PhRMA yesterday asked a federal district court to strike down Arkansas' 340B nondiscrimination law, Act 1103.

PhRMA Asks Federal Court to Strike Down Arkansas’ Novel 340B Nondiscrimination Law

Pharmaceutical Research and Manufacturers of America (PhRMA) asked a federal district court yesterday to rule that Arkansas’s 340B nondiscrimination act does not require drug manufacturers “to offer price discounts under the 340B program to contract pharmacies in Arkansas.”

PhRMA also asked the court to declare the law, Act 1103, unconstitutional and preempted by federal law and to enjoin the state from enforcing it against PhRMA and its member drug companies.

“This misguided state mandate places requirements on manufacturers that directly conflict with the federal 340B statute and attempts to regulate commercial transactions that occur outside of Arkansas,” said PhRMA Executive Vice President and General Counsel James Stansel in a statement announcing the court filing.

“Whether the 340B statute requires manufacturers to ship 340B medicines to an unlimited number of contract pharmacies is the subject of numerous lawsuits pending in federal district courts across the country,” Stansel said. “Despite the ongoing legal activity at both the federal agency and in the federal courts, Arkansas has proceeded with this questionable state law that has serious constitutional defects. Act 1103 is preempted by federal law and should be declared unconstitutional.”

Act 1103 says that pharmaceutical manufacturers shall not:

  • Prohibit a pharmacy from contracting or participating with an entity authorized to participate in 340B drug pricing by denying access to drugs that are manufactured by the pharmaceutical manufacturer; or
  • Deny or prohibit 340B drug pricing for an Arkansas-based community pharmacy that receives drugs purchased under a 340B drug pricing contract pharmacy arrangement with an entity authorized to participate in 340B drug pricing.

The law’s main thrust is to prohibit discriminatory contracting by commercial payers and pharmacy benefit managers (PBMs) as it relates to the 340B program. Arkansas is one of 16 states have passed laws since 2019 addressing PBM discrimination against 340B covered entities.

PhRMA in late July asked the Arkansas Insurance Department to stay enforcement of Act 1103 pending the outcome of six lawsuits by drug manufacturers challenging federal health agency findings that the companies’ denials of 340B pricing when covered entities use contract pharmacies violate federal law.

The state law was due to take effect on July 29. State Insurance Commissioner Alan McClain suspended enforcement of the law for 90 days to let an administrative hearing officer consider and rule on PhRMA’s petition. PhRMA yesterday filed its brief in that state action, which appears to remain on track. The hearing officer assigned to the matter said during a Sept. 10 hearing that she would hand down her decision by Oct. 13.

Broad Arguments for Narrow Relief

The relief PhRMA seeks in its federal lawsuit is narrowly limited to the Arkansas law. But its arguments to the court for granting that relief are broad and often national in scope.

PhRMA in the brief called 340B a “completely federal program.” It said “neither the 340B statute nor any regulations promulgated under it authorize state regulation concerning 340B pricing.”

“There is no room for Arkansas to step into this comprehensive federal regime and impose and enforce its own separate and conflicting requirements,” PhRMA said. “Unlike some federal programs, Congress provided no room for states to add on to or have any involvement in 340B drug pricing.”

It said the core of the nationwide dispute over 340B contract pharmacy is its members’ belief “that for-profit pharmacy interests (and others) have found illegal ways to leverage the 340B discounts to their financial benefit, often without assisting the vulnerable patient populations that the 340B program was intended to help.”

PhRMA said Act 1103 “effectively seeks to pencil” contract pharmacies as “a sixteenth type of covered entity into the federal 340B statute.”

PhRMA also said that “Congress prohibits manufacturers from dispensing certain drugs at a 340B price in the manner that Act 1103 contemplates due to drug safety risk evaluation and mitigation strategy (“REMS”) requirements or limited distribution plans.” It said the law “appears to countermand” how manufacturers “can and should comply with the 340B statute’s requirements.”

Act 1103 “is a textbook violation” of the U.S. Constitution’s commerce clause principle that a state may not regulate commercial transactions wholly outside that state’s borders, PhRMA said. It also says in its complaint that the law is invalid under the constitution’s supremacy clause.

Connection to Contract Pharmacy Cases

PhRMA also strongly criticized 340B contract pharmacy in broad strokes in the brief:

“Here is how the system has evolved over recent years: Often with the assistance of specialized consultants, thousands of retail pharmacies (including the nation’s largest pharmacy chains) conduct undisclosed data analyses to ‘find’ new opportunities to retroactively claim 340B discounts on drugs already sold to patients at a non-340B price. Then contract pharmacies and others obtain additional drugs purchased at the 340B prices (with the help of a covered entity) to ‘replenish’ their general inventories, with no intention of selling (dispensing) those new drugs solely to patients of the covered entities. So the contract pharmacy replenishes non-340B drugs at a commercial price, and then comingles all replenished units when it adds them to its inventory.

This ‘replenishment’ practice, when employed, does not pass 340B program discounts on to patients (i.e., the people that Congress intended to benefit from the 340B program)—but it can enhance the profitability of the pharmacies and covered entities involved.”

“The explosion in contract pharmacy arrangements,” PhRMA said, also exacerbates unlawful duplicate discounting and diversion. Contract pharmacy growth “and the replenishment model specifically” led PhRMA members to adopt “policies directed at addressing the 340B program abuses reported by federal watchdogs,” it said.

Other federal district courts will soon issue decisions addressing the use of contract pharmacies, “the very federal policy that Arkansas’s Act 1103 purports to regulate,” PhRMA told the court in its case, which is based in Little Rock.

This is the second federal lawsuit PhRMA has filed on its members’ behalf stemming from drug companies’ denials of 340B pricing involving contract pharmacies. It is suing in federal district court in Maryland to have the 340B administrative dispute resolution final rule declared illegal and unconstitutional.

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