Federal Judge Dismisses Hospitals’ 340B Contract Pharmacy Lawsuit Against HHS

A federal district judge in Oakland, Calif., has dismissed the lawsuit by hospitals against the U.S. Health and Human Services (HHS) Department over HHS’s enforcement of its 340B contract pharmacy requirements for drug companies.

U.S. District Judge Yvonne Gonzalez Rogers yesterday granted HHS’s motion to dismiss the suit filed by five hospital associations, the association of hospital pharmacists, and three hospitals. The judge cited three reasons.

First, she said, “Congress made explicit that alleged 340B program violations are to be first adjudicated by HHS” through the 340B program administrative dispute resolution (ADR) process. The judiciary’s role “comes only after the parties have participated in this ADR process,” the judge said. “This court will not otherwise short-circuit the foundational regime that Congress has enacted in the 340B program.”

Second, Gonzalez Rogers held that HHS has not yet taken a final action that can be appealed to the courts. “Plaintiffs aversion to the now available ADR process is not grounds” for an appeal alleging a violation of the Administrative Procedure Act (APA), the judge said. “To the extent that plaintiffs are dissatisfied with the ADR process, the ADR rule endows plaintiffs the ability to initiate an APA action by appealing a final determination made in the ADR process at that time—and no sooner.”

Third, Gonzalez Rogers agreed with HHS that, “at least at this juncture,” she cannot order the department “to prosecute or enforce certain [340B program] requirements that are its absolute discretion.”

“HHS’s decision whether to enforce or prosecute violations under the 340B program are committed to its discretion,” the judge said. Gonzalez Rogers also rejected the plaintiffs’ argument that she should act because HHS and HRSA have abdicated their statutory responsibilities. “The record demonstrates that HHS and HRSA continue to contemplate their response to the recent actions by the drug companies,” she wrote. “At this stage, given that the drug companies actions are recent, an action brought against HHS on this ground is premature.”

Gonzalez Rogers left the door open to a future lawsuit by the hospital plaintiffs. “Because plaintiffs may be able to maintain a narrower action seeking general enforcement of the statute in the future, assuming certain decisions, determinations, or actions by HHS, the court will dismiss the action without prejudice,” she wrote.

The judge’s dismissal of the hospital plaintiffs’ lawsuit reduces to two the number lawsuits by 340B covered entities against HHS seeking to press the department to take action against the six drug manufacturers that are denying or that have imposed conditions on 340B pricing on drugs dispensed by contract pharmacies. One of the remaining suits was brought by the National Association of Community Health Centers (NACHC) and the other by Ryan White Clinics for 340B Access (RWC-340B). Both have asked for their lawsuits to be stayed so that related petitions filed under the ADR system can be heard and decided.

Four drug manufacturers, meanwhile, are suing HHS to block federal sanctions over their decisions to stop or impose conditions on 340B discounts on drugs dispensed by contract pharmacies.

As we reported earlier today, the U.S. Justice Department on Tuesday, in a strongly worded filing, asked a federal district judge in Indianapolis to deny Eli Lilly’s motion in late January to block the 340B program’s ADR process.

American Hospital Association General Counsel Melinda Hatton said Gonzalez Rogers’ decision “appropriately gives us an invitation to refile if the new administration fails to do something tangible to hold drug companies accountable for withholding discounts for 340B drugs to eligible hospitals within a reasonable amount of time.”

“We continue to urge the Department of Health and Human Services’ Health Resources and Services Administration to take swift and decisive action to halt these pernicious tactics from drug companies and ensure that 340B drugs remain available and accessible to vulnerable communities across the country,” Hatton said.

“This fight is far from over,” 340B Health President and CEO Maureen Testoni said. “Today’s decision in our lawsuit merely relates to procedural matters and not the merits of the legal arguments in this case. There is nothing stopping HHS or its next secretary from acting immediately to initiate enforcement proceedings against drug companies that are violating federal law. We will continue to work toward this solution to stop drug company attacks on 340B and the safety-net hospitals and patients who rely on it.”

Testoni said her association continues to assert that the ADR process, “which will be of unknown duration, is not the appropriate way to address behavior that HHS’s own chief counsel already has stated is plainly illegal.”

“In addition, the ADR process is not yet operating, requiring hospitals to waste time and resources if they attempt to use this avenue to stop the drug companies’ illegal behavior,” Testoni said. “In the meantime, safety-net providers and the patients they serve will continue to suffer.”

ASHP (American Society of Health-System Pharmacists) Vice President Tom Kraus said the group was “disappointed in the court’s decision” but pleased that HHS has “unquestionably affirmed our position that manufacturers have a legal obligation to provide discounts to 340B covered entities, including when contract pharmacies are used.”

“As the court noted, HHS is also taking steps to implement a dispute resolution process through which hospitals may seek compensation from manufacturers that fail to provide adequate discounts under the program,” Kraus said. “We continue to believe that HHS needs to take enforcement action against manufacturers that fail to provide discounts to covered entities, as required by law, and ASHP is committed to working with our co-plaintiffs to ensure that manufacturers meet their obligations under the 340B program.”

America’s Essential Hospitals Senior Vice President Beth Feldpush said, “While the court’s decision was disappointing, we note it was silent on the merits of our position that manufacturers are evading their statutory obligations under 340B. We will continue to oppose manufacturer policies that jeopardize access to affordable drugs for our hospitals and patients, and we call on HHS to use its authority to stop these unlawful actions.”

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