102 F.4th 452
D.C. Cir.2024Background
- Section 340B of the Public Health Service Act requires drug manufacturers to sell certain drugs at discounted prices to specific healthcare providers (covered entities) serving low-income patients.
- Covered entities often distribute drugs via contract pharmacies, and recent expansion of this practice has been significant following HRSA's 2010 guidance.
- Drug manufacturers, concerned about program abuses (unlawful diversion and duplicate discounts), imposed contractual limits on pharmacy distribution.
- The Health Resources and Services Administration (HRSA) asserted that such distribution restrictions violate section 340B, issuing enforcement letters to manufacturers.
- Novartis and United Therapeutics challenged these enforcement actions under the APA, seeking vacatur, declaratory relief, and an injunction.
- The district court held, and the D.C. Circuit affirmed, that Section 340B does not prohibit manufacturers from imposing distribution limitations by contract.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does section 340B prohibit manufacturers from limiting drug distribution to covered entities by contract? | Novartis/United Therapeutics: Statutory silence allows manufacturers to set reasonable conditions, including distribution limits. | HRSA: Section 340B requires delivery to any contract pharmacy chosen by covered entities; no limits allowed. | No, section 340B does not categorically prohibit manufacturers from imposing distribution conditions. |
| Does the statutory obligation to offer drugs at or below ceiling price prevent non-price (distribution) terms? | May include non-price terms consistent with contract law; delivery conditions do not violate statute. | Obligation is non-negotiable and unqualified; any restriction violates statutory rights. | Manufacturers can include reasonable distribution conditions; statutory silence permits them. |
| Does legislative history or administrative guidance prevent distribution limits? | Previous agency guidance permitted some limits; history is not dispositive. | Legislative history and guidance suggest unlimited access is required. | Agency's historical guidance recognized some limits; legislative history is not controlling. |
| Are the specific conditions imposed by Novartis/United Therapeutics lawful? | These restrictions are reasonable, consistent with historic practice, and do not affect bona fide offer or price. | All restrictions are unlawful under section 340B. | The conditions at issue do not violate section 340B; enforcement letters properly set aside. |
Key Cases Cited
- United States v. Mead Corp., 533 U.S. 218 (Chevron deference does not apply where agency lacks rulemaking authority)
- Christensen v. Harris Cnty., 529 U.S. 576 (Statutory silence does not prohibit otherwise lawful conduct)
- Sanofi Aventis U.S. LLC v. HHS, 58 F.4th 696 (3d Cir. 2023) (Section 340B is silent on delivery, does not require unlimited contract pharmacies)
- HollyFrontier Cheyenne Refin., LLC v. Renewable Fuels Ass’n, 141 S. Ct. 2172 (Statutory interpretation of ordinary terms)
- Jicarilla Apache Nation v. DOI, 613 F.3d 1112 (Standard of review under the APA)