Drug manufacturer Eli Lilly said it is pleased with a court's injunction yesterday stopping 340B dispute resolution proceedings against it over its denials of 340B pricing on contract pharmacy drugs. | Shutterstock

Injunction in Lilly Case Could Cause HHS to Re-Issue 340B Dispute Resolution Rule

A federal judge’s decision to temporarily shield drug manufacturer Eli Lilly from the 340B program’s administrative dispute resolution (ADR) process could cause the government to issue 340B ADR regulations all over again, health care attorneys say.

U.S. District Judge Sarah Evans Barker yesterday sided with Lilly, ruling that the U.S. Health and Human Services Department (HHS) disregarded statutory procedural requirements when in December it published a final rule creating a board to resolve health care providers’ claims they were overcharged for 340B drugs, and manufacturers’ claims that providers violated the statutory prohibition on diversion or duplicate discounts.

Congress authorized HHS and its Health Resources and Services Administration (HRSA) to create the 340B ADR process in the Affordable Care Act in March 2010. Their deadline for setting up the system was in September of that year.

Lilly sued HHS in January, challenging both the constitutionality and legality of the 340B ADR system, plus the legality of HHS’s December advisory opinion that Lilly and other manufacturers must offer 340B ceiling prices on drugs dispensed by contract pharmacies. Since last summer, Lilly and five other manufacturers either have stopped offering 340B pricing on drugs shipped to contract pharmacies or imposed 340B claims-identification requirements on such drugs.

Judge’s Decision

Lilly asked Judge Barker to issue a preliminary injunction to stop 340B ADR proceedings against it brought by community health centers and HIV/AIDS clinics being denied 340B pricing on Lilly drugs. The judge agreed, saying in her March 16 ruling that the company has “shown a likelihood of success on the merits in establishing that HHS failed to comply with the APA’s [Administrative Procedure Act’s] procedural requirements in promulgating the final ADR Rule.”

Barker, who was appointed by President Ronald Reagan and assumed senior status in 2014, said the public’s interest in HHS’s enforcement of the 340B dispute resolution rule did not outweigh the harm Lilly would suffer “if the ADR rule were permitted to go into effect and was later determined to have been promulgated without an adequate, fair opportunity for advance notice and comment.”

Barker also rejected arguments by six hospital groups in a friend-of-the-court brief that the ADR system is their only recourse to Lilly’s cutoff of 340B discounts, and an injunction against the ADR process would prolong the irreparable harm they are suffering.

Barker said the injunction’s only impact on 340B covered entities “will be to delay their ability to pursue an ADR petition against Lilly until a procedurally valid rule is promulgated, which we assume HHS will want to undertake expeditiously in order to reduce or alleviate any harm from further delay, noting however that the entirety of this process has been conducted with little regard to an efficient timetable.”

Health Care Attorneys’ Takes

Health care attorneys pointed to Barker’s “undertake expeditiously” remark when asked what they think HHS and HRSA’s next step might be.

“The injunction is based on a procedural formality, and the court did not hold that the ADR rule was substantively defective,” said William von Oehsen, principal at Powers Law, which represents Ryan White Clinics for 340B Access (RWC-340B) in its suit to force HHS to take action against Lilly and other manufacturers denying 340B pricing on their products. “This means that HHS can reissue the rule.”

von Oehsen said HHS has good cause to reissue the ADR rule immediately, without notice and comment rulemaking, “because Congress mandated ADR regulations over 10 years ago, and covered entities and their patients are suffering ongoing harms from the refusal of Lilly and other manufacturers to honor contract pharmacy arrangements.” He also observed that the injunction applies to Lilly only and does not halt ADR proceedings against other manufacturers. “We also continue to believe HHS has the authority to take action against Lilly and the other manufacturers in the absence of an ADR decision,” von Oehsen said.

Helen Pfister, a partner at Manatt who represents drug manufacturers and hospitals, said it is unclear whether the government “will step back and re-issue the ADR rule using the notice-and-comment process.”

“In its order, the court noted that it expected that HHS would act ‘expeditiously’ to promulgate a procedurally valid ADR rule, but whether and when HHS will actually do so is an open question,” Pfister said.

Drug manufacturers Sanofi and AstraZeneca and industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA) also have sued HHS over its 340B contract pharmacy requirements. Sanofi and PhRMA are seeking injunctions against the 340B ADR process, and AstraZeneca is seeking one to stop HHS from “further action imminently threatened” against it based on HHS’s December advisory opinion that manufacturers must offer 340B discounts without regard to how or where a drug is dispensed. Novartis is not seeking a preliminary injunction against the ADR process in its lawsuit, but it filed a friend-of-the-court brief in Sanofi’s suit supporting that company’s motion for such an injunction.

Pfister said Barker’s issuance of a preliminary injunction in Lilly’s case “doesn’t mean that other courts will take the same view of the validity of the ADR rule, of course, but it’s certainly a good development for the manufacturers.”

Pfister also said community health centers and HIV/AIDS clinics that have stayed lawsuits against HHS to permit 340B ADR claims against Lilly and other manufacturers to go forward “may well seek to revive those lawsuits in light of this injunction.”

Todd Nova, a shareholder in Hall Render who represents providers, said, “I wouldn’t be surprised to see HHS either appeal the injunction or reissue a new rule to cure the alleged Administrative Procedure Act procedural defects.”

“Practically speaking,” he said, the judge’s decision in Lilly’s favor on procedural rather than substantive grounds “means that HHS is not prohibited from issuing the exact same rule, as long as it follows the appropriate procedures in doing so.”

Andrew Ruskin, partner at K&L Gates who represents both manufacturers and providers, said the Biden administration “should view this decision as a gift.”

“The court’s decision to vacate the decision gives the Biden administration a chance to revisit the decisions made in the rule, with cover from the decision, rather than having to take political fire for pulling back a regulation that, by and large, has been welcome by the covered entity community. That way, if the ADR process is ultimately successful, then the Biden administration can ultimately take credit for it.”

“In the meantime (especially if the Biden administration acquiesces and withdraws the rule, rather than appealing the decision), we are left with continued chaos in the world of contract pharmacies,” Ruskin continued. “To some extent, both the covered entity community and the manufacturer community would rather have their day in court and have a decision issued that ultimately resolves the issue. Even if the ADR process was up and running and fully functional, it’s really just a ‘weigh station,’ given that an ADR decision is appealable. Assuming that either HRSA withdraws the rule, or other courts rule the same way, the parties may argue that, without the ADR process, the only way they can vindicate their rights is to go straight to court. So, we may get to that final court decision on the contract pharmacy issue faster as a result of this decision.”

Lawsuit Parties’ Reactions

“Lilly is pleased with the court’s decision and we look forward to helping to improve the integrity to the 340B program,” a company spokesperson said this morning.

HHS referred a request for comment on the judge’s decision to HRSA, which said, “We have no comment.”

The American Hospital Association, one of the six hospital groups that filed the friend-of-the-court-brief in the case opposing Lilly’s motion for the injunction, said it had no comment at this time. Hospital group 340B Health, one of the others in the group, said it “not planning on issuing a statement today on the ADR preliminary injunction.”

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