58 F.4th 696
3rd Cir.2023Background
- Section 340B requires manufacturers who participate in Medicare/Medicaid to offer certain outpatient drugs to qualifying "covered entities" at or below a statutory ceiling price; the statute is silent about where discounted drugs must be delivered.
- HHS issued guidance allowing covered entities to use contract pharmacies (1996: one; 2010: unlimited), after which contract-pharmacy use exploded.
- In 2020 several manufacturers (Sanofi, Novo Nordisk, AstraZeneca) adopted distribution policies limiting delivery to in-house pharmacies or one contract pharmacy (with some exceptions).
- HHS issued Advisory Opinion 20-06 and later Violation Letters concluding Section 340B unambiguously requires manufacturers to deliver discounted drugs to an unlimited number of contract pharmacies; HHS also promulgated a final Administrative Dispute Resolution (ADR) Rule in 2020.
- AstraZeneca sued in Delaware (court vacated Advisory Opinion and Violation Letter; HHS rescinded the Advisory Opinion); Sanofi and Novo Nordisk sued in New Jersey (court remanded on some Violation Letter issues but upheld parts and the ADR Rule); appeals followed to the Third Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §340B require manufacturers to deliver discounted drugs to an unlimited number of contract pharmacies? | Manufacturers: §340B is silent on delivery; Congress did not impose such a duty, so manufacturers may limit distribution. | HHS: "purchased by" and "shall offer" language means manufacturers must deliver to any contract pharmacy a covered entity chooses. | Held: No—statute does not require delivery to an unlimited number of contract pharmacies; HHS oversteps by enforcing that interpretation. |
| Is the agency entitled to Chevron or Skidmore deference for its interpretation? | Manufacturers: No Chevron; agency interpretation is not persuasive and gets no deference. | HHS: Defends interpretation via Advisory Opinion/letters. | Held: Chevron inapplicable; Skidmore inapplicable because the agency’s interpretation is unpersuasive. |
| Is the challenge to the rescinded Advisory Opinion moot? | Manufacturers: Rescission moots the claim. | HHS: Rescission did not change the agency’s position; case not moot because agency continues to enforce same view. | Held: Not moot—court may enjoin HHS from reverting to the rescinded interpretation because the agency maintains the same position and enforcement actions continue. |
| Did the ADR Rule violate APA notice-and-comment because HHS had earlier marked the NPRM as "withdrawn"? | Sanofi: HHS effectively withdrew the NPRM and then later reused the prior notice; agency should have reproposed and reopened comment. | HHS: It merely paused action and later finalized after considering prior comments; APA procedures were followed. | Held: ADR Rule lawful; prior listing as "withdrawn" in the Unified Agenda did not negate the earlier NPRM/notice-and-comment record. (Judge Ambro dissented as to this part.) |
Key Cases Cited
- Christensen v. Harris County, 529 U.S. 576 (2000) (agency interpretations get Skidmore respect only to the extent they are persuasive)
- United States v. W. T. Grant Co., 345 U.S. 629 (1953) (courts can enjoin agency from reverting to illegal conduct even after cessation)
- Barnhart v. Sigmon Coal Co., 534 U.S. 438 (2002) (congressional word choice can indicate intentional omission)
- State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 580 U.S. 26 (2016) (courts look to whether Congress knew how to draft particular language)
- District of Columbia v. Heller, 554 U.S. 570 (2008) (caution against overreliance on drafting history)
- Ramos v. Louisiana, 140 S. Ct. 1390 (2020) (drafting history can support opposite inferences)
- Little Sisters of the Poor Saints Peter & Paul Home v. Pennsylvania, 140 S. Ct. 2367 (2020) (APA prescribes the maximum procedural requirements for notice-and-comment)
- Solar Turbines Inc. v. Seif, 879 F.2d 1073 (3d Cir. 1989) (skepticism toward mootness claims where agency maintains same position)
- Hartnett v. Pa. State Educ. Ass'n, 963 F.3d 301 (3d Cir. 2020) (treats agency rescission assurances with caution when the agency asserts legality of challenged conduct)
- Eid v. Thompson, 740 F.3d 118 (3d Cir. 2014) (standard of review for district-court rulings on agency action)