January 29, 2010 – The high-stakes 340B drug pricing case in California’s Santa Clara County has taken several new turns.
The dozen drug manufacturers the county sued in 2005 to recover alleged overcharges on 340B drugs have asked the U.S. Court of Appeals for a rehearing on a revised decision the appeals court issued Dec. 9. The revised opinion allowed the plaintiffs to seek data underlying 340B prices to which the panel had, earlier in the year, restricted access. If granted, the rehearing would focus on the central issue of what data drug makers must disclose to help a lower court determine the accuracy of those prices.
If the appeals court grants the second review and sides with the manufacturers, it will significantly limit the information the plaintiffs are able to obtain from drug makers to prove their case.
The Santa Clara lawsuit is being watched closely by 340B-covered hospitals, clinics and programs nationwide that suspect they’re overpaying for drugs; and by manufacturers that are protective of their internal pricing data for proprietary and compliance reasons.
Manufacturers lean on HHS arguments to strengthen case
In their petition filed Dec. 30 in the Ninth Circuit Court of Appeals in San Francisco, Astra Zeneca and its co-defendants contend they should not have to disclose the raw data — invoices, purchase orders, chargeback files etc. — that goes into calculating the average manufacturer price (AMP) or the best price, both of which are used to compute the discounted 340B price for prescription drugs.
The drug makers say the appeals court failed to take into account arguments the U.S. Department of Health and Human Services (HHS) submitted to the court before it issued its Dec. 9 revision of an August 2009 opinion.
In the original August opinion, the appeals court said that while manufacturers would have to disclose AMP and best prices to the court and plaintiffs, they would not have to disclose the data that went into calculating those prices. The opinion only allowed the plaintiffs to discover and show the court how the manufacturers calculate the AMPs and best prices they report to HHS. However, the December revision eliminated the August restriction on what data the plaintiffs could seek.
With its revised opinion, the court lifted an order protecting that data from disclosure, which had been granted by the lower court judge hearing the case, U.S. District Court Judge William Alsup, after the August opinion was issued.
Appeals court: Case may return to HHS
The Dec. 9 revision also retreated from the appeals court’s earlier position that the plaintiffs should not have to take their case to HHS for resolution before moving to the courts. In a nod to manufacturers, the court conceded that the case could, in fact, be returned to HHS — the administrative agency with expertise — if questions arise about how to accurately define AMP and best price.
HHS’ involvement would only be necessary, according to the court, if the 340B prices at issue are incorrect because of interpretations of law and not because of mere accounting errors. The appeals court had initially denied that HHS had any jurisdiction to review the pricing data.
In their petition for a rehearing, the drug makers also noted that the appeals court did not acknowledge HHS’ position that the pharmaceutical pricing agreement (PPA) on which 340B manufacturer participation is based does not grant covered entities a third-party right to challenge pricing in the courts.
“The Social Security Act gives HHS primary responsibility to enforce the accuracy of these reports,” the agency wrote in a friend-of-the-court brief it submitted to the appeals court in October. “Allowing plaintiff’s challenge would undermine HHS’s role and improperly shift the yardstick by which manufacturers’ reports are judged.”
Dragging Medicaid rebate program into case risky
In their appeal, the manufacturers also pointed to the HHS position that to grant a third party beneficiary the right to litigate would conflict not only with HHS’s regulatory scheme under 340B — but also its regulatory mechanisms under the Medicaid rebate law, which also uses manufacturer-reported AMPs and best prices.
The defendants quoted HHS, saying that “allowing suits like this would threaten the orderly operation of both programs.”
If a rehearing is granted and the appeals court agrees with the manufacturers’ contention that revealing pricing information could disrupt administration of the Medicaid rebate law, the court may be inclined to limit the scope of Santa Clara County’s discovery request.
This is because if the court were to declare that AMP and best price had been incorrectly and fraudulently reported, 340B sales would not be the only transactions requiring the court’s review. It could also affect the hundreds of millions of dollars that manufacturers pay state Medicaid agencies in rebates each year.