Novartis Challenges Contract Pharmacies Under 340B Program

On Monday, a case was filed in District of Columbia District Court by Novartis Pharmaceuticals Corporation against Diana Espinosa and Xavier Becerra in their roles in the Department of Health and Human Services. The complaint is in regards to the recent decisions made by the Health Resources and Services Administration regarding the role of contract pharmacies.

The complaint explained that Section 340B of the Public Health Service Act requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to health care organizations that care for many uninsured and low-income patients. The complaint explained that covered entities “include entities operating under a federal grant as well as particular types of hospitals, such as certain children’s hospitals and freestanding cancer hospitals.”

However, not every qualifying treatment center has an on-site pharmacy. This has resulted in qualifying centers entering into contractual arrangements with external pharmacies to receive the discounts and provide the medications at the lower rate.

Novartis objected to a ruling from the HRSA indicating that it must honor these external contractual arrangements, arguing that the external pharmacies are for-profit entities who are receiving the discounted rates and who are selling the discounted drugs to customers who do not qualify under the 340B program. Novartis had proposed an intermediate solution where the contracts would be recognized only if the contract pharmacy was within a 40 mile radius of the qualified center, which HRSA rejected. HRSA has since issued a letter indicating that the 340B policy will be enforced against Novartis.

Novartis’ complaint challenges the enforcement letter, stating that the HRSA decision was arbitrary and capricious, that it is against the plain language of the 340B program, and states that the enforcement letters public allegations harm the reputation of Novartis as a pharmaceutical company. Novartis is represented by the firm of Hogan Lovells US LLP.

Interested in learning more about legal issues facing pharmaceutical companies? Learn more about the regulation of the industry in Regulation of Pharmaceutical Manufacturers, from Full Court Press and Fastcase.