In May, the United States Court of Appeals for the D.C. Circuit in Novartis Pharmaceuticals Corp. v. Johnson, upheld the district court’s decision that the Federal 340B program does not prohibit manufacturers from limiting the number of contract pharmacies that a covered entity may use to distribute 340B drugs. Over the past several years, multiple pharmaceutical manufacturers have placed similar limits on 340B covered entities’ utilization of contract pharmacies, which has created obstacles for covered entities in distributing 340B drugs.
At issue in Novartis were two pharmaceutical manufacturer restrictions. The first restriction prohibited 340B hospitals from using contract pharmacies located greater than forty (40) miles from the hospital. The second restriction involved a manufacturer’s limitation of covered entities’ use of contract pharmacies to those used in the first three quarters of 2020; and where a covered entity had not used a contract pharmacy during that period and did not have an in-house pharmacy, the manufacturer permitted a covered entity to designate a single contract pharmacy.
In issuing its decision, the D.C. Circuit rejected the interpretation set forth by the Health Resources and Services Administration (“HRSA”), the federal agency responsible for administering the 340B Program. HRSA argued that the manufacturers’ conditions on the distribution of 340B drugs violated the 340B program. However, the D.C. Circuit held that 340B statute is silent regarding drug delivery conditions and merely requires that manufacturers propose to sell covered drugs to covered entities at or below a specified monetary amount (i.e. the 340B ceiling price). Notably, the D.C. Circuit left open the possibility that certain conditions on 340B drug distribution may, in the future, violate the 340B program in particular circumstances. However, as applied to the two manufacturer conditions in Novartis, the D.C. Circuit rejected the proposition that such restrictions violated the 340B program. Additionally, we are aware of other manufacturer limitations, including manufacturers limiting Covered Entities without an in-house pharmacy to one single contract pharmacy location, as well as restrictions on 340B drug pricing where a contract pharmacy fails to submit certain 340B-claims modifiers or provide certain data back to the manufacturer through the 340B ESP portal. However, given the Novartis court’s broad interpretation suggesting that a manufacturer’s sole obligation is to propose to sell covered drugs to covered entities at (or below) the 340B ceiling price, current manufacturer restrictions, if challenged, may similarly not be construed as a violation of the 340B program. Thus, 340B stakeholders, including covered entities, contract pharmacies, and distributors must consider their current 340B policies, procedures, and operations when utilizing distribution methods to provide 340B medications to eligible patients.
Lastly, and further adding to the complexity, manufacturer restrictions are also being increasingly addressed through federal and state legislative efforts. Notably, several states have enacted non-discrimination rules aimed at prohibiting manufacturers from restricting the distribution of 340B drugs to a covered entity’s contract pharmacy. Moreover, in March 2024, the Eighth Circuit in Pharmaceutical Research and Mfrs of America v. McClain upheld an Arkansas state law that prohibited manufacturers from restricting the provision of 340B drugs to covered entities using contract pharmacy.
How Frier Levitt Can Help
The Novartis decision largely impacts the ability of covered entities to distribute 340B-eligible prescriptions to their patients through contract pharmacy arrangements. The D.C. Circuit Court’s acceptance of restrictive distribution policies may lead to a further proliferation of such policies in the future. Frier Levitt attorneys have experience in assisting 340B covered entities and contract pharmacies navigate 340B policies and procedures, and can guide 340B stakeholders through applicable manufacturer restrictions to maintain compliance.
