Seal of the U.S. Court of Appeals for the Third Circuit
The federal government wants the U.S. Third Circuit Court of Appeals to partially uphold and partially overturn a lower court's opinion in Novo Nordisk and Sanofi's consolidated 340B contract pharmacy cases.

Feds Ask Appeals Court to Uphold HRSA’s 340B Program Violation Letters to Novo Nordisk and Sanofi

A federal district judge was right to rule last November that drug makers Novo Nordisk and Sanofi may not tie strings to 340B pricing when providers use contract pharmacies, the federal government told a federal appeals court in Philadelphia last week.

But the judge was wrong, the government said, to throw out 340B program violation findings against the companies on the grounds it is unclear whether there is a limit on how many 340B contract pharmacy arrangements a provider may have.

U.S. Chief Judge Freda Wolfson of the District of New Jersey “was mistaken” to order the U.S. Department of Health and Human Services to address what she said was the unresolved question of how many contract pharmacies the 340B statute permits, the government said in a July 7 brief filed with the U.S. Third Circuit Court of Appeals.

“HHS lacks rulemaking authority with respect to contract-pharmacy arrangements,” the government said in its brief. “Indeed, the district court recognized as much.” The government said it was the judge’s job, not HHS’s, to resolve any ambiguity about whether there is an upper limit on how many contract pharmacies a covered entity may have.

The government’s filing in Novo Nordisk and Sanofi’s consolidated cases last week duplicates much of what it told the Third Circuit Court in a brief in early May.

It said the district court correctly recognized that, under the 340B statute, drug manufacturers may not unilaterally create policies that “dictate how many contract pharmacies a covered entity may designate to receive delivery of covered drugs.”

Under the 340B statute, the government said, “if drug manufacturers want to be reimbursed for their drugs by the federally funded Medicaid and Medicare Part B programs, they also must sell their drugs to covered entities at a discounted price.” They may not “add provisos to that straightforward statutory requirement,” it said.

“Congress specifically addressed” concerns about drug diversion and duplicate discounts in the 340B program “through calibrated program-integrity provisions,” the government said. “Congress did not, however, restrict covered entities’ use of contract pharmacies or allow drug manufacturers to impose such restrictions.”

“Put another way, Congress created the 340B program to ensure that covered entities could obtain discounted drugs under the conditions that Congress established,” the government said. “That necessarily precludes manufacturers from imposing their own conditions that would prohibit covered entities from otherwise obtaining drugs at a discounted price.”

The government said Sanofi and other manufacturers, for example, “cannot unilaterally make the 340B discounts contingent on covered entities’ agreement to produce claims data on a given manufacturer’s preferred platform or in a given manufacturer’s preferred format.”

“Instead, the 340B statute authorizes manufacturers to audit covered entities as the means to uncover duplicative discounts or diversion,” the government said. “Notably, Congress required manufacturers to bear the expense of such audits, rather than impose those costs on the covered entities. Moreover, Congress has made an audit conducted pursuant to that statutory provision a prerequisite for a manufacturer’s administrative claim against a covered entity.” 

Sanofi “cannot ignore this reticulated scheme for auditing and adjudicating potential violations by demanding that covered entities instead collect and submit claims data on a biweekly basis to the manufacturer’s preferred platform (with unknown privacy protections),” the government said.

Covered entities today “must seek to accommodate a web of restrictive manufacturer conditions simply to obtain the discounted drug price that Congress enacted the 340B program to provide them,” the government said. “The result is billions’ worth of savings lost, and people’s health put in jeopardy. Accordingly, HHS properly informed the manufacturers that their new policies violate the statutory scheme and must end.”