November 23, 2010—Thirteen leading pharmaceutical manufacturers, two trade associations and the federal government are urging the U.S. Supreme Court to overturn a federal appellate court ruling recognizing 340B providers’ right to sue drug companies for alleged overcharges.
In papers filed with the High Court in Astra v. Santa Clara (Case No. 09-1273), the companies, the groups and the government maintain that last year’s federal appeals court ruling that two California counties and their 340B providers possessed such a right runs counter to congressional intent and the Supreme Court’s own precedents.
Providers’ Brief Still to Come
The California counties and providers will be filing their response to the drug manufacturers’ brief sometime in December. Groups representing 340B providers nationwide also intend to file a friend-of-the-court brief in their support.
The High Court accepted the pivotal 340B case in late September and will hear arguments in the dispute on Jan. 19. It is expected to render its decision by early July.
The Court will be deciding whether hospitals, health centers and other providers enrolled in the drug discount program can sue manufacturers that they believe have charged them for drugs in excess of statutorily defined ceiling prices even though the 340B law does not expressly grant them such a right.
The 9th U.S. Circuit Court of Appeals ruled that the providers possessed such a right as the intended beneficiaries of 340B pharmaceutical pricing agreements between drug companies and the federal government.
Health Reform Changes Cited
In their joint brief, the U.S. departments of Justice and Health and Human Services (HHS) cited the inclusion of certain 340B program integrity measures in health care reform to bolster their argument that that “Congress regards the 340B program as essentially statutory and regulatory — not contractual — in nature.”
“The court of appeals’ ruling that 340B entities may enforce manufacturers’ obligations under the 340B program through breach-of-contract suits is inconsistent with the statutory framework and, in particular, Congress’s decision to vest enforcement authority” with HHS, the government agencies wrote.
The Office of Pharmacy Affairs (OPA), the agency that runs the 340B program, recently closed the public comment period on its September advance notice that it is beginning the process of drafting regulations to implement Affordable Care Act provisions establishing a mandatory dispute resolution process for allegations of drug overcharging by manufacturers and procedures to assess civil monetary penalties against companies that intentionally overcharge their 340B customers.
Those provisions apply only to purchases made after Jan. 1, 2010, however, and OPA has said that it will not issue final regulations implementing them if it fails to get adequate resources to take on the extra work. The mandatory dispute resolution process is also intended to provide relief to manufacturers concerned about alleged diversion by covered entities.
“Black-Letter Rule”
In their brief, the drug companies stated that “by allowing a private plaintiff to bring a federal common law claim based on a statute that does not provide for any private right of action, the Ninth Circuit’s decision contravenes congressional intent and decades of this Court’s private right of action jurisprudence.”
“The 340B act maximizes health coverage by allowing safety net providers to buy drugs at a discounted price,” the companies wrote. “But Congress chose not to provide an express or implied private cause of action to allow 340B entities to enforce the statute’s discount pricing provisions through damages suits.”
“The law is clear: unless Congress intends to create a cause of action, ‘a cause of action does not exist and courts may not create one,’ ” the companies continued, citing a 2001 ruling by the justices. “This black-letter rule reflects a concern, grounded in separation of powers principles, that the judiciary should not embrace a dispute that Congress has not empowered the courts to resolve.”
Industry Groups Weigh in
“It is now settled that unless Congress intends to create a cause of action, ‘a cause of action does not exist and courts may not create one,’ ” the industry group Pharmaceutical Research and Manufacturers of America (PhRMA) echoed in its brief. “In no uncertain terms, this Court has emphasized that it long ago “abandoned” the view that the federal courts’ role is to attempt to improve statutory schemes by creating remedies that Congress did not provide. It is undisputed that the statute at issue here … does not create a private right of action allowing 340B entities to challenge the calculation of statutory ceiling prices through suits against participating drug manufacturers. That should have been the end of the analysis.”
The federal appellate decision in the case “is patently erroneous,” the Chamber of Commerce of the United States argued in its brief. If left standing, “it would be extraordinarily harmful to American businesses” and “wreak havoc” with statutory schemes “that by their terms contemplate the possibility only of government, and not of private, enforcement.”
As previously reported in the Monitor, Associate Justice Elena Kagan has recused herself from consideration of the case, which means that it will decided by only eight of the nine justices. In the event of a tie, the federal circuit court ruling in the providers’ favor will be left standing.
In September, a federal district judge in San Francisco halted proceedings in the case pending the Supreme Court’s decision. The manufacturers and the counties have spent much of the past year sparring over the scope of discovery in the lawsuit. The federal district and appellate courts hearing the case have granted the counties and their 340B providers unprecedented access to the drug firm’s closely guarded internal pricing data.