D.C. Circuit Rules in Favor of Drug Manufacturers in 340B Contract Pharmacy Case

On May 21, the Court of Appeals for the D.C. Circuit issued its ruling in Novartis Pharmaceuticals Corporation v. Carole Johnson (PDF), which involved drug manufacturers Novartis and United Therapeutics. At issue in the case were restrictions imposed by these two drug manufacturers on the ability of covered entities in the 340B Drug Discount Program to receive discounts through contract pharmacies. The court held the 340B statute (Veterans Health Care Act of 1992, P.L. 102-585) does not authorize the Health Resources and Services Administration to prohibit manufacturers from imposing any conditions on the distribution of discounted drugs to covered entities. Specifically, the court held that the restrictions imposed by the two drug manufacturers were reasonable contractual conditions that fell within the 340B statute’s requirement that manufacturers “offer” 340B discounts on covered outpatient drugs to covered entities. Importantly, the court did not foreclose the possibility that “more onerous” conditions could violate the 340B statute.  

The AAMC, in conjunction with other national hospital associations, submitted an amicus brief supporting the HHS’ legal position (PDF) in this case, describing the damage these policies cause to 340B hospitals and their patients. Last year, the Court of Appeals for the 3rd Circuit ruled in favor of drug manufacturers. The Court of Appeals for the 7th Circuit has yet to issue its opinion.