March 29, 2011— The U.S. Supreme Court ruled today that 340B providers do not have a right to sue drug manufacturers for overcharges as the beneficiaries of pricing agreements between the companies and the federal government.
The unanimous decision effectively ends a landmark case brought by two California countiesagainst nine major drug manufacturers alleging that they were charged millions of dollars above statutorily determined 340B ceiling prices. Had they won on the key issue of their standing to sue, the counties planned to seek nationwide class certification for the case, Astra USA Inc. v. County of Santa Clara (Case No. 09-1273).
Now, they and all other providers seeking relief for overcharges must rely entirely for the time being on False Claims Act actions brought by others or on the Health Resources and Services Administration’s (HRSA) informal dispute resolution process, which providers and even many manufacturers say is ineffectual.
HRSA’s Office of Pharmacy Affairs (OPA) is drafting proposed regulations to implement a new mandatory 340B dispute resolution process that Congress ordered when it passed the Affordable Care Act. The office, however, has said that it will not implement the process if Congress fails to give it more funding to do so.
Third-Party Right
The main question in the Astra case was whether 340B providers have the right to sue drug companies for overcharges in their capacity as third party beneficiaries of contracts between the companies and the Secretary of Health and Human Services (HHS). The counties had acknowledged that the 340B statute did not give them the right to sue.
The drug companies, backed by the federal government, argued that suing under the statute and suing as beneficiaries to the pricing agreements were one and the same. Associate Justice Ruth Bader Ginsburg, writing for the Court, agreed.
“A third-party suit to enforce a HHS-drug manufacturer agreement is … in essence a suit to enforce the statute itself,” Ginsburg wrote. Congress, she said, “vested authority to oversee compliance with the 340B program in HHS and assigned no auxiliary enforcement role to covered entities.”
Lawsuits by 340B providers, she continued, “would undermine [the department’s] efforts to administer” both 340B and the Medicaid drug rebate program “harmoniously and on a uniform basis.”
“Recognizing the county’s right to proceed in court could spawn a multitude of dispersed and uncoordinated lawsuits by 340B entities,” the justice said. “With HHS unable to hold the control rein, the risk of conflicting adjudications would be substantial.”
Associate Justice Elena Kagan recused herself from the case due to her earlier involvement in it as U.S. Solicitor General.
Industry and Provider Reactions
Drug manufacturers applauded the Court’s ruling.
“This is an important decision that ensures that the proper role for enforcing Public Health Service medicine pricing requirements remains where Congress intended—with the federal government,” said Tony Jewell, a spokesman for AstraZeneca Pharmaceuticals, one of the nine companies that were sued.
“We think it’s the right decision,” added a spokesman for Pharmaceutical Research and Manufacturers of America (PhRMA).
Spokespersons for 340B providers in California and around the nation, meanwhile, were disappointed.
“Today’s decision, unfortunately, eliminates any chance that 340B entities can recover past overcharges for manufacturers’ breaches of the pharmaceutical pricing agreement,” said Jeffrey W. Lawrence, one of the attorneys for Santa Clara and Santa Cruz counties and their 340B providers. “It makes clear that any recovery will be either through the [U.S. Department of Justice] or limited to prospective relief under HHS’s yet to be proposed administrative procedures.”
“The justices’ decision puts the onus on HHS and DOJ to investigate evidence of past overcharging, punish wrongdoing, and make 340B providers whole when they have suffered losses,” said SNHPA President and General Counsel William von Oehsen in a news release.
HRSA, he continued, must redouble its efforts to publish the regulations implementing the new mandatory dispute resolution process and use its informal authority to resolve pending complaints by hospitals and other providers that they have been subject to longstanding and widespread overcharges. The Justice Department, he said, also should step up its enforcement of 340B pricing obligations.