Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 1 of 48
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`BOEHRINGER INGELHEIM
`PHARMACEUTICALS, INC.,
`900 Ridgebury Road
`Ridgefield, CT 06877
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`
`Plaintiff,
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`
`v.
`
`XAVIER BECERRA, in his official
`capacity as Secretary of the U.S.
`Department of Health and Human Services,
`200 Independence Avenue, S.W.
`Washington, D.C. 20201;
`
`DIANA ESPINOSA, in her official
`capacity as Acting Administrator of the
`Health Resources and Services
`Administration,
`5600 Fishers Lane
`Rockville, MD 20857;
`
`KRISTA M. PEDLEY, in her official
`capacity as Director of the Office of
`Special Health Initiatives,
`5600 Fishers Lane
`Rockville, MD 20857;
`
`MICHELLE HERZOG, in her official
`capacity as Acting Director of the Office of
`Pharmacy Affairs,
`5600 Fishers Lane
`Rockville, MD 20857;
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`U.S. DEPARTMENT OF HEALTH AND
`HUMAN SERVICES,
`200 Independence Avenue, S.W.
`Washington, D.C. 20201; and
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`HEALTH RESOURCES AND SERVICES
`ADMINISTRATION,
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`
`
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`
`
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`Civil Action No. ____________
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 2 of 48
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`5600 Fishers Lane
`Rockville, MD 20857
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`Defendants.
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`COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
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`Plaintiff Boehringer Ingelheim Pharmaceuticals, Inc. (“Boehringer Ingelheim” or “BI”)
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`brings this action against Defendants Xavier Becerra, in his official capacity as Secretary of the
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`U.S. Department of Health and Human Services; Diana Espinosa, in her official capacity as Acting
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`Administrator of the Health Resources and Services Administration; Krista M. Pedley, in her
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`official capacity as Director of the Office of Special Health Initiatives; Michelle Herzog, in her
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`official capacity as the Acting Director of the Office of Pharmacy Affairs; the U.S. Department of
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`Health and Human Services (“HHS”); and the Health Resources and Services Administration
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`(“HRSA”) (collectively, “Defendants”), and alleges as follows:
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`INTRODUCTION
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`1.
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`This case is about an agency attempt to dramatically expand a federal program in a
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`manner that is divorced from the statutory text. The 340B Drug Pricing Program, 42 U.S.C. § 256b
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`(“Section 340B”), created in 1992, sets discounted prices that drug manufacturers must provide
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`for out-patient medicines sold to certain healthcare facilities, defined in Section 340B of the Public
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`Health Service Act as “covered entities.” Congress carefully defined the “covered entities” that
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`are eligible for the drug discounts by listing in the statute fifteen specific categories of “covered
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`entities” that all, to some extent, serve underserved populations in various ways.
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`2.
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`The statutorily-defined “covered entities” do not include for-profit pharmacies,
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`such as CVS or Walgreens. Yet HRSA has attempted to require that manufacturers like Boehringer
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`Ingelheim provide 340B discount drugs to such pharmacies or allow them to be transferred to such
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`2
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 3 of 48
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`pharmacies by covered entities if the pharmacies have various types of contracts with the covered
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`entities. This case challenges the legal validity of HRSA’s current interpretation of the statute,
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`which purports to extend 340B discount prices to drugs provided to contract pharmacies, even
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`though they are not within the scope of the statute or the entities that the statute was enacted to
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`benefit.
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`3.
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`Congress did not grant the federal agency charged with administering the 340B
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`program—HRSA—authority to alter Congress’s statutory list of covered entities, and indeed
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`provided HRSA with only narrow regulatory authority regarding the program. Yet HRSA has
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`attempted to require manufacturers to provide, as a practical matter, 340B discount drugs to
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`contract pharmacies via claimed “informal guidance.” AstraZeneca Pharms. v. Becerra, No. 1:21-
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`cv-00027-LPS, 2021 WL 2458063, at *7 (D. Del. June 16, 2021) (“[T]hroughout the past 25 years,
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`[HRSA] has dramatically expanded how covered entities may purchase 340B drugs.”).
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`4.
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`HRSA’s guidance has shifted over the years. First, in the mid-1990s, HRSA
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`promulgated guidance purporting to allow covered entities to select a single outside “contract
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`pharmacy” that could receive 340B discounted drugs for dispensing, based on HRSA’s recognition
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`that some covered entities do not have an in-house pharmacy for dispensing drugs. See HRSA,
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`Notice Regarding Section 602 of the Veterans Health Care Act of 1992; Contract Pharmacy
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`Services, 61 Fed. Reg. 43,549, 43,549 (Aug. 23, 1996). In doing so, HRSA expressly rejected
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`comments requesting that the agency authorize the use of multiple contract pharmacies. Id. at
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`43,551.
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`5.
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`In 2010, HRSA altered its guidance to purport to allow covered entities to enter into
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`arrangements with an unlimited number of contract pharmacies to receive 340B discounted drugs.
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`3
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 4 of 48
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`See HRSA, Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services, 75 Fed.
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`Reg. 10,272, 10,277 (Mar. 5, 2010).
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`6.
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`HRSA’s policy change led to a huge increase in the role of contract pharmacies
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`under the 340B program. Retail pharmacies developed business models to take advantage of the
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`340B program by signing up covered entities across the United States as partners under different
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`types of arrangements. Under one model, the contract pharmacies replenish their inventory with
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`drugs purchased at 340B discounts from manufacturers for drugs that the contract pharmacies
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`already dispensed to customers, based on an assumption that a certain number of those customers
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`had a relationship with a covered entity sufficient to have justified a 340B discount. See Aaron
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`Vandervelde et al., BRG, For-Profit Pharmacy Participation in the 340B Program, at 5 (Oct.
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`2020) (explaining that pharmacies use “sophisticated software algorithms” to make these
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`determinations).1
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`7.
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`As a result, contract pharmacies on a large scale received post hoc drugs at the 340B
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`discounted price that the pharmacies claimed based on drugs they already had purchased at the
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`undiscounted price and already had dispensed to customers. Id. at 3; see also Examining Oversight
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`Reports on the 340B Drug Pricing Program: Hearing Before the S. Comm. on Health, Education,
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`Labor, and Pensions, 115th Cong. 11 (May 15, 2018) (testimony of Ann Maxwell, Assistant
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`Inspector Gen. for Evaluation and Inspections, Off. of Inspector Gen. (“OIG”)) (“OIG
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`Testimony”) (testifying that “many contract pharmacies dispense drugs to all of their customers—
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`340B-eligible or otherwise—from their regular inventory.”)
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`1
`https://media.thinkbrg.com/wp-content/uploads/2020/10/06150726/BRG-
`Available
`at
`ForProfitPharmacyParticipation340B_2020.pdf.
`4
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`8.
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`This practice led to newfound and substantial profits for the contract pharmacies.
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`Contract pharmacies are able to generate substantial revenues based on any previously filled
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`prescription that their algorithm asserts was eligible for the 340B discounted price. Although
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`contract pharmacies have not publicized the share of the 340B discount that goes into their pockets,
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`the available data indicate that often little or none of the benefit reaches underserved patient
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`populations. See U.S. Gov’t Accountability Off. (“GAO”), Drug Discount Program: Federal
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`Oversight of Compliance at 340B Contract Pharmacies Needs Improvement at 30 (June 2018)
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`(“2018 GAO Report”); see also OIG, Contract Pharmacy Arrangements in the 340B Program,
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`No. OEI-15-13-00431 at 14 (Feb. 4, 2014) (“2014 OIG Report”) (finding that many covered
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`entities “do not offer the 340B price to uninsured patients in any of their contract pharmacy
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`arrangements.”). Thus, contract pharmacies can generate significant profit margins for themselves
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`by charging patients and their insurers the full retail price for a drug when they dispense it, and
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`then later adding to their general inventory drugs they receive from manufacturers at the 340B
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`discounted price. Those 340B discounts are based on the status of a covered entity with which the
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`contract pharmacy has an arrangement—but the pharmacy retains significant portions of the profit
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`from the discounted pricing.
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`9.
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`By 2020, contract pharmacy participation in the 340B program had exploded.
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`Between April 1, 2010 and April 1, 2020, the number of contract pharmacy arrangements increased
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`by more than 4,000%, from 2,321 to 100,451. Vandervelde et al., supra, at 4. And by 2020, a
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`covered entity was contracting with an average of 22 contract pharmacies, far from the model of
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`contracting with one pharmacy envisioned by the 1996 guidance. Id. at 7. The number of
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`individual pharmacies participating in the 340B program now exceeds 27,000. Id. And the number
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`of claims for manufacturers to provide 340B discounts tripled between 2014 and 2019. See Adam
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`5
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 6 of 48
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`J. Fein, New HRSA Data: 340B Program Reached $29.9 billion in 2019; Now Over 8% of Drug
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`Sales, Drug Channels (June 9, 2020).2
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`10.
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`In order to ensure that 340B discounts actually benefit covered entities or their
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`underserved patients, Section 340B prohibits covered entities from reselling or otherwise
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`transferring a 340B discounted drug to an individual or entity who is not a patient of the covered
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`entity—a practice known as “diversion.” Multiple government reports have identified the high
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`risk of diversion under the 340B program associated with the use of contract pharmacies. The
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`GAO found that contract pharmacies are incentivized to deem more prescriptions 340B-eligible
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`because many of the contract pharmacies charge the covered entities fees under their contracts
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`“based on a percentage of revenue generated for each 340B prescription.” 2018 GAO Report at
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`25. To date, HRSA has taken no meaningful action to attempt to remedy this problem, and the
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`problem continues to grow.
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`11.
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`In view of the statutory structure, which does not provide for contract pharmacies;
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`the substantial increase in the role of contract pharmacies; documented abuses; and HRSA’s lack
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`of action, various drug manufacturers announced certain changes in their policies this past year,
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`including not providing 340B discounted drugs to or through contract pharmacies (subject to some
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`exceptions) and limiting the types of contract pharmacies to which they would voluntarily provide
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`drugs at the 340B discounted price.
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`12.
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`In the summer of 2020, HRSA officials acknowledged that HRSA’s prior guidance
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`regarding contract pharmacies was not enforceable against manufacturers. See, e.g., Michelle M.
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`Stein, HRSA Urges Pharma to Continue 340B Discounts at Contract Pharmacies, Inside Health
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`Policy (Aug. 20, 2020) (HRSA explained that “[w]ithout comprehensive regulatory authority,
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`2 https://www.drugchannels.net/2020/06/new-hrsa-data-340b-program-reached-299.html.
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`HRSA is unable to develop enforceable policy to ensure clarity in program requirements across all
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`the interdependent aspects of the 340B program”);3 cf. AstraZeneca, 2021 WL 2458063, at *6.
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`13.
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`HRSA changed position in the following months. See Letter from HRSA to
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`President and CEO of 340B Health (Dec. 9, 2020).4
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`14.
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`On December 30, 2020, the Chief Legal Officer of HHS issued a legal opinion
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`interpreting the text of the 340B statute to be unambiguous and declaring that “to the extent
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`contract pharmacies are acting as agents of a covered entity, a drug manufacturer in the 340B
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`Program is obligated to deliver its covered outpatient drugs to those contract pharmacies and to
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`charge the covered entity no more than the 340B ceiling price for those drugs.” Advisory Opinion
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`20-06 On Contract Pharmacies Under the 340B Program at 1 (Dec. 30, 2020) (“Advisory
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`Opinion”); AstraZeneca, 2021 WL 2458063, at *6 (“[T]he [Advisory] Opinion is the first
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`document in which HHS explicitly concluded that drug manufacturers are required by statute to
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`provide 340B drugs to multiple contract pharmacies.”).
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`15.
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`The December 30, 2020, Advisory Opinion was subsequently challenged in
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`litigation by an affected pharmaceutical manufacturer. See AstraZeneca, 2021 WL 2458063.
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`Despite the pendency of that litigation, in May of 2021, HRSA issued threats of enforcement in a
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`series of letters to various drug manufacturers that had recently implemented limits on the drugs
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`that they would provide to contract pharmacies at the 340B discounted price.
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`16.
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`On June 16, 2021, the federal district court entered an order declaring the Advisory
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`Opinion unlawful and noting that, contrary to the Advisory Opinion’s reasoning, the 340B statute
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`3 https://insidehealthpolicy.com/daily-news/hrsa-urges-pharma-continue-340b-discounts-
`contract-pharmacies.
`4 Second Am. Compl., Ex. L, Eli Lilly, ECF No. 103-13.
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`does not unambiguously obligate drug manufacturers to provide 340B discounted drugs to contract
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`pharmacies. Id. at *8–9.
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`17.
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`HRSA withdrew the Advisory Opinion on June 18, 2021. See Notice of
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`Withdrawal from Daniel J. Barry, Acting Gen. Counsel, HHS (June 18, 2021),5 (“Advisory
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`Opinion Withdrawal”) (“The Office of the General Counsel (OGC) is withdrawing Advisory
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`Opinion 20-06 . . . .”). HRSA did not, however, withdraw its letters threatening enforcement, and
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`instead represented in the litigation that the proper way to dispute those letters was via the pending
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`litigation.
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`18.
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`Shortly after issuance of the court order in the AstraZeneca case rejecting HRSA’s
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`interpretation of the statute, Plaintiff here, Boehringer Ingelheim, announced that effective August
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`1, 2021, it would provide drugs at the 340B discounted price to up to one commercial contract
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`pharmacy for certain covered entities—namely those that do not have an in-house pharmacy. As
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`described below, the policy also contained a number of exceptions, designed to ensure patient
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`access to BI’s medicines. HRSA sent a letter to BI on July 20, 2021, which contended that the
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`statute requires BI to provide 340B discount drugs to all contract pharmacies and referenced
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`potential civil monetary penalties. Ex. 1.
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`19.
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`BI responded to HRSA’s letter on July 29, 2021, explaining why HRSA’s
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`interpretation is foreclosed by the statute, and requesting that HRSA reconsider its interpretation.
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`Ex. 2. In subsequent correspondence with BI, HRSA has continued to assert its same interpretation
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`of the statute.
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`20.
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`HRSA sent a second letter to BI on September 8, 2021 stating that BI’s July 29,
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`2021 letter did not address HRSA’s concerns expressed in its July 20, 2021 letter. HRSA stated
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`5 Notice, Ex. 1, at 2, Eli Lilly, ECF No. 119-1.
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`that it was conducting an analysis of BI’s policy and “w[ould] make a determination as to any
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`potential action, which includes whether a violation of the 340B statute has occurred and the
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`potential for civil monetary penalties.” Ex. 3, at 1.
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`21.
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`BI responded to that letter on September 15, 2021, stating that it respectfully
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`continued to disagree with the agency’s interpretation of the statute. Ex. 4. On October 4, 2021,
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`HRSA sent a third letter to BI that stated HRSA had completed its review of BI’s policy regarding
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`contract pharmacies and that it “determined” that “BI’s actions have resulted in overcharges and
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`are in direct violation of the 340B statute.” Ex. 5, at 1 (the “October 2021 Letter” or “the Letter”).
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`HRSA reiterated its position that “[n]othing in the 340B statute grants a manufacturer the right to
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`place conditions on its fulfillment of its statutory obligation to offer 340B pricing on covered
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`outpatient drugs purchased by covered entities.”
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`22.
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`The October 2021 Letter also demanded that “BI must immediately begin offering
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`its covered outpatient drugs at the 340B ceiling price to covered entities through their contract
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`pharmacy arrangements, regardless of whether they purchase through an in-house pharmacy.” Id.
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`The Letter also instructed BI to reimburse covered entities for overcharges that the agency claims
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`have resulted from the policy and threatened civil monetary penalties if BI continues its policy.
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`23.
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`To date, HRSA has not altered its view of the statute. Accordingly, BI has no
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`recourse but to bring this lawsuit, to obtain a binding determination that the 340B statute does not
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`require BI to provide 340B discount drugs to contract pharmacies.
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 10 of 48
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`JURISDICTION AND VENUE
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`24.
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`This Court has jurisdiction pursuant to 28 U.S.C. § 1331. This action arises under
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`the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701–706.
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`25.
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`This Court has authority to grant declaratory and injunctive relief pursuant to the
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`Declaratory Judgment Act, 28 U.S.C. §§ 2201–02, the APA, 5 U.S.C. § 702, and the Court’s
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`inherent equitable powers.
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`26.
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`HRSA’s October 2021 Letter, which “determined” that BI’s policy has resulted in
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`overcharges and violates Section 340B, and which threatened civil monetary penalties against BI,
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`is a final agency action, as discussed further below. The Letter is therefore judicially reviewable
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`under the APA. 5 U.S.C. §§ 704, 706.
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`27.
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`Venue is proper in this District pursuant to 28 U.S.C. § 1391(e)(1) because this
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`action seeks relief against federal agencies and officials acting in their official capacities, some of
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`whom reside in this District, and a substantial part of the events or omissions giving rise to the
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`claim also occurred in this District.
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`PARTIES
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`28.
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`Plaintiff Boehringer Ingelheim is a corporation organized under the laws of the
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`State of Delaware with its principal place of business in Ridgefield, Connecticut. Boehringer
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`Ingelheim is a pharmaceutical company that researches, develops, manufactures, and markets
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`novel treatments for human and veterinary medicine. Boehringer Ingelheim participates in the
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`340B program.
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`29.
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`Defendant Xavier Becerra is the Secretary of HHS. His official address is in
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`Washington, D.C. He has ultimate responsibility for oversight of the activities of HRSA, including
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`the administration of the 340B program and the actions complained of herein. He is sued in his
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`official capacity.
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`30.
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`Defendant Diana Espinosa is the Acting Administrator of HRSA. Her official
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`address is in Rockville, Maryland. Acting Administrator Espinosa is directly responsible for the
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`administration of the 340B program and the actions complained of herein. Acting Administrator
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`Espinosa, among her other duties, has ultimate responsibility for the Office of Pharmacy Affairs,
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`which is headed by Acting Director Michelle Herzog and, as a constituent part of HRSA, is
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`involved directly in the administration of the 340B program. Acting Administrator Espinosa
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`issued the October 4, 2021 Letter, which is a final agency action that is the subject of this
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`complaint. Acting Administrator Espinosa is sued in her official capacity.
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`31.
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`Rear Admiral Krista M. Pedley was formerly the Director of the Office of
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`Pharmacy Affairs, which is a constituent part of HRSA. Then-Director Pedley issued the July 20,
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`2021 letter, which is one of the final agency actions that is the subject of this complaint. Director
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`Pedley is now the Director of the Office of Special Health Initiatives, the parent office of the Office
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`of Pharmacy Affairs. Director Pedley is sued in her official capacity.
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`32.
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`Defendant Michelle Herzog is the current Acting Director of the Office of
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`Pharmacy Affairs. Her official address is in Rockville, Maryland. The Office of Pharmacy Affairs
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`is a constituent part of HRSA and is involved directly in the administration of the 340B program.
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`Acting Director Herzog is sued in her official capacity.
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`33.
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`Defendant HHS is an executive department of the United States Government
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`headquartered in Washington, D.C., and is responsible for HRSA and the 340B program.
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`34.
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`Defendant HRSA is an administrative agency within HHS headquartered in
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`Rockville, Maryland, and is responsible for administering the 340B program.
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`FACTUAL BACKGROUND
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`A.
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`The 340B Program
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`35.
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`The 340B Drug Pricing Program was established by Congress through statute in
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`1992. Congress designed it to assist statutorily-defined covered entities that “provide direct
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`clinical care to large numbers of uninsured Americans.” H.R. Rep. No. 102-384, pt. 2, at 12
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`(1992), 1992 WL 239341.
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`36.
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`Section 340B instructs that HHS enter into “agreement[s]” with pharmaceutical
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`manufacturers providing that the price that the manufacturers offer to certain statutorily defined
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`“covered entit[ies]” can be no more than a certain ceiling price for the manufacturer’s covered
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`outpatient drugs. 42 U.S.C. § 256b(a)(1). That ceiling price is determined by calculating the
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`difference between the manufacturer’s Average Manufacturer Price and the Medicaid unit rebate
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`amount for the covered outpatient drug, as determined under the Medicaid drug rebate statute. Id.
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`§ 256b(a)(1)-(2), (b). Section 340B requires manufacturers to offer this discounted price to
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`covered entities, but it does not create any obligation for manufacturers to offer that price or
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`provide 340B discounted drugs to any other parties, such as contract pharmacies, or require that
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`manufacturers otherwise engage with contract pharmacies.
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`37.
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`Section 340B lists 15 specific categories of covered entities that must be offered
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`the benefit of purchasing drugs at the discounted price under the 340B program. 42 U.S.C.
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`§ 256b(a)(4).
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`38.
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`Congress selected these covered entities because they “generally care for
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`underserved populations.” Am. Hosp. Ass’n v. Azar, 967 F.3d 818, 822 (D.C. Cir. 2020).
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`39.
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`The phrase “contract pharmacy” does not appear in Section 340B. The term
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`“contract pharmacy” generally is understood in this context to refer to a for-profit pharmacy that,
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`12
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`as HRSA has admitted, does not qualify as a “covered entity” under Section 340B but has entered
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`into an arrangement with one or more covered entities. See Email from Rear Admiral Krista M.
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`Pedley, Director, Office of Pharmacy Affairs, HRSA to Lilly USA, LLC (June 11, 2020)6
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`(“Contract pharmacies . . . are only a mode for dispensing 340B drugs and not independent covered
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`entities.”).
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`40.
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`The agreement that HHS enters into with pharmaceutical manufacturers under the
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`statute is known as the Pharmaceutical Pricing Agreement and Addendum (“PPA”). The terms of
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`the PPA are not negotiable. See Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110, 118 (2011).
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`Indeed, “[t]he statutory and contractual obligations, in short, are one and the same.” Id. Nothing
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`in the PPA requires manufacturers to sell to, distribute to, or otherwise deal with contract
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`pharmacies, third-party administrators, or any party other than covered entities. The PPA defines
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`“covered entity” specifically to refer to healthcare entities described in Section 340B(a). See
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`Sample PPA.7
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`41.
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`Congress gave HHS tools to enforce its PPAs with pharmaceutical manufacturers,
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`including the authority to impose substantial “civil monetary penalties” on a manufacturer who
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`“knowingly and intentionally charges a covered entity a price for purchase of a drug that exceeds”
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`the statutory ceiling price. 42 U.S.C. § 256b(d)(1)(B)(vi), (d)(1)(B)(vi)(III).
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`42.
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`Although it is nominally optional for pharmaceutical manufacturers to participate
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`in the 340B program, see Astra, 563 U.S. at 117–18, manufacturers have no choice as a practical
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`matter. If a manufacturer does not participate in the 340B program for any of its covered drug
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`6 Second Am. Compl., Ex. C, Eli Lilly, ECF No. 103-4.
`7 https://www.hrsa.gov/sites/default/files/hrsa/opa/pdf/pharmaceutical-pricing-agreement-
`example.pdf.
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`products, all of the manufacturer’s prescription drug products are ineligible for coverage under the
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`Medicaid and Medicare programs. 42 U.S.C. § 1396r-8(a)(1), (5).
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`43.
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`Congress included a number of statutory provisions to guard against abuse in the
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`340B program.
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`44.
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`First, Congress prohibited covered entities from taking certain actions that would
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`be inconsistent with the purpose of the 340B program, namely causing “duplicate discounts” or
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`engaging in “diversion.” A covered entity cannot cause “duplicate discounts or rebates,” which
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`occur when a covered entity purchases from the manufacturer a unit of covered outpatient drug at
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`the discounted 340B price and then also seeks a Medicaid rebate on that same unit to be invoiced
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`to the manufacturer. The covered entity cannot dispense discounted 340B drugs to Medicaid
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`beneficiaries (which thereby triggers a manufacturer rebate obligation to Medicaid) without taking
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`certain steps to prevent a duplicate discount. Id. § 256b(a)(5)(A). Covered entities also are
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`prohibited from “resell[ing] or otherwise transfer[ring] [a 340B discounted] drug to a person who
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`is not a patient of the entity.” Id. § 256b(a)(5)(B).
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`45.
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`Second, Congress required covered entities to permit both HHS and the 340B drug
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`manufacturers to audit “the records of the entity that directly pertain to the entity’s compliance
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`with” the bars on duplicate discounts, reselling, and transfers. Id. § 256b(a)(5)(C).
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`46.
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`Third, Congress instructed HHS to implement improvements in covered entity
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`compliance with the statutory bars on duplicate discounts, reselling, and transfers. Id.
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`§ 256b(d)(2)(B). Among other things, HHS must have a process for imposing sanctions on
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`covered entities that violate these statutory prohibitions. Id. § 256b(d)(2)(B)(v).
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 15 of 48
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`B.
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`HRSA Guidance on Contract Pharmacies
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`47.
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`Following the creation of the 340B program in 1992, until 1996, there was no
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`HRSA guidance purporting to authorize contract pharmacies, and instead the only activity
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`contemplated was that covered entities would purchase and dispense 340B discount drugs
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`exclusively through their in-house pharmacies.
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`1.
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`1996 Guidance
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`48.
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`In 1996, HRSA issued guidance that led to contract pharmacies participating in the
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`340B program in a narrow way and in limited numbers. See HRSA, Notice Regarding Section
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`602 of the Veterans Health Care Act of 1992; Contract Pharmacy Services, 61 Fed. Reg. 43,549
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`(Aug. 23, 1996).
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`49.
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`The guidance explained that covered entities could contract with a single pharmacy
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`location for the purpose of “facilitat[ing] program participation for those eligible covered entities
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`that do not have access to appropriate ‘in-house’ pharmacy services.” 61 Fed. Reg. at 43,551; see
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`also HRSA Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services, 72 Fed.
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`Reg. 1540 (Jan. 12, 2007) (confirming that the 1996 guidance provided that a “covered entity could
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`contract with only one pharmacy to provide all pharmacy services for any particular site of the
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`covered entity” (emphasis added)). The 1996 guidance did not obligate manufacturers to sell or
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`provide prescription drugs to contract pharmacies at the 340B price; instead, it put forth HRSA’s
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`non-binding interpretation of how covered entities may choose to do business under the 340B
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`program. See 61 Fed. Reg. 43,550 (“We believe that these guidelines create no new law and create
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`no new rights or duties.”); see also Stein, supra, at 1.
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`50.
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`HRSA’s guidance did not identify any statutory support for its conclusion that use
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`of a contract pharmacy is permissible. Instead, HRSA acknowledged that “[t]he statute is silent
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 16 of 48
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`as to permissible drug distribution systems” but asserted that it does not contain “a requirement
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`for a covered entity to purchase drugs directly from the manufacturer or to dispense drugs itself.”
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`61 Fed. Reg. at 43,549. HRSA asserted that its 1996 guidance was lawful because, in its view, it
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`was “clear that Congress envisioned that various types of drug delivery systems would be used to
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`meet the needs of the very diversified group of 340B covered entities.” Id. HRSA recognized
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`that, even under its reading of the statute, however, any obligation to deal with a contract pharmacy
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`must be predicated on the existence of an agency relationship between the covered entity and the
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`contract pharmacy. See 61 Fed. Reg. at 43,550.
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`51.
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`The 1996 guidance included multiple important limits on the ability of contract
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`pharmacies to dispense 340B discounted drugs. For example, in HRSA’s view at that time, a
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`contract pharmacy should dispense a 340B discounted drug based only on an explicit,
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`individualized, advance determination that the prescription-holding patient is an eligible patient
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`receiving relevant treatment from a covered entity, based on (a) “presentation of a prescription
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`bearing the covered entity’s name, the eligible patient’s name, a designation that the patient is an
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`eligible patient, and the signature of a legally qualified health care provider affiliated with the
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`covered entity” or (b) after “receipt of a prescription ordered by telephone on behalf of an eligible
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`patient by a legally qualified health care provider affiliated with the covered entity who states that
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`the prescription is for an eligible patient.” Id. at 43,556. HRSA specified those guidelines because
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`“[t]he contractor should have some type of assurance that the patient to whom the contractor is
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`dispensing the 340B drug is a patient of a covered entity participating in the 340B Program.” Id.
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`at 43,553.
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`52.
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`The limited nature of the 1996 guidance helped to deter 340B program abuse,
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`particularly because the single contract pharmacy that a covered entity used would typically
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`Case 1:21-cv-02826 Document 1 Filed 10/25/21 Page 17 of 48
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`maintain a separate inventory of 340B drugs that it would dispense to the covered entity’s patients.
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`The guidance emphasized that “[t]his situation is akin to a covered entity having its own
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`pharmacy.” 61 Fed. Reg. at 43,550.
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`2.
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`2010 Guidance
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`53.
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`In 2010, HRSA changed positions and issued guidance that altered its policy.
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`HRSA, Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services, 75 Fed. Reg.
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`10,272 (Mar. 5, 2010).
`
`54.
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`HRSA’s 2010 guidance took the position that covered entities could enter into an
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`unlimited number of contract pharmacy arrangements that would enable the contract pharmacies
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`to obtain 340B discount drugs. Id. at 10,273.
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`55.
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`HRSA did not identify a statutory basis for its interpretation, but claimed it
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`“impose[d] [no] additional burdens upon manufacturers, nor create[d] any new rights for covered
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`entities under the law.” Id.
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`56.
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`The 2010 guidance further stated that covered entities were required to include
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`certain “essential elements” in their contract pharmacy arrangements, including that “[t]he covered
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`entity . . . purchase the drug, maintain title to the drug and assume responsibility for establishing
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`its price.” Id. at 10,277. Therefore, the guidance rested on the legal fiction that contract
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`pharmacies would operate as a vessel for covered entities. For example, the guidance provided
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`that “[t]he contract pharmacy, with the assistance of the covered entity, will establish and maintain
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`a tracking system suitable to prevent diversion of section