A new state law barring restrictions on discounted drug pricing to contract pharmacies sets the stage for a high-stakes constitutional showdown
Washington State moved aggressively into the 340B battleground recently, as Governor Bob Ferguson signed Senate Bill 5981 (SB 5981) into law on March 12, 2026. The law prohibits drug manufacturers from restricting or denying 340B pricing to covered entities or their contract pharmacy partners, and bars manufacturers from conditioning drug deliveries on the submission of claims data. Violators face civil penalties of up to $5,000 per day per violation when the law takes effect June 10, 2026.
Within days, a coalition of major manufacturers, including Novartis and AbbVie, filed suit, raising a cascade of constitutional challenges that touch on some of the most contested fault lines in 340B litigation.
The Contract Pharmacy Dispute: A Quick Primer
The 340B program, established under Section 340B of the Public Health Service Act, requires manufacturers participating in Medicare and Medicaid to offer discounted drugs to a defined universe of safety-net providers (hospitals, federally qualified health centers, and other “covered entities”). Over time, covered entities have increasingly relied on arrangements with commercial pharmacy chains like CVS and Walgreens to dispense those drugs, which are acquired at 340B prices and dispensed at or near market rates.
Manufacturers have long argued that this model enables duplicate discounts and extends 340B benefits well beyond the program’s intended patient population. In response, several major drugmakers began limiting or conditioning shipments of drugs to contract pharmacies. The covered entity community countered that the statute imposes no such restrictions, and that manufacturers were unilaterally rewriting the terms of a federal program.
What Senate Bill 5981 Does
Washington’s SB 5981 is one of the more sweeping state-level 340B interventions to date. It flatly prohibits manufacturers from:
- Denying, restricting, or prohibiting the acquisition or delivery of 340B drugs to covered entities, their contract pharmacies, or authorized locations, unless federal law prohibits receipt; and
- Requiring covered entities to submit claims, utilization, purchasing, or other data as a condition for 340B drug access, unless federal law requires such data sharing.
The law allows covered entities to file civil actions against manufacturers for violations, with courts authorized to enjoin violations and award civil penalties of up to $5,000 per day per violation (each package of 340B drugs constitutes a separate violation), plus reasonable attorneys’ fees and costs. The Attorney General may also bring enforcement actions under the Consumer Protection Act.
The Manufacturers’ Constitutional Broadside
The drugmakers Novartis and AbbVie raise four distinct constitutional theories, each reflecting arguments that have been percolating in 340B litigation across multiple jurisdictions.
Supremacy Clause. The manufacturers’ lead argument is preemption: that SB 5981 erects a parallel state drug-pricing regime that conflicts with the federal 340B framework that Congress intended to be regulated exclusively by federal law. The drugmakers claim that manufacturers’ 340B obligations implicate dominant federal interests, including national uniformity in the program and the operations of Medicaid and Medicare Part B, and that these obligations are already pervasively regulated by federal law, leaving no room for state supplementation.
Dormant Commerce Clause. Both drugmakers contend that SB 5981 violates the dormant Commerce Clause by regulating commerce that occurs wholly outside Washington’s borders. Specifically, the law caps the prices of sales between manufacturers and their wholesalers, but Novartis alleges these transactions take place entirely outside Washington, making the statute an impermissible extraterritorial regulation.
Fifth Amendment Takings. AbbVie’s takings argument is among the more aggressive claims in the complaint. The drugmaker argues that SB 5981 effects an unconstitutional taking by forcing manufacturers to transfer their drugs at deeply discounted prices to for-profit commercial pharmacies, a private-to-private (A-to-B) wealth transfer with no recognized public use and no just compensation. AbbVie argues this constitutes both a per se physical taking and, alternatively, a regulatory taking under the Penn Central framework.
First Amendment Compelled Speech. AbbVie also challenges the law’s data-related provisions as unconstitutional compelled speech, arguing that it requires manufacturers to disclose sensitive proprietary business information, including detailed drug unit distribution data, aggregate discounts, and average 340B discounts. AbbVie argues this compelled disclosure fails any level of constitutional scrutiny because Washington has no legitimate interest in tracking 340B-participating manufacturers’ pricing activities, and the law is not properly tailored.
Reading the Litigation Landscape
Washington is not the first state to wade into 340B contract pharmacy disputes. Over half of all states have enacted or proposed laws protecting covered entity access to contract pharmacy arrangements. The outcome of pending lawsuits against states’ 340B contract pharmacy access laws may require lawmakers to revise these protections in 2026.
For manufacturers, a win here would add momentum to the argument that contract pharmacy restrictions are lawful under federal law and immunized from state interference. For covered entities and their pharmacy partners, Washington’s law represents exactly the kind of state-level protection they have been seeking to lock in while federal policy remains unsettled.
Either way, the outcome in Washington will be closely watched by every stakeholder in the 340B ecosystem.
How Frier Levitt Can Help
As state-level 340B laws continue to evolve and face constitutional challenges, stakeholders must navigate an increasingly uncertain and fragmented legal landscape. Frier Levitt advises covered entities, contract pharmacies, and manufacturers on compliance strategies, litigation risk, and regulatory developments impacting 340B operations. Our team can help assess how new laws like Washington’s SB 5981 may affect your organization and develop practical approaches to protect access, mitigate risk, and ensure continued compliance.
