What appeals court 340B rebate decision means for federal rebates

An appeals court barred 340B rebate programs by drug manufacturers, among recent legal developments.

The case could have ramifications for federal 340B rebates.

On July 21, the U.S. Court of Appeals for the D.C. Circuit upheld a lower court ruling that barred alternative 340B rebate models without explicit approval from HHS.

“That’s certainly welcome news from a provider perspective, in the sense that there were five manufacturers last year that had attempted or expressed interest in proceeding with kind of converting 340B from an up-front discount program into a back-end rebate program,” said Jeff Davis, a partner with the law firm Bass, Berry & Sims. “And they did not believe they needed permission from HRSA [Health Resources and Services Administration] to be able to do so.”

The decision confirmed that HRSA can permit rebates if they are approved by the agency, he noted.

“So, this decision did not at all limit HRSA’s ability to proceed with the rebate pilot program that they are currently in the process of working on,” Davis said.

Following HRSA’s withdrawal of a 340B rebate pilot earlier this year — after hospitals challenged it in court — the agency has launched an effort to retry it. That new effort presumably aims to address the procedural concerns that a court raised.

Part of the effort to address those concerns included an information collection request that solicited feedback on the pilot. Regulators collected comments on that until July 15.

“Presumably. they will respond to the feedback that was shared by providers in response to that,” Davis said.

Contract pharmacy limits

Another category of ongoing 340B lawsuits focus on whether drug manufacturers can impose limits on contract pharmacy (CP) use despite HRSA barring such restrictions.

Since 2021, district court rulings have split on that question, while two appeals courts have largely been in favor of manufacturers. Those circuit court decisions found that in some contexts or some cases drugmakers can impose these types of restrictions.

However, another case remains pending before the 7th Circuit Court of Appeals, which legal advisers continue to watch.

State CP laws

Cases also continue over the legality of 21 state laws to prohibit CP restrictions by manufacturers. Those laws were challenged by drugmakers over the belief that they are preempted by federal law.

States generally have won those challenges in lower courts and two appeals courts. However, a panel of the 4th Circuit Court of Appeals ruled in favor of the manufacturers and found that West Virginia and Maryland laws were preempted.

“And so that raised now a circuit split,” said Davis. It also has some questioning, ‘Is this something that could potentially go before the Supreme Court?’ Davis noted.

However, the full 4th Circuit Court of Appeals has agreed to review the case, so it may head off a circuit split on the issue and obviate a need for High Court review.

Patient definition

A newer case came in April when AbbVie challenged the HRSA definition of the 340B patient as too expansive. Instead, the company said a patient only qualifies for 340B drugs if they received recent, substantive care directly managed by the 340B covered entity for that specific prescription.

That definition is a central pillar of the program, said Davis.

“At its core, the ability to generate the 340B benefit is dependent on providers’ ability to dispense a 340B drug to an individual who is a 340B eligible patient,” he said. “And so, if the definition of a 340B eligible patient is shrunk, then that will mean fewer prescriptions that could be filled at 340B pricing, not just through a contract pharmacy, but also through a hospital’s in-house pharmacy or a provider’s in-house pharmacy or in the provider’s clinic setting as well.”

Since federal law does not define a 340B patient, HRSA has enforced the program based on 1996 guidance that used a three-prong 340B patient definition.

And HRSA has used that guidance to guide its audit enforcement. However, HRSA’s audits sometimes have strayed from that definition; and one provider, Genesis HealthCare, won a high-profile challenge in one such audit.

“There has been a lot of confusion since the Genesis decision as to what is HRSA’s position and what is HRSA’s audit enforcement standard,” said Davis. “This lawsuit that’s now been brought by the manufacturer, AbbVie, is alleging that the policy and the position that HRSA has taken going back to its 1996 test is too broad and should be something narrower.”

Reporting challenge

The newest type of 340B case involves a hospital challenge of drugmaker requirements under state law.

Earlier this month, Tampa General Hospital sued Eli Lilly, alleging the drugmaker unlawfully cut off 340B discounts after the hospital refused to provide newly required prescription-level claims data through Lilly’s reporting platform.

Under an earlier decision, the Supreme Court barred 340B providers from suing manufacturers in federal court. So, the Tampa General lawsuit targeted the manufacturer’s 340B policies under state laws related to business and consumer practices.

Beyond state law, 340B providers’ only recourse to challenge an illegal denial of 340B pricing is through HRSA’s administrative dispute resolution (ADR) process. However, since the ADR process was launched in mid-2024, arbiters have issued only 10 decisions and at least one lawsuit was filed by providers over its backlog.