Supreme Court's silence fortifies 340B contract pharmacy laws

By Alex Kacik / December 13, 2024

The U.S. Supreme Court handed hospitals another victory when it declined drug manufacturers' petition to limit contract pharmacies that dispense 340B drugs. But the legal fight is far from over.

Drugmakers turned to the Supreme Court after a district and appellate court upheld an Arkansas law that ensures providers get the same 340B drug discounts for prescriptions dispensed at community pharmacies as they would for medication offered through in-house pharmacies. The 340B drug pricing program aims to bolster hospitals and clinics that treat low-income patients by offering estimated 25% to 50% discounts on prescription drugs.

The high court on Monday denied the Pharmaceutical Research and Manufacturers of America’s request to review the case. That denial is expected to fuel other state legislation designed to protect 340B drug discounts and community contract pharmacies, healthcare lawyers said. The drug manufacturers may also shift their focus to enforcing a rebate program for 340B drug discounts, they said.

“The Supreme Court’s unwillingness to weigh in here will embolden a lot of other states,” said Henry Norwood, a healthcare attorney at the law firm Kaufman Dolowich.

Arkansas was the first of eight states to implement a 340B contract pharmacy law. States implemented these laws after drug manufacturers restricted 340B discounts on prescriptions filled by those pharmacies.

Hospitals, clinics and other providers claim that they need outside pharmacies to expand access to affordable prescription drugs. Pharmaceutical companies, which need to give 340B drug discounts to providers to remain in Medicare and other government-sponsored programs, argue providers leverage contract pharmacies to exploit an unfettered system that has led to duplicate discounts for the same drug, among other flaws.

Drugmakers will likely still sue to block other 340B contract pharmacy state laws and ask the Supreme Court to weigh in again after other appellate court rulings. A spokesperson for the trade association PhRMA implored the federal government to revamp the 340B program.

“Contract pharmacies are dominated by large, publicly traded companies like many major for-profit chain pharmacies and pharmacy benefit managers that have found a way to siphon off money that should be used to lower costs for low-income and vulnerable patients. This abuse is contrary to the goals of the federal 340B program,” the spokesperson said in a statement.

The legal questions in the roughly two dozen ongoing state lawsuits center around whether the 340B statute and the Federal Food, Drug and Cosmetic Act preempt state laws. In a March ruling on the Arkansas case, the 8th U.S. Circuit Court of Appeals said the 340B statute does not explicitly say Congress did not intend to prevent states from regulating pharmacy operations.

Pharmaceutical companies also allege in these various lawsuits that state laws are unconstitutional because they interfere with Congress’ authority to regulate interstate commerce.

“I don’t see this as being the end of the disagreement as to whether or not these state laws should be preempted or violate the commerce clause,” said Stephen Forster, a healthcare attorney at the law firm Morgan Lewis.

Upending a growing number of similar state laws through the courts is one of several legal avenues drugmakers are pursuing to stop the rapidly expanding 340B drug pricing program. Drugmakers including Johnson & Johnson and Eli Lilly have taken another route to try to curb 340B discounts.

Those companies have sued the federal government, alleging the Health Resources and Services Administration does not have the authority to regulate 340B drug discounts. In September, HRSA threatened to fine Johnson & Johnson if it followed through with a proposal to charge hospitals full price for certain medication and administer discounts later, rather than at the time of purchase.

A rebate model would allow drugmakers to vet data from 340B hospitals and weed out any duplicate discounts, pharmaceutical companies argue.

“We are going to see more focus and emphasis from drug manufacturers on whether HRSA has the right to shoot down the rebate model, as well as federal reform efforts,” said Jesse Dresser, a healthcare lawyer at the law firm Frier Levitt.

Congress may also consider amending the 340B statute if more states successfully implement contract pharmacy laws, said Mark Faccenda, a healthcare attorney at the law firm Norton Rose Fulbright.

“At some point, there could be a critical mass of states with contract pharmacy laws,” he said.