A federal court in Delaware recently determined that the Health Resources and Services Administration (HRSA) – the federal agency responsible for administering the 340B drug pricing program – did not comply with the Administrative Procedure Act (APA) when it issued a May 17, 2021 letter to AstraZeneca to enforce the use of contract pharmacies under the 340B statute (“Enforcement Letter”).  In its decision, AstraZeneca v. Becerra, No. 1:21-cv-00027 (D. Del.) (Feb. 16, 2022), the federal district court for the District of Delaware vacated and set aside HRSA’s Enforcement Letter, and remanded the matter to HRSA for further consideration. The Court stated that it will further solicit the parties’ views on the impact of the Court’s conclusions to assess if and how the case should proceed, in terms of affording relief under AstraZeneca’s complaint.

By way of background, in 2020, certain drug manufacturers began restricting access to covered outpatient drugs at the 340B ceiling price to contracted pharmacies of covered entities under the 340B statute.  In December 2020, HHS issued an Advisory Opinion rejecting such practices arguing that the text of the 340B statute was unambiguous with respect to how manufacturers must facilitate the sale of 340B covered outpatient drugs. On the heels of the issuance of the Advisory Opinion, HRSA began, in May 2021, to send letters to manufacturers to enforce the use of contract pharmacies under the 340B statute, including the Enforcement Letter at issue here. In response, certain manufacturers sued the government challenging (among other things) the Advisory Opinion and the Enforcement Letters. HHS withdrew its Advisory Opinion during a challenge by AstraZeneca to its validity, but the Court nonetheless formally vacated the Opinion in advance of its final decision in the case.

HRSA’s Enforcement Letter takes the position that the 340B statute requires manufacturers to offer covered outpatient drugs at the 340B ceiling price without condition or qualification and regardless of the distribution mechanism. The Enforcement Letter warns that civil monetary penalties may be imposed if AstraZeneca (and other manufacturers in receipt of the Letter) do not immediately begin offering drugs at the 340B ceiling price to covered entities through their contract pharmacy arrangements, credit or refund all covered entities for overcharges, and restart selling, without restriction, covered outpatient drugs at the 340B ceiling price to covered entities that dispense medications through contract pharmacy arrangements.

In reaching its decision, the Court cited the following factors in concluding that HRSA’s issuance of the Enforcement Letter did not comply with the APA:

• The text of the 340B statute does not mention pharmacies.

• Congress previously considered but rejected language referring to drugs under a contract entered into for on-site pharmacy services.

• The Enforcement Letter applies “essentially the same flawed statutory interpretation that the Court already rejected” in reviewing the validity of the HHS Advisory Opinion.

• The Enforcement Letter is the only document concluding that the 340B statute requires drug manufacturers to provide drugs for dispensing by an unlimited number of contract pharmacies.

• HRSA’s position on use of contract pharmacies has shifted over time.

Notwithstanding this decision, cases assessing the validity of the HRSA enforcement letters have had different reasons for partially vacating or setting aside the enforcement letters, including two cases in which the courts concluded that HRSA’s authority was not exceeded. See Eli Lilly & Co. v. U.S. Dep’t of Health & Human Servs., Case No. 1:21-cv-00081 (D.S.D. Ind.); Sanofi-Aventis U.S., LLC v. Dep’t of Health & Human Servs., Case Nos. 3:21-cv-00634, 3:21-cv-00806 (D.N.J); Novartis Pharms. Corp. v. Espinosa, Case Nos. 1:21-cv-01479, 1:21-cv-01686 (D.D.C.). These three cases are currently on appeal. HRSA indicates that it continues to evaluate its options with respect to the ongoing litigation.

The apparent split in decisions among district courts, and the high stakes for the involved parties related to the 340B program, make it likely that this issue will continue to be litigated for some time, and we will continue to monitor the litigation and its impact on health care providers.