Sanofi v. HHS — Implications for 340B Contract Pharmacies and Covered Entities

The Court of Appeals for the Third Circuit recently issued its decision in the consolidated cases of drug manufacturers Sanofi, Novo Nordisk, and AstraZeneca ruling in the drug manufacturers favor versus the Department of Health & Human Services (“HHS”) and the Health Resources and Services Administration (“HRSA”). By way of background, the drug manufacturers had sued HHS after they were ordered to stop restricting sales of federally qualified 340B drugs to contract pharmacies throughout the United States. In sum, the Court’s decision allows drug manufacturers to restrict covered entities’ use of contract pharmacies to dispense 340B drugs under the 340B Drug Pricing Program (“340B Program”), which is operated by HRSA. The Court’s decision will likely have broader implications for the pharmaceutical industry going forward.

Overall, the Third Circuit concluded that the three drug makers’ restrictions on delivery to contract pharmacies do not violate Section 340B Program requirements. In other words, the Third Circuit rejected HHS’s interpretation of the 340B Program in its Advisory Opinion and Violation Letters that manufacturers must deliver 340B drugs to an unlimited number of contract pharmacies. These limitations were challenged by AstraZeneca in Delaware and by HHS in New Jersey with the two courts issuing differing decisions. Ultimately, the Third Circuit ruled in favor of the drug manufactures and enjoined HHS’s interpretation of the “shall offer” provision in section 340B as set forth in the agency’s Advisory Opinion and Violation Letters issued to the manufacturers.

In terms of the larger impact, other drug manufacturers may follow Sanofi, Novo Nordisk, and AstraZeneca’s limitation on sales of 340B drugs and may be willing to only provide discounted drugs to covered entities that have one contract pharmacy, in contrast to covered entities that contract with multiple contract pharmacies to provide drugs to 340B eligible patients. As a result, covered entities may cease working with several contract pharmacies or even switch to an in-house pharmacy model. The industry at large should be aware of the ruling’s potential impact on their business in the 340B Program, as drug manufacturers now no longer have to sell drugs at discounts through unlimited contract pharmacies despite the contract pharmacies’ participation in the 340B Program.

The Court also considered an Administrative Dispute Resolution (“ADR”) Rule first drafted in 2016, but not made final until 2020. This rule was only challenged by Sanofi. Sanofi challenged the rule largely because the delay between the proposed rule and its final adoption caught it off guard. The Court found that HHS followed the necessary procedure to finalize the rule, notwithstanding the delay, and ruled against Sanofi’s challenge. Further, on November 30, 2022, HHS proposed a new rule to revise the 2020 ADR Rule’s procedures. 87 Fed. Reg. 73,516. This proposed change is still in review following receipt of comments. Until a final rule is entered, the 2020 Rule remains in force. The 2020 Rule (and 2022 proposed changes) provides for a process through which drug makers and covered entities could resolve Section 340B–related disputes and thus does not materially impact contract pharmacies and covered entities alike.

How Frier Levitt Can Help

Frier Levitt counsels numerous manufacturers, covered entities and contract pharmacies that participate in the 340B Program. Contact Frier Levitt to speak with an attorney about how to navigate the 340B Program following the Third Circuit’s recent ruling.