U.S. District Judge Dabney Friedrich last night issued the second court ruling of the day involving drug manufacturers’ denials of and limitations on 340B pricing when covered entities use contract pharmacies.

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Breaking: Another Federal Judge Issues a Mixed Opinion in 340B Contract Pharmacy Litigation, this Time in Novartis and United Therapeutics’ Cases

A federal district judge last night issued the second court ruling of the day involving drug manufacturers’ denials of and limitations on 340B pricing when covered entities use contract pharmacies. Like the day’s earlier ruling, this one too was mixed, but it leaned more toward the drug industry’s position than the preceding decision.

U.S. District Judge Dabney Friedrich of the District of Columbia, in a Nov. 5 joint ruling in Novartis and United Therapeutics’ lawsuits against the federal government, held that any future federal enforcement action against the companies’ 340B contract pharmacy policies “must rest on a new statutory provision, a new legislative rule, or a well-developed legal theory that Section 340B precludes the specific conditions at issue here.”

Friedrich held that the U.S. Health Resources and Services Administration’s (HRSA) May 17 letters telling the companies that their 340B contract pharmacy policies were illegal and resulted in overcharges “rests upon an erroneous reading of Section 340B.”

“The statute’s plain language, purpose, and structure do not prohibit drug manufacturers from attaching any conditions to the sales of covered drugs through contract pharmacies,” Friedrich wrote.

But, she continued, “Nor do they permit all conditions.”

“The Court will declare that the plaintiffs’ policies do not violate Section 340B under the positions advanced in the Violation Letters and developed in this litigation,” Friedrich said. “The plain language, purpose, and structure of the statute do not prohibit the manufacturers from imposing any conditions on their offers of 340B-priced drugs to covered entities. Therefore, the Court will set aside those letters.”

“Based on the current record, however, the Court will not go as far as the plaintiffs have requested and declare that their policies are permissible under Section 340B,” she continued. “Nor will the Court issue any injunctive relief at this time. In granting this narrow relief, the Court expresses no view as to whether any other legal theory—such as one based on the structure of Section 340B—rules out the plaintiffs’ specific conditions.”

Novartis and United Therapeutics have not yet responded to requests for comment. Nor have HRSA or the U.S. Health and Human Services Department (HHS).

A Historic Week for 340B

Friedrich’s Nov. 5 contract pharmacy decision was the second of the day and the third since last week Friday, Oct. 29.

Hours before Friedrich handed down her ruling in Novartis and United Therapeutics’ lawsuits, U.S. Chief District Judge Freda Wolfson of the District of New Jersey handed down her 122-page joint opinion in drug manufacturers Sanofi and Novo Nordisk’s contract pharmacy lawsuits.

Wolfson ruled that Sanofi and Novo Nordisk’s 340B contract pharmacy policies violate the 340B statute. But she declined to decide whether the 340B statute permits covered entities to use multiple or unlimited contract pharmacies. She vacated the government’s May 17 findings that the companies owe credits or refunds to covered entities and face civil monetary penalties “to the extent that such determinations may depend on the number of permissible contract pharmacy arrangements under the 340B statute.” Wolfson also denied Sanofi’s motion to set aside the U.S. Health Resources and Services Administration’s (HRSA) January 2021 340B administrative dispute resolution final rule.

Wolfson sent HRSA’s May 17 violation letters to Sanofi and Novo Nordisk back to the agency for further consideration consistent with her ruling.

In contrast, Friedrich did not similarly remand HRSA’s May 17 violation letters to Novartis and United Therapeutics to HRSA for repair and reissuance. Any future enforcement action, she said, must rest not on those letters, but instead “on a new statutory provision, a new legislative rule, or a well-developed legal theory that Section 340B precludes the specific conditions at issue here.”

While HRSA’s next move is unclear, that legal theory potentially could be articulated in new contract pharmacy guidance, one attorney speculated.

Seven days before Friedrich’s ruling, U.S. Senior District Judge Sarah Evans Barker of the Southern District of Indiana ruled that while HRSA’s May 17 findings against drug manufacturer Eli Lilly were not contrary to law, unconstitutional, or violative of notice and comment procedures, they were arbitrary and capricious and thus violative of the federal Administrative Procedure Act (APA).

Barker sent HRSA’s May 17 letter to Lilly back to the agency “for further consideration/action consistent with the opinions explicated” in her order.

U.S. District Judge Leonard Stark’s ruling in Astra Zeneca’s 340B contract pharmacy lawsuit is pending. Boehringer Ingelheim’s 340B contract pharmacy lawsuit is still getting underway.

Friedrich’s Legal Reasoning

In her opinion yesterday, Friedrich rejected HRSA’s interpretation of the 340B statute’s “shall offer” language (which requires that each 340B pharmaceutical pricing agreement between the government and a manufacturer “shall require that the manufacturer 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”).

HRSA’s interpretation, she said, “stretches the ‘Shall Offer’ provision beyond its plain meaning.”

“Although the manufacturers’ offers are subject to more conditions than they previously were, they are still meaningful, bona fide offers, notwithstanding HRSA’s argument to the contrary,” Friedrich wrote.

While the 340B statute does not expressly authorize manufacturers to place conditions on their fulfillment of their 340B statutory duties, the statute does not “prohibit manufacturers from placing any conditions on covered entities,” she wrote.

Friedrich rejected HRSA’s argument that that its May 17 letters are justified by its position that the shall-offer language “is an anti-discrimination provision that forbids manufacturers from offering drugs to covered entities on different terms or with different requirements than they offer to commercial entities.”

The shall-offer provision, Friedrich said, requires only that manufacturers offer each covered entities covered drugs at the 340B price if such drugs are made available to any buyer at any price. The provision “provides no statutory hook” for “a broad anti-discrimination rule,” she said.

Friedrich also rejected HRSA position that the 340B statute’s allowance for manufacturer audits of covered entities and the statute’s administrative dispute resolution (ADR) process “preclude drug manufacturers from imposing any additional conditions to police fraud in connection with 340B purchases.”

“HRSA makes no attempt to explain why Section 340B’s structure prohibits any additional conditions, no matter how minor, and for the reasons stated above, it cannot,” she wrote.

“Because the parties have not adequately argued their respective positions on Section 340B’s structure, the Court declines to decide whether Section 340B permits or prohibits any of the specific conditions at issue here,” she said.

Finally, Friedrich ruled that HRSA’s interpretation of 340B with respect to contract pharmacy has shifted over time. Quoting the judge in AstraZeneca’s 340B contract pharmacy lawsuit, she said, “By changing its position on ‘what covered entities may do,’ the agency necessarily changed its position on ‘what drug manufacturers must do.’”

Friedrich said, “the agency’s shifting guidance illustrates that is it attempting to fill a gap in this statute, and this the agency cannot do. Any such gap-filling must be accomplished by a legislative rather than an interpretive rule. But HRSA lacks the authority to issue a legislative rule.”

“As such, HRSA cannot circumvent this requirement by calling its gap-filling ‘interpretive guidance,’” she said.

UPDATE Saturday, Nov. 6, 2021, 12:45 p.m. EDT—A Novartis spokesperson said the company welcomes last night’s ruling, “which rejected the government’s conclusion that the Novartis contract pharmacy policy is unlawful under the 340B statute. We believe the ruling validates our view of the 340B statute and that our contract pharmacy policy is fully consistent with the statutory requirements governing the program.”

“The ruling is a win for the original intent of the 340B program to support vulnerable patients,” the company said. ” We look forward to continuing to work with all stakeholders to ensure that the program operates within its intended framework, and to address long-standing oversight and accountability concerns that threaten its mission.”

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