Eli Lilly Says Feds Have Overstepped Authority to Govern Drug Prices

On Tuesday in the Southern District of Indiana, plaintiffs Eli Lilly and Company and Lilly USA, LLC (together, Lilly) sued the Department of Health and Human Services (HHS) and the Health Resources and Services Administration (HRSA) challenging an advisory opinion the defendants issued on Dec. 30, 2020. At issue in the case is the scope of a Congressionally created program intended to expand low-income Americans’ access to affordable prescription medicines known as the 340B Drug Pricing Program (340B Program).

The plaintiffs explain that under the 340B Program, pharmaceutical manufacturers are required to offer significant discounts on their products to certain entities, “a narrowly circumscribed class of non-profit healthcare providers that Congress defined to be limited to 15 discrete and specifically enumerated types of entities that serve low-income and/or vulnerable populations—could demand these steep discounts.” The list excludes entities like for-profit hospitals and major retail pharmacies, such as Walgreens and CVS, the latter of which are known as “contract pharmacies.”

The filing contends that in last year’s advisory opinion, the defendants concluded that drug manufacturers are required to discount covered outpatient drugs “when contract pharmacies are acting as agents of 340B covered entities.” According to Lilly, “[t]hat is no small matter” because unlike the other enumerated entities, contract pharmacies neither predominately serve vulnerable populations nor do they usually pass on 340B price savings to patients.

Lilly also explained that when the defendants previously allowed an unlimited number of contract pharmacies to take advantage of these arrangements but did not require manufacturers to honor them, the contract pharmacies “pervert[ed] the 340B Program” by purchasing drugs at a discount, regardless of patients’ income, and received reimbursements from patients’ insurers that may have exceeded the price the contract pharmacies paid.

Last year, Lilly stopped allowing contract pharmacies to “demand discounts” on all of its products, but the filing makes clear that the manufacturer still offers discounts to all 340B eligible entities. Yet, the complaint contends, the defendants threatened Lilly with sanctions and have now made good on those threats.

According to the complaint, the HRSA and HHS’s Dec. 30 opinion has bound manufacturers like Lilly to offer full 340B discounts to contract pharmacies on all covered drugs when acting as agents, “lest they face massive penalties of up to $5,000 per occurrence, plus the potential revocation of the manufacturer’s ability to participate in and receive reimbursements under the pervasive Medicare and Medicaid programs.”

In turn, Lilly is seeking a judicial declaration that the defendants’ opinion violates the Administrative Procedure Act (APA) because “it was issued without following proper procedure, is in excess of statutory authority, violates the Constitution, and is arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law.” In addition, the plaintiffs seek confirmation that they are not required to offer discounts to contract pharmacies under the 340B Program and an injunction preventing the Dec. 30 opinion from taking effect.

Eli Lilly is represented by Faegre Drinker Biddle & Reath LLP and Kirkland & Ellis LLP.