Drugmakers prevail in dispute over U.S. discount drug program

By Brendan Pierson

(Reuters) -Drug manufacturers can limit healthcare providers’ use of outside pharmacies for dispensing drugs under a federal drug discount program, a federal appeals court ruled Monday.

The ruling from a three-judge panel of the 3rd U.S. Circuit Court of Appeals based in Philadelphia is a victory for Sanofi SA, Novo Nordisk AS and AstraZeneca PLc. The companies had sued the U.S. Department of Health and Human Services (HHS) after it ordered them to stop restricting sales of discounted drugs to so-called contract pharmacies.

Spokespersons for the drugmakers said they were pleased with the decision. An HHS spokesperson said the agency was reviewing it.

The case centers on the federal 340B program, in which drugmakers provide discounts to eligible healthcare providers that serve low-income populations. Drugmakers are required to participate in the 340B program in order to receive funds from government health insurance programs like Medicare and Medicaid.

Many providers eligible for the program do not have in-house pharmacies, and so contract with outside pharmacies. In 2010, HHS issued new guidance stating that 340B providers could use an unlimited number of contract pharmacies, replacing previous guidance that they could use only one such pharmacy.

In 2020, drugmakers began limiting 340B drug sales to contract pharmacies. They said such pharmacies had become overused, leading to illegal diversion of drugs and, in some cases, to the drugmakers providing double discounts on the same drug.

Sanofi, Novo Nordisk and AstraZeneca all continued to allow 340B providers without in-house pharmacies to use a single contract pharmacy. Sanofi and Novo Nordisk also allowed the use of multiple pharmacies in some cases.

HHS ordered them to stop, saying the new policies were not allowed under the 340B program. But 3rd Circuit Judge Stephanos Bibas said Monday that the federal law behind the program did not say anything about contract pharmacies.

“Legal duties do not spring from silence,” he wrote.

The ruling reverses an order from a federal judge in New Jersey against Sanofi and Novo Nordisk, while upholding an order from a Delaware judge in favor of AstraZeneca.

(Reporting By Brendan Pierson in New York, Editing by Alexia Garamfalvi and Jonathan Oatis)