340B contract pharmacy battle may spur Supreme Court showdown

By Alex Kacik / September 11, 2024

States continue to notch victories in legal battles with pharmaceutical manufacturers over the use of contract pharmacies to dispense 340B drugs, potentially setting up a Supreme Court showdown.

Last week, a federal judge in Maryland denied drug manufacturers' motion for a preliminary injunction to block a state law requiring drugmakers to distribute discounted medications to pharmacies that contract with hospitals, federally qualified health centers and other 340B-covered providers that treat low-income patients.

The 340B program aims to extend the resources for hospitals and clinics that treat low-income patients by offering discounts on prescription drugs. The issue has captured policymakers’ and drug manufacturers' attention as providers have more frequently relied on contract pharmacies to dispense 340B drugs rather than using in-house pharmacies.

Providers say they need contract pharmacies to ensure more patients can afford prescription drugs, while drugmakers claim 340B contract pharmacy laws represent state government overreach that only serves the financial interests of pharmacy benefit managers. Meanwhile, healthcare lawyers say additional states are likely to introduce bills in upcoming legislative sessions to protect 340B contract arrangements.

More than a half-dozen states are facing fights over the issue in federal court. Here's where several notable cases stand.

Arkansas

Arkansas was the first state to pass a law designed to protect 340B drug discounts at contract pharmacies.

In March, the 8th U.S. Circuit Court of Appeals said the 340B statute does not preempt the 2021 Arkansas law, which was drugmakers’ main argument. The statute does not explicitly say Congress did not intend to prevent states from regulating pharmacy operations, the court ruled.

The ruling affirmed states’ authority to regulate pharmacy operations and protected 340B drug discounts for prescriptions dispensed at community pharmacies.

"States seem to be, at least for the moment, winning the war on the ability to pass state laws," said Emily Cook, a healthcare lawyer at McDermott Will & Emery.

In July, Pharmaceutical Research and Manufacturers of America, the association that represents drugmakers and the plaintiff in the lawsuit, filed a petition for the Supreme Court to hear the case. A response is due Nov. 4.

The Supreme Court may want more circuit court decisions before stepping in, but the high court has shown a lot of interest in 340B in recent years, healthcare lawyers said.

“The program is under the spotlight,” said Douglas Grimm, a healthcare attorney at ArentFox Schiff. "Since the 340B statute is silent on whether or not a manufacturer can restrict contract pharmacies' access to 340B drugs, the Supreme Court may take the case."

Maryland

The district court in Maryland is the most recent to side with a state on the issue.

PhRMA, Novartis, AbbVie and AstraZeneca in May filed to block Maryland's law prohibiting drugmakers from restricting contract pharmacies’ access to discounted drugs.

In the complaint, the association and pharmaceutical manufacturers alleged the law in question, House Bill 1056, “directly conflicts with Congress’ carefully designed federal program and is therefore preempted by federal 340B law.” U.S. District Court for the District of Maryland Judge Matthew Maddox denied the motion for a preliminary injunction Thursday.

In response to the decision, a PhRMA spokesperson said in a statement the law “should be declared unconstitutional, and [PhRMA] has concerns it puts the financial interests of corporations ahead of patients.”

The office of Maryland Attorney General Anthony Brown (D) declined to comment.

PhRMA, Novartis, AbbVie and AstraZeneca’s response to the state’s motion to dismiss is due Sept. 20.

Mississippi

Novartis filed a lawsuit in June challenging Mississippi's law that prevents drug manufacturers from restricting 340B discounts on drugs dispensed through contract pharmacies.

In the complaint, Novartis argued federal law preempts the state law. Novartis also alleged the state law is unconstitutional because it interferes with Congress’ authority to regulate interstate commerce.

In July, U.S. District Court for the Southern District of Mississippi Judge Halil Ozerden denied Novartis' request for a preliminary injunction blocking the law. Novartis appealed the decision later that month.

The Supreme Court may be more inclined to weigh in after the Mississippi case works its way through the 5th U.S. Circuit Court of Appeals, said Amanda Smith, a healthcare lawyer at the law firm K&L Gates.