Sanofi Aventis U.S. LLC v. U.S. Dep't of Health & Human Servs.
| Decision Date | 30 January 2023 |
| Docket Number | s. 21-3167,21-3379,s. 21-3168,21-3380,22-1676 |
| Citation | 58 F.4th 696 |
| Parties | SANOFI AVENTIS U.S. LLC, Appellant v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Secretary, United States Department of Health and Human Services; General Counsel, United States Department of Health and Human Services; Health Resources Services Administration; Administrator of the Health Resources Services Administration, Appellants Novo Nordisk Inc.; Novo Nordisk Pharma, Inc. Appellants v. United States Department of Health and Human Services; Secretary, United States Department of Health and Human Services; General Counsel, United States Department of Health and Human Services; Health Resources Services Administration; Administrator of the Health Resources Services Administration, Appellants AstraZeneca Pharmaceuticals LP v. Secretary, United States Department of Health and Human Services; General Counsel, United States Department of Health and Human Services; Administrator of the Health Resources and Services Administration; United States Department of Health and Human Services; Health Resources and Services Administration, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Noel J. Francisco [ARGUED], Brett A. Shumate, Jones Day, 51 Louisiana Avenue, N.W., Washington, DC 20001, Toni-Ann Citera, Rajeev Muttreja, Jones Day, 250 Vesey Street, 13th Floor, New York, NY 10281, Counsel for Sanofi (Nos. 21-3167, 21-3379)
Ashley C. Parrish [ARGUED], John D. Shakow, King & Spalding, 1700 Pennsylvania Avenue, N.W., Suite 900, Washington, DC 20006, Nicole E. Bronnimann, King & Spalding, 1100 Louisiana Street, Suite 4100, Houston, TX 77002, Israel Dahan, King & Spalding, 1185 Avenue of the Americas, New York, NY 10036, Counsel for Novo Nordisk (Nos. 21-3168, 21-3380)
Allon Kedem [ARGUED], Jeffrey L. Handwerker, Sally L. Pei, Stephen K. Wirth, Arnold & Porter Kaye Scholer, 610 Massachusetts Avenue, N.W., Suite 1121, Washington, DC 20001, Counsel for AstraZeneca (No. 22-1676)
Daniel J. Aguilar [ARGUED], United States Department of Justice, Civil Division, Room 7266, 950 Pennsylvania Avenue, N.W., Washington, DC 20530, Counsel for the Government (Nos. 21-3167, 21-3379, 21-3168, 21-3380, 22-1676)
Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges
Statutory silences, like awkward silences, tempt speech. But courts must resist the urge to fill in words that Congress left out. The Department of Health and Human Services claims that drug makers must deliver certain discounted drugs wherever and to whomever a buyer demands. But the relevant law says nothing about such duties. So HHS's efforts to enforce its interpretation against the drug makers here are unlawful.
The federal government dominates the healthcare market. Through Medicare and Medicaid, it pays for almost half the annual nationwide spending on prescription drugs. See Cong. Budget Off., Prescription Drugs: Spending, Use, and Prices 8 (2022). It uses that market power to get drug makers to subsidize healthcare. Under Section 340B, drug makers that want to take part in Medicare or Medicaid must offer their drugs at a discount to certain healthcare providers. 42 U.S.C. §§ 256b, 1396r-8(a)(1), (5). These providers, called "covered entities," typically care for low-income and rural persons. Section 340B helps providers do that. First, it gives them extra revenue from serving insured patients: they turn a profit when insurance companies reimburse them at full price for drugs that they bought at the 340B discount. Second, it enables them to give uninsured patients drugs at little or no cost. See Gov't Accountability Off., Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement 17–18 (GAO-11-836, Sept. 2011).
Congress enacted Section 340B as part of the Veterans Health Care Act of 1992 and amended it in 2010 as part of the Affordable Care Act. Pub. L. No. 102-585, § 602, 106 Stat. 4943, 4967; Pub. L. No. 111-148, tit. VII.B, §§ 7101–02, 124 Stat. 119, 821–27 (both codified at 42 U.S.C. § 256b ).
It has three basic parts: (1) a cap on drug makers' prices, (2) restrictions on covered entities, and (3) compliance mechanisms.
1. Price cap on drug makers. Central to this appeal are two provisions requiring drug makers to sell their drugs at or below a price cap. First, Section 340B directs the Secretary of HHS to sign an agreement with each drug maker capping prices "for covered outpatient drugs ... purchased by a covered entity." 42 U.S.C. § 256b(a)(1). This is known as the "purchased by" requirement. The second requirement is the "shall offer" provision:
2. Covered-entity restrictions. Section 340B also subjects participating covered entities to two restrictions. First, it bans duplicate discounts: covered entities cannot get the 340B discount on drugs already subject to a Medicaid rebate. § 256b(a)(5)(A)(i). Second, it bans diversion: covered entities can sell 340B drugs to only their own patients. § 256b(a)(5)(B).
3. Compliance mechanisms. Though Section 340B's substantive requirements and restrictions are few, its compliance provisions are many. See, e.g. , § 256b(d). For instance, drug makers and the Secretary of HHS can audit covered entities. § 256b(a)(5)(C). And the statute specifies punishments for violators: drug makers and covered entities can be fined, and covered entities can be kicked out of the program. § 256b(d)(1)(B)(vi), (d)(2)(B)(v)(I)–(II).
When Congress first enacted Section 340B, few covered entities had pharmacies in house. So covered entities sought to contract with outside pharmacies to distribute 340B drugs for them. Covered entities using contract pharmacies would still order and pay for the drugs, but they would be shipped directly to the pharmacies. In 1996, HHS issued guidance saying that covered entities could use one contract pharmacy each. 61 Fed. Reg. 43,549 (Aug. 23, 1996). Then, in 2010, HHS issued new guidance, saying that covered entities could use an unlimited number of contract pharmacies. 75 Fed. Reg. 10,272 (Mar. 5, 2010).
After the 2010 guidance, the use of contract pharmacies skyrocketed. Their number increased twentyfold.
This explosion worried drug makers. They thought that contract pharmacies were driving up duplicate discounting and diversion. So, in 2020, they responded, adopting policies to limit the use of contract pharmacies. Here is a summary of the three drug makers' policies at issue:
| 2020 Distribution Policy | |
| 1. Covered entities may use an in-house pharmacy. | |
| Sanofi | 2. If they do not have an in-house pharmacy, they may use one contract pharmacy. |
| 3. If they agree to provide claims data, they may use an unlimited number of contract pharmacies. | |
| 1. Covered entities may use an in-house pharmacy. | |
| Novo Nordisk | 2. If they do not have an in-house pharmacy, they may use one contract pharmacy. |
| 3. They may use multiple contract pharmacies at Novo Nordisk's discretion. | |
| 1. Covered entities may use an in-house pharmacy. | |
| AstraZeneca | 2. If they do not have an in-house pharmacy, they may use one contract pharmacy. |
HHS responded with the three actions at the center of this litigation.
1. The Advisory Opinion. First, in December 2020, HHS released an Advisory Opinion declaring that Section 340B unambiguously requires drug makers to deliver 340B drugs to an unlimited number of contract pharmacies. HHS Off. Gen. Couns., Advisory Opinion 20-06 on Contract Pharmacies Under the 340B Program (Dec. 30, 2020), https://perma.cc /L7W2-H597. HHS reasoned that 340B drugs are "purchased by" a covered entity no matter how they are distributed. Id. at 1–3. So, it argued, the "situs of delivery ... is irrelevant." Id. at 3.
2. Violation Letters. Five months later, HHS sent Violation Letters to the drug makers. These letters said their policies were unlawful and ordered them to rescind those policies and reimburse covered entities for any overcharges.
Though the Advisory Opinion relied mainly on Section 340B's "purchased by" language, the Violation Letters relied solely on Section 340B's "shall offer" language. But their conclusions were the same: drug makers must deliver discounted drugs to an unlimited number of contract pharmacies.
3. The Administrative Dispute Resolution Rule. When Congress amended Section 340B back in 2010, it told HHS to set up a process through which drug makers and covered entities could resolve Section 340B–related disputes. § 256b(d)(3). But HHS dawdled. It did not issue a notice of proposed rulemaking until 2016. 81 Fed. Reg. 53,381 (Aug. 12, 2016). And after accepting comments on the proposed Administrative Dispute Resolution (ADR) Rule, HHS seemed to abandon it. In 2017, in a regulatory publication called the Unified Agenda, it listed the proposed rule as withdrawn. 340B Drug Pricing Program; Administrative Dispute Resolution Process, RIN 0906-AA90 (Spring 2017), https://perma.cc/ADX3-QUEJ ( "NPRM Withdrawn" on "08/01/2017").
But that would not be the last of the proposed rule. In 2020, HHS revived it. The agency said that it had just "paus[ed] action on the proposed rule" rather than withdrawing it. 85 Fed. Reg. 80,632, 80,633 (Dec. 14, 2020). It then responded to the four-year-old comments and issued a final ADR Rule. Id. at 80,633 –42, 80,644–46.
After we heard this appeal, HHS proposed a new rule to revise the 2020 ADR Rule's procedures. 87 Fed. Reg. 73,516 (Nov. 30, 2022). But for now, the 2020 Rule remains in force.
1. AstraZeneca won in Delaware. Not long after the Advisory Opinion was issued, AstraZeneca sued in the District of Delaware to invalidate it....
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