Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 1 of 26
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`NOVARTIS PHARMACEUTICALS
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`CORPORATION,
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`59 Route 10, East Hanover, New Jersey 07936,
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`Plaintiff,
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`
`
`v.
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`DIANA ESPINOSA,
`in her official capacity as
`ACTING ADMINISTRATOR, HEALTH
`RESOURCES AND SERVICES
`ADMINISTRATION,
`5600 Fishers Lane,
`Rockville, Maryland 20852,
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`
`and
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`
`
`
`XAVIER BECERRA,
`in his official capacity as SECRETARY,
`UNITED STATES DEPARTMENT OF
`HEALTH AND HUMAN SERVICES,
`200 Independence Avenue, S.W.,
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`Washington, D.C. 20201,
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`
`
`
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`Defendants.
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`Civil Action No. ______________
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`VERIFIED COMPLAINT
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`Plaintiff Novartis Pharmaceuticals Corporation (Novartis) brings this Complaint against
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`Defendants Diana Espinosa, in her official capacity as Acting Administrator of the Health
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`Resources and Services Administration (HRSA), and Xavier Becerra, in his official capacity as
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`Secretary of the Department of Health and Human Services (HHS), and alleges as follows:
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 2 of 26
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`PRELIMINARY STATEMENT
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`1.
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`This is an action for preliminary and permanent injunctive relief to challenge a
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`recent HRSA determination that Novartis’s policy governing so-called “contract pharmacy”
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`arrangements is not in compliance with the 340B statute, 42 U.S.C. § 256b, and an
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`accompanying threat of enforcement action.
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`2.
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`Under the 340B Drug Pricing Program, drug manufacturers that wish to
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`participate in certain Medicaid and Medicare programs must offer deep discounts to specified
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`hospitals and clinics benefiting underserved patient populations. To ensure that the discounts are
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`appropriately targeted to the right recipients, the 340B statute carefully circumscribes the
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`universe of hospitals and clinics that qualify as “covered entities” entitled to those steep
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`discounts.
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`3.
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`In recent years, there has been an explosion of so-called “contract pharmacy”
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`arrangements, in which covered entities enter into contractual arrangements with third-party
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`pharmacies—often large, national, for-profit pharmacy chains. Under a contract pharmacy
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`arrangement, drugs are not shipped to the covered entity for dispensing at the covered entity.
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`Instead they are shipped directly to the contract pharmacy—wherever in the country that
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`pharmacy may be.
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`4.
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`Nothing in the statute contemplates—let alone requires—that manufacturers agree
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`to ship drugs nominally purchased by covered entities directly to “contract pharmacies” for
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`dispensing to both patients and non-patients of the covered entity alike. And yet that is precisely
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`what HRSA has purported to mandate here.
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`5.
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`Under the plain language of the 340B statute, Novartis is not required to
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`recognize any contract pharmacy arrangements. Nevertheless, in order to strike a reasonable
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 3 of 26
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`balance between redressing abuses of the 340B Program and serving the statute’s goals, Novartis
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`voluntarily recognizes [1] all contract pharmacies within a 40-mile radius of the covered entity,
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`[2] all federal grantee covered entity contract pharmacy arrangements, regardless of location, and
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`[3] an exemption to the 40-mile radius limitation when the facts and circumstances require.
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`6.
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`On May 17, 2021, HRSA notified Novartis that it has concluded Novartis’s policy
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`violates the 340B statute. Exhibit 1 (the Decision Letter). HRSA demanded a response by June
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`1, and threatened enforcement action if Novartis did not drop its contract pharmacy policy.
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`7.
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`HRSA’s decision is unlawful under the Administrative Procedure Act (APA).
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`First, it conflicts with the plain language of the statute. The 340B statute does not mandate—nor
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`does it give the agency discretion to mandate—that manufacturers ship drugs to third-party
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`pharmacies at the whim of covered entities.
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`8.
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`HRSA’s decision also is arbitrary, capricious, and an abuse of discretion. Under
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`the agency’s own guidance documents, contract pharmacy arrangements are eligible for 340B
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`discounts only when specified requirements are met, including that the covered entity retains title
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`to the drugs in question. But the Decision Letter made no finding that any of the covered entities
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`at issue actually retained title to the drugs at issue. And due to limits on the ability of
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`manufacturers to obtain even basic information about contract pharmacy arrangements,
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`manufacturers have no way of knowing one way or the other.
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`9.
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`HRSA has failed to offer an adequate explanation for its evolving position on
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`whether and in what circumstances contract pharmacy arrangements trigger the 340B discount.
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`10.
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`Absent prompt judicial relief, Novartis will suffer irreparable harm in the form of
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`unlawful enforcement actions and significant reputational harm. The government’s public
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 4 of 26
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`assertion that Novartis is knowingly and intentionally violating its federal obligations plainly
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`injures Novartis’s reputation.
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`11.
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`For all of these reasons, HRSA’s Decision Letter should be vacated and declared
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`unlawful, and HHS should be enjoined from proceeding with its threatened actions.
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`PARTIES
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`12.
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`Plaintiff Novartis Pharmaceuticals Corporation is a pharmaceutical company. It
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`brings innovative medicines to market in order to enhance health outcomes for patients.
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`Novartis is incorporated in the State of Delaware and has its principal place of business at 59
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`Route 10, East Hanover, New Jersey 07936.
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`13.
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`Defendant Diana Espinosa is the Acting Administrator of the Health Resources
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`and Services Administration, an operating component within HHS. The Acting Administrator
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`maintains an office at 5600 Fishers Lane, Rockville, Maryland 20852. The Administrator is sued
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`in her official capacity only.
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`14.
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`Defendant Xavier Becerra is the Secretary of HHS. Defendant Becerra maintains
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`an office at 200 Independence Avenue, S.W., Washington, D.C. 20201, and is sued in his official
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`capacity only.
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`JURISDICTION AND VENUE
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`15.
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`Jurisdiction in this Court is grounded upon and proper under 28 U.S.C. § 1331, in
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`that this civil action arises under the laws of the United States; 28 U.S.C. § 1346, in that this case
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`involves claims against the federal government; 28 U.S.C. § 1361, in that this is an action to
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`compel officers of the United States to perform their duty; and 28 U.S.C. §§ 2201–2202, in that
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`there exists an actual justiciable controversy as to which Plaintiff requires a declaration of its
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`4
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 5 of 26
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`rights by this Court and injunctive relief to prohibit Defendants from violating laws and
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`regulations.
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`16.
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`Venue is proper in this Court under 28 U.S.C. § 1391(b) and (e) because this is a
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`civil action in which Defendants are officers of the United States acting in their official
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`capacities and one of the Defendants maintains his office and conducts business in this judicial
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`district.
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`The 340B Program
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`FACTUAL BACKGROUND
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`17.
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`In 1992, Congress created the 340B Drug Pricing Program, which requires
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`participating pharmaceutical manufacturers to provide deep discounts on their covered outpatient
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`drugs to qualifying hospitals and clinics generally serving poor, uninsured, underinsured, or
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`otherwise vulnerable patient groups. 42 U.S.C. § 256b(a). The stated purpose of the program
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`was to provide “protection from drug price increases to specified Federally-funded clinics and
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`public hospitals that provide direct clinical care to large numbers of uninsured Americans.” H.R.
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`Rep. No. 102-384 (II), at 12 (1992). As a condition of federal payment being available under
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`Medicaid and Medicare Part B for its covered outpatient drugs, a manufacturer must agree to
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`participate in the 340B Program. 42 U.S.C. § 1396r-8(a)(1).
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`18.
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`At its core, the 340B Program requires a participating pharmaceutical
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`manufacturer to charge a “covered entity” no more than the 340B ceiling price—a discounted
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`price calculated under a prescribed statutory formula—for each unit of a covered outpatient drug.
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`42 U.S.C. §§ 256b(a)(1), (a)(4), (b)(1). A participating manufacturer must “offer each covered
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`entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug
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`is made available to any other purchaser at any price.” 42 U.S.C. § 256b(a)(1).
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`5
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`19.
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`The statute defines the term “covered entity” narrowly, to ensure that the 340B
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`program’s steep discounts benefit only the qualified safety net providers and the neediest patient
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`populations. 42 U.S.C. § 256b(a)(4). To count as a “covered entity,” a provider must be a
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`specifically enumerated type of safety-net entity. These include entities operating under a
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`federal grant as well as particular types of hospitals, such as certain children’s hospitals and
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`freestanding cancer hospitals. Id.
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`20.
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`The 340B Pharmaceutical Pricing Agreement (PPA), which a manufacturer must
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`execute to participate in the 340B Program, states that “covered entities” means “certain Public
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`Health Service grantees, ‘look-alike’ Federal Qualified Health Centers, and disproportionate
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`share hospitals.” PPA § 1(e). The PPA also clarifies that, “in the case of a covered entity that is
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`a distinct part of a hospital, the hospital itself shall not be considered a covered entity unless it
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`meets the” statutory definition of “covered entity” as a qualified hospital. Id. (emphasis added).
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`21.
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`The 340B statute contains two important limitations to protect against abuse by
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`covered entities. First, it prohibits “duplicate discounts”—a manufacturer cannot be required to
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`both pay a Medicaid rebate and provide a 340B discount on the same unit of drug. To
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`accomplish this, a covered entity is prohibited from requesting payment under Medicaid for a
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`unit of a covered outpatient drug purchased under the 340B Program. 42 U.S.C. §
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`256b(a)(5)(A)(i).
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`22.
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`Second, to prevent diversion, the statute prohibits a covered entity from reselling
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`or otherwise transferring a 340B drug to “a person who is not a patient of the entity.” Id.
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`§ 256b(a)(5)(A).
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`6
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 7 of 26
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`Contract Pharmacy Arrangements
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`23.
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`At first, covered entities dispensed 340B-purchased drugs through their own in-
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`house pharmacies. But shortly after the 340B statute was enacted, some covered entities without
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`an in-house pharmacy began lobbying HRSA for permission to enter into a contractual
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`arrangement with a third-party pharmacy (a so-called “contract pharmacy”) for purposes of
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`dispensing 340B-purchased drugs. Under these proposed arrangements, instead of drugs being
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`shipped to the covered entity for dispensing by its in-house pharmacy, the drugs would be
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`shipped to the contract pharmacy for dispensing to patients there.
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`24.
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`Contract pharmacy arrangements typically involve a “virtual inventory” or
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`“replenishment” model—a scheme that facilitates 340B-discounted units to be dispensed to
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`individuals who are not patients of the covered entity. Under this model, the contract pharmacy
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`maintains a single, common inventory—meaning it commingles units purchased at the
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`commercial price with “replenishment” units purchased at the 340B price—and dispenses all
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`units of the drug from this common inventory, regardless of whether the individual to whom a
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`unit is dispensed is a patient of the covered entity.
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`25.
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`The contract pharmacy itself typically does not know at the time of dispensing
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`whether an individual is a patient of the covered entity. That determination is made afterwards.
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`Where it is subsequently determined that the individual is a covered-entity patient, the covered
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`entity purchases a “replenishment” unit at the 340B price and directs shipment to the contract
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`pharmacy—which commingles the 340B-purchased unit with commercially purchased units in
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`its common inventory. The kicker: the 340B replenishment unit is treated as it if had been
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`purchased at the commercial price—and thus available for dispensing to a non-patient of the
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`covered entity—even though it has in fact been purchased at the 340B price. See OIG,
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`7
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`Memorandum Report: Contract Pharmacy Arrangements in the 340B Program, OEI-05-13-
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`00431 at 5 (Feb. 4, 2014), available at https://oig.hhs.gov/oei/reports/oei-05-13-00431.pdf.
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`HRSA’s Evolving Guidance On Contract Pharmacies
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`26.
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`In 1996, four years after the 340B Program came into being, HRSA issued non-
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`binding guidance suggesting for the first time that a covered entity without an in-house pharmacy
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`may contract with a single outside pharmacy site for the purpose of dispensing 340B-purchased
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`drugs to the covered entity’s patients. See HRSA, Notice Regarding Section 602 of the Veterans
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`Health Care Act of 1992; Contract Pharmacy Services, 61 Fed. Reg. 43,549 (Aug. 23, 1996).
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`27.
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`HRSA stated that it was implementing the new contract pharmacy policy because
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`it believed the goals of the 340B Program were better served if a covered entity without an in-
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`house pharmacy could use an outside pharmacy to dispense 340B-purchased drugs to its patients
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`on its behalf. Id. at 43,550. Accordingly, HRSA provided that a covered entity could use either
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`an in-house pharmacy or, if the covered entity did not have an in-house pharmacy, it could
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`contract with a single outside pharmacy site, to “facilitate program participation for those eligible
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`covered entities that do not have access to appropriate ‘in-house’ pharmacy services.” Id. at
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`43,550, 43,555.
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`28.
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`In issuing the 1996 guidance, HRSA did not require manufacturers to honor
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`contract pharmacy arrangements. Nor did HRSA identify any statutory basis for its policy. It
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`stated only that “[t]he statute is silent as to permissible drug distribution systems. There is no
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`requirement for a covered entity to purchase drugs directly from the manufacturer or to dispense
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`drugs itself.” Id. at 43,549. It then stated that the 340B statute does not preclude a “[covered]
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`entity direct[ing] the drug shipment to its contract pharmacy.” Id. at 43,549–50. HRSA also
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`stated that, “[a]s a matter of State law, entities possess the right to hire retail pharmacies to act as
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`their agents in providing pharmaceutical care to their patients.” Id. at 43,550.
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`29.
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`In 2007, HRSA summarized its 1996 guidance as follows: “[A] covered entity
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`could contract with only one pharmacy to provide all pharmacy services for any particular site of
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`the covered entity. Furthermore, if the contract pharmacy had multiple locations, the covered
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`entity had to choose one, and only one, contract pharmacy location for provision of these
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`services.” HRSA, Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services,
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`72 Fed. Reg. 1540 (Jan. 12, 2007).
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`30.
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`Then things changed. In early 2010, HRSA issued another non-binding guidance
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`that purported to greatly expand the agency’s approach to contract pharmacies. HRSA, Notice
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`Regarding 340B Drug Pricing Program-Contract Pharmacy Services, 75 Fed. Reg. 10,272 (Mar.
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`5, 2010). Under the 2010 guidance, covered entities are permitted to use contract pharmacies
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`even if they have an in-house pharmacy. Id. at 10,275. Covered entities also are permitted to
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`use an unlimited number of outside contract pharmacy sites, so long as there is a written contract
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`between the covered entity and the pharmacy, and the contract pharmacy meets certain
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`compliance and certification requirements. Id. at 10,277–278. One of those requirements is that
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`“[t]he covered entity will purchase the drug, maintain title to the drug and assume responsibility
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`for establishing its price, pursuant to the terms of an HHS grant (if applicable) and any
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`applicable Federal, State, and local laws.” Id. at 10,277 (emphasis added). See also HRSA,
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`Contract Pharmacy: Important Tips, available at
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`https://www.hrsa.gov/opa/updates/2016/august.html (Aug. 2016).
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`31.
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`The 2010 guidance, like its 1996 predecessor, does not state that manufacturers
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`must honor contract pharmacy arrangements, nor (also like its predecessor) does it identify any
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`statutory basis for the contract pharmacy policy. In responding to a commenter suggesting that
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`notice-and-comment rulemaking was required to adopt the policy, HRSA explained that it was
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`not required to proceed via such rulemaking because its contract pharmacy policy does not
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`“impose additional burdens upon manufacturers []or create[] any new rights for covered entities
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`under the law.” Id. at 10,273.
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`Contract Pharmacy Arrangements Explode In Popularity
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`32.
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` Following HRSA’s 2010 guidance, the number of contract pharmacy
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`arrangements entered into by hospitals grew exponentially—with little evidence that patients
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`were benefiting as a result.
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`33.
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`Covered entities have an incentive to maximize 340B utilization because they
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`profit off the “340B spread.” Covered entities purchase the unit of the drug at the deeply
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`discounted 340B price, then seek reimbursement from the patient’s payer when the patient is
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`insured. The covered entity captures the resulting “spread” between the (lower) 340B price and
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`the inevitably higher reimbursement rate. The more contract pharmacies, the more opportunities
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`to capture the spread, because more prescriptions can be filled through such arrangements. And
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`there is no statutory obligation to share any of that revenue with those needy patients the 340B
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`Program is intended to serve, through reduced prescription costs, for example.
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`34.
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`The contract pharmacies with which covered entities began to contract, starting in
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`2010, are often national chain sites located hundreds or even thousands of miles from the
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`covered entity and the community that it serves. Indeed, “contract pharmacy participation grew
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`4,228 percent between April 2010 and April 2020,” with “more than 27,000 individual
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`pharmacies (almost one out of every three pharmacies)” now participating, and the number of
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`contract pharmacy arrangements by hospitals increasing from 193 to more than 43,000 during
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`10
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`this period. BRG, For-Profit Pharmacy Participation in the 340B Program, at 4 (Oct. 2020),
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`available at https://media.thinkbrg.com/wp-content/uploads/2020/10/06150726/BRG-
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`ForProfitPharmacyParticipation340B_2020.pdf.
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`35.
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`In a subversion of statutory intent, the savings from the 340B Program—designed
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`to benefit carefully selected beneficiaries—“are now distributed across a vertically integrated
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`supply chain that includes not just the covered entities but also pharmacies, contract pharmacy
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`administrators, [pharmacy benefit managers], health plans, and employer groups.” Id. at 7. And,
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`as a result of the complete absence of transparency within such arrangements, it is unclear how
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`much of the 340B Program savings actually inures to the benefit of these commercial interlopers.
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`In this way, a statutory regime intended to benefit underserved populations is now being used to
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`advantage large commercial profit-maximizing pharmacy chains and other commercial
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`middlemen.
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`36.
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` In the years following 2010, there has been an exponential increase in the
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`number of contract pharmacies, a corresponding increase in the amount of drug products subject
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`to the 340B discount, and a similar upsurge in the potential for abuse of the 340B Program. See
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`Aaron Vandervelde and Eleanor Blalock, Measuring the Relative Size of the 340B Program:
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`2012-2017, Berkeley Research Group (Jul. 13, 2017), available at
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`https://www.thinkbrg.com/insights/publications/measuring-the-relative-size-of-the-340b-
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`program-2012-2017/; Adam Fein, New HRSA Data: 340B Program Reached $29.9 Billion in
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`2019; Now Over 8% of Drug Sales, Drug Channels (Jun. 9, 2020), available at
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`https://www.drugchannels.net/2020/06/new-hrsa-data-340b-program-reached-299.html;
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`37.
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`This explosive growth of contract pharmacy arrangements has greatly exacerbated
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`longstanding systemic 340B program integrity concerns. Remember that, under the “virtual
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`inventory” (“replenishment”) model, it is unknown at the time of dispensing whether an
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`individual is a patient of the covered entity. This necessitates a retrospective determination
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`(typically performed by third parties) of which units were dispensed to a covered-entity patient
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`and thus would have been eligible for 340B pricing. There is no transparency into whether or
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`how this determination is made.
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`38.
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`There is, however, confirmation that the system is being abused. HRSA has
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`identified hundreds of instances of diversion at contract pharmacies through its audit efforts, and
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`many instances of the potential for duplicate discounts. GAO, Drug Discount Program, Federal
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`Oversight of Compliance at 340B Contract Pharmacies Needs Improvement, at 37 (June 2018),
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`available at https://www.gao.gov/assets/gao-18-480.pdf. In 2015, the HHS Office of Inspector
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`General (OIG) concluded, in a triumph of understatement, that “[c]ontract pharmacy
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`arrangements . . . create complications in preventing diversion . . . [and] duplicate discounts.”
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`OIG, Memorandum Report: Contract Pharmacy Arrangements in the 340B Program, No. OEI-
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`05-13-00431 at 1, 2 (Feb. 2014) (available at https://oig.hhs.gov/oei/reports/oei-05-13-
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`00431.pdf).
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`39. Where a covered entity makes arrangements with pharmacies far outside its
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`community, this risk of diversion is amplified by orders of magnitude. Because there is no
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`reasonable proximity between such pharmacies and the local community of the covered entity
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`(i.e., where patients of the covered entity obtain services), such pharmacies are highly unlikely to
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`dispense drugs to patients of the covered entity. Thus, in the absence of meaningful oversight of
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`covered entities, such arrangements cannot be squared with the statutory prohibition on
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`diversion—one of the Congressionally established cornerstones of the 340B Program that mark
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`its outer boundary.
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`Novartis’s Contract Pharmacy Policy
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`40.
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`Based on the plain language of the statute, Novartis is not legally bound to honor
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`any contract pharmacy arrangement. The statute requires only that Novartis offer the 340B
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`discount on sales to covered entities, which it does. 42 U.S.C. § 256b(a)(1). The statute does not
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`require manufacturers to agree to ship the drugs to a third-party pharmacy for dispensing to
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`patients (and non-patients) there.
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`41.
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`Given the runaway proliferation of contract pharmacy arrangements and its
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`attendant programmatic abuses, Novartis revised its contract pharmacy policy in order to
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`appropriately align it with the 340B statute’s purpose and requirements, while guarding against
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`needless abuse.
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`42.
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`Under its policy, Novartis honors all hospital covered entity contract pharmacy
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`arrangements when the contract pharmacy is located within a 40-mile radius of the covered
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`entity—which is to say, any contract pharmacy within an area that ranges about 5,000 square
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`miles. Id. There is no limit on the number of contract pharmacies within that 40-mile radius
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`with which the covered entity may have an arrangement. Id.
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`43.
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`Federal grantee covered entities are exempted from the 40-mile radius policy.
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`These entities are subject to independent requirements that encourage them to share the benefits
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`of the 340B Program with their patients.
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`44.
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`Finally, if a hospital covered entity brings a special circumstance to Novartis’s
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`attention (for example, if it has no in-house pharmacy and no contract pharmacy within 40
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`miles), Novartis works in good faith with the hospital to ensure appropriate access to a contract
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`pharmacy through an exemption process. Id.
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`45.
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`In adopting the 40-mile radius as a proxy for the patient community, Novartis
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`drew on the federal Medicare provider-based policy governing hospitals and affiliated facilities,
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`which generally utilizes a 35-mile radius. See 42 C.F.R. § 413.65(e)(3)(i).
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`46.
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`The 40-mile radius limitation is also consistent with HRSA’s statements that its
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`contract pharmacy policy is designed to allow covered entities to enter into “arrangements in
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`their communities” to dispense needed drugs to their patients. See 75 Fed. Reg. 10,272, 10,273
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`(Mar. 5, 2010). And the 40-mile radius is a generous policy: The vast majority of contract
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`pharmacy hospitals are located within 40 miles of the covered entity. GAO, Drug Discount
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`Program, Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement,
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`at 23 (June 2018), available at https://www.gao.gov/assets/gao-18-480.pdf.
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`47.
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`The Novartis policy does not prohibit any covered entity from purchasing
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`Novartis medicines at 340B prices. Hospital covered entities are merely offered a choice of
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`having the drug shipped to their own in-house pharmacy, or to an unlimited number of contract
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`pharmacies located within a 40-mile radius of the hospital. And if there are no contract
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`pharmacies within that 40-mile radius (a rare occurrence, according to GAO data), covered
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`entities are encouraged to apply for an exemption.
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`48.
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`Nor does Novartis’s policy result in any overcharge to a covered entity. When
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`Novartis does not recognize a contract pharmacy under its policy, it does not convert a 340B
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`order to a commercial order. It simply declines to fill the 340B order, and the hospital is not
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`charged.
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`49.
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`On October 30, 2020—and again on November 13, 2020—Novartis notified
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`HRSA that it would be implementing this approach to contract pharmacy arrangements. Exhibit
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`2.
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`14
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 15 of 26
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`The Advisory Opinion
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`50.
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`On December 30, 2020, the HHS Office of the General Counsel (OGC) issued a
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`non-binding Advisory Opinion on contract pharmacy arrangements under the 340B statute. See
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`OGC, Advisory Opinion 20-06 on Contract Pharmacies Under the 340B Program (Dec. 30,
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`2020), available at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-
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`documents/340B-AO-FINAL-12-30-2020_0.pdf.
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`51.
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`In the Advisory Opinion, OGC opined that, “to the extent contract pharmacies are
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`acting as agents of a covered entity, a drug manufacturer in the 340B Program is obligated to
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`deliver its covered outpatient drugs to those contract pharmacies and to charge the covered entity
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`no more than the 340B ceiling price for those drugs.” Id. at 1. To reach that conclusion, the
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`Advisory Opinion argued that the “core requirement of the 340B statute” is that “manufacturers
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`must ‘offer’ covered outpatient drugs at or below the ceiling price for ‘purchase by’ covered
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`entities.” Id. In an odd flight of rhetoric, the Advisory Opinion asserted that the “situs of
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`delivery, be it the lunar surface, low-earth orbit, or a neighborhood pharmacy, is irrelevant.” Id.
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`52.
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`The agency based its position on its view that the statute is unambiguous: “It is
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`difficult to envision a less ambiguous phrase and no amount of linguistic gymnastics can ordain
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`otherwise.” Id. (citing Kisor v. Wilke, 139 S. Ct. 2400, 2415 (2019)). In light of what the agency
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`described as “the lack of ambiguity in the plain text of the statute,” OGC concluded that “the
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`above analysis is dispositive.” Id. at 3.
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`53.
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`In response to the Advisory Opinion, a number of manufacturers filed lawsuits
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`against HRSA challenging its contract pharmacy policies. See, e.g., AstraZeneca
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`Pharmaceuticals LP v. Azar, Case No. 1:21-cv-0027 (D. Del.); Novo Nordisk Inc. v. HHS, Case
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`
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`15
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 16 of 26
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`No. 3:21-cv-00806 (D.N.J.); Eli Lilly & Co. v. Cochran, Case No. 1:21-cv-00081 (S.D. Ind.);
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`Sanofi-Aventis US, LLC v. HHS, Case No. 3:21-cv-00634 (D.N.J.). Those cases remain pending.
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`HRSA’s May 17, 2021 Decision Letter and Novartis’s Response
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`54.
`
`On May 17, HRSA wrote to Novartis, asserting that the agency had “completed
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`its review” of Novartis’s contract pharmacy policy. Exhibit 1. HRSA appeared to have
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`reviewed the wrong policy, however; in its Decision Letter, the agency asserted that Novartis’s
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`policy “places restrictions on 340B pricing to covered entities that dispense medication through
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`pharmacies, unless the covered entities provide claims data to a third-party platform.” Id. It
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`does no such thing. 1
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`55.
`
`The agency went on to assert that, after reviewing Novartis’s (prior, inapplicable)
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`policy, it had “determined that Novartis’s actions have resulted in overcharges and are in direct
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`violation of the 340B statute.” Id. The Decision Letter argued that “HRSA has made plain,
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`consistently since the issuance of its 1996 contract pharmacy guidance, that the 340B statute
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`requires manufacturers to honor such purchases regardless of the dispensing mechanism.” Id.
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`56.
`
`The Decision Letter demanded that Novartis
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`immediately begin offering its covered patient drugs at the 340B ceiling price to
`covered entities through their contract pharmacy arrangements, regardless of
`whether they purchase through an in-house pharmacy. Novartis must comply with
`its 340B statutory obligations and the [final rule governing civil monetary penalties
`(CMPs)] and credit or refund all covered entities for overcharges that have resulted
`from Novartis’s policy. Novartis must work with all of its distribution/wholesale
`partners to ensure all impacted covered entities are contacted and efforts are made
`to pursue mutually agreed upon refund arrangements. [Id.]
`
`
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`1 In August 2020, Novartis had considered requiring covered entities to submit claims data so
`that eligibility for the 340B discount could be verified; it ultimately decided not to implement
`that policy.
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`16
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`Case 1:21-cv-01479 Document 1 Filed 05/31/21 Page 17 of 26
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`57.
`
`The Decision Letter requested a response by June 1, and ended with a threat:
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`“Continued failure to provide the 340B price to covered entities utilizing contract pharmacies,
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`and the resultant charges to covered entities of more than the 340B ceiling price, may result in
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`CMPs as described in the CMPS final rule.” Id.
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`58.
`
`Novartis responded on May 27, noting that HRSA’s letter had mischaracterized
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`the Novartis policy. Exhibit 3. Novartis also explained why its policy is consistent with the
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`340B statute: The statute requires that manufacturers offer the 340B discount on sales to
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`covered entities. 42 U.S.C. § 256b(a)(1). Novartis does so. The statute does not require
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`manufacturers to agree to ship the drugs to some remote pharmacy for dispensing to patients
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`(and non-patients) there. Nor does the statute grant HRSA discretion to require manufacturers to
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`ship drugs to a location potentially many miles away from the covered entity as it suggests in the
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`Advisory Opinion, “be it the lunar surface, low-earth orbit, or a neighborhood pharmacy.”
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`59.
`
`In its response, Novartis requested that HRSA withdraw its Decision Letter and
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`threat of enforcement by May 31, in advance of the June 1 deadline set by the agency in the
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`Decision Letter. Exhibit 3.
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`60.
`
`As of the filing of this Complaint, HRSA has failed to withdraw the Decision
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`Letter.
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`HRSA’s Decision Letter Is Unlawful
`
`
`
`61.
`
`62.
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`HRSA’s Decision Letter is unlawful, for multiple reasons.
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`First and foremost, the Decision Letter violates the plain language of the 340B
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`statute. The statute only requires a participating manufacturer to “offer each covere