A federal district court in Washington, D.C., heard arguments this week in Novartis and United Therapeutics' 340B contract pharmacy lawsuits.

A Closer Look at Critical Court Hearing on 340B Contract Pharmacy Legality

U.S. District Judge Dabney Friedrich all but told the federal government during a court hearing in Washington, D.C., on Tuesday she rejects its basic argument that the plain text of the 340B statute requires drug manufacturers to honor 340B purchases by covered entities regardless of whether those entities use contract pharmacy services.

Friedrich spent much of the 90-minute hearing quizzing lawyers for drug makers Novartis and United Therapeutics and the federal government about other possible grounds upon which the government might win the cases that the two companies have brought against it.

The U.S. Health and Human Services Department (HHS) told the companies in letters in May that their conditions on 340B contract pharmacy break the law. The companies must stop and repay covered entities for overcharges or possibly face civil monetary penalties, HHS said. The companies say HHS’s findings are baseless and that under the law they do not have to honor contract pharmacy arrangements.

Asking About Other Grounds

If the U.S. Health Resources and Services Administration (HRSA) can’t win based on its direct reading and interpretation of the 340B statute, can it win instead based on an interpretative rule that reaches the same conclusion, the judge asked all three lawyers.

What about the complaints HRSA has received from covered entities about being overcharged due to Novartis and United Therapeutics’ 340B contract pharmacy policies? Can HRSA rely on those as a basis for its findings that Novartis and United Therapeutics broke the law, she wanted to know.

What about the government’s point that the two companies’ denials of 340B pricing when entities use contract pharmacies upsets HRSA’s expectation that manufacturers will give 340B entities and non-340B purchasers the same opportunities to buy covered outpatient drugs? Are the companies illegally treating covered entities differently than their commercial customers, she asked? And is that grounds to give HRSA and HHS the win?

Isn’t it HRSA’s role, not every pharmaceutical company’s job, to police the 340B program, Friedrich asked.

As we reported Tuesday, during the hearing Friedrich said, “the statute says nothing about contract pharmacy” and that she agrees with the judge in AstraZeneca’s contract pharmacy lawsuit against the government that the plain text of the 340B statute “doesn’t speak to this.”

“I will endeavor to get out an opinion shortly,” she said at the hearing’s conclusion. “I know that the parties have been waiting some time for this. So, I will do my best. I’m not going to give you a date exactly, but it’s at the top of my list.”

Other Hearing Highlights

Title to Drugs

Friedrich asked U.S. Justice Department (DOJ) attorney Jody Lowenstein if covered entities always maintain title to covered outpatient drugs in contract pharmacy arrangements. The judge in AstraZeneca’s lawsuit spent considerable time probing that same issue during a hearing in that case earlier this year.

Lowenstein told Friedrich entities do maintain title to drugs “at least until they reach, under the replenishment model, the neutral inventory of the contract pharmacy, from which the 340B eligible dispenses were dispensed.” Lowenstein also said retention of title is not a statutory requirement.

“An Hour a Year”

United Therapeutics attorney Philip Perry said it will take “an hour a year” for covered entities, contract pharmacies, and 340B third party administrators “to get this information” needed to comply with the company’s claims data submission condition on 340B pricing.  Perry’s contention would be strongly disputed by 340B covered entities, but Lowenstein did not address this point during his arguments. The government attorney did point out that there is process in place that gives manufacturers the ability to successfully conduct an audit of a covered entity.

“It lets us know if there are duplicate discounts and will help us understand if a prescription that we are giving a 340B discount to is genuinely a covered entity or some prescriber who is not working for the covered entity,” Perry said.

Friedrich asked Perry if the company needs the information to file an administrative dispute resolution claim against an entity.

“We need to audit before to go to the ADR,” he answered. “We need to know when to audit. This information tells us enough to know when to audit.”

Earlier, Perry said in the 340B contract pharmacy replenishment model contract pharmacies and third-party administrators “are getting paid a fee or compensated in another way to go through and data-mine prescriptions from the past and see if they can make an argument that any of those are 340B eligible. That’s after the fact. And that’s what’s driving a lot of the concern here.” He added that “HRSA doesn’t think it has authority to audit contract pharmacies and third-party administrators.”

The Wrong Policy

Novartis’ attorney Catherine Stetson criticized HRSA for misidentifying the company’s 340B contract pharmacy policy in its May 17 letter telling Novartis its policy was illegal.

Novartis first notified covered entities in August 2020 that effective Oct. 1, 2020, all entities would have to upload 340B claims data originating from contract pharmacies to receive 340B pricing from Novartis. In late October 2020, it amended its policy (1) to make its claims submission policy voluntary, (2) to exempt grantee covered entities from any conditions, and (3) to honor hospital contract pharmacy arrangements within a 40-mile radius of the covered entity hospital.

Stetson said HRSA’s May 17 finding letter referred to Novartis’ August 2020 policy, not its October 2020 policy, and that the error was evidence that HRSA had acted contrary to the Administrative Procedure Act.

The government acknowledged the misstatement in a June 28 brief filed in the case. It said the misstatement “in no way undermines HRSA’s conclusion that Novartis’s restrictions on the use of contract pharmacies contravenes the 340B statute and that the drug manufacturer’s actions have resulted in unlawful overcharges on covered outpatient drugs—a conclusion that is supported by sound statutory interpretation and ample evidence in the administrative record.”

“Overall Statutory Scheme”

DOJ attorney Lowenstein defended the government’s position that the plain text of the 340B statute requires manufacturers to offer 340B pricing regardless of how covered entities choose to deliver covered outpatient drugs to patients. He said the text “must be read in context and with a view of its place in the overall statutory scheme.”

“Since 1992, manufacturers have understood they have to comply with that straightforward, textually unqualified statutory command to honor 340B discounted drug purchases by covered entities,” he said. Novartis and United Therapeutics “have tried to create, from that broad obligation, an implicit exception…suggesting they have the discretion to deny 340B purchases any time those purchases would be dispensed to patients through an outside contract pharmacy. They reach that conclusion on the fact that the 340B statute does not expressly note anything about the terms of delivery or the dispensing mechanism to be used.”

“That’s not how courts interpret broad statutory commands,” Lowenstein continued. “When a statute contains broad language to define a mandate, it’s presumed Congress is seeking to achieve general coverage of that mandate, and not to leave room for regulated parties to create ad hoc exceptions to that mandate.”

No Closing Remarks for Feds

Novartis attorney Stetson and United Therapeutics attorney Perry were allowed to make closing remarks, but Friedrich brought the hearing to an end before Lowenstein could have his final say. The judge explained that she was late for another appointment.

Judge Assigned to Kalderos Lawsuit

Judge Friedrich on Tuesday also was assigned to hear drug industry vendor Kalderos’ lawsuit seeking to vacate HRSA’s policy prohibiting drug manufacturers from conditioning 340B drug discounts on covered entities’ submission of drug claims data.