For years, covered entities impacted by manufacturer overcharges under the 340B Drug Pricing Program have had one formal, direct remedy: the administrative dispute resolution (ADR) process established by the Health Resources and Services Administration (HRSA). That process is narrow, slow, and limited in the relief it provides, and, up to this point, has issued manufacturer-friendly decisions. A March 2026 ruling from the United States Court of Appeals for the Ninth Circuit has now opened another option. In United States ex rel. Adventist Health System of West v. AbbVie Inc., No. 24-2180, the Ninth Circuit held that a covered entity may pursue a False Claims Act (FCA) qui tam action against drug manufacturers for 340B ceiling price violations, even though Section 340B itself confers no private right of action. On May 28, 2026, the court declined to reconsider that ruling, denying both a panel rehearing and an en banc rehearing request. The decision, and the court’s refusal to disturb it, signal a meaningful shift in the enforcement landscape for 340B program participants.
The 340B Program and Its Enforcement Gap
The 340B Program, established under Section 340B of the Public Health Service Act (42 U.S.C. § 256b), requires pharmaceutical manufacturers who participate in Medicaid to sell outpatient drugs to eligible covered entities at or below a statutory ceiling price. That ceiling price is calculated pursuant to a formula tied to the drug’s average manufacturer price and Medicaid rebate percentage. When manufacturers increase prices beyond the rate of inflation, the statute’s penny pricing policy can reduce the ceiling price to as little as $0.01 per unit.
Despite the program’s clear pricing obligations, covered entities historically lacked clear, direct litigation pathways to enforce those obligations. In Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011), the Supreme Court held that covered entities are not third-party beneficiaries of the pharmaceutical pricing agreements between manufacturers and the government and therefore cannot sue manufacturers directly to enforce 340B pricing terms under that agreement. That ruling left the HRSA ADR process as the primary, and in many respects the only, enforcement mechanism available to covered entities. The ADR process, however, does not provide treble damages, does not impose per-claim civil penalties, and has historically moved at a pace that offers little deterrent to manufacturers inclined to test the program’s limits.
The Ninth Circuit’s March 2026 Decision
Adventist Health System of West, a nonprofit health system operating clinics and facilities as a covered entity under the 340B Program, filed a qui tam complaint alleging that AbbVie, AstraZeneca, Novartis, and Sanofi knowingly charged covered entities prices materially above the 340B ceiling price formula for an extended period preceding HRSA’s issuance of a final rule in 2019 imposing civil monetary penalties for ceiling price noncompliance. Adventist alleged that these inflated prices were passed through to the government via covered entity reimbursement claims submitted to Medicare and Medicaid, thereby causing the government to overpay on those claims.
The United States District Court for the Central District of California dismissed the complaint, concluding that the suit was in essence an attempt to enforce the 340B statute through the back door of the FCA, an avenue foreclosed by Astra and by the absence of a private right of action under Section 340B itself. The Ninth Circuit reversed the district court’s dismissal of the complaint. Writing for a unanimous three-judge panel, the court reversed the lower court’s decision in favor of 340B covered entities and found that the FCA could be used in this context for the following reasons:
- First, the absence of a private right of action under Section 340B is immaterial to an FCA claim, because the FCA is an independent statutory basis for liability and its remedial scope extends to all fraudulent conduct that results in false claims submitted to the government.
- Second, the court found that Adventist is not seeking to enforce the 340B statute; rather, it is seeking FCA liability for the submission of false claims, a distinct cause of action with distinct remedies, including treble damages and per-claim penalties of $5,000 to $10,000.
- Third, reading Section 340B to preclude FCA enforcement would improperly imply that the 340B statute preempts the FCA, a result inconsistent with congressional intent that the FCA reach all types of fraud without qualification.
The Rehearing Denial and Manufacturers’ Constitutional Challenge
Following the March ruling, the manufacturers petitioned for both panel and en banc rehearing. Their petition advanced a novel and potentially significant constitutional argument: that the FCA’s qui tam provisions, which authorize private relators to file suit and recover a portion of any judgment on behalf of the government, are constitutionally infirm because they vest executive enforcement authority in private citizens outside the control of the executive branch. The manufacturers questioned the constitutional underpinnings of qui tam enforcement, and characterized the case as an ideal vehicle for the en banc court to address the question.
The Ninth Circuit denied the petition on May 28, 2026. The refusal to reconsider leaves the March ruling intact and the case has been remanded and sent back to the district court for further proceedings on Adventist’s FCA claims. The Department of Justice declined to intervene in the case, though the government filed an amicus brief in 2024 supporting Adventist’s standing to proceed.
The manufacturers also argued on rehearing that HRSA’s own determination not to make the 2019 penny pricing rule retroactive forecloses FCA liability for pre-2019 conduct, reasoning that covered entities cannot assert fraud liability premised on a legal standard that the agency itself declined to apply retroactively. The Ninth Circuit’s silence on that argument at the rehearing stage leaves it open for consideration on remand.
What This Means for Covered Entities
The practical significance of Adventist is difficult to overstate for the 340B community. The decision potentially creates a litigation alternative to HRSA’s ADR process for covered entities that can establish that manufacturer overcharges caused the submission of false claims for government reimbursement. Where a covered entity purchases drugs at an unlawfully inflated price and then bills Medicare or Medicaid for those drugs at a reimbursement rate that exceeds what it would have paid at the lawful ceiling price, the government is arguably overpaying on each such claim. Under the FCA, each such claim is potentially actionable, with exposure including treble damages and per-claim civil penalties, remedies far exceeding anything available through HRSA’s ADR process.
Several practical and legal questions remain unresolved and are likely to be litigated on remand. Whether the government’s overpayment is sufficiently direct to satisfy FCA causation requirements, how the retroactivity of pre-2019 overcharges is treated absent the 2019 final rule, and whether the FCA’s materiality standard is satisfied in the 340B context are all issues likely to generate substantial briefing. The constitutional question regarding qui tam standing, while sidestepped for now, has not been definitively resolved and may resurface as the case progresses, particularly given pending Supreme Court attention to the issue in other circuits.
For covered entities evaluating their own 340B relationships with manufacturers, the decision has immediate relevance. Manufacturers who have historically resisted pricing complaints on the grounds that ADR is the exclusive remedy are on notice that a parallel FCA enforcement pathway now exists in at least the Ninth Circuit. Covered entities with documented evidence of pricing above the statutory ceiling, particularly where those prices were subsequently corrected following the 2019 HRSA rule, should evaluate whether the facts support an FCA theory of recovery. Given the qui tam structure of the FCA, a private relator who prevails may recover fifteen to thirty percent of the government’s recovery, providing meaningful financial incentive for covered entities to pursue meritorious claims.
How Frier Levitt Can Help
Frier Levitt represents covered entities, health systems, and safety-net providers in all aspects of 340B program compliance, dispute resolution, and enforcement. Our attorneys have extensive experience advising covered entities on manufacturer pricing disputes, HRSA ADR proceedings, and contract pharmacy access matters, and we closely monitor judicial and regulatory developments affecting the 340B Program. If you believe you have been overcharged by manufacturers, we are available to assist in evaluating whether the facts and legal framework support potential FCA exposure.
