U.S. District Judge Dabney Friedrich said today she agreed with another federal judge that the plain text of the 340B statute "doesn't speak" to contract pharmacy.

Judge Expresses Doubt About Government’s Position During Arguments in Novartis and United Therapeutics’ 340B Contract Pharmacy Lawsuits

A federal district judge said today she “has a hard time following” the federal government’s argument that the 340B statute requires drug manufacturers to honor covered entities’ drug purchases no matter how entities choose to distribute the medicines.

“It seems like there’s a really big gap in the statute,” U.S. District Judge Dabney Friedrich said during an Oct. 12 hearing on manufacturers’ Novartis and United Therapeutics’ requests that she strike down federal health agency findings that the two companies’ 340B contract pharmacy policies are illegal. Friedrich consolidated the two cases for arguments on all pending motions.

“The statute says nothing about contract pharmacy,” Friedrich said. She said she agrees with U.S. Chief Judge Leonard Stark of the District of Delaware, the judge in AstraZeneca’s 340B contract pharmacy lawsuit, that the plain text of the 340B statute “doesn’t speak to this. The agency is really filling a gap.”

In late June, Stark set aside and vacated the U.S. Health and Human Services (HHS) Department’s December 2020 advisory opinion that the 340B statute compels drug manufacturers to offer 340B pricing when covered entities use contract pharmacies. During a hearing earlier in June, Stark said the government’s position was “legally flawed.”

HHS withdrew the advisory opinion in mid-June 2021 “in light of ongoing confusion” about the opinion’s scope and impact. A month earlier in May, U.S. Health Resources and Services Administration sent Novartis, United Therapeutics, AstraZeneca, Lilly, Sanofi, and Novo Nordisk letters informing them that their 340B contract pharmacy policies violated the 340B statute. This month it sent Boehringer Ingelheim a similar letter, and it is expected to send one soon to Merck.

Friedrich, like Stark before her, observed that between 1996 and 2010 HRSA “changed its view interpreting the text of the statute, from requiring just one contract pharmacy to now unlimited contract pharmacy.”

Friedrich asked U.S. Justice Department attorney Jody Lowenstein if the government loses its argument that that text of the 340B statute compels manufacturers to honor contract pharmacy arrangements, “can it still win” on the grounds that its 340B contract pharmacy interpretive guidance issued in 1994, 1996, 2010, and later was reasonable.

“HRSA does not seek to enforce any rule that was contained in interpretive guidance here,” Lowenstein answered. But if Friedrich finds that the 340B statute is ambiguous (as Stark did in the AstraZeneca suit), “the question for the court is, who has the best reading here? We would posit that HRSA’s reading is the best reading in this event.”

Earlier during the hearing, Novartis’ attorney, Catherine Stetson, said “the plain fact of the matter is, because the statute does not speak to contract pharmacies at all, manufacturers flatly don’t have to do anything. That’s stark to say, but it’s the reality of the statute.”

None of what the government asserts manufacturers must do with respect to contract pharmacy is in the statute, “and certainly not a penalty” for not honoring multiple 340B contract pharmacy arrangements, she said.

Friedrich also asked United Therapeutics’ attorney Philip Perry if HRSA could base an enforcement proceeding against his client solely on interpretive rules if she disagrees with the government on the plain meaning of the statute.

“I don’t think they have any authority to proceed against my client on any grounds,” Perry said. He said HRSA has taken “a very different view of what the statute means since they put that guidance out.”

He noted that HRSA said in a December 2020 U.S. Government Accountability Office report that the 340B statute does not address contract pharmacy use and has made public statements since issuing its contract pharmacy guidance in 1996 and 2010 “that shows that HRSA has taken a very different position.”

“Now they’re saying, ‘we’ve always had the same position,’” Perry said. “But in fact, they’ve not always had that position.”

We will report more in depth on today’s court hearing in a forthcoming article.

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