The 340B Drug Discount Program: Litigation Topics and Trends
Congressional research reportSep 10, 2025
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The 340B Drug Discount Program: Litigation
Topics and Trends
September 10, 2025
Congressional Research Service
https://crsreports.congress.gov
R48696
SUMMARY
The 340B Drug Discount Program: Litigation
Topics and Trends
R48696
September 10, 2025
Hannah-Alise Rogers
Legislative Attorney
Congress created the 340B Drug Discount Program in 1992 in the Veterans Health Care Act
(Pub. L. No. 102-585) to enable certain health care safety net providers to purchase drugs at
lower costs. The program’s authorizing statute requires drug manufacturers that participate in
Medicaid to offer to sell outpatient prescription drugs to eligible “covered entities” at discount
prices. The law allows covered entities to sell these drugs to their patients as though they paid a
higher price, thereby generating “340B savings.” The 340B program is administered by the Health Resources and Services
Administration (HRSA), a division of the U.S. Department of Health and Human Services. Congress has made changes to the
program over time, including expanding the number of entities eligible for drug discounts and giving HRSA additional
enforcement authority under the statute.
The 340B statute prohibits covered entities from selling 340B drugs to individuals who are not patients of the covered entity
(a practice known as “diversion”). The statute also prohibits covered entities from receiving duplicate drug discounts through
both the Medicaid program and the 340B program. In recent years, legal and policy disagreements have arisen between
HRSA, covered entities, and drug manufacturers about how HRSA verifies compliance from both covered entities and
manufacturers, as well as how the agency enforces the statute, including the statutory provisions that prohibit duplicate
discounting and diversion. This report reviews recent litigation involving the program—covering both how federal courts
have interpreted the statute and the resulting consequences for HRSA, drug manufacturers, and covered entities.
The report first discusses litigation brought by drug manufacturers against covered entities over covered entities’ use of
contract pharmacies to distribute 340B drugs to their patients. The cases address HRSA’s ability to enforce its interpretation
of the statute against drug manufacturers that impose conditions on their offers to sell 340B drugs to covered entities that use
contract pharmacies to distribute those drugs. While the use of contract pharmacies has always been a part of the program,
the 340B statute does not directly mention the use of contract pharmacies, and HRSA’s guidance about their use has shifted
over time. The report discusses the courts’ interpretation of the 340B statute, including two opinions from federal circuit
courts.
In the aftermath of some of the contract pharmacy litigation, several states have enacted laws to protect contract pharmacies
and covered entities inside their state and stop manufacturers from limiting 340B drug distribution by contract pharmacies.
The report next turns to litigation brought by the pharmaceutical industry and individual manufacturers challenging these
state laws on various statutory and constitutional grounds, including that they are preempted by the 340B statute and that they
violate the U.S. Constitution’s Dormant Commerce Clause, Contracts Clause, and Fourteenth Amendment. The report
discusses several of these challenges in federal district courts around the country, as well as one federal circuit court opinion.
The report next turns to recent cases brought by manufacturers and other industry stakeholders against HRSA over the
agency’s directive that manufacturers are required to receive HRSA’s approval if they wish to offer the 340B discount as a
rebate. As with the contract pharmacy limitations, drug manufacturers have alleged that offering the 340B discount as a
backend rebate, as opposed to an up-front price discount, would better enable them to police the program and avoid paying
duplicate discounts. The section then concludes with a discussion of HRSA’s August 2025 guidance about drug rebates.
The report also highlights other litigation involving the 340B program, including covered entities’ challenges to HRSA’s
definition of “patient,” which is also undefined in statute but appears in agency guidance, for purposes of preventing drug
diversion. It also covers several other high-profile cases involving the program, including a Supreme Court case recognizing
that there is no private right of action in the 340B statute, thereby limiting enforcement of the statute to HRSA. Astra USA,
Inc. v. Santa Clara County, 563 U.S. 110 (2011).
The report concludes by offering several considerations for the 119th Congress in light of the litigation. It offers an analysis
of the legal landscape after the various court rulings involving HRSA, drug manufacturers, covered entities, and states. It also
describes several legislative changes that Congress could make to the program if it chose to do so.
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The 340B Drug Discount Program: Litigation Topics and Trends
Contents
Introduction to 340B ....................................................................................................................... 1
Litigation Regarding Contract Pharmacy Use ................................................................................. 3
The Third Circuit’s Decision in Sanofi-Aventis U.S. LLC v. HHS That HHS
Overstepped in Enforcement .................................................................................................. 5
The D.C. Circuit’s Decision in Novartis Pharmaceuticals Corp. v. Johnson That HHS
Overstepped in Enforcement .................................................................................................. 7
The Seventh Circuit’s Decision in Eli Lilly & Co. v. HHS That Remains Pending................... 8
Litigation Regarding State Attempts to Regulate Contract Pharmacy Use ..................................... 9
Background ............................................................................................................................. 10
Preemption and the Supremacy Clause............................................................................. 10
The Dormant Commerce Clause ....................................................................................... 10
The Contracts Clause ......................................................................................................... 11
The Fourteenth Amendment and Vagueness ...................................................................... 11
The Fifth Amendment Takings Clause.............................................................................. 12
The Eighth Circuit Decision Upholding Arkansas’s Contract Pharmacy Law in
PhRMA v. McClain............................................................................................................... 12
The Louisiana Federal District Court Decision Upholding Louisiana’s Contract
Pharmacy Law in PhRMA v. Murrill .................................................................................... 14
The West Virginia Federal District Court Order Expressing Skepticism of State
Contract Pharmacy Law in PhRMA v. Morrisey .................................................................. 16
Rebate Litigation ........................................................................................................................... 18
The D.C. District Court’s Decision in Johnson & Johnson Health Care Systems, Inc.
v. Kennedy Upholding HRSA’s Interpretation of the 340B Statute...................................... 20
The D.C. Federal District Court’s Order in Sanofi-Aventis U.S. LLC v. HHS
Upholding HRSA’s Interpretation of the 340B Statute ........................................................ 22
“Patient” Definition Litigation ...................................................................................................... 25
Background ............................................................................................................................. 25
HRSA’s 1996 Guidelines Regarding the Definition of “Patient”...................................... 25
HRSA’s 2015 Proposed Guidelines Regarding Updates to the Definition of
“Patient”......................................................................................................................... 26
The District Court and Fourth Circuit Litigation in Genesis Healthcare, Inc. v.
Becerra Invalidating HRSA’s “Patient” Definition.............................................................. 27
D.C. Federal District Court Litigation in Genentech v. HHS and Sagebrush Health
Services, Inc. v. Kennedy Regarding HRSA’s Certification of Covered Entities ................. 29
Other 340B Enforcement Litigation .............................................................................................. 31
Private Enforcement of the 340B Statute ................................................................................ 32
The U.S. Supreme Court’s Decision in Astra USA, Inc. v. Santa Clara County
Finding No Private Right of Action in the 340B Statute ............................................... 32
The Ninth Circuit’s Decision in AIDS Healthcare Foundation v. Apexus, LLC
Regarding Suits Brought Against the 340B Prime Vendor ............................................ 33
The California Federal District Court’s Decision in United States ex rel. Adventist
Health System/West v. AbbVie, Inc. Regarding Alleged False Claims Act
Violations ....................................................................................................................... 34
Considerations for Congress.......................................................................................................... 35
Effect of Selected Court Rulings on 340B Program ............................................................... 35
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The 340B Drug Discount Program: Litigation Topics and Trends
Potential Legislative Changes ................................................................................................. 37
Other 340B Activities to Watch............................................................................................... 39
Tables
Table A-1. Acronyms .................................................................................................................... 40
Appendixes
Appendix. ...................................................................................................................................... 40
Contacts
Author Information........................................................................................................................ 40
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The 340B Drug Discount Program: Litigation Topics and Trends
Introduction to 340B
Congress created the 340B Drug Discount Program (“340B” or “the program”) in 1992 through
the Veterans Health Care Act of 1992 to enable certain health care providers that serve lowincome and uninsured patients to purchase drugs at lower costs.1 The program is administered by
the Office of Pharmacy Affairs (OPA) at the Health Resources and Services Administration
(HRSA), a division of the U.S. Department of Health and Human Services (HHS).2 The program
derives its name from its authorizing statute, which is found in section 340B of the Public Health
Service Act (PHSA).3 The statute requires drug manufacturers that participate in federal health
care programs to offer certain outpatient4 prescription drugs to “covered entities” at discount
prices.
Under the 340B statute, the Secretary of HHS (the Secretary) is required to enter into contracts,
which the statute terms “purchase price agreements (PPAs),” with drug manufacturers that
participate in the Medicaid program.5 Under the terms of the PPAs, drug manufacturers are
required to “offer” to sell certain covered outpatient drugs6 at a “ceiling price,” which is
calculated based on a statutory formula.7 Manufacturers must offer covered outpatient drugs to
covered entities either at or below the ceiling price, if the manufacturer makes the drug available
to any other purchaser at any price.8
So-called covered entities are those that are eligible to purchase the discounted drugs; a list of
340B covered entities is found in the statute and includes Federally Qualified Health Centers
(FQHCs), Native Hawaiian Health Centers, Tribal and Urban Indian Organizations, Children’s
Hospitals, Disproportionate Share Hospitals (known as “DSH hospitals”), and other providers
that care for rural or underserved populations.9 Covered entities must certify that they meet all
applicable statutory requirements for eligibility.10 Covered entities may generate significant
revenue from 340B, known as “340B savings,” by reselling discounted drugs to their patients and
receiving reimbursement from the patient’s insurance (if applicable) as though the covered entity
1 Pub. L. No. 102-585, sec. 602(a), § 340B, 106 Stat. 4943, 4962–75 (1992).
2 340B Drug Pricing Program, HRSA (July 2025), http://hrsa.gov/opa [https://perma.cc/P844-JNYZ].
3 PHSA, ch. 373, 58 Stat. 682 (1944) (codified as amended at 42 U.S.C. § 256b).
4 The 340B discount does not apply to drugs that are administered to patients while they are hospitalized. 42 U.S.C.
§ 256b(a)(1).
5 Id.
6 For purposes of the 340B statute, the term “covered outpatient drug” has the same meaning as that term is used in the
Medicaid statute. Id. § 256b(b)(1) (referencing id. § 1927(k)(2)).
7 The ceiling price is calculated as the average manufacturer price (AMP) for the drug under Title XIX of the Social
Security Act (which authorizes the Medicaid Program) minus a “rebate percentage.” Id. § 256b(a)(1). The rebate
percentage is defined as the drug’s average Medicaid rebate during the preceding calendar quarter divided by the drug’s
AMP during the preceding calendar quarter. Id. § 256b(a)(2)(i)–(ii). For more information about AMPs and Medicaid
drug prices generally, see CRS Report R43778, Medicaid Prescription Drug Pricing and Policy, by Cliff Binder
(2014).
8 42 U.S.C. § 256b(a)(1).
9 Id. § 256b(a)(4). Over time, Congress has expanded the number of eligible covered entities. For example, the Patient
Protection and Affordable Care Act (ACA) amended the 340B statute, adding subsections (a)(4)(M)–(O), allowing
certain children’s hospitals, critical access hospitals, and rural referral centers to qualify as covered entities. ACA, Pub.
L. No. 111-148, § 7101, 124 Stat. 119, 821–23 (2010) (codified at 42 U.S.C. § 256b(a)(4)(M)–(O)).
10 42 U.S.C. § 256b(a)(7). The certification and recertification process is done online via HRSA/OPA’s website using
the Office of Pharmacy Affairs Information System (OPAIS) portal. See What Is the Purpose of 340B OPAIS?, HRSA
(July 2020), https://www.hrsa.gov/about/faqs/what-purpose-340b-opais [https://perma.cc/B293-9AZK].
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paid full price for the drug.11 Covered entities may make 340B drugs available to patients either
through their own in-house (or onsite) pharmacy or by contracting with third-party retail
pharmacies, which have come to be known as “contract pharmacies.”12 As discussed in further
detail below, neither the distribution of drugs to patients nor the use of contract pharmacies is
mentioned in the 340B statute.13
Of the eligible covered entities, DSH hospitals account for the largest portion of 340B drug
purchases.14 DSH hospitals are hospitals that see a disproportionate share of low-income patients,
and these hospitals are eligible for additional payments from both the Medicare and Medicaid
programs.15 To qualify as a 340B covered entity, a DSH hospital must be either owned or
operated by a state or local government, must be a public or private nonprofit corporation that is
granted governmental powers by a state or local government, or must be a private nonprofit
hospital that contracts with a state or local government to provide care to low-income people who
are ineligible for Medicare or who receive Medicaid.16 DSH hospitals must also have a
disproportionate share adjustment percentage of 11.75% or greater, as shown on the hospital’s
most recent Medicare cost report.17 DSHs also cannot obtain 340B drugs through a group
purchasing arrangement.18
The statute places additional requirements on both covered entities and drug manufacturers. For
example, covered entities are prohibited from receiving duplicate discounts from both the
Medicaid and 340B programs.19 Covered entities are also prohibited from selling or otherwise
distributing drugs to anyone who is not a patient of the covered entity, a practice commonly
referred to as “diversion.”20 Covered entities must also permit the Secretary and drug
11 The 340B statute does not require a covered entity to disclose the amount of 340B savings it generates from the
program, nor does it require that 340B savings be passed on to patients in the form of lower-cost drugs.
12 Contract Pharmacy Services, HRSA (June 2024), https://www.hrsa.gov/opa/implementation-contract
[https://perma.cc/N23Y-NADE].
13 See infra “Litigation Regarding Contract Pharmacy Use.”
14 According to the most recent data available from HRSA, in calendar year 2023, covered entities purchased more than
$66 billion in 340B drugs. Of that amount, DSH hospitals made up 78% ($51,886,954,092) of purchases. 2023 340B
Covered Entity Purchases, HRSA (Oct. 2024), https://www.hrsa.gov/opa/updates/2023-340b-covered-entity-purchases
[https://perma.cc/RA4K-SCFM].
15 42 U.S.C. § 1396a(a)(13)(A)(iv) (Medicaid); id. § 1395ww(d)(5)(F) (Medicare). For more information about DSH
payments under the Medicaid program, see CRS Report R42865, Medicaid Disproportionate Share Hospital Payments,
by Alison Mitchell (2023).
16 42 U.S.C. § 256b(a)(4)(L)(i).
17 Id. § 256b(a)(4)(L)(ii). Medicare-certified institutional providers, including hospitals, are required to annually submit
cost information to the Centers for Medicare and Medicaid Services (CMS), a division of HHS that administers the
Medicare and Medicaid programs, and its contractors. Reported information includes utilization data, facility costs, and
charges; the information is compiled and published in a Medicare Cost Report. For more information on cost reports,
see Cost Reports, CMS (Apr. 18, 2025), https://www.cms.gov/data-research/statistics-trends-and-reports/cost-reports
[https://perma.cc/XV6U-XCWY].
18 42 U.S.C. § 256b(a)(4)(L)(iii). Health care providers—including hospitals, nursing homes, and clinics—often
purchase medical supplies, including prescription drugs, through a group purchasing organization (GPO), which allows
them to collectively leverage their purchasing power by making larger volume purchases. In lieu of a GPO, however,
the 340B statute directs the HHS Secretary to develop a “Prime Vendor Program,” for covered entities to aggregate
their purchasing power to achieve additional discounts on 340B savings. Id. § 256b(a)(9). According to HRSA, the
purpose of the Prime Vendor Program is “to develop, maintain, and coordinate a program capable of distribution,
facilitation, and other activities in support of the 340B program.” HRSA, What Is the 340B Prime Vendor Program
(June 2024), https://www.hrsa.gov/about/faqs/what-340b-prime-vendor-program-pvp. The program works to provide
340B drugs at prices below the required 340B price and creates distribution networks to facilitate access. Id.
19 Id. § 256b(a)(5)(A)(i).
20 Id. § 256b(a)(5)(B); see also infra “Patient” Definition Litigation.
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manufacturers to audit their records demonstrating their eligibility as a covered entity.21 Drug
manufacturers may also be audited by HRSA to ensure their compliance with the statute.22
Covered entities that fail to comply with statutory requirements may be subject to sanctions. For
example, if a covered entity engages in diversion or duplicate discounting, it is liable to the
manufacturer for the difference between the drug’s actual cost to the covered entity and the 340B
price.23 Additionally, covered entities that knowingly and intentionally engage in diversion or
duplicate discounting are required to pay interest on the amounts owed to manufacturers.24 For
“systematic and egregious” violations that are knowing and intentional, a covered entity may lose
its eligibility status as a covered entity for a period of time that the Secretary determines
appropriate.25 In accordance with the statute, HRSA has also established an administrative dispute
resolution (ADR) process, which governs the resolution of disputes between covered entities and
drug manufacturers regarding overcharges, audits, or other compliance issues.26
Particularly since 2020, both legal and policy disagreements have arisen between HRSA, covered
entities, and drug manufacturers about how HRSA ensures compliance from both covered entities
and manufacturers, as well as how the agency enforces the statute, including the statutory
provisions that prohibit duplicate discounting and diversion. This report reviews selected
litigation involving the 340B program, discussing how federal courts have interpreted the statute
and the resulting consequences for HRSA, drug manufacturers, and covered entities. It concludes
by offering several considerations for the 119th Congress.
Litigation Regarding Contract Pharmacy Use
After purchasing 340B drugs from drug manufacturers and wholesalers at the discounted price,
covered entities must then distribute their drugs to the patients they serve. To do so, many
covered entities use a “ship to bill to” arrangement, wherein the covered entity purchases the
drugs and, via an agreement with the manufacturer or wholesaler, the purchases are shipped to
contract pharmacies for distribution.27 Under such an arrangement, the covered entity both
purchases the drugs and maintains title to them, but the drugs are both stored at and distributed by
a third-party contract pharmacy.28
HRSA has long regulated the use of contract pharmacies in the 340B program, but the agency’s
position has shifted over time.29 Because the 340B statute does not give the agency general
rulemaking authority to administer the program,30 the agency has periodically released
21 42 U.S.C. § 256b(a)(5)(C).
22 Id. § 256b(d)(1)(B)(v).
23 Id. § 256b(a)(5)(D).
24 Id. § 2546(d)(2)(B)(v)(I).
25 Id. § 256b(d)(2)(B)(v)(II).
26 Id. § 256b(d)(3); see also 42 C.F.R. §§ 10.20–10.25 (2025) (Administrative Dispute Resolution).
27 FAQs: Contract Pharmacy – What is a “ship to bill to” arrangement?, HRSA, https://www.hrsa.gov/opa/faqs
[https://perma.cc/A3WH-4TJM] (last visited Dec. 31, 2024).
28 Id.
29 Compare Notice Regarding Section 602 of the Veterans Health Care Act of 1992, Contract Pharmacy Services, 61
Fed. Reg. 43549, 43550 (Aug. 23, 1996), with Notice Regarding 340B Drug Pricing Program–Contract Pharmacy
Services, 75 Fed. Reg. 10272 (Mar. 5, 2010).
30 See, e.g., PhRMA v. HHS, 43 F.Supp.3d 28 (D.D.C. May 23, 2014) (challenging HRSA’s final rule regarding the
orphan drug exclusion in the 340B statute). In this case, HRSA relied upon the 340B statute and other provisions in the
Federal Food, Drug, and Cosmetic Act and the Social Security Act for its authority to promulgate the rule, but the court
(continued...)
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nonbinding, subregulatory guidance to address contract pharmacy use and to serve as a guide for
HRSA’s enforcement priorities.31 Contract pharmacies were first mentioned in the agency’s 1996
guidance, which acknowledged that, at the time, very few of the approximately 11,500 covered
entities used their own in-house pharmacies to distribute 340B drugs, generally due to the
prohibitive cost.32 As a result, the agency allowed covered entities to use up to one contract
pharmacy.33 Such was the policy for the next fourteen years, until the agency issued more contract
pharmacy guidance in 2010, this time allowing covered entities to use an unlimited number of
contract pharmacies to distribute 340B drugs.34 The policy continued undisturbed for
approximately ten more years, during which time the number of contract pharmacies significantly
increased.35
Beginning in 2020, several drug manufacturers began announcing restrictions on covered entities
that distribute 340B drugs using contract pharmacies rather than in-house pharmacies.36 The
restrictions have varied over time, but they generally aim to limit covered entities’ ability to
distribute 340B drugs to patients using contract pharmacies.37 Drug manufacturers and trade
associations have defended the restrictions, arguing that some covered entities are taking
advantage of manufacturers through the use of duplicate discounting and diversion.38 They argue
that HRSA does not adequately police compliance with the program’s statutory requirements.39
The restrictions have financial consequences for covered entities, who argue that they are now
paying more for certain 340B drugs and are unable to generate 340B savings from them.40
HRSA has maintained that the manufacturers’ restrictions violate the 340B statute; the agency
initially responded to the restrictions by issuing violation letters to manufacturers, informing them
that their policies violated the statute, which HRSA interpreted as requiring manufacturers to
found that “the statutory provisions HHS has strung together to give it rulemaking authority . . . are specific grants of
authority that do not authorize the orphan drug rule implemented here.” Id. at 40.
31 Federal agencies, including HHS, possess only the authority granted to them by Congress. For an agency to
promulgate legally binding regulations (or “legislative rules”), Congress must provide the agency with that authority
via statute. United States v. Mead, 533 U.S. 218, 226–27 (2001); United States v. Storer Broad. Co., 351 U.S. 192
(1956). For more information on agency rulemaking, see CRS In Focus IF10003, An Overview of Federal Regulations
and the Rulemaking Process, by Maeve P. Carey (2021). For more information on agency guidance, see CRS Legal
Sidebar LSB10591, Agency Use of Guidance Documents, by Kate R. Bowers (2021).
32 Notice Regarding Section 602 of the Veterans Health Care Act of 1992, Contract Pharmacy Services, 61 Fed. Reg. at
43550.
33 Id. at 43555.
34 Notice Regarding 340B Drug Pricing Program–Contract Pharmacy Services, 75 Fed. Reg. at 10277.
35 See GAO, DRUG DISCOUNT PROGRAM: FEDERAL OVERSIGHT OF COMPLIANCE AT 340B CONTRACT PHARMACIES NEEDS
IMPROVEMENT (2018), https://www.gao.gov/assets/700/692697.pdf [https://perma.cc/HBJ2-PRXK]. At the time this
GAO report was published in 2018, there were more than 12,000 covered entities participating in 340B, and almost
20,000 contract pharmacies. Id. at 2.
36 See, e.g., HRSA, Limited Distribution Plan Notice for Cialis® (tadalafil) Erectile Dysfunction NDCs (2020),
https://www.hrsa.gov/sites/default/files/hrsa/opa/limited-distribution-plan-notice-cialis.pdf [https://perma.cc/D9CWSNW5].
37 See, e.g., NAT’L ASS’N OF CMTY. HEALTH CTRS., 340B RESTRICTIONS SUMMARY CHART (2023),
https://www.nachc.org/wp-content/uploads/2023/09/340B-restrictions-summary-chart.pdf [https://perma.cc/S4TDZSC7].
38 See, e.g., Nicole Longo, Illegal Abuse of 340B Hurts Us All, PHARM. RSCH. & MFRS. OF AM. (PHRMA) (Oct. 3,
2024), https://phrma.org/blog/illegal-abuse-of-340b-hurts-us-all [https://perma.cc/AA86-45Q8].
39 For more information about HRSA’s oversight of 340B, see Program Integrity, HRSA (Dec. 2024),
https://www.hrsa.gov/opa/program-integrity [https://perma.cc/QS6Y-DT9P].
40 See, e.g., Dave Muoio, Safety Net Hospitals Say Pharma’s 340B Drug Restrictions Already Endangering Future
Services, Fierce Healthcare (Jan. 31, 2022), https://www.fiercehealthcare.com/hospitals/safety-net-hospitals-saypharmas-340b-drug-restrictions-are-already-endangering-future [https://perma.cc/D8L7-EYJQ].
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provide the 340B price without exception, and threatening civil money penalties for any
overcharges if they continued.41 Several manufacturers then sued the agency, claiming it lacked
the authority to issue the violation letters because the statute permitted manufacturers to enact
such restrictions.42 All of the cases turn on different interpretations of the 340B statute, which
does not expressly address the direct distribution of 340B drugs to patients or the use of contract
pharmacies. HRSA argued that the 340B statute requires manufacturers to sell 340B drugs to
covered entities and deliver them to an unlimited number of contract pharmacies.43 Manufacturers
maintained that the 340B statute requires only that they “offer” to sell 340B drugs to covered
entities, and that the contract pharmacy restrictions were merely conditions on an otherwise valid
offer.44 Federal district courts reached various conclusions about the validity of the violation
letters and HRSA’s interpretation of the 340B statute; some of the courts agreed with HRSA,
while others agreed with manufacturers.45
Several of the district courts’ decisions were appealed to the U.S. Courts of Appeals for the Third,
Seventh, and D.C. Circuits. The Third and D.C. Circuits’ rulings, discussed below, found that
HRSA lacked the authority to issue the violation letters. The Seventh Circuit has not issued a
decision as of the time of this writing.
The Third Circuit’s Decision in Sanofi-Aventis U.S. LLC v. HHS
That HHS Overstepped in Enforcement
In Sanofi-Aventis U.S. LLC v. HHS, a drug manufacturer challenged the violation letters that HHS
issued to the manufacturer in response to the company’s restrictions on contract pharmacies.46
The New Jersey Federal District Court upheld HHS’s action, in part, finding that the drug
manufacturer’s 340B contract pharmacy pricing restriction policy was unlawful.47 Sanofi
appealed, and the government cross-appealed, to the Third Circuit. On January 30, 2023, the
Third Circuit issued a decision in Sanofi, finding that HHS’s enforcement letter was arbitrary and
41 See, e.g., Letter from Diana Espinosa, Acting Adm’r, HRSA, to Gerald Gleeson, Vice President, Sanofi-Aventis
(May 17, 2021), https://www.hrsa.gov/sites/default/files/hrsa/opa/hrsa-letter-sanofi-covered-entities.pdf
[https://perma.cc/V6XD-9K3T] [hereinafter Sanofi-Aventis Letter]; see also Letter from Diana Espinosa, Acting
Adm’r, HRSA, to Derek L. Asay, Senior Director, Eli Lilly & Co. (May 17, 2021),
https://www.hrsa.gov/sites/default/files/hrsa/opa/hrsa-letter-eli-lilly-covered-entities.pdf [https://perma.cc/VAW5M35Q].
42 For a full discussion of the district court cases, see CRS Legal Sidebar LSB10842, Courts Evaluate the Role of
Contract Pharmacies in the 340B Drug Discount Program, by Hannah-Alise Rogers (2022).
43 Sanofi-Aventis Letter, supra note 41, at 1. HRSA argued, “Nothing in the 340B statute grants a manufacturer the
right to place conditions on its fulfillment of its statutory obligation to offer 340B pricing on covered outpatient drugs
purchased by covered entities.” Id.
44
Novartis Pharms. Corp v. Espinosa, Nos. 21-cv-1479, 2021 WL 5161783, at *6 (D.D.C. Nov. 5, 2021), aff’d sub
nom., Novartis Pharms. Corp. v. Johnson, 102 F.4th 452 (D.C. Cir. 2024).
45 Compare Novartis Pharms. Corp., 2021 WL 5161783, and AstraZeneca Pharms. LP v. Becerra, No. CV 21-27-LPS,
2022 WL 484587 (D. Del. Feb. 16, 2022), judgment entered, No. CV 21-27-LPS, 2022 WL 18508603 (D. Del. Mar.
11, 2022), aff’d in part sub nom., Sanofi-Aventis U.S. LLC v. HHS, 58 F.4th 696 (3d Cir. 2023), judgment entered, No.
21-3167, 2023 WL 1325507 (3d Cir. Jan. 30, 2023), and aff’d sub nom., Sanofi-Aventis, 58 F.4th 696, and judgment
entered, No. 21-3167, 2023 WL 1325507 (3d Cir. Jan. 30, 2023), with Eli Lilly & Co. v. HHS, No. 21-cv-00081, 2021
WL 5039566 (S.D. Ind. Oct. 29, 2021) and Sanofi-Aventis U.S. LLC v. HHS, 570 F. Supp. 3d 129 (D.N.J. 2021), aff’d
in part, rev’d in part, 58 F.4th 696.
46 58 F.4th 696.
47 Sanofi-Aventis, 570 F. Supp. 3d 129.
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capricious in violation of the Administrative Procedure Act (APA).48 The court focused on two
issues: first, whether the 340B statute permitted drug manufacturers to limit covered entities’ drug
purchases that are distributed by contract pharmacies; and second, whether the 340B statute gives
HHS the authority to stop such practices.49
The Third Circuit began by analyzing the text of the 340B statute, observing that “[n]owhere does
Section 340B mention contract pharmacies.”50 Given that the statute did not speak to the issue in
question, the court focused on the ordinary meaning of other words in the statute, including
“offer” and “purchased by.”51 The statute requires that manufacturers must “offer each covered
entity covered outpatient drugs for purchase at or below the applicable ceiling price” and that
drugs “purchased by a covered entity” may not exceed the ceiling price.52 The court found that, in
this context, the term “offer” does not “imply that the offeror [i.e., the manufacturer] must deliver
goods wherever and to whomever the buyer demands,” and that the manufacturers’ conditions on
the offers did not prevent their acceptance by covered entities.53 The Third Circuit disagreed with
HHS’s argument that such terms required manufacturers to “offer” to sell and deliver drugs
wherever the covered entity demands, holding this argument to be “one giant leap from the text,”
and observing that “when Congress’s words run out, covered entities may not pick up the pen.”54
The Third Circuit also found that the legislative history and overall purpose of the 340B statute
supported its conclusion that manufacturers could place some conditions on their offer to sell
drugs to covered entities that use contract pharmacies.55 With respect to the legislative history, the
Third Circuit observed that previous attempts by Congress to amend the 340B statute to reference
contract pharmacy use “can support opposite inferences”—either that Congress did not want
contract pharmacies to be a part of the program or that their use was so widespread that they were
unnecessary to mention.56 For this reason, the court found that “neither drafting history nor
legislative purpose compels a different result.”57 The court rejected the government’s argument
that allowing a drug manufacturer to limit contract pharmacy use would “thwart Congress’s
purpose in enacting Section 340B.”58 Acknowledging that many covered entities do not have their
own in-house pharmacies and therefore turn to contract pharmacies to distribute drugs, the court
said that “Congress might have expected that a covered entity without its own in-house pharmacy
could instead use one contract pharmacy.” The court warned, though, that the use of one contract
48 Sanofi-Aventis, 58 F.4th 696. The Third Circuit’s decision covered several other cases as well. The Third Circuit
consolidated the appeals from the district court decisions in Novo Nordisk v. HHS, No. 21-00806, 2021 WL 3668168
(D.N.J. June 1, 2021), and AstraZeneca Pharms. LP v. Becerra, 543 F. Supp. 3d 47 (D. Del. June 16, 2021).
49 Sanofi-Aventis, 58 F.4th at 704.
50 Id. at 703. The court noted that the agency lacked rulemaking authority under the statute and therefore that its
interpretation was not entitled to deference under Chevron, which was still valid precedent at the time the case was
decided. Id. For more information on Chevron deference and the Supreme Court’s decision in Loper Bright Enterprises
v. Raimondo to overturn Chevron, see CRS Report R48320, Loper Bright Enterprises v. Raimondo and the Future of
Agency Interpretations of Law, by Benjamin M. Barczewski (2024).
51 Sanofi-Aventis, 58 F.4th at 703–04.
52 42 U.S.C. § 256b(a)(1).
53 Sanofi-Aventis, 58 F.4th at 703.
54 Id. at 704.
55 Id.
56 Id. at 705. The court noted Justice Scalia’s warning in District of Columbia v. Heller that making inferences from a
bill’s unenacted drafting history is “perilous.” Id. (citing District of Columbia v. Heller, 554 U.S. 570, 590 (2008)).
57 Sanofi-Aventis, 58 F.4th at 705.
58 Id. at 706.
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pharmacy was “a far cry from” HHS’s position that “covered entities may use an unlimited
number of contract pharmacies.”59
The Third Circuit ruled that HHS’s violation letters were unlawful and enjoined the agency from
enforcing its interpretation of 340B as requiring manufacturers to deliver discounted drugs to an
unlimited number of covered entities’ contract pharmacies.60
The D.C. Circuit’s Decision in Novartis Pharmaceuticals Corp. v.
Johnson That HHS Overstepped in Enforcement
Nearly a year and a half after the Third Circuit’s decision in Sanofi, in May 2024, the D.C. Circuit
decided Novartis Pharmaceuticals Corp. v. Johnson, which also considered whether HHS could
enforce its interpretation of the 340B statute concerning unlimited contract pharmacy use against
drug manufacturers.61 Like the Third Circuit, the D.C. Circuit also found that the statute did not
categorically prohibit manufacturers from imposing conditions on covered entities’ contract
pharmacy use and that the restrictions Novartis imposed on its 340B drug offers did not violate
the statute on its face.62 The court first considered the text of the statute, including the words
“offer,” “purchase,” and “price,” agreeing with the Third Circuit in Sanofi that the statute “merely
requires manufacturers to propose to sell covered drugs to covered entities at or below a specified
amount” without speaking to either distribution generally or contract pharmacies specifically.63
The D.C. Circuit further reasoned that, following Supreme Court precedent, when a statute is
silent as to the imposition of certain contractual conditions, this silence implies that such
conditions are permissible.64 In other words, the statutory silence with respect to contract
59 Id.
60 Id. The Third Circuit also considered legal challenges related to HHS’s promulgation of the ADR rule, which Sanofi
also challenged as unlawful under the APA. Id. In accordance with the 340B amendments in the Patient Protection and
Affordable Care Act of 2010, HHS established an ADR process by publishing a proposed rule in 2016. Id. at 701–02.
In 2017, HHS withdrew the rule, via a notice in the Unified Agenda, before eventually finalizing it in 2020. Id. at 702.
Sanofi argued that the procedural process that HHS used—withdrawing the 2016 proposed rule before finalizing it in
2020—was unlawful under the APA, and that the agency should have issued a new proposed rule. Id. at 706. The
majority of the Third Circuit disagreed, observing that “[t]he APA does not mention withdrawing proposed rules. Nor
has the Supreme Court. So we are reluctant to give withdrawal separate legal significance under the APA.” Id. The
court found that the agency “did not violate the APA by purporting to withdraw the proposed ADR Rule before later
finalizing it.” Id. at 707. One judge dissented, arguing that because the agency withdrew the proposed rule, the final
ADR rule should be vacated, and the agency should reissue it. Id. at 707 (Ambro, J., dissenting in part).
61 102 F.4th 452 (D.C. Cir. 2024). As was the case in the Third Circuit in Sanofi, the D.C. Circuit consolidated another
district court contract pharmacy appeal from manufacturer United Therapeutics Corporation under Novartis; the cases
were also consolidated at the district court level. See Novartis Pharms. Corp. v. Espinosa, Nos. 21-1479, 2021 WL
5161783 (D.D.C. Nov. 5, 2021).
62 Novartis Pharms. Corp., 102 F.4th at 464. Similar to the Third Circuit in Sanofi, the D.C. Circuit noted that the
Secretary of HHS lacked general rulemaking authority over 340B and thus that its interpretation was not entitled to
Chevron deference. (The case was decided prior to the Supreme Court’s decision in Loper Bright Enterprises v.
Raimondo, 603 U.S. 369 (2024), overturning Chevron.) The court instead cited Skidmore v. Swift & Co., 323 U.S. 134,
140 (1944), stating that the agency’s interpretation should be followed only to the extent that it had the “power to
persuade.” Novartis Pharms. Corp., 102 F.4th at 459.
63 Novartis Pharms. Corp., 102 F.4th at 460. The court looked at a variety of dictionary definitions and treatises of
contract law to determine the ordinary meaning of these words. Id.
64 Id. at 460 (quoting Christensen v. Harris County, 529 U.S. 576 (2000)) (finding that an employer could compel its
employees to take uncompensated leave without violating the Fair Labor Standards Act (FLSA), when the FLSA did
not speak to the issue of whether employees could be made to use their leave).
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pharmacies and delivery “preserves—rather than abrogates—the ability of sellers to impose at
least some delivery conditions.”65
The court also found that the government’s position—that covered entities are permitted an
unlimited number of contract pharmacies—“would produce absurd consequences.” The court
used as an example the fact that United Therapeutics distributes some of its products only through
specialty pharmacies to ensure that its products are safely used.66 The court reasoned that under
HHS’s position, United Therapeutics could be required by a covered entity to distribute its drugs
“in a potentially dangerous manner.”67 Neither was the court persuaded by the government’s
arguments about the statute’s legislative history.68 Even though Congress had considered
amending the statute to specify that drugs could be dispensed “through the ‘on-site pharmacy
services’ of covered entities,” the fact that it chose not to do so “hardly suggests that Congress
opted for the opposite extreme” of allowing an unlimited number of contract pharmacies.69
The D.C. Circuit also examined the specific contract pharmacy restrictions imposed by Novartis
and United Therapeutics, holding that neither manufacturer’s conditions violated the statute.70
The court reasoned that the manufacturers had agreed to work with at least one contract
pharmacy, and that such a practice was similar to the agency’s past guidance that allowed covered
entities to use one outside pharmacy.71 The court found that the manufacturers’ willingness to
work with “at least one” contract pharmacy “neither precludes [them] from making a bona fide
‘offer’ nor increases [the] contract ‘price’” of 340B drugs.72 In conclusion, the court warned that
its decision did not “foreclose the possibility that other, more onerous conditions might violate the
statute.”73
The Seventh Circuit’s Decision in Eli Lilly & Co. v. HHS That
Remains Pending
One additional 340B contract pharmacy appeal remains pending before the Seventh Circuit. The
case, Eli Lilly & Co. v. HHS, was decided by the Southern District of Indiana in October 2021.74
The court held that “the fairest and most reasonable interpretation” of the 340B statute read in
context “would not authorize drug manufacturers to impose unilateral restrictions on the
65 Novartis Pharms. Corp., 102 F.4th at 460.
66 Id. at 461.
67 Id.
68 Id. at 462.
69 Id. (citing S. REP. NO. 102-259, at 2 (1992)). The D.C. Circuit also discussed HRSA’s invocation of Justice Scalia’s
“predicate-act canon” of statutory interpretation, under which a court should disfavor a statutory construction that
would frustrate congressional purpose or otherwise render a statute effective. Id. For more information about the
“predicate-act” and other canons of statutory interpretation, see CRS Report R45153, Statutory Interpretation:
Theories, Tools, and Trends, by Valerie C. Brannon (2023). The D.C. Circuit said, however, that “wider distribution”
of 340B drugs via an unlimited number of contract pharmacies “was not necessarily better,” and the agency’s prior
prohibition on the use of multiple contract pharmacies, which lasted nearly twenty years, “hardly rendered the scheme
[of 340B] self-defeating or ineffectual.” Novartis Pharms. Corp., 102 F.4th at 462.
70 Novartis Pharms. Corp., 102 F.4th at 463.
71 Id. at 463. For an overview of the evolution of the HHS guidance with respect to covered entities’ use of contract
pharmacies in 340B, see the court’s discussion in AstraZeneca Pharms. LP v. Becerra, 543 F. Supp. 3d 47, 51–52 (D.
Del. June 16, 2021).
72 Novartis Pharms. Corp., 102 F.4th at 464.
73 Id.
74 No. 1:21-cv-00081-SEB-MJD, 2021 WL 5039566 (S.D. Ind. Oct. 29, 2021).
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distribution of [340B] drugs.”75 The district court’s ruling was appealed to the Seventh Circuit in
December 2021.76 The Seventh Circuit held oral argument in October 2022,77 but as of the date of
this writing, it has not yet issued a decision.
Litigation Regarding State Attempts to Regulate
Contract Pharmacy Use
Alongside ongoing litigation related to HRSA’s authority to address manufacturer restrictions on
contract pharmacy use, several states began considering legislation to make it unlawful for drug
manufacturers to restrict contract pharmacy use by covered entities.78 State laws protecting
contract pharmacy use differ between states, but in general, their main purpose is to prohibit
manufacturers from restricting 340B covered entities from using contract pharmacies.79
Pharmaceutical Research and Manufacturers of America (PhRMA), a pharmaceutical trade
industry group, as well as a few drug manufacturers, have challenged several of these state laws
on various grounds, including that they are preempted by federal law (including the 340B statute,
the Federal Food, Drug, and Cosmetic Act (FDCA), and federal patent law), as well as that they
violate the Dormant Commerce Clause.80 Other claims include that the state laws violate the
Contracts Clause of the Constitution, that they are unconstitutionally vague, and that they
constitute a taking under the Fifth Amendment.81 As of the time of this writing, PhRMA and/or
drug manufacturers have challenged at least twelve state laws related to contract pharmacy use.82
This section first introduces background information related to the constitutional challenges
against state contract pharmacy laws, including discussion of the Supremacy Clause, the Dormant
Commerce Clause, the Contracts Clause, and the Fourteenth Amendment. The section next
provides information about the constitutional challenges to state contract pharmacy laws in a
sample of cases from Arkansas, Louisiana, and West Virginia.
75 Id. For more information about the district court’s ruling, see CRS Legal Sidebar LSB10842, Courts Evaluate the
Role of Contract Pharmacies in the 340B Drug Discount Program, by Hannah-Alise Rogers (2022).
76 Notice of Case Opening, Eli Lilly & Co. v. HHS, No. 21-3405 (7th Cir. Dec. 30, 2021), Dkt No. 1.
77 Oral Argument, Eli Lilly & Co., No. 21-3405 (7th Cir. Oct. 31, 2022), Dkt. No. 71. After the oral argument, the court
ordered the parties to file supplemental briefs to address the court’s appellate jurisdiction and arguments regarding
whether the agency’s enforcement letter, which started the litigation, was a final agency action for purposes of the
APA. Order, Eli Lilly & Co., No. 21-3405 (7th Cir. Nov. 1, 2022), Dkt. No. 72. The parties filed these additional briefs
in November 2022 and January 2023. Appellants’ Supplemental Jurisdiction Memorandum, Eli Lilly & Co., No. 213405 (7th Cir. Nov. 14, 2022), Dkt. No. 74; Citation of Additional Authority, Eli Lilly & Co., No. 21-3405 (7th Cir.
Jan. 30, 2023), Dkt. No. 75.
78 NAT’L ASSOC. OF CMTY. HEALTH CTRS., STATE-LEVEL 340B LAWS AND LEGISLATION TRACKER (2025),
https://www.nachc.org/wp-content/uploads/2025/06/06_20_25_nachc_state-level-340b-laws-andlegislation_tracker.pdf [https://perma.cc/F5V3-SW5T].
79 See, e.g., S.B. 751, 2024 Gen. Assemb., 2d Reg. Sess. (Mo. 2024); S.B. 69, 2025 State Leg., Gen. Sess. (Utah 2025);
H.B. 548, 2023 State Leg., Reg. Sess. (La. 2023).
80 See, e.g., PhRMA v. McClain, 645 F. Supp. 3d 890 (E.D. Ark. 2022), aff’d, 95 F.4th 1136 (8th Cir. 2024), cert.
denied, 145 S. Ct. 768 (2024) (mem.).
81 See, e.g., PhRMA v. Murrill, Nos. 23-997, 2024 WL 4361597 (W.D. La. Sept. 30, 2024).
82 See, e.g., PhRMA v. Fitch, No. 24-160, 2024 WL 3277365 (S.D. Miss. July 1, 2024) (appeal pending before the Fifth
Circuit); see also Order, Novartis Pharms. Corp. v. Brown, No. 1:24-cv-1557 (D. Md. Sept. 5, 2024), Dkt. No. 57
(appeal pending before the Fourth Circuit).
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Background
Preemption and the Supremacy Clause
The preemption doctrine stems from the Supremacy Clause of the federal Constitution, which
states that federal laws made under the authority of the Constitution are the “supreme Law of the
Land.”83 Federal law preempts state law where (1) Congress expressly states its intention to
preempt state regulation (express preemption); (2) state law stands as an obstacle to
accomplishing the federal law’s purpose (obstacle preemption); (3) Congress implicitly occupies
the field of federal law (field preemption); or (4) it is impossible to simultaneously comply with
both state and federal law (impossibility preemption).84 The 340B statute does not contain an
express preemption clause (i.e., a clause stating that the 340B statute supersedes all state laws);
the litigation over state contract pharmacy laws has focused on other forms of preemption, most
especially field preemption.85 The Supreme Court has held that a field of law is occupied for
purposes of preemption when “the scheme of federal regulation [is] so pervasive as to make
reasonable the inference that Congress left no room for the States to supplement it.”86
The Dormant Commerce Clause
Article I, Section 8 of the U.S. Constitution provides that Congress has the power to “regulate
Commerce with foreign Nations, and among the several States.”87 The Supreme Court has
interpreted the Commerce Clause as not only a “positive grant of power to Congress,” but also as
a limitation on the states’ ability to enact laws that unduly restrict interstate commerce, even if
Congress has not legislated in that area—referred to as the Dormant Commerce Clause.88 Two
principles have emerged from the Supreme Court’s modern Dormant Commerce Clause
decisions.89 First, states may not legislate in ways that discriminate against out-of-state goods or
“nonresident economic actors.”90 Such state laws are considered per se invalid (i.e., they are
presumed to violate the Dormant Commerce Clause) and are struck down—unless the state can
show that the law is narrowly tailored and advances a legitimate local purpose and that the state
had no nondiscriminatory alternatives.91 Second, a state may not make even a facially neutral law
83 U.S. CONST. art. VI, cl. 2.
84 For more information about preemption of state law generally, see CRS Report R45825, Federal Preemption: A
Legal Primer, by Bryan L. Adkins, Alexander H. Pepper, and Jay B. Sykes (2023).
85 See, e.g., PhRMA, 645 F. Supp. 3d at 898.
86 Rice v. Santa Fe Corp., 331 U.S. 218, 230 (1947) (citing Pa. R. Co. v. Pub. Serv. Comm’n, 250 U.S. 566, 569
(1919); Cloverleaf Butter Co. v. Patterson, 315 U.S. 148 (1942)).
87 U.S. CONST. art. I, § 8.
88
Comptroller of Treasury of Md. v. Wynne, 575 U.S. 542, 548–49 (2015) (citing Okla. Tax Comm’n v. Jefferson
Lines, Inc., 514 U.S. 175, 179 (1995)). For more information about the Dormant Commerce Clause generally, see
Cong. Rsch. Serv., Overview of Dormant Commerce Clause, CONSTITUTION ANNOTATED,
https://constitution.congress.gov/browse/essay/artI-S8-C3-7-1/ALDE_00013307/ (last visited Aug. 1, 2025).
89 Cong. Rsch. Serv., Modern Dormant Commerce Clause Jurisprudence Generally, CONSTITUTION ANNOTATED,
https://constitution.congress.gov/browse/essay/artI-S8-C3-7-4/ALDE_00013310/ (last visited Aug. 1, 2025).
90 Tenn. Wine & Spirits Retailers Ass’n v. Thomas, 588 U.S. 504, 505 (2019) (citing Dep’t of Revenue of Ky. v. Davis,
553 U.S. 328, 338 (2008)); National Pork Producers Council v. Ross, 598 U.S. 356 (2023). See also CRS Legal Sidebar
LSB11031, Supreme Court Narrows Dormant Commerce Clause and Upholds State Animal Welfare Law, by Kate R.
Bowers (2023).
91 588 U.S. at 505.
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that unduly burdens interstate commerce.92 To evaluate the constitutionality of such facially
neutral laws, the Court has applied a balancing test and would likely uphold laws that serve a
“legitimate” local purpose if the local benefit clearly exceeds the burden on interstate
commerce.93
The Contracts Clause
The Contracts Clause provides that states may not enact laws that “impair[] the Obligation of
Contracts.”94 While the Supreme Court has held that the clause does not generally prevent a state
from enacting laws to protect public welfare,95 it has also said that a state may not breach or
modify its own contracts and may not generally regulate private contracts.96 To determine
whether a violation of the Contracts Clause has occurred, the Supreme Court first asks whether
the state law substantially impairs a contractual relationship, considering whether the law
“undermines the contractual bargain, interferes with a party’s reasonable expectations, and
prevents the party from safeguarding or reinstating his rights.”97 If the law is found to impair a
contractual relationship, the Court has then asked whether the state law advances “a significant
and legitimate public purpose” in an “appropriate and reasonable” manner.98
The Fourteenth Amendment and Vagueness
The Fourteenth Amendment prohibits states from depriving “any person of life, liberty, or
property, without due process of law.”99 The Supreme Court has held that a law is
unconstitutionally vague in violation of the Fourteenth Amendment when it “(1) fails to apprise
persons of ordinary intelligence of the prohibited conduct, or (2) encourages arbitrary and
discriminatory enforcement.”100 For example, in striking down a city ordinance making it illegal
for more than three people to act in an “annoying” manner while standing on a city sidewalk, the
Court found the ordinance unconstitutionally vague because “[c]onduct that annoys some people
does not annoy others.”101 The Court reasoned that the ordinance was vague “not in the sense that
it requires a person to conform his conduct to an imprecise but comprehensible normative
standard, but rather in the sense that no standard of conduct is specified at all.”102
92 Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). The balancing test elaborated by the Supreme Court in Pike is
discussed further in CRS Legal Sidebar LSB11031, Supreme Court Narrows Dormant Commerce Clause and Upholds
State Animal Welfare Law, by Kate R. Bowers (2023).
93 E.g., Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986) (citing Pike v. Bruce
Church, Inc., 397 U.S. 137, 142 (1970)).
94 U.S. CONST. art. I, § 10. For general information about the Contracts Clause, see Cong. Rsch. Serv., Overview of
Contracts Clause, CONSTITUTION ANNOTATED, https://constitution.congress.gov/browse/essay/artI-S10-C1-61/ALDE_00013037/ (last visited Aug. 1, 2025).
95
Home Bldg. & Loan Assn. v. Blaisdell, 290 U.S. 398, 434–35 (1934).
96 U.S. Tr. Co. v. New Jersey, 431 U.S. 1, 17 (1977).
97 Sveen v. Melin, 584 U.S. 811, 819 (2018) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244
(1978)).
98 Sveen, 584 U.S. at 819 (quoting Energy Reserves Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400, 411–12
(1983)).
99 U.S. CONST. amend. XIV, § 1.
100 City of Chicago v. Morales, 527 U.S. 41, 90 (1999) (Scalia, J., dissenting).
101 Coates v. City of Cincinnati, 402 U.S. 611, 614 (1971).
102 Id.
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The Fifth Amendment Takings Clause
The Fifth Amendment provides, “No person shall be . . . deprived of life, liberty, or property,
without due process of law; nor shall private property be taken for public use, without just
compensation.”103 When assessing whether a Takings Clause violation has occurred, the Supreme
Court has previously addressed questions including (1) whether the plaintiff has a property
interest that is protected by the Takings Clause; (2) whether a taking has occurred; (3) whether the
taking was for public use; and (4) what constitutes just compensation.104 The Takings Clause
applies only to constitutionally protected property interests,105 and a taking may result from the
seizure of physical property as well as when a regulation amounts to what the Court has termed a
“regulatory taking,” which is the principle that “if a government regulation goes too far[,] it will
be recognized as a taking.”106 Although the Court has avoided a “set formula to determine where
regulation ends and taking begins,”107 and has stated that regulatory takings cases require
“essentially ad hoc, factual inquiries,”108 it has established some general principles for
determining when regulatory takings occur.109
The Eighth Circuit Decision Upholding Arkansas’s Contract
Pharmacy Law in PhRMA v. McClain
In May 2021, the Arkansas General Assembly enacted Act 1103 (the “Arkansas contract
pharmacy law” or “the law”), which in part provided that manufacturers may not prohibit in-state
pharmacies “from contracting [with] or participating with any [340B covered] entity.”110 The law
also prohibited manufacturers from denying 340B pricing to “Arkansas-based community
pharmac[ies]” that receive 340B drugs for distribution.111 PhRMA challenged the state law,
arguing in part that it was preempted by federal statute.112 In December 2022, the Arkansas
Federal District Court held that neither the 340B statute nor the FDCA preempted the Arkansas
contract pharmacy law.113 PhRMA appealed the ruling to the U.S. Court of Appeals for the Eighth
Circuit (Eighth Circuit), which affirmed the district court’s ruling in September 2023.114
103 U.S. CONST. amend. V.
104 See, e.g., Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1000–01 (1984).
105 See Ruckelshaus, 467 U.S. at 1001.
106 Pa. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922). See also CONG. RESEARCH SERV., Amdt 5.9.5 Early
Jurisprudence on Regulatory Takings, https://constitution.congress.gov/browse/essay/amdt5-9-5/ALDE_00013284/.
107 Penn. Cent. Transp. Co. v. City of N.Y., 438 U.S. 104, 124 (1978).
108 Id.
109 Factors to consider include (1) the economic impact of the regulation; (2) whether the regulation has interfered with
a “distinct investment-backed expectation”; and (3) the character of the government’s action. Id. For more information
about the Penn Central analysis and how it is used to evaluate regulatory takings, see CONG. RESEARCH SERV., Amdt.
5.9.6 Regulatory Takings and Penn Central Framework, https://constitution.congress.gov/browse/essay/amdt5-96/ALDE_00013285/#ALDF_00022171.
110 H.B. 1881, sec. 1, § 23-92-604(c)(1), 2021 Gen. Assemb., Reg. Sess. 3 (Ark. 2021).
111 Id. sec. 1, § 23-92-604(c)(2).
112 PhRMA v. McClain, 645 F. Supp. 3d 890, 894–95 (E.D. Ark. 2022), aff’d, 95 F.4th 1136 (8th Cir. 2024). PhRMA
also challenged the Arkansas contract pharmacy law on the basis that it violated the Dormant Commerce Clause. Id.
The parties agreed to pause litigation on the Dormant Commerce Clause claim pending resolution of the preemption
issue. Id. at 894.
113 Id. at 894–95.
114 PhRMA, 95 F.4th 1136 (8th Cir. 2024), cert. denied, 145 S. Ct. 768 (2024) (mem.). The Eighth Circuit subsequently
(continued...)
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The Eighth Circuit’s analysis upholding the state law focused on the 340B preemption claims,
while also addressing the parties’ FDCA preemption arguments. In concluding that the Arkansas
contract pharmacy law was not preempted by the 340B statute, the court first considered the
structure of the state law, which it broke into three essential components: (1) capping
manufacturer prices; (2) restricting covered entities from engaging in duplicate discounting and
diversion; and (3) creating compliance mechanisms for both manufacturers and covered
entities.115 Citing the Third Circuit’s decision in Sanofi, discussed above, the Eighth Circuit
observed that “the 340B Program ‘is silent about delivery’ and distribution of pharmaceuticals to
patients.”116 The court noted, however, that “[retail] pharmacies are essential, and legally
required,” for the functioning of the pharmaceutical supply chain, and that they “have always
been important participants in delivering 340B drugs to patients.”117 Although retail pharmacies
are vital to the functioning of 340B, the court characterized them as merely “agent[s] of the
covered entity,” which both purchases and assumes legal responsibility for the drugs (generally
under a “ship to bill to” method).118 The court then looked at the specific wording of the Arkansas
contract pharmacy law, observing that its primary focus was to target the agreements between
covered entities and contract pharmacies made within the state.119
The Eighth Circuit first addressed the arguments related to field preemption, quoting the Supreme
Court’s decision in Cipollone v. Liggett Group, which held that field preemption occurs when
Congress leaves “no room for the states to supplement” federal law.120 Noting that the text of the
340B statute does not mention the delivery of drugs, the court found that “Congress’s decision not
to legislate the issue of pharmacy distribution indicates that Section 340B is not intended to
preempt the field.”121 The court further reasoned that Congress was aware that the regulation of
pharmacies has traditionally been an issue of state law and thus, “Congressional silence on
pharmacies in the context of 340B indicates that Congress did not intend to preempt the field.”122
Although the Arkansas contract pharmacy law empowers the state to penalize drug manufacturers
who refuse to distribute drugs to covered entities’ contract pharmacies, the court said such
enforcement authority does not interfere with HHS’s jurisdiction over the program, which
concerns disputes between manufacturers and covered entities regarding the price of drugs, rather
than their distribution.123
The court further found that the Arkansas contract pharmacy law is not unconstitutional due to
obstacle preemption, because rather than creating an obstacle to 340B compliance, the Arkansas
law “assists in fulfilling the purpose of 340B” by protecting the relationship between contract
pharmacies and covered entities and ensuring that covered entities can distribute their drugs to
patients.124 The court concluded that the law “is simply deterring . . . manufacturers from
denied PhRMA’s motions for a rehearing by the panel and a rehearing en banc before the full Eighth Circuit. PhRMA
v. McClain, No. 22-3675, 2024 WL 1919676 (8th Cir. May 2, 2024). As of the time of this writing, the litigation
regarding the Dormant Commerce Clause claims has not recommenced.
115 PhRMA, 95 F.4th at 1141.
116 Id. at 1142.
117 Id.
118 PhRMA, 95 F.4th at 1142.
119 Id. at 1143.
120 Id. (citing Cipollone v. Liggett Grp., 505 U.S. 504 (1992) and quoting Arizona v. United States, 567 U.S. 387, 399
(2012)).
121 PhRMA, 95 F.4th at 1143.
122 Id. at 1144.
123 Id.
124 Id. at 1144–45.
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interfering with a covered entity’s contract pharmacy arrangements,” and thus manufacturers
could, and indeed have, complied with both the 340B statute and state law.125
Finally, the Eighth Circuit was not persuaded by PhRMA’s FDCA preemption argument. PhRMA
argued that it was impossible to comply with the both the state law and the FDCA’s risk
evaluation and mitigation strategies (REMS) provisions, which restrict the distribution of certain
drugs in furtherance of public safety.126 The court observed that covered entities are responsible
for meeting REMS requirements, but that “just because a medication is subject to multiple legal
requirements does not make it impossible to comply” with state law.127
PhRMA appealed the Eighth Circuit’s ruling to the Supreme Court, but the Supreme Court denied
the petition for certiorari on December 9, 2024.128 As of the time of this writing, the parties have
not moved forward with litigating the plaintiffs’ other constitutional claims.
The Louisiana Federal District Court Decision Upholding
Louisiana’s Contract Pharmacy Law in PhRMA v. Murrill
In 2023, the State of Louisiana enacted Act 358, which prohibits drug manufacturers from
denying, restricting, prohibiting, or interfering with “the acquisition of a 340B drug by, or
delivery of a 340B drug to, a pharmacy that is under contract with a 340B [covered] entity
. . . .”129 The act further provided, “[a] manufacturer . . . shall not interfere with a pharmacy
contracted with a 340B entity,” and stated that the law was not to be construed to be in conflict
with any other federal law.130 PhRMA, AstraZeneca, and AbbVie all sued the Louisiana attorney
general; the Louisiana Federal District Court consolidated the cases under the heading PhRMA v.
Murrill, issuing a decision in the case on the parties’ respective summary judgment motions in
September 2024.131 Similar to the arguments before the Eighth Circuit in McClain, the plaintiffs
argued that the 340B statute preempted Louisiana’s contract pharmacy law.132 The plaintiffs also
argued that the state law was unconstitutionally vague, that it violated the Contracts Clause, and
that it constituted a taking under the Fifth Amendment.133
In its decision granting summary judgment for the state, the court first addressed the plaintiffs’
preemption arguments, which included field, conflict, and obstacle preemption.134 With respect to
field preemption, the court agreed with the Eighth Circuit’s reasoning in McClain that the
plaintiffs’ arguments were not supported by the statute’s text.135 The court noted that the 340B
statute “is silent with respect to the role of pharmacies who enter contracts with covered entities
to receive and dispense discounted drugs.”136 The court further found that the plaintiffs
125 Id. at 1145.
126 Id.; see also 21 U.S.C. § 355-1. The Food & Drug Administration (FDA) administers the REMS program, which
ensures the safe distribution and use of drugs for which the Secretary determines that a risk evaluation and mitigation
strategy is necessary. Id.
127 PhRMA, 95 F.4th at 1145–46.
128 PhRMA v. McClain, 145 S. Ct. 768 (2024) (mem.).
129 H.B. 548, sec. 1, §§ 2884(A), 2886(B), 2023 State Leg., Reg. Sess. (La. 2023).
130 Id., sec. 1, § 2884(B).
131 No. 23-997, 2024 WL 4361597 (W.D. La. Sept. 30, 2024).
132 Id. at *1.
133 Id. at *3.
134 Id. at *5.
135 Id. (citing PhRMA v. McClain, 95 F.4th 1136 (8th Cir. 2024)).
136 Id.
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“mischaracterize[d] the relationship between covered entities and their contract pharmacies” and
“overstate[d] the extent to which the federal government ‘occupies’ the field” with respect to
covered entities and contract pharmacies.137
The court also disagreed with the plaintiffs that the Third Circuit’s ruling in Sanofi created “a
federal right” for manufacturers to restrict contract pharmacy use under 340B.138 To the contrary,
the court reasoned that the Sanofi holding undercut plaintiffs’ field preemption argument, because
in that case, the Third Circuit’s holding was based on the fact that the statute was silent about
contract pharmacies.139 Similarly, the court found that “Sanofi’s holding is fatal to [the] conflict
preemption claim,” because if the 340B statute does not mention contract pharmacies, the state
law “cannot, by definition, conflict with 340B.”140 The court also held that the state law was not
preempted by federal patent law, because the law “does not, on its face, target patent rights or, by
its terms, apply only to patented drugs or the price of patented drugs.”141 Finally, the court also
rejected the plaintiffs’ obstacle preemption claims, finding that the state law “arguably advances
Congress’ objectives with respect to the 340B program,” rather than presenting an obstacle to
them.142
In addition to the preemption arguments, the plaintiffs also argued that the Louisiana law’s use of
the term “interfere” was unconstitutionally vague in violation of the Due Process Clause of the
Fourteenth Amendment.143 The state law provides that a drug manufacturer “shall not deny,
restrict, prohibit, or otherwise interfere with” acquisition or delivery of 340B drugs to contract
pharmacies.144 The plaintiffs argued that the act failed to specify the type of conduct that would
rise to the level of “interference” within the meaning of the statute, which does not define the
term.145 The court also agreed with the state’s argument that the “associated-words canon” of
statutory construction146 should apply, and that the court should look at the other words in the list
of prohibited actions to give meaning to the word “interfere.”147 As a result, the court held that
“interfere” should be “construed as proscribing actions that prevent or hinder the acquisition or
delivery of Section 340B drugs to contract pharmacies,” and was not unconstitutionally vague.148
With respect to the plaintiffs’ arguments that the Louisiana law compelled “direct, confiscatory
sales to private pharmacies,” amounting to a taking in violation of the Fifth Amendment, as
applicable to the states by the Fourteenth Amendment, the district court disagreed.149 The court
held that no taking had occurred, because the state law only prevented manufacturers from
137 Id. at *6.
138 Id.
139 Id. at *7.
140 Id. at *8.
141 Id. at *9.
142 PhRMA, 2024 WL 4361597, at *9.
143 Id. at *10.
144 Id.
145 Id.
146 Id. For more information on the tools of statutory interpretation, including the associated words (or noscitur a
sociis), see CRS Report R45153, Statutory Interpretation: Theories, Tools, and Trends, by Valerie C. Brannon (2023).
147 PhRMA, 2024 WL 4361597, at *10.
148 Id.
149 Id. at *14.
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placing restrictions on in-state covered entities using multiple contract pharmacies and did not
compel drug manufacturers to actually sell their products to those pharmacies.150
Similarly, the court held that the manufacturers’ Contracts Clause arguments also failed,
disagreeing with their characterization of the Louisiana law as expanding the number of 340B
covered entities (to be inclusive of contract pharmacies).151 The court found that the state law
“does not expand or otherwise enlarge” the statute’s beneficiaries, but rather affects only “the
delivery or acquisition” of the drugs, which neither expands nor contradicts the PPAs, “because,
like the statute, the PPA is silent as to delivery to or acquisition of Section 340B drugs to contract
pharmacies.”152
The district court’s ruling in the case was appealed to the U.S. Court of Appeals for the Fifth
Circuit in October 2024, and as of the date of this writing, the Fifth Circuit has not yet issued a
ruling.153 The court heard oral argument in the case in September 2025.154
The West Virginia Federal District Court Order Expressing
Skepticism of State Contract Pharmacy Law in PhRMA v. Morrisey
While much of the litigation brought by industry groups and pharmaceutical companies against
state contract pharmacy laws thus far has leaned in favor of states, at least one federal district
court was at least initially persuaded by PhRMA’s arguments and granted a preliminary injunction
to stop a West Virginia contract pharmacy law from taking effect.155 Like several of its
contemporaries, the West Virginia law prohibits drug manufacturers from denying, restricting, or
prohibiting “the acquisition . . . or delivery of a 340B drug to[] a location authorized by a 340B
entity to receive such drug,” unless otherwise prohibited by HHS.156 Unlike some of the other
state laws, though, the West Virginia provision also stops drug manufacturers from requiring
covered entities to submit claims data to them as a condition of delivery for 340B drugs, unless
covered entities are otherwise required by HHS to submit such information.157 The law contains
an enforcement provision allowing the attorney general of West Virginia and the state pharmacy
board to fine or impose criminal liability on noncompliant manufacturers.158
PhRMA, as well as drug manufacturers Novartis and AbbVie, challenged the law in West Virginia
Federal District Court, each making different arguments, and all requesting a preliminary
injunction to halt enforcement of the state law.159 In December 2024, the district court granted the
plaintiffs’ motion for preliminary injunction, finding that the 340B statute likely preempts the law,
distinguishing the case from similar cases addressing contract pharmacy use in other
jurisdictions.160 In determining whether to grant the plaintiffs’ motion for a preliminary
150 Id.
151 Id. at *12.
152 Id.
153
Notice of Appeal, PhRMA v. Landry, No. 6:23-CV-00997 (W.D. La. Oct. 16, 2024), Dkt. No. 84.
154 Oral Argument, PhRMA v. Murrill, No. 24-30673 (5th Cir. Sept. 2, 2025), Dkt. No. 153.
155 PhRMA v. Morrisey, 760 F. Supp. 3d 439 (S.D. W. Va. 2024), appeal filed sub nom., PhRMA v. McCuskey, No.
25-1054 (4th Cir. Jan. 16, 2025).
156 W.VA. CODE § 60A-8-6a(b)(1) (2024).
157 Id. § 60A-8-6a(b)(2).
158 Id. § 60A-8-6a(c)–(d)(1)(A).
159 PhRMA, 760 F. Supp. 439, 446 (S.D. W. Va. 2024). The cases have not been consolidated and are proceeding
separately, but the parties agreed to proceed on the motions for preliminary injunction all together. Id. at 448.
160 Id. at 458.
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injunction, the district court analyzed four factors from the Supreme Court’s decision in Winter v.
Natural Resources Defense Council, Inc., including (1) the plaintiffs’ likelihood of success on the
merits; (2) whether the plaintiffs would likely suffer irreparable harm; (3) whether the equities
balanced in the plaintiffs’ favor; and (4) whether the public interest supported the injunction.161
First, the court found that a preliminary injunction was proper because plaintiffs were likely to
succeed on the merits of their claim.162 The court found that the state law likely created an
obstacle to the dual purposes of the 340B program of providing discounted drugs to covered
entities and prohibiting them from engaging in duplicate discounting or diversion, because the
law restricts manufacturers from collecting claims data from covered entities.163 While West
Virginia argued that the law was not an obstacle to the 340B statute because manufacturers could
get necessary claims data from covered entities by simply requesting it, the court posited that a
covered entity could decline such a request, leaving the manufacturer with “no alternatives,”164
which could prevent it from “formulat[ing] the ‘reasonable cause’ necessary to conduct an audit
in the first place.”165
The court also concluded that the West Virginia law’s enforcement provisions were likely
contrary to the Supreme Court’s decision in Astra USA, Inc. v. Santa Clara County because the
law was indirectly attempting to regulate a 340B drug’s price.166 In Astra, the Supreme Court
found that a covered entity could not sue a drug manufacturer for noncompliance with the 340B
statute because the 340B statute did not create a private right of action.167 Relying on the same
rationale, the district court reasoned that “if West Virginia attempted to enforce 340B through
litigation, Astra would directly prevent such a suit as an improper method of 340B enforcement.
Why, then, does it matter if the chosen improper enforcement is litigation or legislation?”168 The
court further concluded that allowing the state law to stand could also contradict Astra’s holding
by prompting both state and federal adjudications of 340B matters, which was another reason for
the program to have “centralized enforcement” by HRSA.169
The Morrisey court also distinguished its decision from other 340B state contract pharmacy law
decisions finding that such laws were not preempted by the 340B statute. For example, the court
pointed to the Eighth Circuit’s finding in McClain that PhRMA had not presented any evidence of
obstacle preemption.170 The district court said that in Morrisey, the plaintiffs demonstrated, and
161 Id. at 449 (citing Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008)).
162 PhRMA, 760 F. Supp. 3d at 451.
163 Id. at 453. The court noted that drug manufacturers would need such claims data in order to initiate an ADR
proceeding against a covered entity. Id.
164 Id.
165 PhRMA, 760 F. Supp. 3d at 453.
166 Id. at 456 (citing Astra USA v. Santa Clara County, 563 U.S. 110 (2011)). See also discussion infra “The U.S.
Supreme Court’s Decision in Astra USA, Inc. v. Santa Clara County Finding No Private Right of Action in the 340B
Statute.”
167
Astra USA, 563 U.S. at 120.
168 PhRMA, 760 F. Supp. 3d at 457 (citing Astra USA, 563 U.S. at 110).
169 PhRMA, 760 F. Supp. 3d at 458 (citing Astra USA, 563 U.S. at 120).
170 PhRMA, 760 F. Supp. 3d at 459 (citing PhRMA v. McClain, 95 F.4th 1136 (8th Cir. 2024)). A few days prior to the
court’s decision in Morrisey, the plaintiffs filed a notice containing additional information in support of their motion for
a preliminary injunction. Plaintiff’s Notice of Supplemental Authority, PhRMA v. Morrisey, No. 2:24-cv-00271 (S.D.
W. Va. Dec. 12, 2024), Dkt. No. 66. The plaintiffs stated that drug manufacturer Sanofi-Aventis had recently obtained,
via a Freedom of Information Act request, a copy of a contract between a retail contract pharmacy and a covered entity.
Id. The contract stated that the contract pharmacy takes title to the 340B drugs upon delivery to the pharmacy. Id. The
contract further stated that the contract pharmacy is not an agent of the covered entity. Id. The plaintiffs argued that
(continued...)
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West Virginia did not dispute, that enforcement of the state law could result in the West Virginia
attorney general having to make determinations of federal questions (e.g., what constitutes
diversion under the 340B statute).171 The court also observed that other courts considering similar
questions regarding the legality of state contract pharmacy laws had not discussed the potential
implications of the Supreme Court’s ruling in Astra.172
As for the other Winter factors related to the court’s grant of a preliminary injunction, the district
court found that the plaintiffs had demonstrated that they are likely to suffer irreparable harm in
the absence of a preliminary injunction.173 While the drug manufacturer plaintiffs offered several
arguments about the potential harm they would suffer as a result of the law, several of their points
focused on the state law’s steep enforcement penalties, which could lead to “unrecoverable
financial losses,” which the court found “sufficient to meet irreparable harm.”174 The court also
held that the plaintiffs had sufficiently demonstrated that the balance of equities and the public
interest both fell in their favor, but it warned that the preliminary injunction “does not grant drug
manufacturers a blank check” to not otherwise comply with their 340B obligations.175
The district court’s ruling was appealed to the U.S. Court of Appeals for the Fourth Circuit
(Fourth Circuit) on January 16, 2025.176 The Fourth Circuit is scheduled to hear oral arguments in
the case on September 9, 2025.177
Rebate Litigation
As the litigation around contract pharmacy use continues, drug manufacturers are still seeking
ways to address duplicate discounting and diversion in the 340B program. Another proposal from
manufacturers to reduce diversion and duplicate discounting is to offer the 340B price as a rebate,
as opposed to an up-front discount.178 In other words, manufacturers propose to offer covered
entities a rebate for a 340B drug after it has been dispensed to a patient, theoretically giving them
more control over which drugs to “offer” at the 340B price. Currently, the only HRSA-approved
use of rebating to honor the 340B discount is for human immunodeficiency virus (HIV) drugs
such information undercuts the Eighth Circuit’s decision in McClain, which was premised in part on the covered
entities retaining title to the 340B drugs and on the contract pharmacy essentially acting as the agent of the covered
entity. Id.
171 PhRMA, 760 F. Supp. 3d at 459.
172 Id. at 458 (citing AbbVie Inc. v. Fitch, No. 1:24-cv-184, 2024 WL 3503965, at *10 (S.D. Miss. July 22, 2024)).
173 PhRMA, 760 F. Supp. 3d at 463.
174 Id. at 462–63 (citing Air Evac. EMS v. Dodrill, 548 F. Supp. 580, 594–95 (S.D. W. Va. 2021).
175 PhRMA, 760 F. Supp. 3d at 464. The government argued that the state law was favorable to the public interest, as it
would have increased access to 340B drugs, but the court was not persuaded, reasoning that the state’s logic “misses
the point of the 340B Program,” which was “for the benefit of the covered entities.” Id.
176 Case Docketed, PhRMA v. McCuskey, No. 25-1054 (4th Cir. Jan. 16, 2025), Dkt. No. 1. The Fourth Circuit
consolidated PhRMA’s appeal with two other cases, Nos. 25-1055 and 25-1056, both of which were brought by drug
manufacturers to challenge the West Virginia contract pharmacy law. Order, PhRMA, No. 25-1054 (4th Cir. Jan. 16,
2025), Dkt. No. 4.
177 Oral Argument Notification, PhRMA, No. 25-1054 (4th Cir. July 10, 2025), Dkt. No. 91.
178 In recent guidance, HRSA defined a 340B rebate as “a reimbursement made from the manufacturer to the covered
entity in the amount of the standard acquisition cost (i.e., wholesale acquisition cost) of a covered outpatient drug less
the statutory 340B ceiling prices as defined . . . in the [PHSA].” HRSA, 340B Program Notice: Application Process for
the 340B Rebate Model Pilot Program,” 90 Fed. Reg. 36163 (Aug. 1, 2025). Rebating is often used by drug
manufacturers and pharmacy benefit managers in other contexts—for example, the Medicare Drug Rebate Program—to
lower the prices of drugs after they are sold. See, e.g., CRS Report R43778, Medicaid Prescription Drug Pricing and
Policy, by Cliff Binder (2014).
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distributed through the AIDS Drug Assistance Program (ADAP), a component of the Ryan White
HIV/AIDS Program that assists low-income individuals with HIV with accessing their
medications.179 In 1998, HRSA issued guidance in the Federal Register regarding the rebating of
340B drugs for state AIDS Drug Assistance Programs (ADAPs) to ensure that Ryan White
Clinics, which are 340B covered entities, could receive the 340B price.180 HRSA limited the
applicability of the 1998 guidance permitting rebates to state ADAPs, allowing states to submit
their rebate claims to manufacturers.181 The notice also cautioned that all of HRSA’s previously
issued guidance related to the prevention of duplicate discounting and drug diversion applied to
the ADAPs.182
In August 2024, more than twenty-five years after HRSA’s ADAP notice permitting the rebating
of certain 340B drugs, Johnson & Johnson became the first drug manufacturer to propose a
larger-scale rebate model policy, which it planned to apply only to 340B DSH hospital purchases
of its drugs Stelara and Xarelto.183 The policy stated that beginning October 15, 2024, the
company would make these two drugs purchased by DSH hospitals available at the 340B price
through a rebate only, instead of an up-front discount.184 The company further highlighted its
commitment to the 340B program, stating that the rebate policy would “significantly improve
program integrity while at the same time enabling covered entities to obtain the 340B price on
eligible 340B sales.”185 Around the same time, several other drug manufacturers announced
similar intentions to implement new rebating policies for certain 340B drugs sold to particular
categories of covered entities.186
179 See Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Rebate Option, 63 Fed. Reg. 35239
(June 29, 1998); see also Part B: Grants to States and Territories, HRSA: RYAN WHITE HIV/AIDS PROGRAM (May
2025), https://ryanwhite.hrsa.gov/about/parts-and-initiatives/part-b-grants-states-territories [https://perma.cc/8G6YGHQE]. The Ryan White HIV/AIDS Program (RWHAP) has a component that provides grants to states to cover
medical services and medications for low-income patients with HIV. Id. The grants are awarded to states in accordance
with a statutory formula that bases the state’s payment on the number of individuals with HIV in that state. Id.
According to HRSA, approximately half of the patients with HIV in the United States receive support through
RWHAP. Program Parts and Initiatives, HRSA: RWHAP (Dec. 2024), https://ryanwhite.hrsa.gov/about/parts-andinitiatives [https://perma.cc/8AYK-TZFV]. For more information about RWHAP, see CRS Report R44282, The Ryan
White HIV/AIDS Program: Overview and Impact of the Affordable Care Act, by Judith A. Johnson and Elayne J.
Heisler (2016).
Additionally, HRSA published guidance in August 2025 announcing a voluntary rebate model pilot program that would
allow drug manufacturers whose drugs were selected for price negotiation through the Medicare Drug Price
Negotiation Program for price year 2026 to submit a rebate model plan to HRSA no later than September 15, 2025.
HRSA, 340B Program Notice: Application Process for the 340B Rebate Model Pilot Program, 90 Fed. Reg. 36163
(Aug. 1, 2025). The guidance stipulates specific information that manufacturers must provide to HRSA in order to
effectuate the 340B price of these drugs as a rebate. Id. HRSA will provide a comment process for covered entities and
other stakeholders to provide feedback about the rebating pilot and could make additional changes in the future. Id.
180 Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Rebate Option, 63 Fed. Reg. at 35239.
Under the 340B statute, Ryan White Clinics are eligible 340B covered entities. 42 U.S.C. § 256b(a)(4)(D).
181 Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Rebate Option, 63 Fed. Reg. at 35242.
182 Id.; see also Duplicate Discounts and Rebates on Drug Purchases, 58 Fed. Reg. 27293 (May 7, 1993).
183 Johnson & Johnson Health Care Sys. Inc., Notice to 340B End Customers Regarding Purchases of STELARA and
XARELTO (Aug. 23, 2024), https://sponsors.aha.org/rs/710-ZLL651/images/Johnson%20%20Johnson%20Innovative%20Medicine%20340B%20Rebate%20Model%20Policy%20Upd
ate%2008-23-2024_FINAL.pdf [https://perma.cc/JE3R-63VL].
184 Id.
185 Id. at 3.
186 Eli Lilly & Co., Lilly Statement on New 340B Litigation (Nov. 15, 2025), https://investor.lilly.com/node/51571/pdf
[https://perma.cc/UD7J-7ZD6].
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On September 27, 2024, HRSA advised Johnson & Johnson that the company could not
implement its rebate proposal without the approval of the HHS Secretary, and that to begin using
the rebate model without approval would violate the 340B statute.187 In response, the company
notified HRSA that due to the agency’s “threats of excessive and unlawful penalties,” Johnson &
Johnson would forego implementation of its proposed rebate policy.188 Shortly thereafter, at least
five drug manufacturers filed suit in D.C. Federal District Court to challenge HRSA’s
interpretation of the statute and the agency’s decision to deny manufacturers’ requests to
implement a rebate model.189
This section discusses the litigation related to the rebating of 340B drugs and whether such a
practice comports with the 340B statute. As of the date of this writing, two district courts have
agreed with HRSA that the 340B statute gives the Secretary discretion to approve manufacturers’
rebating policies.190 After the courts issued the rulings, HRSA released guidance announcing a
new rebate pilot program that would allow specific manufacturers to enroll for at least one year in
a rebate model.191 Applications are due September 15, 2025.192
The D.C. District Court’s Decision in Johnson & Johnson Health
Care Systems, Inc. v. Kennedy Upholding HRSA’s Interpretation of
the 340B Statute
After HRSA threatened enforcement regarding Johnson & Johnson’s 340B rebate model, the
company sued HRSA in D.C. Federal District Court, arguing that the agency lacked the statutory
authority to require the HHS Secretary’s approval for rebate models.193 The company also argued
that HRSA’s actions were arbitrary and capricious, because HRSA treated its rebate model
differently than the ADAP model.194 Several covered entities filed a motion to intervene in the
suit, which the court granted.195 The intervenors sided with HRSA, arguing that the 340B statute
requires up-front discounts and that HRSA’s secretarial approval requirement does not violate the
187 Letter from Carole Johnson, Adm’r, HRSA, to Joaquin Duato, CEO, Johnson & Johnson (Sept. 27, 2024),
https://sponsors.aha.org/rs/710-ZLL-651/images/sept-27-2024-hrsa-letter-johnson-johnson.pdf
[https://perma.cc/QD4P-AUKX].
188 Letter from Scott White, COO, Johnson & Johnson Health Care Systems Inc., to Carole Johnson, Adm’r, HRSA
(Sept. 30, 2024), https://sponsors.aha.org/rs/710-ZLL-651/images/sept-27-24-hrsa-letter-johnson-johnson.pdf
[https://perma.cc/C6CK-HQYD].
189 See Complaint, Kalderos, Inc. v. United States, No. 1:21-cv-02608 (D.D.C. Oct. 6, 2021), Dkt. No. 1 [hereinafter
Kalderos Complaint]; Complaint, Johnson & Johnson Health Care Sys. v. Becerra, No. 1:24-cv-03188 (D.D.C. Nov.
12, 2024), Dkt. No. 1 [hereinafter Johnson & Johnson Complaint]; Complaint, Eli Lilly & Co. v. Becerra, No. 1:24-cv03220 (D.D.C. Nov. 14, 2024), Dkt. No. 1 [hereinafter Eli Lilly Complaint]; Complaint, Bristol Myers Squibb Co. v.
Johnson, No. 1:24-cv-03337 (D.D.C. Nov. 26, 2024), Dkt. No. 1 [hereinafter Bristol Myers Squibb Complaint];
Complaint, Sanofi-Aventis U.S. LLC v. HHS, No. 1:24-cv-03496 (D.D.C. Dec. 16, 2024), Dkt. No. 1 [hereinafter
Sanofi-Aventis Complaint].
190 See Memorandum Opinion, Johnson & Johnson, No. 1:24-cv-03188 (D.D.C. June 27, 2025), Dkt. No. 59;
Memorandum Opinion at 10 n.6, Sanofi-Aventis U.S. LLC, No. 1:24-cv-03496 (D.D.C. May 15, 2025), Dkt. No. 58.
191 HRSA, 340B Program Notice: Application Process for the 340B Rebate Model Pilot Program, 90 Fed. Reg. 36163
(Aug. 1, 2025). See also discussion of rebating guidance supra note 179.
192 Id.
193 Johnson & Johnson Complaint, supra note 189, at 48.
194 Id. at 45.
195 Order, Johnson & Johnson, No. 1:24-cv-03188 (D.D.C. May 15, 2025), Dkt. No. 49.
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APA.196 In February 2025, Johnson & Johnson filed a motion for summary judgment, and the
government filed a cross-motion for summary judgment shortly thereafter.197
In June 2025, the D.C. Federal District Court upheld HRSA’s interpretation of the statute, denied
Johnson & Johnson’s motion for summary judgment, and granted the government’s cross-motion
for summary judgment.198 The court began its decision by analyzing the text, structure, and
purpose of the 340B statute, finding that the text supported HRSA’s interpretation, because the
statute deferred to the Secretary to “tak[e] into account any rebate or discount” in determining the
340B price.199 The court found that the most reasonable interpretation of the statute’s phrase
“taking into account any rebate or discount” was that the statute gave the Secretary the discretion
to “consider” rebates and discounts.200 In support of its position that it could freely implement its
340B rebate model, Johnson & Johnson pointed to the D.C. Circuit’s holding in Novartis that
statutory silences imply that a party may freely act. The court declined to apply Novartis because
“the statute’s grant of authority to the Secretary [to consider rebates and discounts] is explicit, not
silent.”201 The court further disagreed with the intervenor covered entities’ arguments that
rebating was not allowed in the 340B program at all, pointing to the statute’s explicit reference to
rebates.202
The court found that the purpose and history of the 340B statute also supported the government’s
interpretation that the Secretary has the discretion to approve or reject a manufacturer’s proposed
rebate model.203 The court observed HRSA’s long-standing practice of determining the “most
effective and most efficient” pricing mechanisms to ensure that covered entities received the
340B discount.204 When HRSA allowed ADAPs to access the 340B discount through rebates, the
court said this was an example of the agency exercising its discretion to “tak[e] into account” a
rebate.205 The court concluded that “[b]ased on the plain and unambiguous language of the 340B
statute, and supported by its purpose and history, HRSA has the authority to ‘provide’ for
discounts, rebates, or both.”206
The court was further unpersuaded by Johnson & Johnson’s arguments that HRSA’s decision to
reject its rebate model was arbitrary and capricious, and it also did not agree with the company
that the APA required HRSA to first undergo notice and comment rulemaking prior to sending a
letter warning Johnson & Johnson of potential penalties associated with implementing an
unapproved rebate model.207 The court characterized HRSA’s September 27, 2024, letter to the
company as an interpretive rule, which does not require the agency to undergo a notice and
196 Motion of 340B Health et al. for Leave to File an Oversized Amicus Brief in Support of Defendants at 14, Johnson
& Johnson, No. 1:24-cv-03188 (D.D.C. Apr. 2, 2025), Dkt. No. 43.
197 Plaintiff’s Motion for Summary Judgment, Johnson & Johnson, No. 1:24-cv-03188 (D.D.C. Feb. 3, 2025), Dkt. No.
18; Defendants’ Cross Motion for Summary Judgment and Opposition to Plaintiff’s Motion for Summary Judgment,
Johnson & Johnson, No. 1:24-cv-03188 (D.D.C. Apr. 2, 2025), Dkt. No. 41.
198 Memorandum Opinion, Johnson & Johnson, No. 1:24-cv-03188 (D.D.C. June 27, 2025), Dkt. No. 59.
199 Id. at 11 (quoting 42 U.S.C. § 256b(a)(1)).
200 Memorandum Opinion, supra note 198, at 14. The court further observed that Johnson & Johnson “reads ‘as
provided by the Secretary’ out of the statute entirely.” Id. at 15.
201 Id. at 15.
202 Id. at 16.
203 Id. at 19.
204 Id.
205 Memorandum Opinion, supra note 198, at 20.
206 Id. at 21.
207 Id.
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comment process.208 The court further reasoned that even if HRSA had not sent Johnson &
Johnson a letter warning of potential penalties, the agency would have had an adequate basis to
bring an enforcement action against the company.209
The crux of Johnson & Johnson’s arbitrary and capricious argument was that the agency treated
its rebate model differently than the typical up-front discount models, without sufficient
explanation.210 The court agreed with HRSA’s conclusion that a shift to a rebate model would be a
material change that could result in a hospital or other covered entity “floating revenue” to a drug
manufacturer. 211 HRSA also noted that, unlike the voluntary ADAP rebate model that the
Secretary had approved, Johnson & Johnson’s rebate model was mandatory, and several covered
entities had already objected to it.212 The court reasoned that “giving covered entities the ability to
choose between available pricing mechanisms is consistent with [the agency’s] past practice.”213
The court further rejected Johnson & Johnson’s argument that HRSA failed to consider important
aspects of the problems of duplicate discounting and diversion.214
Although the court upheld HRSA’s interpretation of the statute, it noted that the agency had also
represented that it was actively considering Johnson & Johnson’s rebate request while
simultaneously continuing to address 340B program integrity.215 The court advised that it hoped
the agency would soon “provide meaningful guidance” regarding manufacturer rebate policies.216
Johnson & Johnson appealed the district court’s decision granting the government’s motion for
summary judgment to the D.C. Circuit in June 2025. 217 As of the time of this writing, the court
has not yet set a date for oral arguments.218
The D.C. Federal District Court’s Order in Sanofi-Aventis U.S. LLC
v. HHS Upholding HRSA’s Interpretation of the 340B Statute
In 2024, several other drug manufacturers also filed federal suit in D.C. Federal District Court to
challenge HRSA’s position that manufacturers were required to seek the agency’s preapproval
before implementing models to rebate 340B drugs.219 Together, the manufacturers made a variety
208 Id. at 22.
209 Id.
210 Id.
211 Id. at 24.
212 Id. at 25.
213 Id. at 26.
214 Id. at 28. The court found that HRSA’s position in its letter to Johnson & Johnson focused on the secretarial
approval policy and that the agency had not claimed that Johnson & Johnson could never implement a rebate policy,
only that it required the Secretary’s approval to do so. Id. For this reason, the court found that HRSA’s assertions in its
letter to Johnson & Johnson were “sufficiently explained.” Id. (citing Xcel Energy Servs. Inc. v. FERC, 41 F.4th 548,
557 (D.C. Cir. 2022) (quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983))).
215 Memorandum Opinion, supra note 198, at 28–29.
216 Id. at 29.
217 Notice of Appeal, Johnson & Johnson, No. 1:24-cv-03188 (D.D.C. June 27, 2025), Dkt. No. 61.
218 See Per Curiam Order, Johnson & Johnson Health Care Systems Inc. v. Kennedy, No. 25-5236 (D.C. Cir. Aug. 21,
2025).
219 The plaintiffs are (in order of filing date) Kalderos, Inc. (a health care technology company with whom Eli Lilly
contracted to develop a rebate platform), Johnson & Johnson, Eli Lilly, Bristol Myers Squibb, and Sanofi-Aventis. See
cases cited supra note 189. While the court did not consolidate these cases, the court ordered a joint hearing in the
cases and issued one decision. See Minute Order, Eli Lilly & Co. v. Kennedy, No. 1:24-cv-03220 (D.D.C. Feb. 25,
(continued...)
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of claims similar to those brought by Johnson & Johnson, including that HRSA lacked the
authority to require preapproval of manufacturer rebating.220 Sanofi-Aventis, one of the plaintiffs,
also argued that HRSA’s decision to deny its request to use a rebate platform was arbitrary and
capricious.221 At least two manufacturers claimed that HRSA violated their Fifth Amendment Due
Process rights, because the agency’s “siloed administration” of both the 340B program and the
Medicare Drug Price Negotiation Program would lead to manufacturers paying even more
duplicate discounts, which is prohibited under the Social Security Act.222 Similar to the Johnson
& Johnson case, the parties filed motions for summary judgment, and in April 2025, the D.C.
Federal District Court heard oral arguments in several of the cases together. 223
In May 2025, the D.C. Federal District Court granted the government’s motion for summary
judgment with respect to plaintiffs Kalderos, Johnson & Johnson, Eli Lilly, and Bristol Myers
Squibb, and granted in part the government’s motion for summary judgment with respect to
plaintiff Sanofi-Aventis.224 The court first addressed the plaintiffs’ APA challenges, including
claims that HRSA lacked the statutory authority for its rebate preapproval requirement and that
2025); see also Minute Order, Sanofi-Aventis U.S. LLC v. HHS, No. 1:24-cv-03496 (D.D.C. Feb. 26, 2025)
[hereinafter Sanofi-Aventis Minute Order].
While all of the drug manufacturer plaintiffs were making similar claims, their rebate proposals differed. For example,
Bristol Myers Squibb’s proposal would apply only to 340B covered entity purchases of its drug Eliquis. Memorandum
Opinion at 10 n.6, Sanofi-Aventis U.S. LLC, No. 1:24-cv-03496 (D.D.C. May 15, 2025), Dkt. No. 58. Novartis’s
proposal would apply a rebate model to all drug purchases made by DSH hospitals. Id. Sanofi’s rebate proposal would
apply to all drug purchases made by certain categories of covered entities, including DSH hospitals, critical access
hospitals, sole community hospitals, some health centers, and rural referral centers. Id. Sanofi’s proposal is discussed
infra note 221.
As with the Johnson & Johnson case discussed above, several covered entities—including UMass Memorial Medical
Center, Genesis Healthcare, and 340B Health (an organization that advocates for 340B hospitals)—intervened in these
cases. See e.g., Order, Sanofi-Aventis U.S. LLC, No. 1:24-cv-03496 (D.D.C. Mar. 4, 2025), Dkt. No. 32. The court
found that HHS could not adequately represent the interests of the intervenors and that the covered entities and 340B
Health were permitted to intervene as a matter of right, because they would be directly impacted by the court’s ruling.
Id. at 5–6.
220 See, e.g., Sanofi-Aventis Complaint, supra note 189, at 24–26.
221 As of the date of the D.C. Federal District Court’s decision, the agency had not yet denied any other manufacturer’s
request for a rebate. Sanofi proposed to rebate 340B drugs for certain 340B covered entities “in the form of a credit,”
which the company would apply to a provider’s bill before payment. Memorandum Opinion, supra note 219, at 11. In
this way, the company argued, the 340B price was still being guaranteed, because the provider would complete a
payment only at the 340B price (i.e., the commercial price minus the rebate). Id. Additionally, under Sanofi’s model,
the manufacturer would determine which of its drugs had been dispensed to eligible 340B patients by analyzing claims
data. Id.
222 E.g., Bristol Myers Squibb Complaint, supra note 189, at 28. Under the Inflation Reduction Act, the law that created
the Medicare Drug Price Negotiation Program, manufacturers are not required to provide the maximum fair price (i.e.,
the negotiated price) to individuals who are patients of 340B covered entities. 42 U.S.C. § 1320f-2(d)(1). Both Bristol
Myers Squibb and Novartis manufacture drugs that were selected for price negotiation in the Medicare Drug Price
Negotiation Program. See CMS, MEDICARE DRUG PRICE NEGOTIATION PROGRAM: SELECTED DRUGS FOR INITIAL PRICE
APPLICABILITY YEAR 2026 (2023), https://www.cms.gov/files/document/fact-sheet-medicare-selected-drug-negotiationlist-ipay-2026.pdf [https://perma.cc/FM3C-NEEP].
For more information about the Medicare Drug Price Negotiation Program, see CRS Report R47555, Implementation
of the Medicare Drug Price Negotiation Program: Centers for Medicare and Medicaid Guidance and Legal
Considerations, by Hannah-Alise Rogers (2023).
223 E.g., Plaintiff’s Motion for Summary Judgment, Sanofi-Aventis, No. 1:24-cv-03496 (D.D.C. Feb. 20, 2025), Dkt.
No. 27; Defendants’ Cross Motion for Summary Judgment and Opposition to Plaintiff’s Motion for Summary
Judgment, Sanofi-Aventis, No. 1:24-cv-03496 (D.D.C. Mar. 27, 2025), Dkt. No. 41. See Sanofi-Aventis Minute Order,
supra note 219 (explaining that the court was not officially consolidating the cases but would hear the parties’ motions
for summary judgment together).
224 Memorandum Opinion, supra note 219.
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HRSA had acted contrary to law.225 The court first analyzed the text of the 340B statute,
emphasizing that its plain meaning provides the Secretary the authority to approve “any rebate[s]
or discount[s].”226 The court also pointed to legislative history in support of HRSA’s position227
and noted that the agency had not ever “disclaimed” its authority to preapprove other 340B price
models.228 For example, even though HRSA approved the ADAP model after it had been
implemented, the court reasoned that this did not mean that HRSA lacked authority to preapprove
the model.229
The manufacturers also argued that HRSA’s disapproval of their proposed rebate models was
arbitrary and capricious because HRSA treated the plaintiffs’ rebate proposal differently than the
ADAPs without sufficient reason and because the agency failed to consider that the rebating of
340B drugs would allow manufacturers to prevent duplicate discounting and diversion.230 The
court found that HRSA had provided a “rational explanation” for the difference in treatment
between the plaintiffs’ rebate proposals and the ADAP rebate proposal—namely, that ADAPs
generally cannot access the 340B price via up-front discounts.231 As in Johnson & Johnson, the
court noted that the ADAP rebates were optional, but that manufacturers’ rebate policies in the
present case would be mandatory and were vigorously opposed by covered entities.232
The plaintiffs also argued that HRSA failed to consider that their proposals would curb the use of
duplicate discounting and diversion among the 340B and Medicaid programs and the Medicare
Drug Price Negotiation Program.233 The court agreed with the plaintiffs that while HRSA planned
to coordinate with CMS regarding the drug negotiation, “the absence of a definitive oversight
plan [to prevent duplicate discounting] is concerning.”234 With respect to Eli Lilly, Novartis, and
Bristol Myers Squibb, the court found that HRSA had not yet made a final decision to deny the
companies’ requests to use the rebate model and thus that it would be “premature” to assess
HRSA’s actions prior to the agency’s final determination.235 With respect to Sanofi-Aventis,
however, the court found that HRSA’s rejection of the company’s proposed rebate model could be
arbitrary or capricious, because the agency did not “address concerns that Sanofi . . . raised about
225 Id. at 18.
226 Id. at 20 (quoting 42 U.S.C § 256b(a)(1)).
227 The court pointed to a House Energy and Commerce Committee report noting that 340B prices “would be
implemented, at the discretion of the Secretary, either by a point-of-purchase discount, a rebate, or other mechanism.”
Id. at 20 (quoting H.R. REP. NO. 102-384(II), at 8, 12, 16 (1992)).
228 Memorandum Opinion, supra note 219, at 21.
229 Id.
230 Id. at 23, 26.
231 Id. at 24 (citing Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Rebate Option, 62 Fed. Reg.
45823, 45824 (Aug. 29, 1997) (requesting comment on a proposal to rebate 340B purchases by ADAPs)).
232 Memorandum Opinion, supra note 219, at 24.
233 Indeed, CMS’s guidance implementing the initial year of the Medicare Drug Price Negotiation Program stated that
CMS would not “assume responsibility for nonduplication of discounts between the 340B ceiling price” and Medicaid
rebates. Memorandum from CMS to Interested Parties 231 (Oct. 2, 2024),
https://www.cms.gov/files/document/medicare-drug-price-negotiation-final-guidance-ipay-2027-and-manufacturereffectuation-mfp-2026-2027.pdf [https://perma.cc/8WCS-84TZ].
234 Memorandum Opinion, supra note 219, at 27. The manufacturers argued that the claims data generated by their
rebate models would better enable them to track and thereby prevent duplicate discounting. Id. at 28.
235 Id. at 28–29.
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unlawful duplications and diversions.”236 Thus, the court granted in part Sanofi’s motion for
summary judgment and remanded the case to HRSA for further consideration. 237
Finally, the court concluded that manufacturers Bristol Myers Squibb and Novartis had not
established a Fifth Amendment Due Process challenge, because the manufacturers voluntarily
chose to participate in both the 340B program and the Medicare Drug Price Negotiation
Program.238 Additionally, the court found that even if the manufacturers’ duplicate discount losses
are protected property for purposes of the Fifth Amendment, the audit and ADR processes
enumerated in the 340B statute provide adequate process for manufacturers to redress any
potential losses.239 The ruling was not appealed.
“Patient” Definition Litigation
In addition to the litigation regarding manufacturers’ ability to place guardrails on the 340B
program, either by conditioning contract pharmacy use or by guaranteeing the 340B price through
a rebate instead of an up-front discount, there have also been disagreements between HRSA and
covered entities about who qualifies as a patient for purposes of the 340B program. The 340B
statute forbids covered entities from distributing their 340B drugs to individuals who are not
patients of the covered entity, but the statute does not define who a patient is.240 The scope of the
“patient” definition is a significant factor in a covered entities’ ability to generate 340B savings.
Determining whether an individual is a patient of the covered entity for purposes of 340B can
quickly become complicated and can raise several questions. For example, if an individual
receives primary care at a covered entity but seeks specialty care elsewhere, can the covered
entity generate 340B savings from the specialty doctor who is not employed by the covered
entity? Does it matter if the individual was referred to the specialist by a covered entity
physician? For how many years does an individual retain his or her patient status? What if the
individual has not been seen by the covered entity in several years, but the individual keeps filling
the associated (or new) prescriptions? The answers may depend on agency guidance.
As discussed below, HRSA guidance defining patients of covered entities has shifted over the
years. This section discusses how HRSA has defined a 340B patient, the litigation challenging
that definition, and recent attempts by HRSA to enforce its “patient” definition.
Background
HRSA’s 1996 Guidelines Regarding the Definition of “Patient”
In September 1994, HRSA first indicated that the 340B statute does not define “patient.”241
Although the agency stated that the lack of a definition could lead to covered entities’ abuse of
the program, HRSA declined to define the term until October 1996, when it published final
236 Id. at 30.
237 Id. The court emphasized, however, that its decision did not “vacate the agency’s preapproval requirement” and that
Sanofi could not “unilaterally implement its rebate proposal at this juncture.” Id. at 31.
238 Memorandum Opinion, supra note 219, at 32.
239 Id. at 32–33.
240 42 U.S.C. § 256b(a)(5)(B).
241 Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Outpatient Hospital Facilities, 59 Fed. Reg.
47884, 47886 (Sept. 19, 1994).
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guidelines for the definition.242 Under the 1996 Guidance, an individual is considered a “patient”
of a covered entity (1) if the entity has an established relationship with the individual and
maintains records of the individual’s care; (2) if the entity is responsible for the individual’s care,
as evidenced by the individual receiving health services from an employee or contractor of the
covered entity (which could include referrals); and (3) for federally qualified health center or
look-a-like entities, if the entity furnishes health care services to the individual consistent with the
range of services for which it received federal grant funds.243 In other words, according to the
agency, to generate 340B savings from the outpatient prescriptions of an individual, a covered
entity had to have a bona fide relationship with the patient and the patient had to receive
appropriate health services at the facility.
HRSA’s 2015 Proposed Guidelines Regarding Updates to the Definition of
“Patient”
HRSA used the “patient” definition outlined in the 1996 Guidance until 2015, when the agency
proposed a new, more specific definition of “patient” as part of its “Omnibus Guidance.”244 The
2015 Guidance stated that, for purposes of 340B, an individual would be considered a patient “on
a prescription-by-prescription or order-by-order basis” if the individual met all six of the
following conditions: (1) the individual received care at a covered entity registered for the 340B
program; (2) the individual received care from an employee or contractor of the covered entity,
such that the entity billed for the services on the provider’s behalf; (3) the individual’s
medications were prescribed by the covered entity’s provider “as a result of the service described
in (2)”; (4) if the covered entity was a federal grantee (e.g., an FQHC), the care provided “was
consistent with the scope of” the federal grant; (5) the drug was prescribed pursuant to an
outpatient health service; and (6) the individual’s medical records were “accessible to” the entity
and demonstrate its responsibility for the individual’s care.245 In the guidelines outlining this new
definition, HRSA explained that it had revised the definition after conducting audits and
observing how covered entities applied the definition across different health care settings.246 The
agency later withdrew the 2015 Guidance and continued to use the 1996 Guidance to define the
patients of covered entities.247 The agency did not give a reason for rescinding the guidance.
242 Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Patient and Entity Eligibility, 61 Fed. Reg.
55156 (Oct. 24, 1996).
243 Id. at 55157. The third requirement does not apply to DSH hospitals. Id. The guidance further provides a special
definition of “patient” for individuals who are registered in an AIDS drug purchasing assistance program. Id.
244 340B Drug Pricing Program Omnibus Guidance, 80 Fed. Reg. 52300 (Aug. 28, 2015). The 2015 Guidance
addressed a variety of issues facing the program at that time, including attempting to clarify covered entity eligibility
post-ACA changes, placing parameters on contract pharmacies, explaining implementation of the statutory group
purchasing organization (GPO) prohibition, and defining the term “patient.” Id. HRSA issued the Omnibus Guidance
after stakeholders brought litigation in 2014 challenging the agency’s rulemaking authority under the statute. See
PhRMA v. HHS, 43 F. Supp. 3d 28 (D.D.C. 2014) (finding HRSA lacked statutory authority to issue certain
regulations governing the 340B program).
245 340B Drug Pricing Program Omnibus Guidance, 80 Fed. Reg. at 52306–07.
246 Id. at 52306.
247 Off. of Mgmt. & Budget, Off. of Info. & Regul. Affs., OIRA Conclusion of EO 12866 Regulatory Review,
REGINFO.GOV (Jan. 30, 2017), https://www.reginfo.gov/public/do/eoDetails?rrid=126712 [https://perma.cc/99YUCKTH].
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The District Court and Fourth Circuit Litigation in Genesis
Healthcare, Inc. v. Becerra Invalidating HRSA’s “Patient”
Definition
In 2017, HRSA took action to terminate a covered entity from the 340B program after a periodic
audit of the entity’s records showed that it had engaged in diversion.248 The entity, Genesis
Healthcare, then sued HRSA in South Carolina Federal District Court, requesting that the court
stay implementation of the agency’s action to remove it from the program and declare HRSA’s
definition of “patient” unlawful.249 A few months later, in response to the lawsuit, HRSA
reinstated Genesis as a 340B covered entity but maintained its position that the company had
engaged in diversion and should therefore reimburse manufacturers for the underpayments.250
Subsequent communications between the parties revealed that HRSA would continue to enforce
the 1996 Guidance definition of “patient” against Genesis.251 When Genesis amended its
complaint to request that the court “declare that the plain wording of [the 340B statute] requires
that any prescription from any source is available to a patient of a covered entity,” HRSA
withdrew its audit findings altogether and requested the court dismiss the action as moot.252 The
district court granted HRSA’s motion dismissing the case; Genesis then appealed this decision to
the U.S. Court of Appeals for the Fourth Circuit, which reversed.253
In its decision to reverse the district court and remand the case for further proceedings, the Fourth
Circuit found that the issues in the suit were not mooted by HRSA’s withdrawal of its audit
findings because Genesis “remains subject to audit and, as the record states, would still have to
comply with HRSA’s 1996 Guidelines.”254 In other words, the court found that because HRSA
was still trying to enforce its definition of “patient” against the covered entity, the issue between
the parties was likely to continue, unless Genesis changed its business model.255 The court
characterized “the real issue” of the suit as a question of “whether the 1996 [Guidance] [is]
inconsistent with the statute.”256 The Fourth Circuit thus remanded the case to the district court to
make this determination.257
In November 2023, the district court issued a decision invalidating HRSA’s definition of “patient”
as it applied to Genesis.258 In a March 2019 letter from the agency to Genesis and before the
district court, HRSA argued that in order for an individual to qualify as a patient, the individual’s
prescription had to “originate from a health care encounter with Genesis or one of its contract
248 Genesis Healthcare, Inc. v. Azar, No. 19-cv-1531, 2019 WL 6909572 (D.S.C. Dec. 19, 2019), rev’d sub nom.,
Genesis Healthcare, Inc. v. Becerra, 39 F.4th 253 (4th Cir. 2022).
249 Id. at *1.
250 Id. at *2.
251 Id. at *4.
252 Id.at *2.
253 Genesis Healthcare, Inc. v. Becerra, 39 F.4th 253, 259 (4th Cir. 2022).
254 Id. at 260–61.
255 Id. at 261.
256 Id.
257 Id. at 263. The Fourth Circuit further found that Genesis’ challenge to HRSA’s use of the 1996 Guidance for
purposes of its audit was a final agency action that Genesis could challenge. Id. at 262.
258 Genesis Health Care, Inc. v. Becerra, 701 F. Supp. 3d 312 (D.S.C. Nov. 3, 2023). It should be noted that the court’s
holding voiding HRSA’s interpretation of the “patient” definition as applied to Genesis applies only to Genesis and
does not invalidate the underlying “patient” definition itself. See id. at 332 n.4.
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health providers.”259 Genesis claimed that the agency’s definition was too narrow and
contradicted the plain wording of the statute, and that the only statutory requirement was that the
individual be a “patient” of a “covered entity.”260 In other words, Genesis argued that it could
generate 340B savings on all of a patient’s prescriptions, even if those prescriptions were not
related to care the person received at Genesis.
Because HRSA’s definition of “patient” appeared in guidance documents, which lacked the force
of law, the court applied Skidmore deference, which gives weight to an agency’s interpretation of
a statute insofar as it has the “power to persuade.”261 After applying Skidmore, the court held that
HRSA’s definition of “patient” was “unpersuasive” and “contrary to the plain language of the
340B statute.”262 The court opted for a broader definition of the term, agreeing with Genesis that
“[n]othing in the statute conditions an individual’s eligibility as a 340B patient on whether the
health care service resulting in the prescription was initiated by the ‘covered entity.’”263
Because Congress did not define “patient” in the 340B statute, the court consulted various
dictionary definitions to interpret the term, finding that the “common definition” was “a person
who is receiving medical treatment.”264 The court also noted that the 340B statute’s legislative
history supported a broader reading of “patient,” and that “the only logical conclusion” was that
Congress intended to convey the ordinary meaning of the term as it is used in the statute.265 The
court held, “The plain language of the 340B statute does not require a link between a 340B
prescription sold by a ‘covered entity’ to a ‘patient’ and the origination of that prescription.”266
However, the court agreed with HRSA’s argument that an overly expansive “patient” definition
would allow covered entities to generate 340B savings from patients who had not received care at
259 Id. at 321. Put another way, in the March 2019 letter to Genesis, HRSA stated its intention to “clarify that in order
for an individual to qualify as a 340B patient, [Genesis] must have initiated the healthcare service resulting in the
prescription, regardless if the patient had an unrelated billable FQHC encounter.” Id. at 322. This definition is similar to
the withdrawn 2015 proposed definition in which the agency said it would evaluate 340B patient purchases on a
“prescription-by-prescription” or “order-by-order” basis. See 340B Drug Pricing Program Omnibus Guidance, 80 Fed.
Reg. 52300, 52306–07 (Aug. 28, 2015).
260 Genesis, 701 F. Supp. 3d at 321–22.
261 Id. at 323; Skidmore v. Swift & Co., 323 U.S. 134 (1944). The Court held in Skidmore, “The weight of a[n]
[agency’s] judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of
its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to
persuade, if lacking power to control.” Id. at 140. Although this case was decided prior to the Supreme Court’s
overruling of the Chevron doctrine in Loper Bright, 603 U.S. 369 (2024), the court found that HRSA’s definition of
“patient” was not entitled to Chevron deference because the definition of “patient” was an interpretive rule that lacked
the force of law, Genesis, 701 F. Supp. 3d at 323.
For more information on Loper Bright, see CRS Legal Sidebar LSB11189, Supreme Court Overrules Chevron
Framework, by Benjamin M. Barczewski (2024). For more information about agency guidance, see CRS Legal Sidebar
LSB10591, Agency Use of Guidance Documents, by Kate R. Bowers (2021).
262 Genesis, 701 F. Supp. 3d at 324.
263
Id.
264 Id. at 324–25.
265 Id. at 325. The court later noted that Congress had considered amending the statute to specify that a covered entity
could not dispense a 340B drug to “an individual who is not receiving the drug or biological as a patient of the covered
entity.” Id. at 327 (citing S. REP. NO. 102-259, at 4 (1992)). The amendment was not enacted, however, and the court
thus reasoned that “Congress 1) was aware of the potential issues created by a broad definition of the term ‘patient,’ 2)
possessed the tools to limit the definition . . . to those individuals whose prescriptions originated from the ‘covered
entity,’ and 3) in spite of those issues, chose not to limit 340B patient eligibility to prescriptions that originated or were
initiated from a covered entity or contract provider.” Genesis, 701 F. Supp. 3d at 327.
266 Genesis, 701 F. Supp. 3d at 327. The court also rejected several amici pharmaceutical companies’ arguments that
the statute’s definition of “covered drug” support HRSA’s narrower definition of “patient.” Id. at 326.
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the covered entity for many years; the court thus found that the statute “require[s] an ongoing
patient relationship between the individual and the ‘covered entity.’”267
The court further observed that “[t]he degree of HRSA’s care regarding its interpretation of the
term ‘patient’ since the enactment of the 340B statute leaves much to be desired.”268 The court
pointed to evidence that early in the program’s history, the agency aimed to develop a “flexible”
definition in order to accommodate different covered entity types, and unlike the March 2019
letter from HRSA to Genesis, the 1996 Guidance did not require that a prescription originate from
a covered entity provider.269 The 1996 Guidance had remained in place for almost 20 years, until
HRSA proposed a revised definition that considered whether individuals were patients on a
“prescription-by-prescription or order-by-order” basis.270 The court described HRSA’s actions as
lacking consistency, because even though HRSA withdrew the revised guidelines in 2017, the
agency was still trying to enforce the narrowed “patient” definition against Genesis.271 While the
court was sympathetic to HRSA’s task of administering the program in the midst of many changes
to the prescription drug industry, it found that HRSA was not empowered “to enforce a new
interpretation of an unambiguous statutory term that restricts a program that Congress intended to
have broad application.”272
The court voided the March 2019 letter and the definition of “patient” used in it, enjoining the
agency from enforcing the definition against Genesis; the agency did not appeal the ruling.273
However, the decision does not prevent HRSA from bringing future enforcement actions against
other entities using the same or a similar definition. The 1996 “patient” definition guidelines
remain available on the agency’s website.274
D.C. Federal District Court Litigation in Genentech v. HHS and
Sagebrush Health Services, Inc. v. Kennedy Regarding HRSA’s
Certification of Covered Entities
HRSA routinely recertifies covered entities in accordance with the 340B statute, and the process
requires covered entities to submit documentation to HRSA regarding their eligibility for the
program.275 In addition, the agency may terminate from the program any covered entity that
engages in “systematic and egregious[,] as well as knowing and intentional[,]” drug diversion.276
HRSA’s attempt to recertify a covered entity as well as the agency’s termination of a covered
entity from the program has led to additional lawsuits, brought by both drug manufacturers
267 Id. at 326. The court declined to specify exactly how many years could pass between visits where an individual
would still be considered a patient. However, the court observed that “Genesis voluntarily utilizes a two year look back
period” and that the American Medical Association’s definition of “patient” was an individual who had received care at
the entity within the last three years. Id.
268 Id. at 328.
269 Id.
270 Id. at 329.
271 Id.
272 Id. at 330.
273 Id. at 331.
274 See 340B Patient Definition Compliance Resources, HRSA (Jan. 2024), https://www.hrsa.gov/opa/educationalresources/patient-definition-resources [https://perma.cc/C8G7-GV2C]. At the bottom of this webpage listing resources
for covered entities regarding compliance with the “patient” definition, the agency states, “HRSA notes that the
decision in Genesis Health Care, Inc. v. Becerra . . . is applicable solely to Genesis Health Care.” Id.
275 42 U.S.C. § 256b(a)(7)(E).
276 See id. § (d)(2)(B)(5).
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(Genentech) and covered entities (Sagebrush) that could potentially frustrate HRSA’s
enforcement of the statute.
In 2024 and 2025, several drug manufacturers, including Genentech and Amgen, sued HRSA
under the APA, arguing that the agency was certifying certain facilities as covered entities that did
not actually qualify for 340B.277 The facilities, owned by Sagebrush Health Services, Inc., had
claimed to be eligible covered entities under 42 U.S.C. § 256b(a)(4)(K), which permits clinics
receiving federal funds through their state or local government to provide treatment for sexually
transmitted diseases (STDs) to be eligible for the 340B discount.278 The manufacturers claimed
the facilities were not, in fact, STD clinics, but rather were engaged in various medical practices
unrelated to STD treatment.279 The manufacturers further argued that even if the facilities were
qualifying 340B covered entities, they were engaged in diversion, because they were using the
340B discount to distribute non-STD drugs to their patients.280
In December 2024, after conducting an extensive audit of Sagebrush, HRSA found that fifty-five
of the covered entity’s sites were ineligible for the 340B program, because Sagebrush had failed
to prove that the sites were receiving the requisite state or local funding for treatment of STDs.281
HRSA eventually terminated twenty of Sagebrush’s sites from the 340B program in January
2025.282 Sagebrush then sued HRSA under the APA, arguing that the site termination was
arbitrary and capricious and should be set aside.283 During the course of that litigation, HRSA
terminated the remaining Sagebrush clinics from 340B,284 but on July 1, 2025, the agency
reinstated at least eight previously terminated sites.285
On April 14, 2025, HRSA filed a partial motion to dismiss all of the drug manufacturers’ claims
in Genentech, arguing that the court lacked subject matter jurisdiction because the drug
manufacturers could not sue the agency without first exhausting their administrative remedies.286
In other words, HRSA argued that the manufacturers had not undertaken an investigative audit of
the covered entities, nor had they attempted to resolve their disputes with Sagebrush through the
ADR process.287 The agency also argued that many of the manufacturers’ claims were moot,
277 Complaint at 2, Genentech, Inc. v. Fink, No. 25-290 (D.D.C. Jan. 31, 2025), Dkt. No. 1; see also Complaint, Amgen
Inc. v. Becerra, No. 24-3571 (D.D.C. Dec. 20, 2024), Dkt. No. 1 (includes Eli Lilly as a plaintiff). See also 42 U.S.C.
§ 256b(a)(4)(K); id. § 247c (authorizing grants to states for research and prevention of STDs).
278 Complaint at 2, Genentech, No. 25-290.
279 Id. at 2.
280 Id.
281 Complaint at 11–12, Sagebrush Health Servs. v. Kennedy, No. 25-915 (D.D.C. Mar. 27, 2025), Dkt. No. 1.
282 Id. at 14.
283 Id. at 2.
284 Id. at 14. While litigation in these cases remains ongoing, on June 25, 2025, the D.C. Federal District Court denied
Sagebrush’s motion for a preliminary injunction, finding that the company was unlikely to succeed on the merits of its
claim that HRSA wrongfully removed it from the 340B program. Sagebrush Health Services v. Kennedy, No. 1:25-cv00915, 2025 WL 1784436 (D.D.C. June 27, 2025). In the decision, the court concluded that the entity had not provided
“any documentation demonstrating that it informed HRSA that the [s]ites were receiving Section 318 funding at the
time of their termination.” Id. at *4. The court further observed that “the [340B] statute does not require HRSA to take
340B participants’ self-reported information at face value or bar the agency from initiating its own inquiries to confirm
compliance.” Id.
285 Notice of Factual Development, Amgen Inc. v. Kennedy, No. 1:24-cv-03571 (D.D.C. July 14, 2025), Dkt. No. 19.
286 Memorandum of Points and Authorities in Support of Defendants’ Partial Motion to Dismiss, Amgen, No. 1:24-cv03571 (D.D.C. Apr. 14, 2025), Dkt. No. 14.
287 See 42 U.S.C. § 256b(a)(5)(C) (compliance with manufacturer audits); see also id. § 256b(d)(3) (administrative
dispute resolution process).
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because it had terminated many of Sagebrush’s sites from the program since the lawsuit began.288
The manufacturers responded to the government’s motion to dismiss by arguing that the 340B
statute does not require exhaustion of a claim that the agency recertified a covered entity, because
the audit and ADR processes described in the statute do not relate to HRSA’s eligibility
certification of covered entities.289 The plaintiffs also asserted that the remedies they seek (i.e.,
recertification) are not available via the statutory ADR process.290 They also urged that their
claims were not moot, because the agency had not given the manufacturers any assurance that
that it would stop certifying entities that did not engage in STD treatment and were therefore, in
the manufacturers’ view, diverting drugs.291 The parties continue to disagree, the manufacturers
insisted, on whether the Sagebrush sites were ineligible for 340B for “more fundamental
reasons,” including that they did not provide STD services, they diverted 340B drugs to
nonpatients, and they did not receive state or local STD funding in accordance with the statute’s
eligibility requirements.292
On August 4, 2025, the D.C. Federal District Court denied HRSA’s partial motion to dismiss,
disagreeing with HRSA that the arguments were moot and that plaintiffs could not bring their
counts without first exhausting administrative remedies.293 With respect to HRSA’s argument
about the need to exhaust administrative remedies, the court found that neither jurisdictional nor
prudential exhaustion requirements applied to the case, and thus exhaustion of administrative
remedies was not required.294 The court further pointed to several reasons why the plaintiffs’
claims were not moot, including because the clinics that lost their 340B certification could
reapply in the future, and because the plaintiffs were challenging HRSA’s general certification
criteria for 340B.295 As of the time of this writing, the litigation is proceeding in D.C. District
Court, with HRSA due to file an answer to the plaintiffs’ complaint later in September 2025.296
Other 340B Enforcement Litigation
This section highlights other significant cases that have shaped the 340B program and HRSA’s
ability to enforce the statute in recent years. Taken together, the cases discussed in this section
have all but eliminated covered entities’ ability to enforce the 340B statute against drug
manufacturers, as courts have continuously held that this enforcement element is an exclusive
agency undertaking.297
288 Memorandum of Points and Authorities in Support of Defendants’ Partial Motion to Dismiss at 12, Amgen, No.
1:24-cv-03571. The agency requested that the court dismiss all of the manufacturers’ claims except those connected to
two particular sites. Id.
289 Plaintiffs’ Opposition to Defendants’ Partial Motion to Dismiss at 12, Amgen, No. 1:24-cv-03571 (D.D.C. May 13,
2025), Dkt. No. 16.
290 Id. at 16.
291 Id. at 18.
292 Id. at 19.
293 Memorandum Opinion, Amgen, Inc. v. Kennedy, No. 24-3571 (D.D.C. Aug. 4, 2025), ECF No. 21, at 1.
294 Id. at 5 (citing Avocados Plus Inc. v. Veneman, 370 F.3d 1243, 1247 (D.C. Cir. 2004)). The court explains,
“Jurisdictional exhaustion must be met when a statute requires parties to exhaust administrative remedies before a court
may hear their claim.” Id. The court described prudential exhaustion as a “judicially created doctrine,” in which “courts
sometimes decline to hear unexhausted challenges” as a way of “giving agencies the first crack” at advancing particular
policies. Id. at 7 (citing Marine Mammal Conservancy, Inc. v. Dep’t of Agric., 134 F.3d 409, 414 (D.C. Cir. 1998)).
295 Id. at 8.
296 Order, Amgen, Inc. v. Kennedy, No. 24-3571 (D.D.C. Aug. 18, 2025).
297 See generally, Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011); see also AIDS Healthcare Found. v.
(continued...)
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Private Enforcement of the 340B Statute
Congress can control the enforcement mechanisms of the laws which it creates, including by
allowing private individuals the ability to sue to enforce their legal rights under federal statutes.
Only if a federal law is enforceable via a private right of action may an individual, rather than the
federal government, sue to enforce the law.298 The Supreme Court has recognized that “[a]ny
private right of action for violating a federal statute must ultimately rest on congressional intent to
provide a private remedy, and the breadth of the right once recognized should not . . . grow
beyond the scope congressionally intended.”299 A private right of action can be expressly stated in
the law,300 and courts have also recognized an implied private right of action from statutory
text.301
In 2011, the Supreme Court decided Astra USA, Inc. v. Santa Clara County, finding that the 340B
statute did not create a private right of action for covered entities to sue drug manufacturers to
enforce the 340B price.302 As a result, HRSA is the only entity that may enforce the 340B statute.
The U.S. Supreme Court’s Decision in Astra USA, Inc. v. Santa Clara County
Finding No Private Right of Action in the 340B Statute
Astra came to the Supreme Court on appeal from the U.S. Court of Appeals for the Ninth Circuit
(Ninth Circuit) after Santa Clara County, California, which operated several 340B covered
entities, sued nine drug manufacturers, alleging that the manufacturers violated their PPAs with
HRSA by overcharging for certain 340B drugs.303 The question before the Court was whether the
third-party covered entities, who directly benefited from the PPAs between HRSA and the drug
manufacturers, could sue to enforce those contracts.304 The covered entities argued that while
there was no private right of action under the 340B statute, they should be able to sue to enforce
the PPAs, because the contracts “specifically nam[e] covered entities as the recipients of
discounted drugs.”305 The Court disagreed, instead characterizing the PPAs as “form agreements”
that “simply incorporat[ed] statutory obligations and record[ed] the manufacturers’ agreement to
abide by them.”306
The Court reasoned that because the PPAs were essentially just a formalized statement by the
manufacturer that it would comply with the statutory requirements, a suit brought by an outside
party to enforce the PPA “is in essence a suit to enforce the statute itself.”307 The Court said that
Apexus, LLC, No. 23-55425 (9th Cir. Aug. 21, 2024); see also United States ex rel. Adventist Health Sys. of W. v.
AbbVie, 723 F. Supp. 3d 882 (C.D. Cal. Mar. 18, 2024).
298 See generally Astra, 563 U.S. at 110.
299 Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1102 (1991); Medina v. Planned Parenthood, 145 S.Ct. 1422
(2025).
300 For example, 42 U.S.C. § 1983 contains an express private right of action for individuals who are subjected to “the
deprivation of any rights, privileges, or immunities secured by the Constitution and laws.”
301 The Supreme Court has recognized “an implied private right of action” under Title VI of the Civil Rights Act of
1964, giving individuals the right to bring suits alleging intentional discrimination. Cannon v. Univ. of Chicago, 441
U.S. 677, 709 n.42 (1979).
302 563 U.S. at 110.
303 Id. at 116.
304 Id. at 117–18.
305 Id.
306 Id. at 118.
307 Id.
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Congress’s choice not to include a private right of action in the statute “would be rendered
meaningless,” if 340B covered entities could simply sue to enforce the pricing obligations in the
PPA, as they had done in Astra.308 The Court disagreed with the Ninth Circuit’s analysis that
allowing the covered entities to sue manufacturers for violating the PPA would be “wholly
compatible” with the statutory objectives of providing discounts to safety net providers.309
Instead, the Court found that, “[f]ar from assisting HHS, suits by 340B entities would undermine
the agency’s efforts to administer both Medicaid and §340B harmoniously and on a uniform,
nationwide basis.”310 Private enforcement of the 340B statute could “spawn a multitude of
dispersed and uncoordinated lawsuits,” from which “conflicting adjudications” could result,
creating further problems for HRSA.311
The Court also referenced the legislative history of the 340B statute, which, at the time the case
was argued, had recently been amended by the Patient Protection and Affordable Care Act of
2010 (ACA).312 Prior to the ACA’s enactment, the HHS Office of the Inspector General reported
that HRSA needed additional enforcement authority to ensure that 340B covered entities were
receiving the correct 340B discount.313 Congress responded to this report, the Court said, by
creating a formal administrative dispute resolution (ADR) process to facilitate disputes between
drug manufacturers and covered entities over incorrect 340B prices.314 The Court thus concluded
that Congress chose to “strengthen and formalize HRSA’s enforcement authority” through the
ACA’s legislative changes, which was further evidence that Congress did not intent to “invit[e]
340B entities to launch lawsuits in district courts across the country.”315
The Ninth Circuit’s Decision in AIDS Healthcare Foundation v. Apexus, LLC
Regarding Suits Brought Against the 340B Prime Vendor
In the nearly fifteen years since Astra was decided, its holding still stands to preclude certain
340B lawsuits. For example, in 2024, the Ninth Circuit applied the Supreme Court’s reasoning in
Astra to a similar case brought by AIDS Healthcare Foundation, a 340B covered entity, against
Apexus, the 340B prime vendor.316 The plaintiff alleged that Apexus failed to sufficiently
negotiate 340B discounts, pursuant to its prime vendor contractual agreement with HRSA.317 In
the same way that the Supreme Court found that a covered entity could not sue to enforce a PPA,
the Ninth Circuit found that even though the plaintiff benefited from the existence of the prime
vendor contract, the covered entity was more appropriately classified as an “incidental
beneficiary” to it and thus did not have “enforceable rights” under the agreement.318
308 Id.
309 Id. at 119 (quoting County of Santa Clara v. Astra USA, Inc., 588 F.3d 1237, 1251 (9th Cir. 2009)).
310 Id. at 120 (emphasis added). The Court also observed that the interests of State Medicaid programs and the 340B
program may conflict. Id. at 120 n.6. For example, a drug’s 340B price and the Medicaid price are often related; the
higher the Medicaid price, the higher the state’s manufacturer reimbursement. However, a high Medicaid price means a
higher 340B price and thus a lower amount of 340B savings. Id.
311 Id. at 120.
312 Id. at 121.
313 Id.
314 Id.
315 Id.
316 AIDS Healthcare Found. v. Apexus, LLC, No. 23-55425, 2024 WL 3886974 (9th Cir. Aug. 21, 2024).
317 Id. at *1.
318 Id. (quoting Smith v. Cent. Ariz. Water Conservation Dist., 418 F.3d 1028, 1037 (9th Cir. 2005)).
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Quoting the Supreme Court’s decision in Astra, the Ninth Circuit observed that the 340B statute
“[n]ot only . . . lack[s] a private right of action, but it does not permit covered entities like AIDS
Healthcare ‘to sue for overcharges under the statute itself.’”319 Moreover, Congress gave HHS the
authority to enforce the provisions of the statute, and in so doing, it “assigned no auxiliary
enforcement role to covered entities.”320 In conclusion, though, the court advised that “nothing
. . . impedes HRSA from properly enforcing the Agreement’s obligation.”321 In other words,
HRSA retained the authority to challenge Apexus’s performance of its prime vendor contract, but
the contract could not be challenged by a covered entity.
The California Federal District Court’s Decision in United States ex rel.
Adventist Health System/West v. AbbVie, Inc. Regarding Alleged False Claims
Act Violations
At least one federal district court has also interpreted the Supreme Court’s ruling in Astra to
prevent covered entities from bringing a False Claims Act suit against drug manufacturers for
overcharging for 340B drugs. The California Federal District Court held in United States ex. rel.
Adventist Health System that Astra’s holding precluded a suit brought by a covered entity under
the False Claims Act (FCA)322 against a drug manufacturer.323 The covered entity argued that a
drug manufacturer submitted false claims for reimbursement when it did not sell its drugs to
certain entities at the 340B price.324 The manufacturer moved to dismiss the suit, arguing that the
Astra decision prohibited a covered entity from enforcing the 340B price through the FCA.325 The
court agreed with the drug manufacturer, finding that although there were “obvious difference[s]”
between the FCA claims brought by the covered entity and third-party beneficiary contract claims
at issue in Astra, the logic of Astra still applied.326
The court interpreted Astra to preclude third-party claims that are brought to essentially enforce
the 340B price, reasoning that to allow a covered entity to enforce the 340B price via the FCA
would render the statute’s lack of a private right of action “meaningless.”327 The court also
highlighted Astra’s reasoning that Congress did not contemplate “spreading the enforcement
burden” in the 340B program to covered entities, because to do so would “undermine [HHS’s]
efforts to administer both Medicaid and § 340B harmoniously and on a uniform, nationwide
basis.”328 The court observed, however, that its analysis “would be more complicated if the FCA
claim were brought directly by a federal or state government, or if the claims involved fraud
beyond noncompliance with statutory language, e.g., submission of falsely certified data,” leaving
319 Id. at *2 (quoting Astra, 536 U.S. at 113).
320 Id. (quoting Astra, 536 U.S. at 117).
321 Id.
322 The FCA imposes civil liability on persons or entities who submit false claims for payment to the federal
government. 31 U.S.C. §§ 3729–3733. The FCA is often used in the health care context to impose liability on health
care providers for various types of billing misconduct when those providers submit claims for reimbursement to the
federal government. Civil actions may be brought in federal court by a relator (i.e., a whistleblower), on behalf of both
the relator and the U.S. government. For more information about how the False Claims Act is used in the prevention of
health care fraud, see CRS Report RS22743, Health Care Fraud and Abuse Laws Affecting Medicare and Medicaid:
An Overview, by Jennifer A. Staman (2016).
323 United States ex rel. Adventist Health Sys. of W. v. AbbVie, 723 F. Supp. 3d 882 (C.D. Cal. Mar. 18, 2024).
324 Id. at 884.
325 Id. at 885.
326 Id. at 886.
327 Id. (quoting Astra USA, Inc. v. Santa Clara County, 563 U.S. 110, 118 (2011)).
328 Id. at 887 (quoting Astra, 563 U.S. at 120).
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open the possibility for the federal government to still use the FCA as a potential 340B fraud
enforcement mechanism.329 In other words, although the FCA does not provide a legal
mechanism for private plaintiffs (e.g., covered entities) to enforce the 340B statute, it could
potentially still be used by the government to enforce the 340B price or to hold a manufacturer
liable for falsifying data used by the program.330
The covered entity appealed the district court’s decision to the Ninth Circuit in April 2024.331 In
April 2025, the Ninth Circuit notified the parties that an oral argument would not be scheduled
and that the court had taken the parties’ arguments under advisement.332 The court has not yet
issued a decision on the appeal.
Considerations for Congress
This section offers insights for Congress in several parts. First, it explores connections between
the web of 340B litigation discussed above, analyzing potential impacts to the program assuming
that Congress takes no action to amend the 340B statute. The section highlights how the various
court decisions fit together and how they could in some ways appear incongruous. Second, the
report explores potential legislative changes that Congress could make to the 340B program if it
sought to do so. Finally, the report concludes with other potential considerations for Congress,
including developing legal issues.
Effect of Selected Court Rulings on 340B Program
Moving forward, litigation concerning the 340B program is likely to continue, particularly with
respect to whether state laws regulating contract pharmacies and covered entities are preempted
by the 340B statute. It is possible that more litigation could arise if HRSA continues to attempt to
enforce its interpretation of the 340B statute both against drug manufacturers, as in the contract
pharmacy litigation (e.g., Novartis and Sanofi cases),333 and against covered entities with respect
to its “patient” definition (e.g., Genesis Healthcare case).334
Taken together, the Supreme Court’s holding in Astra and the rulings in AIDS Healthcare
Foundation and Adventist Health System leave HRSA (or the federal government, more
generally) as the sole entity that can enforce the 340B statute; the statute cannot be enforced by
private parties, including covered entities.335 HRSA’s enforcement of the 340B statute, however,
could be complicated by the Third Circuit’s decision in Sanofi and the D.C. Circuit’s decision in
Novartis, both of which found that the agency could not enforce its interpretation of the statute
329 Id. (“In sum, the Court finds that Astra bars FCA claims by a qui tam plaintiff where the allegation of falsity is that
the defendants failed to comply with the statutory requirements of the 340B program.”).
330 Id.
331 Notice of Appeal, United States ex rel. Adventist Health Sys. of W. v. AbbVie Inc., 723 F. Supp. 3d 882 (C.D. Cal.
Mar. 18, 2024) (No. 2:21-cv-04249), Dkt. No. 153.
332 Order, United States ex rel. Adventist Health Sys. of W. v. AbbVie, Inc., No. 24-2180 (9th Cir. Apr. 11, 2025), Dkt.
No. 77.1.
333 Sanofi-Aventis U.S. LLC v. HHS, 58 F.4th 696 (3d Cir. 2023). Novartis Pharms. Corp. v. Johnson, 102 F.4th 452
(D.C. Cir. 2024).
334 Genesis Healthcare, Inc. v. Azar, No. 19-cv-1531, 2019 WL 6909572 (D.S.C. Dec. 19, 2019), rev’d sub nom.,
Genesis Healthcare, Inc. v. Becerra, 39 F.4th 253 (4th Cir. 2022).
335 See generally Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011); AIDS Healthcare Found. v. Apexus,
LLC, No. 23-55425, 2024 WL 3886974 (9th Cir. Aug. 21, 2024).
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against manufacturers to halt their contract pharmacy policies.336 It is possible that drug
manufacturers could construe these rulings as a justification for placing ever more creative
restraints on covered entities’ access to 340B prices. As long as the manufacturers are still
“offering” to sell 340B drugs, there appears to be no conflict with the holdings in Sanofi and
Novartis.337 Manufacturers also need not be concerned with being sued directly by covered
entities for not providing a 340B price, as Astra held that such suits are precluded because the
340B statute does not provide a private right of action.338
Courts have sided, however, with HRSA’s interpretation of the statute in at least some instances;
for example, the district court’s recent ruling in Johnson & Johnson, upholding HRSA’s authority
to require manufacturers to receive approval for their rebate models, demonstrates that
manufacturers do not have free reign to implement whatever rebate models they please and that
their policies must still follow the clear requirements of the statute.339 In the same way, the D.C.
Circuit warned in Novartis that “more onerous” restrictions on contract pharmacy use from
manufacturers could run afoul of the statute’s directives.340
The various federal circuit court rulings related to HRSA’s attempted enforcement of the 340B
statute and the preemption of state 340B contract pharmacy laws in some ways leads to
discordant results. The Third and D.C. Circuits have both held that the 340B statute does not
preclude drug manufacturers from placing reasonable restrictions on their offers to sell drugs to
covered entities.341 Those court rulings were based both on the plain meaning of the 340B statute,
(and specifically, the meaning of the word “offer”), as well as the 340B statute’s silence as to the
distribution of drugs and contract pharmacies.342 Perhaps ironically, the Eighth Circuit
concluded—for much the same reasons—that states could effectively stop manufacturers from
imposing such restrictions on covered entities’ contract pharmacy use through enactment of a
state law.343 In support of its conclusion that such state laws are not preempted by the 340B
statute, the Eighth Circuit reasoned that the 340B statute is silent with respect to contract
pharmacy use, and therefore Congress could not have intended for the 340B statute to “occupy
the field” and preempt state law.344 Effectively, however, the ruling from the Eighth Circuit could
be read to give states some authority over the 340B program that HRSA itself does not have, at
least according to the Third and D.C. Circuits.
Potentially further complicating matters is the fact that almost all of the federal courts (except for
the West Virginia Federal District Court) have so far sided with states when they have tried to
stop manufacturers from implementing policies that prevent covered entities in their state from
doing business with contract pharmacies.345 From the states’ perspective, these laws protecting
contract pharmacy use are essential to protecting covered entities’ ability to generate 340B
savings, and they allow in-state facilities to circumvent manufacturer-imposed restrictions on
336 See generally Sanofi-Aventis U.S. LLC v. HHS, 58 F.4th 696 (3d Cir. 2023); Novartis Pharms. Corp. v. Johnson,
102 F.4th 452 (D.C. Cir. 2024).
337 Id.
338 Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011).
339 See Memorandum Opinion, Johnson & Johnson, No. 1:24-cv-03188 (D.D.C. June 27, 2025), Dkt. No. 59.
340 Novartis Pharms. Corp. v. Johnson, 102 F.4th 452, 464 (D.C. Cir. 2024).
341 See Sanofi-Aventis U.S. LLC v. HHS, 58 F.4th 696 (3d Cir. 2023); see also Novartis Pharms. Corp. v. Johnson, 102
F.4th 452 (D.C. Cir. 2024).
342 58 F.4th at 703; 102 F.4th at 461.
343 PhRMA v. McClain, 95 F.4th 1136, 1139 (8th Cir. 2024).
344 Id. at 1143.
345 See, e.g., PhRMA v. McClain, 95 F.4th 1136 (8th Cir. 2024).
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contract pharmacy use. From the manufacturers’ perspective, a manufacturer might be able to
restrict covered entities’ contract pharmacy use in one state but may not be able to impose the
same restriction in another state.
The continued legal challenges to state contract pharmacy laws also have the potential to create
conflicting court rulings; this is especially true in light of the West Virginia Federal District
Court’s preliminary findings in PhRMA v. Morrisey that the state law is preempted by the 340B
statute.346 While the Morrisey court was especially concerned with the state law’s provision
prohibiting manufacturers from requiring covered entities to submit claims data, which many
other state laws do not contain, the court also based much of its preliminary analysis on the
Supreme Court’s ruling in Astra.347 The court observed, “[I]f West Virginia attempted to enforce
340B through litigation, Astra would directly prevent such a suit as an improper method of 340B
enforcement. Why, then, does it matter if the chosen improper enforcement is litigation or
legislation?”348 For the Supreme Court’s decision in Astra to apply, though, a state’s contract
pharmacy law would have to be fairly characterized as an attempt to regulate the 340B price.349
The West Virginia Federal District Court characterized the West Virginia contract pharmacy law
as regulating the price of a drug, emphasizing that under the contract pharmacy replenishment
model, “the question is only about what price the pharmacy and the covered entity will pay the
manufacturer for the replenished drug” after distributing the 340B drug.350 The West Virginia law
did not address drug distribution, the court said, because “the drug is already in the hands of the
contract pharmacy even before the patient arrives at the pharmacy.”351 Thus, the court found, the
West Virginia law actually regulated the price of the drug, which was precluded by Astra. The
Eighth Circuit in McClain did not address the Supreme Court’s decision in Astra, instead
observing that the Arkansas contract pharmacy law “does not set or enforce [340B] pricing.”352
Going forward, it is possible that other courts could similarly disagree over whether a state law is
found to regulate the distribution or the price of drugs, especially if it generally concerns the
contracts formed between covered entities and retail pharmacies. If other courts were to find
Morrisey’s analysis persuasive and characterize state contract pharmacy laws as pricing
regulations prohibited by Astra, this could lead to an eventual circuit split over issues of
preemption, which could create additional confusion. It is therefore likely that how states fashion
their contract pharmacy laws in the future will play a role in whether courts find that they are
preempted by 340B.
Potential Legislative Changes
If Congress seeks to alter the requirements of the 340B program by amending the statute, doing
so could potentially address some of the programmatic enforcement issues at the center of the
recent litigation. For example, Congress could amend the 340B statute to clarify the role that
contract pharmacies should play in the program and whether manufacturers may restrict contract
pharmacy use, and it could specify how many contract pharmacies a covered entity may use, if
346 See generally PhRMA v. Morrisey, 760 F.Supp.3d 439 (S.D. W. Va. Dec. 17, 2024).
347 Id.
348 Id. at 457 (citing Astra USA, 563 U.S. at 110).
349 See, e.g., id. at 456.
350 760 F. Supp. 3d at 455.
351 Id.
352 PhRMA v. McClain, 95 F.4th 1136, 1145 (8th Cir. 2024). The Eighth Circuit did not address the effect, if any, of
the replenishment model on the Arkansas contract pharmacy law’s characterization as regulating the distribution, rather
than the price, of 340B drugs.
Congressional Research Service
37
The 340B Drug Discount Program: Litigation Topics and Trends
any. Another option is for Congress to give the HHS Secretary clear rulemaking authority to make
decisions about contract pharmacy use, although such a move could still prompt litigation from
drug manufacturers, who could sue to challenge any rule promulgated by the Secretary under any
applicable provisions of the APA.
Alternatively, or in addition to these changes, Congress could also give HRSA more direct
authority to enforce the 340B program’s prohibitions on duplicate discounting and diversion,
including by statutorily specifying a definition of a “patient” or by giving HRSA rulemaking
authority in statute to define the term “patient” via a legally binding regulation. Additionally, if
Congress wished to remove discretion from the Secretary regarding approval of rebates for 340B
drugs, Congress could further specify the conditions under which the Secretary must approve a
rebate, or it could remove the Secretary’s discretion to approve rebates altogether and amend the
statute to specifically permit rebating as a way of achieving the 340B price.
Congress could also appropriate additional funding for HRSA to administer the 340B program,
which would enable the agency to expend money toward, for example, audits of both
manufacturer and covered entity compliance with the program. Congress could also order HRSA
to collaborate with CMS to curb th
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