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D.C. Appeals Court Upholds 340B Contract Pharmacy Restrictions

Staff
May 28, 2024

On May 21, in a long-awaited decision on the scope of contract pharmacy requirements under the 340B Drug Pricing Program, the U.S. Court of Appeals for the District of Columbia held that the 340B statute does not categorically prohibit manufacturers from limiting the distribution of discounted drugs through contract pharmacies. While there could be conditions onerous enough to violate the statute, the court found that the specific restrictions the drug companies imposed in this case, including restricting delivery to a single contract pharmacy designated by the covered entity, do not violate the law.

America’s Essential Hospitals, along with other hospital associations, filed an amicus brief in the case, arguing that the drug companies’ restrictions unlawfully restrict covered entities’ access to 340B discounts and, therefore, undermine the purpose of the program. The D.C. Court of Appeals disagreed, stating that the Health Resources and Services Administration (HRSA) lacks rulemaking authority and concluding that the statute’s silence on the issue of distribution preserves manufacturers’ ability to impose at least some delivery conditions. The Court purports to preserve HRSA’s ability to pursue narrower enforcement related to conditions that might be so onerous as to violate the statute — that is, if the cost of compliance effectively increases the contract price above the ceiling price, or if a particular condition is impossible to satisfy for a specific covered entity.

In a statement, America’s Essential Hospitals criticized this decision, maintaining that these restrictions violate the 340B program statute.

The Court of Appeals decision is the second decision by a federal appeals court limiting HRSA’s authority to prohibit drug company restrictions on contract pharmacies. In 2023, the Court of Appeals for the Third Circuit similarly held that the 340B statute does not require drug companies to provide 340B discounts at an unlimited number of contract pharmacies and found that HRSA lacked authority to require them to do so.

The Court of Appeals for the Seventh Circuit also is reviewing whether drug companies can restrict contract pharmacy use, and a decision is expected soon. America’s Essential Hospitals also filed an amicus brief in that case. HRSA could petition for Supreme Court review, particularly if the Seventh Circuit were to decide in HRSA’s favor and create a split among the appeals courts. In the meantime, states continue to enact laws protecting distribution of 340B discounted drugs through contract pharmacies, relying in part on the Third Circuit reasoning, which the D.C. Circuit also adopted, that federal law is silent.

Contact Director of Policy Robert Nelb at rnelb@essentialhospitals.org or 202.585.0127 with questions.

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