Supreme Court Agrees With Drug Firms That 340B Providers Cannot Sue Over Prices

The federal government will have to take the lead on investigating and potentially punishing past overcharging for drugs as a result of the March 29 ruling.

The Supreme Court ruled March 29 that safety net health care providers covered by the 340B drug discounting program are precluded from suing drug firms for overcharging.

With the decision in Astra USA v. Santa Clara County, the Supreme Court agreed with arguments by nine drug companies and reversed an earlier ruling by the U.S. Court of Appeals for the Ninth Circuit (Also see "Rx Pricing At The High Court: Justices Friendlier To Enforcement From States Than 340B Entities" - Pink Sheet, 31 Jan, 2011.). Written by Justice Ruth Bader Ginsburg, the ruling was unanimous, although Justice Elena Kagan had recused herself from the case.

The Ninth Circuit had determined that 340B entities have the right to sue drug manufacturers to ensure they accurately report the average manufacturer price and best price of all Medicaid-covered drugs and ceiling prices for all drugs sold in the 340B program. That ruling overturned a district court decision dismissing a complaint by Santa Clara County in California, which operates several 340B entities, against AstraZeneca and eight other companies. The suit alleged the manufacturers were overcharging 340B entities.

Drug manufacturers opt to participate in the program, which gets its name from section 340B of the Public Health Service Act, by signing a contract with HHS to provide discounted prices to providers including safety net hospitals and community health centers. In the contract, manufacturers pledge to charge covered entities no more than predetermined ceiling prices, derived from the average and best prices and rebates calculated under Medicaid.

The Supreme Court disagreed that 340B entities can proceed with complaints against drug manufacturers as third-party beneficiaries of the contract with HHS. "This argument overlooks that the [contracts] simply incorporate statutory obligations and record the manufacturers' agreement to abide by them," the decision says. The fact that the statute does not explicitly authorize 340B entities to sue was not in dispute.

The firms named in the original suit are AstraZeneca, Aventis (now part of Sanofi-Aventis), Bayer, Bristol-Myers Squibb, GlaxoSmithKline, Pfizer, TAP (since merged with Takeda), Wyeth (since merged with Pfizer), and ZLB Behring.

Private Suits Would Disrupt National Pricing Unity

The high court also took issue with the Ninth Circuit's claim that suits by 340B entities would spread the enforcement burden instead of placing it entirely on the federal government.

"Spreading the enforcement burden is hardly what Congress contemplated when it made HHS administrator of the interdependent Medicaid Rebate Program and 340B Program," the decision states. "Suits by 340B entities would undermine the agency's efforts to administer these two programs harmoniously and uniformly." HHS administers the 340B program through the Health Resources and Services Administration.

That view was emphasized by Assistant to the Solicitor General Ginger Anders during oral arguments before the Supreme Court in January. "This is a national pricing scheme that's put together by the Medicaid Rebate Act," she said. "Allowing 14,000 covered entities to bring individual suits in different courts without HHS consultation, without the benefit of the government's input, could lead to substantial disuniformity despite the fact that these are supposed to be national prices."

The Supreme Court made two other points to support its conclusion that Congress did not intend to allow 340B entities to bring suits over drug pricing.

For one thing, the decision states, the Medicaid Rebate Act prohibits HHS from disclosing pricing information that could reveal the prices a manufacturer charges for its drugs. And "had Congress meant to leave open the prospect of third-party beneficiary suits by 340B entities, it likely would not have barred them from obtaining the very information necessary to determine whether their asserted rights have been violated."

Further, although the HHS Inspector General has criticized HRSA for inadequate enforcement of 340B drug price contracts, "Congress did not respond ... by inviting 340B entities to launch lawsuits," the court says. Instead, Congress opted to strengthen and formalize HRSA's enforcement authority through new powers and procedures established by the Affordable Care Act.

HRSA is still in the early stages of establishing new procedures for monitoring 340B pricing. The agency published a request for comments on a range of issues in September (Also see "340B Price Setting Policy Should Precede Dispute, Penalty Actions, BIO Urges" - Pink Sheet, 6 Dec, 2010.).

340B Entities Put Pressure On HRSA

In a statement, the 340B entities advocacy group Safety Net Hospitals for Pharmaceutical Access expressed disappointment with the court decision. The group also said that HRSA "must redouble its efforts to publish regulations implementing a new mandatory dispute resolution process and manufacturer civil monetary penalty process for 340B, as provided for under the Affordable Care Act."

In the meantime, the group urged that HRSA "use its informal authority to resolve pending complaints by hospitals and other providers that they have been subject to longstanding and widespread overcharges. In addition, [the Department of Justice] should step up its enforcement of 340B pricing obligations."

-Cathy Kelly ([email protected])