U.S. Appeals Court Sides With Drugmakers on Discount Program

The agency had sought to stop drugmakers from cutting off supplies of discounted drugs to certain outside pharmacies that contract with the nonprofit hospitals and clinics that qualify for the federally-mandated drug markdowns. In blunt language, the court said that HRSA and its parent, the Department of Health and Human Services, overreached, and that their effort was unlawful.

The federal agency “claims that drug makers must deliver certain discounted drugs wherever and to whomever a buyer demands,” the court said. “But the relevant law says nothing about such duties.”   

A spokeswoman for HRSA said the agency was reviewing the opinion. The American Hospital Association said it disagreed with the decision and expected two other federal appeals courts to agree with its position.

“The only result of this decision will be even greater profits for drug companies and reduced access to medicines for patients,” said Chad Golder, AHA’s deputy general counsel.

The decision could also potentially be appealed, either to the full circuit court or the Supreme Court, which last year weighed in on a different issue related to the drug-discount program. 

The federal 340B program was named after the section of statute that created it in 1992. Under the program, drugmakers must sell their medicines to certain nonprofit hospitals and clinics at a steep discount. The hospitals and clinics can sell the drugs at a higher price to patients and their insurers. 

Over the years, the program has expanded greatly. In 2021, participating entities spent about $44 billion on drugs under 340B. 

The program is intended to help benefit low-income patients. The Wall Street Journal reported last year that some hospitals were locating many of the sites enrolled in the drug-discount program in affluent communities. Hospitals say they use the proceeds to support vital services to their communities.

Thousands of contract pharmacies, many owned by major companies such as

CVS Health Corp.

and

Walgreens Boots Alliance Inc.,

have helped fuel the growth of the 340B program, and it has become a strong business for the pharmacies as well.

CVS declined to comment on the ruling. Walgreens didn’t immediately respond to a request for comment.

Drugmakers have been cutting back their shipments to these outside pharmacies under 340B, arguing that the law doesn’t require them to supply the discounted drugs to contracted drugstores. That has curtailed the volume of discounted drugs, which hurt hospitals and clinics that participate in 340B, as well as the pharmacy companies. 

— Melanie Evans and Sharon Terlep contributed to this article.

Write to Anna Wilde Mathews at [email protected] and Joseph Walker at [email protected]