A federal government lawyer told a judge during a hearing yesterday that the government’s case against AstraZeneca and other drug companies that deny 340B drug discounts when covered entities use contract pharmacies is “in a very different posture” than it was in June when the same judge rejected the government’s position as legally flawed.
U.S. Justice Department (DOJ) lawyer Kate Talmor argued during yesterday’s late afternoon two-hour hearing before U.S. District Judge Leonard Stark of the District of Delaware that the government’s May 17 letter finding that AstraZeneca’s 340B contract pharmacy actions are illegal “does not repeat the same flaw” that Stark found in the government’s December 2020 340B contract pharmacy advisory opinion.
The advisory opinion said that the 340B law unambiguously requires manufacturers to offer drugs for purchase to entities at or below 340B ceiling prices no matter how an entity chooses to dispense the drugs. Stark vacated and set aside the advisory opinion in June, saying that the 340B statute is ambiguous on the role that contract pharmacies may play in 340B.
Shortly before Stark made that ruling, the U.S. Health Resources and Services Administration (HRSA) sent AstraZeneca and five other manufacturers letters telling them that their conditions on 340B pricing when entities use contract pharmacies were illegal. If the companies do not revoke their policies and repay entities for overcharges, they could face civil monetary penalties, HRSA said.
HRSA told AstraZeneca, as it did the other five companies, in the May 17 letter that its finding that the company was acting illegally was based not just on its interpretation of the statute but also on an analysis of covered entities’ complaints.
Record of Covered Entity Complaints
DOJ lawyer Talmor referred often to that record of covered entity complaints during yesterday’s oral arguments in AstraZeneca’s lawsuit, which now is focused on the legality of HRSA’s May 17 letter.
“Before the court now is a voluminous record containing evidence that it is covered entities, not contract pharmacies, making the purchases at issue here, and that Astra’s policy has resulted in both overcharges to covered entities and unlawful denial of access to 340B drugs,” Talmor said.
“Astra largely ignores this evidence” she continued. “It continues to mischaracterize the covered entities’ purchases as contract pharmacy sales, and it’s hanging it entire argument on the theory that your honor’s previous opinion controls the disposition of the May 17 letter.”
Talmor said HRSA has been updating statistics on AstraZeneca’s 340B program sales, which she said previously showed sales “falling off a cliff” when AstraZeneca’s policy took effect. In August, the most recent month for which data are available, “there were $2.5 million in overcharges,” she said.
Stark asked Talmor, if he continues to view the statute as he did in his June opinion, “does all this evidence, whether it constitutes a violation, turn on me having a different statutory interpretation than I did the last time?”
Talmor answered that, whereas his last opinion by necessity focused on the text of the statute “because that’s what the advisory opinion focused on,” this time “HRSA has conducted a wholistic analysis with a lot of evidence.”
“So, we would encourage your honor to take a fresh look to use all the tools available to interpret congressional meaning,” she said. But even if Stark retains his view of the statute, she continued, “that does not warrant setting aside the violation letter.”
“Was I Wrong?”
Stark asked Talmor “Was I wrong?” in his June opinion that AstraZeneca’s policy of limiting 340B sales to entities in-house pharmacies or to a single contract pharmacy for those lacking an in-house pharmacy was consistent with HRSA’s own interpretation of the 340B statute between 1996 and 2010.
“Yes,” she answered.
“This is a critical point,” Talmor continued. AstraZeneca’s claim that its policy would be lawful under HRSA’s 1996 contract pharmacy guidance “is flatly incorrect,” she said. First, she said, HRSA said explicitly in 1996 that contract pharmacy is not limited to entities that lack an in-house pharmacy. Second, she said, the guidance explicitly said entities had a right to contract with retail pharmacies “in the absence of any federal guidelines.”
HRSA, she said, was saying “if it had not spoken at all, covered entities already had the right under state law to use contract pharmacies.”
Third, Talmor said, HRSA explicitly described its one-contract-pharmacy limitation “as a suggested model agreement that it encouraged covered entities to use.”
“In other words, HRSA said the guidance was non-binding on covered entities and they did not have to follow its model agreement format,” she said. “But it just as clearly stated that manufacturers simply cannot deny the purchases.”
“Astra’s policy would have been just as unlawful in 1996 as it is today,” Talmor said.
Astra: Basic Question Remains the Same
AstraZeneca’s lawyer, Allon Kedem, told Stark that DOJ “seeks to brush aside the relevance” of his earlier ruling that the 340B statute is ambiguous about contract pharmacy “with appeals to deference, a lengthy administrative record, and above all to policy concerns.”
“But the basic interpretative question at the heart of his dispute remains the same,” he continued. “Does the 340B statute itself require manufacturers to provide unlimited discounts for contract pharmacy sales, or is that a requirement that the agency is adding to the text? Or put in the language of the May 17 letter, is it true that AstraZeneca’s policy is, quote, in direct violation of the 340B statute?”
“The answer is still no,” Kedem said.
Stark asked Kedem to respond to the government’s position that the 340B statute would be “meaningless in practice” if he adopts AstraZeneca’s view that it does not have to honor any 340B contract pharmacy arrangements.
Kedem answered that when Congress passed the Veterans Health Care Act of 1992, the law that included the 340B statute, “Congress was dealing with…making sure that both the veterans affairs office and also 340B covered entities weren’t paying too much out of pocket for drugs they were turning around and giving for free or selling at a steep discount.”
“It’s true that most covered entities didn’t have in-house pharmacies,” he continued. “But the ones that did have in-house pharmacies were precisely the ones that Congress was concerned about, in much the same way they were concerned that the Department of Veterans Affairs was spending too much on drugs they were giving away or for low cost to our veterans.”
“No one thinks that Congress wanted the veteran’s affairs office to upsell to its veteran clientele and to make profits through drug price arbitrage,” he said.
Astra Raises Concerns Over ADR Process and Timing
Astra told Stark in a letter last Friday, Oct. 15, that HRSA recently told the company that “four separate [340B administrative dispute resolution] ADR petitions against AstraZeneca have been assigned to panels for formal proceedings.” It said that on Friday, Oct. 8, it asked HRSA who was on the panels, whether and when it must respond to the petitions, what the rules of the proceeding were and whether it could request a stay, and whether the ADR panel or panels would stay their proceedings pending Stark’s decision in AstraZeneca’s 340B contract pharmacy lawsuit against the government.
Astra said it asked HRSA for a response by Oct. 14. “To date, however, the agency has provided no response,” it told Stark in its letter. It said it thinks the ADR regulations could require it to respond to the ADR petitions filed against it “as soon as November 4.”
Astra noted that Sanofi faces “a similar set of circumstances” and asked the judge hearing its 340B contract lawsuit against the government for an emergency stay against ADR proceedings. The judge denied the request, pointing out that she will hand down her decision in Sanofi’s case on or before Nov. 5.
During yesterday’s hearing before Stark, AstraZeneca lawyer Kedem told the judge his client “feels the same sense of urgency” for emergency relief from ADR proceedings as Sanofi.
At the end of hearing, Stark said “I’m not persuaded there is any urgency.”
“I’m not in a position where I can say to you that I can meet anything like a Nov. 4 or 5 deadline,” he said. He ordered the two sides to report to him by next week Monday, Oct. 25, on the status of the case, in particular “about the urgency or have there been any developments in the ADR process, has there been any response to the inquiries AstraZeneca has made.”
