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Merck is the eighth drug manufacturer to sue HRSA in defense of conditions on 340B pricing when covered entities use contract pharmacies.

Merck Becomes Eighth Drug Maker to Sue HRSA in Defense of 340B Contract Pharmacy Restrictions

Drug manufacturer Merck sued the federal government on Friday over the government’s May 6 letter telling the company its conditions on 340B pricing when hospitals and health centers use contract pharmacies are illegal. The government warned Merck it could be penalized up to $6,323 per each instance of overcharging.

In a complaint filed July 8 in federal district court in Washington, D.C., Merck says the letter from the U.S. Health Resources and Services Administration “exceeds the agency’s statutory authority.”

The company cited a U.S. Supreme Court decision last month curbing the U.S. Environmental Protection Agency’s power to regulate greenhouse gases in arguing that HRSA overstepped its bounds. It said HRSA “has acted as though it has rulemaking authority Congress never gave it” and “has done so in a way that radically changes the way the 340B program works.”

In the greenhouse gas case, the Supreme Court said squarely for the first time that a federal agency needs clear authority from Congress to make major policy decisions. HRSA’s declaration that manufacturers may not place any conditions on offers of 340B pricing is a major question, and HRSA “cannot identify any such clear authorization” for its decision that Merck is violating the 340B statute, the drug company said.

“Apart from imposing a statutory ceiling price that must be offered for covered entities’ purchases of a manufacturer’s covered outpatient drugs, Congress left it to the parties to address the terms and conditions of 340B sales—subject to the statute’s prohibitions on duplicate discounts and diversion—and Congress did not prohibit manufacturers from establishing parameters or conditions with respect to their offers for 340B-discounted pricing,” Merck said.

Merck said its policy letting hospitals and health centers use unlimited contract pharmacy arrangements if they share claims-level data for contract pharmacy transactions is “reasonable and consistent” with the 340B statute. Obtaining such data is one way that manufacturers can initiate an audit against a covered entity and assert 340B-related claims against the entity through the 340B administrative dispute resolution process, Merck said.

Merck also told the district court that HRSA’s determination that the company was breaking the law was arbitrary and capricious, was procedurally defective, and violates Merck’s due process rights.

Merck’s case was assigned to U.S. District Judge Dabney Friedrich, who in November struck down 340B program violation letters the government sent to drug makers Novartis and United Therapeutics over those companies’ 340B contract pharmacy restrictions. Those consolidated cases are now before a federal appeals court in Washington. 

Merck said Friedrich should strike down the letter it got from HRSA just as she did the letters that Novartis and UT got. “The letter sent to Merck is identical in all relevant respects to the violation letters invalidated by this Court in Novartis/UT,” Merck said.

Merck is the eighth manufacturer to sue HRSA and the Department of Health and Human Services in defense of 340B contract pharmacy restrictions. The others are AstraZeneca, Boehringer Ingelheim, Lilly, Novartis, Novo Nordisk, Sanofi, and UT.

AstraZeneca and Lilly’s lawsuits, Novartis and UT’s consolidated suits, and Novo Nordisk and Sanofi’s consolidated suits all are at the appeals court level.

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