Tuesday's hearing in a lawsuit involving drug manufacturers denials of 340B pricing on contract pharmacy drugs was held in the Ronald V. Dellums Federal Building in Oakland, Calif.

In Key Hearing, Federal Judge Expresses Doubt About Court’s Ability To Take Action on Contract Pharmacy Matter

A federal district judge in Oakland, Calif., on Tuesday expressed doubt that she had jurisdiction to require the U.S. Health and Human Services Department (HHS) to make drug manufacturers repay 340B hospitals for drug discounts that the companies have declined to provide on drugs dispensed by contract pharmacies.

According to an attorney who observed the Feb. 9 court proceedings online, U.S. District Judge Yvonne Gonzalez Rogers indicated that she did not think the court could order such repayments, given that the 340B statute called for the creation of a 340B program administrative dispute resolution (ADR) process to resolve 340B covered entities claims that they have been overcharged for drugs purchased under 340B.

Tuesday’s late afternoon hearing, held remotely via videoconference, was on the federal government’s motion to dismiss the lawsuit by five hospital associations, the association of hospital pharmacists, and three hospitals against HHS over the department’s enforcement of its 340B contract pharmacy requirements for drug companies.

The hospital plaintiffs have asked the court to order HHS to require six drug companies—Eli Lilly, Sanofi, AstraZeneca, Novartis, United Therapeutics, and Novo Nordisk—to provide 340B discounts on drugs dispensed by contract pharmacies, to issue refunds to hospitals that were refused discounts, and to impose civil monetary penalties against the companies. HHS has asked Gonzales Rogers to dismiss the lawsuit, on the grounds that the new 340B ADR system should handle the matter, not the courts, as well as because there has not been a final HHS action for the court to review.

A U.S. Health Resources and Services Administration (HRSA) final rule implementing the 340B ADR system took effect Jan. 12. The National Association of Community Health Centers (NACHC) and Ryan White Clinics for 340B Access (RWC-340B), both of which also are suing HHS over its response to the drug manufacturers’ contract pharmacy actions, have both asked for their lawsuits to be stayed so that related petitions filed under the ADR system can be heard and decided.

Proceedings before the ADR panel were frozen on Jan. 21 when the new Biden administration withdrew former HHS Secretary Azar’s Jan. 20 public notice of his appointment of six voting and two ex-officio non-voting members to the ADR board. Then, on Jan. 25, Pharmaceutical Research and Manufacturers of America (PhRMA) sued in federal district court in Maryland to strike down the federal final rule that established the ADR process.

During Tuesday’s hearing in the hospitals’ lawsuit, Gonzales Rogers asked their attorneys if the hospitals would withdraw their request for repayments for overcharges. She noted the availability of a remedy under the ADR system, and the stays in the health center and HIV/AIDS clinic lawsuits to allow ADR proceedings to go forward. William B. Schultz, counsel for the plaintiffs, said they would not withdraw their request for overcharge repayments because there is “no effective regulation yet.” They also said the ADR process does not provide swift relief, and noted the withdrawn appointments to the ADR board and manufacturer lawsuits challenging the system’s legality. Congress provided for swift relief in the form of HHS imposition of civil monetary penalties against the manufacturers, he said.  Schultz served as General Counsel of HHS during the Obama Administration.

A significant portion of the hearing was devoted to debate over whether the court has jurisdiction to order HHS to impose civil monetary penalties; whether HHS has discretion to impose such penalties; and whether HHS abdicated its enforcement responsibilities. HHS attorney Kate Talmor said HHS has not abdicated its responsibility. 

She said the government is (1) “investigating” the manufacturer actions, (2) determining what actions HHS should undertake, (3) HHS is working with providers to investigate and resolve the matter; (4) that the OGC issued the Advisory Opinion, (4) HHS is awaiting the appointment of a new Secretary under the new administration (as if HHS expects enforcement thereunder) and (5) that HHS has promptly promulgated ADR Regulations. The Judge took issue with HHS’ use of the term “promptly” after years of delay and also questioned why, if the agency is not abdicating its duty, has it not issued CMPs in light of the Office of General Counsel’s Advisory Opinion. Talmor said the court is not empowered to order specified enforcement actions, even when the agency declined to do so.

In response to a question from the judge regarding the status of the manufacturer pricing provisions in the Affordable Care Act, the HHS attorney conceded she did not know whether most of the actions were undertaken. For instance, she was not aware whether HRSA had moved forward with publishing ceiling pricing information on the Office of Pharmacy Affairs (OPA) web site. OPA unveiled the ceiling price database in 2019.

Judge Gonzalez Rogers told the attorneys that she hopes to make a ruling on the motion to dismiss very shortly. 340B Report will keep you updated on developments.

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