barker said she did not know why HRSA “said for so long that it was not able to enforce its view of drug manufacturers’ obligations under the statute in the context of contract pharmacy arrangements and then suddenly changed tack and said it was able to enforce these requirements.”

“What we have come to see, however, is that the 340B program can no longer be held together and implemented fairly for all concerned with non-binding interpretive guidelines and mixed, sometimes inconsistent messaging by the agency regarding the source and extent of its authority to enforce statutory compliance in the area of contract pharmacies,” Barker concluded.

340B Stakeholders’ Reactions

Groups that represent 340B health care providers are emphasizing what for them are the positive aspects of Barker’s decision.

RWC-340B this morning lauded Barker for ruling that Lilly’s action would make 340B drugs inaccessible to many covered entities.

“Fairness and reason have prevailed,” said RWC-340B President Shannon Stephenson, the CEO of Chattanooga, Tenn.-based Cempa Community Care. “It has been obvious to us for the last three decades that Congress did not mean for drug companies to make up their own rules for the 340B program to save a buck on the backs of the safety net.”

“The court clearly established that Eli Lilly or any manufacturer cannot limit the availability of their 340B pricing to a special delivery location of their choosing and force covered entities to pay full price for outpatient drugs,” said Joe Dunn, Senior Vice President, Public Policy and Research at the National Association of Community Health Centers (NACHC). “That is a win for health centers. We are optimistic that the true intent of the 340B program will prevail in this and the other court cases.”

“We are pleased a federal court has agreed that Eli Lilly is breaking federal law and its agreements under the 340B program by unilaterally restricting access to discounts on drugs dispensed at community-based pharmacies,” said 340B Health President and CEO Maureen Testoni. “We are encouraged that the court upheld HRSA’s view that Lilly is violating the law as one that ‘best aligns with congressional intent’ of the 340B program. We urge the government to continue its work to enforce the law and restore the statutory drug discounts that enable 340B hospitals to care for patients with low incomes and those living in rural parts of the country.”

A spokesperson for Lilly told 340B Report last Friday that the company “is encouraged by today’s opinion, which confirms that the government’s enforcement decision against it was improper.”

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

Health Care Attorneys’ Views

Helen Pfister, a partner at Manatt Health who represents drug manufacturers, hospitals, and health centers, called Barker’s decision in Lilly’s case “a victory for pharmaceutical manufacturers, but a fairly limited one.”

Although the court set aside and vacated HRSA’s May 17 letter, “the court didn’t opine on the central issue at stake here, namely, whether pharmaceutical manufacturers are required to provide 340B drugs to covered entity contract pharmacies,” she said. “So, for the time being, at least, I would not expect manufacturers to resume shipping 340B drugs to contract pharmacies.”

Richard Church, a partner at K&L Gates who represents health care providers, called Barker’s conclusion that the 340B statute requires manufacturers to allow contract pharmacy arrangements “a very significant win for covered entities—with the court agreeing that HRSA’s action was within the 340B statute and therefore HRSA’s power.”

But, he continued, Barker’s other conclusion that HRSA’s May 17 enforcement letter to Lilly was arbitrary and capricious “means covered entities have no immediate remedy.”

“The ball shifts back to HRSA to enforce its contract pharmacy action in a manner consistent with the standard Judge Barker articulated for agencies changing a longstanding position,” he said. “Other courts are likely to weigh in on the parallel cases in other jurisdictions,” Church said. “How those courts rule will also impact next steps for all parties involved in this case, including how HRSA responds to Judge Barker’s remand to HRSA to try again in bringing an enforcement action related to its ‘new’ contract pharmacy position.”