[WBA, CVS] SCOTUS Sides with Arkansas Law; For Now, Contract Pharmacies Have Upper Hand vs. Pharma
This morning, the Supreme Court (SCOTUS) afforded a win to state laws protecting the use of contract retail, mail-order and specialty pharmacies (WBA, CVS, WMT, UNH, CI, RAD) that arehired by 340B hospitals and clinics to dispense discounted medication in its denial of the biopharma industry’s petition to hear the appeal of PhRMA v. McClain. By not granting cert to the legal challenge of a state prohibition on drug makers restricting 340B hospitals/clinics’ contract pharmacies, SCOTUS affirmed the lower court rulings.
While we thought such an outcome was likely and would be a short-term positive for the 340B contract pharmacies, this court action is insufficient to end the ongoing scrutiny, additional legal challenges (primarily brought by drug makers) and legislative reform efforts of the federal 340B drug-discount program. As we wrote last week, we expect the various concerns involving 340B to be addressed during the next administration and Congress, ultimately settling in a legislative compromise that provides a mixed bag for the industry stakeholders (contract pharmacies, hospitals, and drug makers).
PhRMA v. McClain questioned whether an Arkansas state law, similar to those enacted by other states, that bars biopharma manufacturers from imposing conditions on 340B contract pharmacies is preempted by federal law or is simply unconstitutional. The federal district court and 8th Circuit Court of Appeals unanimously sided with Arkansas. Specifically, the appellate court concluded that federal statute did not preempt the state law, which was enacted in 2021 in response to drug makers implementing distribution policies that limited or barred 340B hospitals and clinics from contracting with outside pharmacies for dispensing to patients the medicines acquired under the 340B drug discount program.
Without providing any color, SCOTUS merely rejected to hear PhRMA’s appeal from the 8th Circuit ruling. While the other lawsuits challenging similar state laws in seven states (KS, LA, MD, MN, MS, MO, WV) may proceed, we suspect that this denial is likely to lead to drug makers to withdraw this type of attack on the 340B program and result in potentially more states enact similar laws. Yet, we doubt the biopharma industry (JNJ, LLY, BMY, UTHR, SNY, NVO) will take their ball and go home or the 340B attacks in general will cease.
Rather, 340B will remain in the legal crosshairs until Congress injects itself more forcefully into the debate. For now, biopharma manufacturers are likely to continue pursuing challenges against HHS. The first type of attack involves their ability to impose limits on contract pharmacies (likely in states where the above laws have not been enacted by the local legislature), especially as we wait for the long overdue release of the federal 7th Circuit Court of Appeals’ decision to see if it is in concert with other appellate courts that previously sided with drug industry.
The second type is more recent and seeks to cement the availability of drug makers to implement a rebate or cash-replenishment model on 340B hospitals and clinics, instead of an upfront discount model, to fulfill participation in the 340B program. Even if the incoming Trump administration were to advance a different stance than during its prior term or the Biden administration and is more favorable to the drug makers – such as allowing limits on 340B contract pharmacies and use of a rebate model on 340B entities – the courts would likely still get involved as we suspect 340B hospitals and clinics would sue.