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A federal appeals court in Washington, D.C., heard arguments this morning in Novartis and United Therapeutics' consolidated 340B contract pharmacy cases.

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In Key Hearing, Appeals Court Panel Seems to Lean in Favor of Some Drug Manufacturer Conditions on 340B Pricing

Two of three judges on a federal appeals court panel strongly indicated this morning that they reject the federal government’s position that nothing in the 340B statute gives drug manufacturers the right to put any conditions on offers of 340B pricing on covered outpatient drugs bought by covered entities.

The third judge on the panel, meanwhile, asked questions that could suggest she is uncertain if the lower court ruling before the panel was final and thus ripe for review.

Oral arguments are not necessarily determinative of how judges will rule but often provide hints.

Judges Gregory Katsas, Neomi Rao, and J. Michelle Childs of the U.S. Court of Appeals for the District of Columbia Circuit heard arguments early today in drug makers Novartis and United Therapeutics’ consolidated cases against the U.S. Health and Human Services Department and Health Resources and Services Administration. Both companies are challenging the legality of HRSA’s findings that their conditions on 340B pricing when covered entities use contract pharmacies are illegal and must end or the companies could face significant civil monetary penalties.

U.S. District Judge Dabney Friedrich (a Trump nominee) vacated HRSA’s findings against the companies in November 2021. The 340B statute is silent as to whether covered entities can use contract pharmacies, she held. The law does not prohibit manufacturers from placing any condition on a bona fide offer of 340B pricing, but it does not permit all such conditions, she said. 

Friedrich declined to declare Novartis and UT’s specific policies permissible under the 340B statute. 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,” she said.

The federal government appealed Friedrich’s ruling to the D.C. Circuit Court in late December 2021.

During today’s hearing, Judges Katsas and Rao (both Trump nominees) strongly indicated they agreed with Friedrich that manufacturers may put conditions on bona fide offers of 340B pricing. Their questions indicated, however, that they are unsure where to draw the line between legitimate and illegitimate offers, and whether it should be the judiciary’s job to decide the legality of all manufacturer conditions on 340B pricing.

Judge Childs (a Biden nominee who was one of President Biden’s three finalists to be appointed to the U.S. Supreme Court) said little during the hearing. Her few questions centered on Friedrich’s choice not to rule whether Novartis and UT’s specific condition on 340B pricing are permissible. Her questions suggest she could be leaning toward holding that the case should be sent back to Friedrich with instruction to rule on whether the companies’ conditions are legal.

A federal appeals court in Chicago will hear arguments in Eli Lilly’s 340B contract pharmacy lawsuit next Monday. A federal appeals court in Philadelphia will hear arguments on Tues., Nov. 15, in Sanofi, Novo Nordisk, and Astra Zeneca’s lawsuits.

We will report tomorrow in greater depth about today’s arguments before the U.S. Court of Appeals for the District of Columbia Circuit.

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