by admin | January 20, 2011 4:02 am
January 20, 2011—Attorneys for major drug manufacturers, the federal government and two California counties faced hard questions at the U.S. Supreme Court yesterday as the justices tried to tease out whether Congress intended to give 340B providers the right to sue drug companies for alleged overcharges or whether, in the absence of such intent, the providers possess that right as a matter of contract law.
Lisa Blatt, the lawyer who argued the companies’ case before the Court in Astra USA Inc. v. County of Santa Clara (Case No. 09-1273), was grilled about her main contention that the counties, having been denied a right to sue by Congress, were now trying to obtain the right through “the back door” by impermissibly relying on federal common law precedent.
U.S. Assistant Solicitor General Ginger Anders, meanwhile, faced a tough line of follow-ups when, in response to being asked whether a 340B pharmaceutical pricing agreement is a contract, she replied that “is not an ordinary contract.” That appeared to backpedal from the government’s position in its brief supporting the drug companies that the pricing agreements are not contracts.
And the counties’ lawyer, David Frederick, was told point-blank by Chief Justice John Roberts Jr. that based on three decades of Court decisions declining to recognize implied rights of action, “it is pretty clear that we’re not going to” rule that Congress implicitly granted his clients a right to sue to enforce the 340B statute’s ceiling price provisions. Frederick insisted that the counties weren’t seeking and didn’t need that right to prevail, but Roberts and other justices seemed skeptical.
Potentially Huge Sums at Stake
The counties and their 340B-enrolled providers allege that the nine manufacturers have systematically charged them above statutorily defined 340B ceiling prices over the course of many years. The counties say their facilities spent about $90 million on 340B-covered medicines between 2003 and 2005 alone.
The manufacturers contend that the counties have no right to sue for alleged overcharges because the 340B statute does not expressly grant them such a right. In December 2009, the Ninth U.S. Circuit Court of Appeals ruled that the counties possessed a common law right to sue as the intended beneficiaries of the pharmaceutical pricing agreements between the federal government and the manufacturers.
“Back Door” Attempt
Leading off yesterday’s arguments, Blatt maintained that a third-party beneficiary’s common-law right to sue to enforce 340B pricing agreements and a congressionally implied right to sue to enforce the 340B statute were one and the same. The counties, she said, concede that they do not have the latter.
“A third-party beneficiary’s suit to enforce the contract asserts the same right, seeks the same remedy, and causes all the same disruptions as a right of action to enforce the statute,” Blatt told the Court. “If the case begins with the premise that Congress foreclosed 340B entities from bringing an implied right of action through the front door, Congress did not leave the back door open to essentially the same suit.”
That prompted Associate Justices Sonia Sotomayor and Ruth Bader Ginsburg both to ask why Congress chose to establish 340B as a system of contracts and not as a pure regulatory system.
The answer, Blatt said, was that 340B “piggybacks off the Medicaid rebate program and that uses contracts.” 340B contracts, Blatt said, are “bilateral agreement[s]” between the Secretary of Health and Human Services and manufacturers, not tripartite agreements that include covered entities.
“Neither Congress nor the Secretary nor the manufacturers signed up to what … would be over 14,000 lawsuits against 500 manufacturers challenging the pricing for over 35,000 medications under Medicaid,” she said.
“Pick Up the Phone”
“So what is Santa Clara supposed to do?” asked Associate Justice Stephen Breyer. “They think they are being overcharged…. How do they get the money?”
“For better or worse,” Blatt said, they are “at the mercy” of False Claims Act actions brought by state Medicaid agencies, the federal government, or whistleblowers.
Breyer then asked what 340B providers could do administratively.
Covered entities, she said, should “pick up the phone and either call the manufacturer, call the prime vendor …”
“Is there an administrative remedy of some kind that would be reviewable in the courts for reasonableness?” Breyer interjected.
Just the existing informal dispute resolution process and “a vast arsenal of things” at the health secretary’s disposal, she said. If covered entities still felt they were being treated unfairly, she said, they could file a claim against the Department of Health and Human Services under the Administrative Procedures Act.
“Normally under the law … where there’s a wrong, there’s a remedy. [It] could be administrative, it could be judicial. But you’re saying there’s none?” Breyer continued.
“No,” Blatt said flatly. “I think 30 years” of the Court’s prior decisions “have said that we’re not going down that road.”
“Not an Ordinary Contract”
U.S. Assistant Solicitor General Anders faced an equally tough line of questions.
The 340B pharmaceutical pricing agreement “is not an ordinary contract and it does not transform the 340B program from a regulatory scheme into a contractual one,” she told the justices.
“Is it a contract at all?” the Chief Justice asked.
“It is not an ordinary contract in that it doesn’t give rise to contract rights in … the regulated entities,” she answered.
“Well, how do we distinguish between what you call an ordinary contract and this sort of contract, if it is any kind of contract?” asked Associate Justice Samuel Alito Jr.
“When the statute directs an agency to enter into an agreement for the sole purpose of memorializing [the parties’ decision to opt into] the regulatory scheme and directs what the terms shall be … that’s when the contract is simply a regulatory mechanism,” Anders answered.
Earlier, Associate Justice Antonin Scalia asked Blatt, the drug companies’ lawyer, what the difference was between her position and the federal government’s.
“The government says a contract is not a contract even though it says it’s a contract. Our position is that’s it’s a contract,” she said.
“That doesn’t make much sense, does it?” Scalia observed.
“What am I Missing?”
Frederick, the California counties’ lawyer, was the last to address the justices and he too faced sharp questions.
Third-party beneficiary rights are a part of normal contracts, Justice Scalia told Frederick, but “only when the parties intend him to have rights.”
“There has to be an intent,” he continued. “And I have trouble finding that intent here.” Justices Ginsburg, Kennedy, Sotomayor, and the Chief Justice all made similar observations.
“What am I missing?” Justice Sotomayor asked. “Where in the contract is there one provision, one sentence, one anything that requires the manufacturers, other than the price benefit, to do something that could be characterized” as enforceable by the covered entities?
“That is the key,” Frederick replied. “The price discount is where all the action is….The whole point of Congress enacting this statute was to confer the same discounted drug program to the covered entities as had been done through contracts to the state Medicaid rebate program. And that’s why the provision in the agreement says ‘thou shalt not charge the covered entities more than the ceiling price.'[It] is exactly where you find the intended third-party beneficiary rights, because that’s their money being spent. It’s not the federal [government’s money.]”
There is no evidence, Frederick continued, that “Congress intended there to be a departure from normal operating contract procedures….And third-party beneficiary rights have been recognized for 350 years, even before the founding of this republic.”
Disruption Arguments a “Canard”
Frederick also dismissed the manufacturers’ and federal government’s argument that private suits by 340B entities would cause major disruptions to the 340B and Medicaid systems as “a canard.”
“To the extent that there are complexities” in Medicaid rebate and 340B ceiling price calculations, he said, they “are introduced by the drug companies for the sole purpose of masking what price they are charging….The bundling of drugs, the use of kickbacks and payments to purchasers, are all designed to mask what the true price of the drug is.”
“And if Congress intended anything in the [340B] program,” Frederick added, “it was that 340B entities who are providing drugs and medical services to the poorest of our citizens should be entitled to the benefits of the collective market created by these 340B drug purchases. And that’s all that we’re asking for here.”
Frederick also warned the justice that if they ruled against his clients, they would “substantially” undercut states’ ability “to bring the same kinds of overcharging claims” against drug manufacturers under the Medicaid rebate program. The attorneys general of four states and the District of Columbia made the same argument in a brief supporting the counties.
Justices Ginsburg and Scalia quickly noted, however, that Medicaid is a joint federal-state program that grants states explicit enforcement powers. “That’s an entirely different thing than” the 340B program, “where these entities have no statutory role,” Justice Ginsburg observed.
The Court is expected to hand down its decision in the case by the end of its current term in early summer. The newest Justice, Elena Kagan, recused herself from consideration of the case due to her prior involvement in it as the U.S. Solicitor General. Her withdrawal meant that the case was heard by only eight Justices, raising the possibility of a tie vote.
If that were to occur, the Ninth Circuit Court’s ruling in the counties’ favor would be left standing. The decision would be binding only in Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington State. It could, however, be cited as precedent in other suits alleging 340B overcharging.
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