Pharmaceutical Manufacturers Win 340B Program Lawsuit Against HHS

“Statutory silences, like awkward silences, tempt speech. But courts must resist the urge to fill in words that Congress left out.” So begins the decision by the US Court of Appeals for the Third Circuit in a case that examined the government’s Section 340B prescription drug program. 

The 340B program was established by Congress to get drug manufacturers to help subsidize health care for low-income and rural patients. Under Section 340B, manufacturers who want to participate in Medicare or Medicaid must offer their drugs at a discount to certain covered entities (those that care for low-income or rural patients). When 340B was first enacted, few covered entities had pharmacies in house, so they contracted with outside pharmacies to distribute 340B drugs. 

In 1996, covered entities could only use 1 contract pharmacy each, but this was changed in 2010 to an unlimited number of contract pharmacies. After the 2010 change, the use of contract pharmacies skyrocketed, according to the court decision, worrying manufacturers who were concerned that contract pharmacies were driving up duplicate discounting and diversion.

In 2020, 3 manufacturers—Sanofi Aventis, Novo Nordisk, and AstraZeneca—adopted policies limiting the use of contract pharmacies to 1 per covered entity. The Department of Health and Human Services (HHS) responded by issuing an advisory opinion declaring that Section 340B “unambiguously” requires the manufacturers to deliver 340B drugs to an unlimited number of contract pharmacies. Five months later, HHS sent Violation Letters to the drug manufacturers. The manufacturers sued in various jurisdictions, asking that the advisory opinion be invalidated. 

In Delaware, the manufacturers had success: the court held the advisory opinion was arbitrary and capricious because it wrongly called Section 340B “unambiguous.” In New Jersey, however, the court, relying largely on the statute’s purpose and legislative history, found in favor of the government. 

Appeals ensued, with several still pending in the DC Circuit and Seventh Circuit. This appeal, the first to be decided, went to the Third Circuit, which heard oral arguments at the end of 2022. 

In its decision, issued in late January 2023, the court stated, “the Department of Health and Human Services claims that drug makers must deliver certain discounted drugs wherever and to whomever a buyer demands. But the relevant law says nothing about such duties. So HHS’s efforts to enforce its interpretation against the drug makers here are unlawful.” 

The court went on to note the government’s arguments, saying the claim that limiting the use of contract pharmacies would thwart the purpose of 340B did not hold weight. 

“Congress might have expected that a covered entity without its own in-house pharmacy could instead use 1 contract pharmacy. But that is a far cry from the government’s current position that covered entities may use an unlimited number of contract pharmacies,” the court held. 

The court also held that the violation letters and HHS advisory opinion were unlawful, and the manufacturers’ restrictions on delivery did not violate Section 340B. 

“Legal duties do not spring from silence,” noted the court in the decision. “Congress never said that drug makers must deliver discounted Section 340B drugs to an unlimited number of contract pharmacies. So by trying to enforce that supposed requirement, the government overstepped the statute’s bounds.” 

The court enjoined HHS from enforcing its reading of Section 340B as requiring delivery of discounted drugs to an unlimited number of contract pharmacies.

Decisions in at least 2 other similar cases are still pending.