Pharmaceutical Research and Manufacturers of America v. Alan McClain, in his official capacity as Commissioner of the Arkansas Insurance Department; Community Health Centers of Arkansas; Piggott Community Hospital
No. 22-3675
United States Court of Appeals for the Eighth Circuit
Filed: March 12, 2024
Submitted: September 20, 2023
American Hospital Association; Arkansas Hospital Association; 340B Health
Amici on Behalf of Appellee(s)
MELLOY, Circuit Judge.
Pharmaceutical Research and Manufacturers of Ameriсa (PhRMA), an association representing pharmaceutical manufacturers, initially brought this case against Arkansas Insurance Department Commissioner Alan McClain in his official capacity arguing that federal law impliedly preempts
I.
For three decades, many Arkansas health care providers have participated in the Section 340B Program, a drug pricing program established by Congress in 1992.
For 25 years, drug manufacturers represented by PhRMA distributed 340B drugs to covered entities’ contract pharmacies. Then, in 2020, drug manufacturers began implementing distribution policies that limited or prohibited coverеd entities from contracting with outside pharmacies for the dispensation of 340B drugs to patients. This caused covered entities dependent on contract pharmacies to become unable to serve patients in need. The Arkansas General Assembly responded in 2021 by passing Act 1103,
After the passage of Act 1103, PhRMA brought this lawsuit against Commissioner
II.
Article VI of the Constitution provides that the laws of the United States shall be the supreme Law of the Land; . . . any Thing in the Constitution or Laws of any state to the Contrary notwithstanding. Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516 (1992) (citing
Notwithstanding the supremacy of federal law, [c]onsideration of issues arising under the Supremacy Clause start[s] with the assumption that the historic police powers of the States [are] not to be superseded by . . . Federal Act unless that [is] the clear and manifest purpose of Congress. Cipollone, 505 U.S. at 516 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). Indeed, there is a presumption that state or local regulation of matters related to health and safety is not invalidated under the Supremacy Clause. Hillsborough Cnty., Fla. v. Automated Med. Lab‘ys, Inc., 471 U.S. 707, 715 (1985).
PhRMA argues that Section 340B impliedly preempts Act 1103 through field
A.
1.
PhRMA first argues that Section 340B preempts Act 1103 under theories of field and obstacle preemption. Congress established Section 340B of the Public Health Services Act as a pharmaceutical pricing program that imposes ceilings on prices drug manufacturers may charge for medications sold to specified health-care facilities. Astra USA, Inc. v. Santa Clara Cnty., Cal., 563 U.S. 110, 113 (2011);
The 340B Program has three basic parts: (1) a cap on drug makers’ prices, (2) restrictions on covered entities, and (3) compliance mechanisms for both covered entities and manufacturers. Sanofi Aventis U.S. LLC v. U.S. Dep‘t of Health & Hum. Servs., 58 F.4th 696, 699 (3d Cir. 2023). First, as a condition of participating in Medicaid, drug manufacturers must opt into the 340B Program by signing a form Pharmaceutical Pricing Agreement with the Secretary of HHS. Astra USA, Inc., 563 U.S. at 113. The Pharmaceutical Pricing Agreement requires manufacturers to sell drugs to covered entities at a discounted ceiling price.
Finally, the 340B Program includes compliance mechanisms, penalties for noncompliance or abuse by manufacturers and covered entities, and a dispute resolution process through HHS. See, e.g., Astra USA, Inc., 563 U.S. at 115–16; Sanofi Aventis U.S. LLC, 58 F.4th at 701–02. Manufacturers are required to report their 340B ceiling prices to the HRSA on a quarterly basis and are subject to auditing.
As the Third Circuit has observed, the 340B Program is silent about delivery and distribution of pharmaceuticals to patients. Sanofi Aventis U.S. LLC, 58 F.4th at 703. The pharmaceutical distribution chain is complex, and contract pharmacies are not the only third parties involved in getting 340B drugs from manufacturers to patients. Pharmaceutical manufacturers sell their drugs to wholesalers who then distribute and sell drugs to pharmacies or health care providers. Section 340B addresses drug wholesalers but does not mention pharmacies or the delivery of drugs by pharmacies to patients. Yet pharmacies are essential, and legally required, as part of the drug distribution chain. Thus, pharmacies have always been important participants in delivering 340B drugs to patients.
Although some covered entities have in-house pharmacies, many do not. Indeed, early in the 340B Program, HRSA observed that most covered entities relied on contract pharmacies, while only about four percent of such entities used in-house pharmacies. Notice Regarding Section 602 of the Veterans Health Care Act of 1992; Contrаct Pharmacy Services, 61 Fed. Reg. 43,549, 43,550 (Aug. 23, 1996). Therefore, since the 1990s, covered entities have contracted with outside pharmacies to handle the acquisition, distribution, and dispensation of 340B drugs.
When covered entities enter into agreements with contract pharmacies, these pharmacies do not become beneficiaries of the 340B Program. Rather, HRSA has clarified that the use of contract services is only providing those covered entities (which would otherwise be unable to participate in the program) a process for accessing 340B pricing for patients. 61 Fed. Reg. at 43,550. Covered entities using contract pharmacies . . . still order and pay for the drugs, but they [are] shipped directly to the pharmacies. Sanofi Aventis U.S. LLC, 58 F.4th at 700. Covered entities maintain legal title to the 340B drugs. 61 Fed. Reg. at 43,552. The mechanism does not in any way extend this pricing to entities which do not meet program eligibility.
2.
In May 2021, the Arkansas General Assembly enacted Act 1103 in response to the growing practice among pharmaceutical companies of prohibiting or restricting covered entities from contracting with outside pharmacies. PhRMA argues that the following section of Act 1103 is preempted:
(c) A pharmaceutical manufacturer shall not:
(1) Prohibit a pharmacy from contracting or participating with an entity authorized to participate in 340B drug
pricing by denying access to drugs that are manufactured by the pharmaceutical manufacturer; or (2) Deny or prohibit 340B drug pricing for an Arkansas-based community pharmacy that receives drugs purchased under а 340B drug pricing contract pharmacy arrangement with an entity authorized to participate in 340B drug pricing.
3.
PhRMA first argues that Act 1103 is unconstitutional because the 340B Program preempts the field. In cases where, as here, a statute does not expressly preempt state law, it may nonetheless do so through field preemption. When a federal regulatory scheme occupies the field because of its pervasive nature, leaving no room for state action, field preemption aрplies. Cipollone, 505 U.S. at 516. Field preemption also applies when Congress intend[s] to foreclose any state regulation in the [regulated] area, irrespective of whether state law is consistent or inconsistent with federal standards. Oneok, Inc., 575 U.S. at 377 (quoting Arizona v. United States, 567 U.S. 387, 401 (2012)). Congress‘s intent to preempt a field can be inferred from a framework of regulation so pervasive . . . that Congress left no room for the States to supplement it or a federal interest . . . so dominant thаt the federal system will be assumed to preclude enforcement of state laws on the same subject. Arizona, 567 U.S. at 399 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). Neither inference is present here.
First, the 340B Program is not so pervasive . . . that Congress left no room for the States to supplement it.
Furthermore, the practice of pharmacy is an area traditionally left to state regulation. Pharm. Care Mgmt. Ass‘n v. Wehbi, 18 F.4th 956, 972 (8th Cir. 2021). Indeed, when it comes to pharmaceuticals, the federal government has traditionally regarded state law as a complementary form of drug regulation and has long maintained that state law offers an аdditional, and important, layer of consumer protection that complements [federal] regulation. Lefaivre v. KV Pharm. Co., 636 F.3d 935, 940–41 (8th Cir. 2011) (quoting Wyeth v. Levine, 555 U.S. 555, 578–79 (2009)). The case for federal pre-emption is particularly weak where Congress has indicated its awareness of the operation of state law in a field of federal interest, and has nonetheless decided to stand by both concepts and to tolerate whatever tension there [is] between them. Id. at 940 (citаtion omitted). We believe Congress was aware of the role of pharmacies and state pharmacy law in implementing 340B. Therefore, Congressional silence on pharmacies in the context of 340B indicates that Congress did not intend to preempt the field.
PhRMA contends that 340B preempts the field because Congress intended to create a closed system with the statute. To support this argument, PhRMA first asserts that Act 1103 impermissibly interferes with 340B‘s closed system by adding pharmacies to the enumerated list of covered entities eligible to receive 340B pricing on drugs. This misconstrues what Act 1103 does. Pharmacies do not purchase 340B drugs, and they do not receive the 340B price discounts. Covered entities purchase and maintain title to the 340B-discounted drugs, while contract pharmacies dispense these drugs to covered entities’ patients. Sanofi Aventis U.S. LLC, 58 F.4th at 700.
Second, PhRMA argues that Act 1103 creates its own oversight and enforcement scheme by empowering a state agency to exact penalties on manufacturers who refuse to distribute to contract pharmacies. PhRMA argues this contravenes HHS‘s exclusive 340B jurisdiction. Again, PhRMA conflates the two statutes. Act 1103 ensures that covered entities can utilize contract pharmacies for their distribution needs and authorizes the Arkansas Insurance Division to exaсt penalties and equitable relief if manufacturers deny 340B drugs to covered entities’ contract pharmacies.
Pharmacy has traditionally been regulated at the state level, and we must assume that absent a strong showing that Congress intended preemption, state statutes that impact health and welfare are not preempted. Pharm. Care Mgmt. Ass‘n, 18 F.4th at 972. For these reasons, we conclude that in enacting Section 340B, Congress did not intend to preempt the field.
4.
PhRMA next argues that Act 1103 is unconstitutional because of obstacle preemption. Where state and federal law ‘directly conflict,’ state law must give way. PLIVA, Inc. v. Mensing, 564 U.S. 604, 617 (2011) (сitation omitted). Obstacle preemption exists where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Crosby v. Nat‘l Foreign Trade Council, 530 U.S. 363, 373 (2000)Id. If the purpose of the act cannot otherwise be accomplished—if its operation within its chosen field else must be frustrated and its provisions be refused their natural effect—the state law must yield to the regulation of Congress within the sphere of its delegated power. Id. (citation omitted).
Act 1103 does not create an obstacle for pharmaceutical manufacturers to comply with 340B, rather it does the opposite: Act
Act 1103 does not require manufacturers to provide 340B pricing discounts to contract pharmacies. Act 1103 does not set or enforce discount pricing. As such, the delivery of a covered entity‘s 340B drugs to contract pharmacies for dispensing creates no obstacle. Additionally, Act 1103‘s penalties are aimed at activity that falls outside the purview of 340B: Act 1103 incentivizes compliance through monetary penalties and equitable relief. Arkansas is simply deterring pharmaceutical manufacturers from interfering with a covered entity‘s contract pharmacy arrangements. There is no obstacle for pharmaceutical manufacturers to comply with both Act 1103 and Section 340B.
B.
PhRMA also argues that Act 1103 is unconstitutional because of impossibility preemption. PhRMA argues that as to certain highly regulated drugs, Act 1103‘s distribution requirement is at odds with the FDCA‘s Risk Evaluation and Mitigation Strategies (REMS) Program.
Act 1103 does not make it impossible for drug manufacturers and wholesale distributors to comply with the REMS Program, and therefore the FDCA does not preempt Act 1103. Imрossibility preemption exists when it is impossible for a private party to comply with both state and federal requirements. PLIVA, Inc., 564 U.S. at 618 (citation omitted). The question for ‘impossibility’ is whether the private party could independently do under federal law what state law requires of it.
Act 1103 does not force pharmaceutiсal manufacturers to violate REMS. Act 1103 prohibits drug manufacturers from denying 340B covered entities the ability to contract with third-party pharmacies for dispensation of 340B drugs. If a 340B drug is also subject to REMS safety requirements and the covered entity wants to contract with a pharmacy for dispensation, the covered entity bears the responsibility of contracting with a pharmacy that meets the REMS requirements. Providers, manufactures, and phаrmacies are subject to many legal and regulatory requirements in the area of drug distribution. Just because a medication is subject to multiple legal requirements does not make it impossible to comply with Act 1103. PhRMA alleges no circumstance where a covered entity‘s
III.
For the foregoing reasons, Arkansas Act 1103 is not preempted by Section 340B or the FDCA‘s REMS Program. We affirm.