US Appeals Court Seventh Circuit court room
Oral arguments are scheduled for this Monday at the federal appeals court in Chicago over Lilly's 340B contract pharmacy restrictions.

Second of Three U.S. Appeals Court Hearings on 340B Contract Pharmacy Is Set for Monday

Now that a federal appeals court in Washington, D.C., has heard arguments in Novartis and United Therapeutics’ 340B contract pharmacy lawsuits, the scene shifts to Chicago, where an appeals court will hear arguments Monday morning in Eli Lilly’s companion case.

The hearing will happen almost exactly one year after a federal district judge set aside and vacated the federal government’s May 2021 finding that Lilly’s denials of 340B ceiling prices when covered entities use contract pharmacies violate the 340B statute.

U.S. Senior Judge Sarah Evans Barker held that the U.S. Health Resources and Services Administration’s finding that Lilly has broken the law “neither exceeds the agency’s statutory authority nor is contrary to law.” She also said “the fairest and most reasonable interpretation of the 340B statute” would not let manufacturers unilaterally restrict drug distribution in ways that frustrate 340B’s purpose.

Barker nevertheless declared HRSA’s 340B program violation letter to Lilly invalid under the Administrative Procedure Act because she said it espoused an arbitrary and capricious position.

“We do not know, for example, why the agency said for so long that it was not able to enforce its view of drug manufacturers’ obligations under the statute in the context of contract pharmacy arrangements and then suddenly changed tack and said it was able to enforce these requirements,” Baker wrote. “We cannot divine whether Congress intended for drug manufacturers to have unlimited delivery obligations under the statute, untethered to the particular covered entity’s actual distribution needs. We have no insight into why there is apparently so much reluctance to promulgate a holistic legislative proposal to bring clarity to the scope of the regulated parties’ obligations and entitlements under the statute with regard to contract pharmacy arrangements rather than engage in piecemeal interpretations and after the fact patchwork characterizing the history of the agency’s attempts to manage this program.”

“What we have come to see, however, is that the 340B program can no longer be held together and implemented fairly for all concerned with non-binding interpretive guidelines and mixed, sometimes inconsistent messaging by the agency regarding the source and extent of its authority to enforce statutory compliance in the area of contract pharmacies,” she said.

Lilly in July 2020 became the first drug manufacturer to impose conditions on 340B pricing when entities use contract pharmacies. The list has grown to 18.

Under a policy revision announced in December 2021, Lilly lets covered entities use multiple contract pharmacies in exchange for submitting claims data associated with contract pharmacy orders to its contractor Second Sight Solutions’ 340B ESP platform.

Lilly’s case will be decided by a three-judge panel of the U.S. Seventh Circuit Court of Appeals.  Unlike other federal appeals courts, their identities will not be made public until about an hour before the hearing Monday at 9:30 a.m. Central.

On Nov. 15, a federal appeals court in Philadelphia will hear arguments in AstraZeneca, Novo Nordisk, and Sanofi’s 340B contract pharmacy lawsuits.