Appeals Court Sides With Drugmakers in 340B Case, Allows Limits on Discounts Under Program

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The U.S. Court of Appeals for the District of Columbia on Tuesday ruled in favor of pharmaceutical companies, finding that drugmakers are allowed impose limits on the discounts that they may give under Section 340B of the Public Health Service Act.

In a 21-page opinion, Circuit Judge Gregory Katsas wrote that the appellate court holds that 340B “does not categorically prohibit” drugmakers from applying certain restrictions on the distribution of covered drugs to specific entities. Katsas ruled the specific restrictions in the case at hand—between Novartis and United Health versus the Health Resources and Service Administration (HRSA) and the Department of Health and Human Services (HHS)—do not violate section 340B “on their face.”

Still, the judge noted that the ruling does not “foreclose the possibility that other, more onerous conditions” might violate 340B in the future, or that the restrictions named in the case could indeed be in violation of the statute “in particular circumstances.”

Established by Congress in 1992, the 340B Drug Pricing Program provides incentives for pharma companies that give healthcare providers discounts on certain drug products, which are prescribed to patients below the federal poverty level.

To facilitate access to these discounted drugs, healthcare providers work with third-party distributors—such as contract pharmacies—to help ship the 340B medicines and bring them to their intended communities.

However, in 2020, Novartis and United Health started imposing restrictions on these external service providers. With regard to its beneficiary hospitals, Novartis restricted work only to contract pharmacies within 40 miles while United Health would only allow contract pharmacies that the beneficiary had already worked with, or otherwise select only a single contract pharmacy.

In response, HHS released an advisory opinion that allowed the beneficiaries could choose which third-party entities to partner with, and that drugmakers are required to deliver covered drugs to the contract pharmacies.

For its part, HRSA sent enforcement letters to Novartis and United Health, along with other large drug manufacturers, asserting that the companies’ duty under Section 340B are “not qualified, restricted or dependent on how the covered entity chooses to distribute the covered outpatient drugs,” according to Tuesday’s court opinion.

Novartis and United Health filed separate lawsuits asking the court to vacate the enforcement letter, declare that their restrictions were lawful and prevent future enforcements. The district court sided with the companies in 2021 but declined to enjoin potential enforcement in the future.

A lawsuit filed by the Pharmaceutical Research and Manufacturers of America (PhRMA) failed to block an Arkansas law that empowers hospitals to use outside pharmacies to dispense discounted drugs. In March 2024, the U.S. Court of Appeals for the Eighth Circuit ruled against PhRMA, upholding an Arkansas law that enables healthcare providers to dispense drugs—obtained at a discounted price via the 340B Drug Pricing Program—through certain pharmacies.

Tristan Manalac is an independent science writer based in Metro Manila, Philippines. Reach out to him on LinkedIn or email him at tristan@tristanmanalac.com or tristan.manalac@biospace.com.

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