Case 1:21-cv-00081-SEB-MJD Document 1 Filed 01/12/21 Page 1 of 55 PageID #: 1
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`UNITED STATES DISTRICT COURT
`FOR THE SOUTHERN DISTRICT OF INDIANA
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`Civil Action No. 1:21-cv-81
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`Document Electronically Filed
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`ELI LILLY AND COMPANY,
`Lilly Corporate Center
`893 Delaware Street
`Indianapolis, IN 46225,
`and
`LILLY USA, LLC,
`1500 South Harding Street
`Indianapolis, IN 46221,
`Plaintiffs,
`
`v.
`ALEX M. AZAR II, in his official capacity as
`Secretary of Health & Human Services,
`Office of the Secretary
`200 Independence Avenue, S.W.
`Washington, D.C. 20201,
`ROBERT P. CHARROW, in his official
`capacity as General Counsel of Health &
`Human Services
`Office of the General Counsel
`200 Independence Avenue, S.W.
`Washington, D.C. 20201,
`UNITED STATES DEPARTMENT OF
`HEALTH AND HUMAN SERVICES
`200 Independence Avenue, S.W.
`Washington D.C. 20201,
`THOMAS J. ENGELS, in his official capacity
`as Administrator of the Health Resources and
`Services Administration
`5600 Fishers Lane,
`Rockville, MD 20852,
`and
`HEALTH RESOURCES AND SERVICES
`ADMINISTRATION
`5600 Fishers Lane,
`Rockville, MD 20852,
`Defendants.
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`

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`COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
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`At issue in this case is the lawful scope of the 340B Drug Pricing Program (“340B
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`Program”), which Congress created in 1992 to expand low-income Americans’ access to
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`affordable prescription medicines. See Veterans Health Care Act of 1992, Pub. L. No. 102-585,
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`§ 602(a), 106 Stat. 4943, 4967 (adding section 340B to the Public Health Service Act) (“340B
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`Statute”). Under the 340B Statute, pharmaceutical manufacturers “must” offer steep discounts on
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`their products to certain “covered entities.” 42 U.S.C. § 256b(a)(1); see also id. § 256b(a)(4),
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`(b)(1); id. § 1396r-8(a)(1), (5). And while manufacturers are not formally required to participate
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`in the 340B Program, they have little practical choice but to “opt in[]”: “Manufacturers’ eligibility
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`to participate in State Medicaid [and federal Medicare] programs,” which “touch[] the lives of
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`nearly all Americans,” Azar v. Allina Health Servs., 139 S. Ct. 1804, 1808 (2019), and contribute
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`a significant portion of manufacturers’ annual revenues, “is conditioned on their” participation in
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`the 340B Program and “entry into [Pharmaceutical Pricing Agreements] for covered drugs
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`purchased by 340B entities.” Astra U.S.A., Inc. v. Santa Clara Cnty., 563 U.S. 110, 113 (2011).
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`Under the original terms of the 340B Program, and cognizant of the constitutional limits
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`on forcing private parties to effectively subsidize other private parties, Congress provided that only
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`“covered entities”—a narrowly circumscribed class of non-profit healthcare providers that
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`Congress defined to be limited to 15 discrete and specifically enumerated types of entities that
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`serve low-income and/or vulnerable populations—could demand these steep discounts. Entities
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`not included on Congress’s list of covered entities—such as for-profit hospitals or big businesses
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`like Walgreens and CVS, the latter of which are referred to as “contract pharmacies”—had no legal
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`basis to demand to receive medications from manufacturers at 340B discounted prices. See 42
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`U.S.C. § 256b(a)(4).
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`

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`But that has all changed now. On December 30, 2020, the U.S. Department of Health and
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`Human Services (“HHS”) Office of the General Counsel “released an advisory opinion concluding
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`that drug manufacturers are required to deliver discounts under the 340B Drug Pricing Program
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`(340B Program) on covered outpatient drugs when contract pharmacies are acting as agents of
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`340B covered entities.” U.S. Dep’t of Health and Human Servs., HHS Releases Advisory Opinion
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`Clarifying
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`that 340B Discounts Apply
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`to Contract Pharmacies
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`(Dec. 30, 2020),
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`https://bit.ly/38Qh0lB; see U.S. Dep’t of Health & Human Servs. Office of the General Counsel,
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`Advisory Opinion 20-06 on Contract Pharmacies under the 340B Program, at 1 (Dec. 30, 2020)
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`(“December 30 Decision”) (“We conclude” that “a drug manufacturer in the 340B Program is
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`obligated to deliver its covered outpatient drugs to those contract pharmacies and to charge the
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`covered entity no more than the 340B ceiling price for those drugs” whenever a contract
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`pharmacy acts as a covered entity’s “agent.” (emphasis added)), https://bit.ly/357nqfk.
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`That is no small matter. Unlike the 15 types of entities Congress enumerated in the statute,
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`contract pharmacies do not predominantly serve vulnerable populations, and they rarely pass along
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`any 340B price savings to the patients who purchase 340B drugs. See U.S. Gov’t Accountability
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`Office (“GAO”), Discount Drug Program: Federal Oversight of Compliance at 340B Contract
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`Pharmacies Needs Improvement, GAO-18-480 (“2018 GAO Report”), at 10-13 (June 2018),
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`https://bit.ly/3kJ7eGa; Aaron Vandervelde et al., For-Profit Pharmacy Participation in the 340B
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`Program, at 3 (Oct. 2020), https://bit.ly/2XryAY5. When Defendants HHS and the Health
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`Resources and Services Administration (“HRSA”) first allowed covered entities to enter into an
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`unlimited number of contract pharmacy arrangements for 340B drugs back in 2010 (but did not
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`require manufacturers to honor those arrangements), contract pharmacies began “generat[ing]
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`revenue” to the tune of hundreds of millions of dollars per year by perverting the 340B Program
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`3
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`simply by “purchas[ing] covered outpatient drugs at the 340B Program price for all eligible
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`patients regardless of the patients’ income or insurance status” and “receiving reimbursement from
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`patients’ insurance that may exceed the 340B prices paid for the drugs.” GAO, 340B Drug
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`Discount Program: Increased Oversight Needed to Ensure Nongovernmental Hospitals Meet
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`Eligibility Requirements, GAO-20-108, at 5 (Dec. 2019), https://bit.ly/34Vj6zK.
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`Against this backdrop, and consistent with the plain text and clear purpose of the statute,
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`Plaintiffs Eli Lilly and Company and Lilly USA, LLC (together, “Lilly”) announced last summer
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`that it would cease to offer 340B discounts to contract pharmacies on three formulations of its drug
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`Cialis®. Lilly later expanded this new distribution model to include all of its products—except
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`when a covered entity lacks an in-house pharmacy, in which case an outside pharmacy is necessary
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`to dispense covered drugs, and in which case Lilly will permit the covered entity to designate one
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`contract pharmacy to receive and dispense 340B product.
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`To be clear: Lilly still offers full 340B discounts to all entities eligible for them. And Lilly
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`will continue to ensure that patients are able to receive 340B product even when a covered entity
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`cannot dispense drugs itself. Lilly’s new distribution plan is thus not only a necessary bulwark
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`against contract pharmacy abuses of the 340B Program, but is consistent with the plain text and
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`the original intent of the 340B Statute. Yet when Lilly announced that it would no longer allow
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`an unlimited number of contract pharmacies to demand discounts, Defendants first threatened Lilly
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`with sanctions and now have made good on those threats: They have jettisoned their prior
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`nonbinding guidance that contract pharmacy arrangements are permissible but not enforceable and
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`replaced that guidance with a new, binding decision under which manufacturers like Lilly must
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`offer full 340B discounts to contract pharmacies on all covered drugs, lest they face massive
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`penalties of up to $5,000 per occurrence, plus the potential revocation of the manufacturer’s ability
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`to participate in and receive reimbursements under the pervasive Medicare and Medicaid
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`programs.
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`Lilly therefore brings this action seeking an order (1) declaring that the December 30
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`Decision violates the Administrative Procedure Act because it was issued without following proper
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`procedure, is in excess of statutory authority, violates the Constitution, and is arbitrary, capricious,
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`an abuse of discretion, and otherwise not in accordance with law; (2) declaring that Lilly is not
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`required to offer 340B discounts to contract pharmacies; and (3) enjoining enforcement of the
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`December 30 Decision and all actions by Defendants inconsistent with that declaratory relief.
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`THE PARTIES
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`1.
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`Plaintiff Eli Lilly and Company is a publicly traded pharmaceutical company
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`organized and existing under the laws of the State of Indiana and headquartered in Indianapolis,
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`Indiana. Eli Lilly and Company participates in the 340B Program.
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`2.
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`Plaintiff Lilly USA, LLC is a wholly owned subsidiary of Eli Lilly and Company
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`existing under the laws of the State of Indiana and headquartered in Indianapolis, Indiana.
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`3.
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`Defendant HHS is an executive branch department in the United States government
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`headquartered in the District of Columbia. HHS oversees the activities of HRSA.
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`4.
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`Defendant Alex M. Azar II, sued in his official capacity only, is the Secretary of
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`HHS. His official address is in the District of Columbia. Secretary Azar has ultimate responsibility
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`for oversight of the activities of HRSA, including with regard to the administration of the 340B
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`Program and the actions complained of herein.
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`5.
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`Defendant Robert P. Charrow, sued in his official capacity only, is the General
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`Counsel of HHS. His official address is in the District of Columbia. Mr. Charrow oversees the
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`Office of General Counsel, which publishes final legal decisions on behalf of the agency.
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`5
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`6.
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`Defendant HRSA is an administrative agency within HHS and is responsible for
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`administering the 340B Program. HRSA is headquartered in Rockville, Maryland.
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`7.
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`Defendant Thomas J. Engels, sued in his official capacity only, is the Administrator
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`of HRSA. His official address is in Rockville, Maryland. Administrator Engels is directly
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`responsible for the administration of the 340B Program and the actions complained of herein.
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`Administrator Engels, among his other duties, has ultimate responsibility for the Office of
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`Pharmacy Affairs (“OPA”) in HRSA, which is headed by Rear Admiral Krista M. Pedley of the
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`Public Health Service. OPA is involved directly in the administration of the 340B Program, as a
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`constituent part of HRSA.
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`JURISDICTION AND VENUE
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`8.
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`Lilly brings this action under the Administrative Procedure Act (“APA”), 5 U.S.C.
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`§§ 701–706, and the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202.
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`9.
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`10.
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`The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331.
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`Venue is proper because, among other things, Lilly resides in this judicial district
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`and “no real property is involved in the action.” 28 U.S.C. § 1391(e)(1).
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`11.
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`This Court may grant injunctive and declaratory relief pursuant to 5 U.S.C. §§ 701–
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`706 and 28 U.S.C. §§ 2201–2202.
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`FACTS
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`I.
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`Congress Created The 340B Program To Help Vulnerable And Low-Income Patients
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`12.
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`Congress established the 340B Program, named for the statutory provision
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`authorizing it in the Veterans Health Care Act of 1992, see Pub. L. No. 102-585, § 602(a), 106
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`Stat. 4943, 4967 (adding section 340B to the Public Health Service Act), to “reduce pharmaceutical
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`costs for safety-net medical providers and the indigent populations they serve.” Connor J. Baer,
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`Drugs for the Indigent: A Proposal to Revise the 340B Drug Pricing Program, 57 WM. & MARY
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`6
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`L. REV. 637, 638 (2015); see H.R. Rep. No. 102-384 (II), at 12 (1992) (The 340B Program
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`“provides protection from drug price increases to specified Federally-funded clinics and public
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`hospitals that provide direct clinical care to large numbers of uninsured Americans.”). The point
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`of the 340B Program, in other words, was to “create[] a low-cost source of pharmaceutical
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`medication for the indigent patients themselves.” Baer, supra, at 638.
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`13.
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`Although participation in the 340B Program is formally optional, see Astra, 563
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`U.S. at 117-18, manufacturers have no real choice but to opt in: Manufacturers cannot receive
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`coverage or reimbursement for their products under Medicaid and Medicare Part B unless they
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`participate in the 340B Program. 42 U.S.C. § 1396r-8(a)(1), (5).
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`14. Manufacturers “opt into” the 340B Program by signing a form contract, known as
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`the Pharmaceutical Pricing Agreement (“PPA”), with HHS. Astra, 563 U.S. at 117.
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`15.
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`A PPA is not an ordinary contract. PPAs are entirely composed by HHS, they
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`“have no negotiable terms,” and they “simply incorporate statutory obligations and record the
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`manufacturers’ agreement to abide by them.” Id. at 118. “The statutory and contractual
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`obligations, in short, are one and the same.” Id.
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`16.
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`The government may terminate a PPA if it determines that a manufacturer has failed
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`to comply with its obligations. See 42 U.S.C. 1396r-8(b)(4)(B)(v); 61 Fed. Reg. 65,406, 65,412–
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`65,413 (Dec. 12, 1996); PPA §§ IV(c), VI(c).
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`17.
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`Under the 340B Statute and the terms of the PPA, any manufacturer that
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`participates in the 340B Program must “offer each covered entity covered outpatient drugs for
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`purchase at or below the applicable ceiling price if such drug is made available to any other
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`purchaser at any price.” 42 U.S.C. § 256b(a)(1). Only “covered entities”—a class of non-profit
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`healthcare organizations the 340B Statute defines in painstaking detail—are eligible to participate
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`in the Program and receive these discounts for prescription drugs.
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`18.
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`The 340B Statute exhaustively defines “covered entities.” The statutory definition
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`enumerates 15 categories of “covered entities” (e.g., “A black lung clinic receiving funds under
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`section 937(a) of title 30”), but not the specific eligible entities themselves (e.g., the Philadelphia
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`Black Lung Clinic). See 42 U.S.C. § 256b(a)(4).
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`19.
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`Consistent with the 340B Program’s overriding goal of helping vulnerable and low-
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`income patients acquire lower-cost access to life-saving medicines, the statute defines “covered
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`entities” to include only organizations that naturally, and often predominantly, serve low-income
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`individuals. For instance, Federally Qualified Health Centers, children’s hospitals, rural hospitals,
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`and other clinics serving vulnerable populations are all specifically defined as “covered entities”
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`eligible to enroll and participate in the 340B Program. Id.; see also Am. Hosp. Ass’n v. Azar, 967
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`F.3d 818, 820 (D.C. Cir. 2020).
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`20.
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`The statute further makes clear that entities not on the list—e.g., for-profit
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`hospitals, and commercial businesses such as “contract pharmacies” that profit off manufacturer
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`discounts—are not entitled to receive medications from manufacturers at 340B discounted prices.
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`42 U.S.C. § 256b(a)(4).
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`21.
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`Pursuant to the 340B Statute and the terms of the PPA, HRSA publishes on its
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`website a list of specific qualifying “covered entities,” which it updates quarterly. See 42 U.S.C.
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`§ 256b(a)(9); PPA § III.(a). HRSA treats the quarterly list as definitive and binding on
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`manufacturers. See 82 Fed. Reg. 1,210, 1,227 (Jan. 5, 2017).
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`22.
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`Covered entities pay significantly discounted prices for “covered outpatient drugs,”
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`a category which includes most drugs used on an outpatient basis, according to a prescribed
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`statutory formula. See 42 U.S.C. § 256b(a)(1), (a)(4), (b)(1). The 340B price is calculated by
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`determining the difference between the manufacturer’s Average Manufacturer Price and its
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`Medicaid rebate amount, as determined under the Medicaid Drug Rebate Program statute, codified
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`at Section 1927 of the Social Security Act. Id. § 256b(a)(1)-(2) & (b). The resulting prices, known
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`as the 340B “ceiling prices,” are significantly lower than what other purchasers would pay for the
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`same product and can even be as low as one penny per pill or per milligram. Covered entities are
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`then able to turn around and bill patients or insurers the drug’s full price, pocketing the difference.
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`23.
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`The 340B Statute delegates oversight and enforcement responsibilities to HHS. In
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`addition to requiring HHS to notify manufacturers of the identity of covered entities, see id.
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`§ 256b(a)(9), the statute authorizes HHS to monitor unlawful drug diversion by covered entities
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`and to audit covered entities and manufacturers, see id. § 256b(d)(1)(B)(vi). HHS has delegated
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`340B oversight and enforcement to HRSA, one of the defendants in this suit.
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`24.
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`That authority empowers HRSA to evaluate manufacturer compliance with
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`Program requirements, and it may impose civil monetary penalties (“CMPs”) on manufacturers
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`that knowingly and intentionally charge covered entities more than the statutory 340B ceiling price
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`for covered outpatient drugs. In particular, HRSA may impose CMPs of up to $5,883 “for each
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`instance of overcharging” a covered entity. 85 Fed. Reg. 2,869, 2,873 (Jan. 17, 2020); see 42
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`C.F.R. § 10.11(a); 42 U.S.C. § 256b(d)(1)(B)(vi).
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`25.
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`In addition to limiting the universe of covered entities, Congress also prohibited
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`covered entities from causing “duplicate discounts or rebates,” which means they may not request
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`both a 340B discount and a Medicaid rebate for the same drug. 42 U.S.C. § 256b(a)(5)(A).
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`26.
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`And to help ensure that covered entities and others do not inappropriately benefit
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`from the opportunity of 340B price arbitrage, Congress further forbade any “covered entity” from
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`engaging in “diversion,” i.e., “resell[ing] or otherwise transfer[ring]” a covered outpatient drug “to
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`a person who is not a patient of the entity.” Id. § 256b(a)(5)(B). In other words, covered entities
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`may not transfer or sell the discounted drugs to any person or entity except their own patients. The
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`340B Statute does not extend this diversion prohibition to manufacturers—thereby ensuring that
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`if a covered entity lacks an in-house pharmacy through which it can dispense medicines itself,
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`manufacturers may lawfully opt to deliver discounted product to a dispensing pharmacy of the
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`covered entity’s choosing (as Lilly has always done and continues to do still today).
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`27.
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`There are two potential forms of diversion at play when covered entities use
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`contract pharmacies. First, diversion occurs when the covered entities transfer or sell discounted
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`drugs to any person or entity except their own patients—i.e., to the contract pharmacies. Second,
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`diversion occurs when covered entities (or contract pharmacies) transfer or sell discounted drugs
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`to patients who are not eligible to receive drugs at discounted prices pursuant to 340B. In other
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`words, contract pharmacy arrangements, which instruct wholesalers to honor 340B prices to for-
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`profit commercial pharmacies, may (and frequently do) result in 340B discounted product being
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`diverted—i.e., “otherwise transfer[red]” to another person or entity in violation of the statute.
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`II.
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`The 340B Statute Neither Requires Manufacturers To Offer Discounts To For-Profit
`Contract Pharmacies Nor Empowers HHS/HRSA To Impose Such A Requirement
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`28.
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`The 340B Statute contemplates that manufacturers will provide covered outpatient
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`drugs at 340B discounted prices only to covered entities.
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`29.
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`Nothing in the statute allows, let alone mandates, the use of contract pharmacies or
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`that manufacturers respect an unlimited number of covered entity – contract pharmacy
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`relationships. In fact, the opposite is true.
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`30.
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`Section 340B’s plain language limits a manufacturer’s obligation to offer 340B
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`prices to “each covered entity.” 42 U.S.C. § 256b(a)(1); see id. (authorizing the HHS Secretary
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`(and thus HRSA) to “require that the manufacturer offer each covered entity covered outpatient
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`drugs for purchase at or below the applicable ceiling price if such drug is made available to any
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`other purchaser at any price”).
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`31.
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`32.
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`A contract pharmacy, however, is not a covered entity.
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`The 340B Statute defines the term “covered entity” in exhaustive detail. In 42
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`U.S.C. § 256b(a)(4)—titled “‘Covered entity’ defined”—Congress defined the term as “an entity
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`that meets the requirements described in paragraph (5),” which prohibits diversion and duplicate
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`discounts, “and is one of the following”:
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`(A) A Federally-qualified health center (as defined in section 1905(l)(2)(B) of the
`Social Security Act).
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`(B) An entity receiving a grant under section 256a of this title.
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`(C) A family planning project receiving a grant or contract under section 300 of
`this title.
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`(D) An entity receiving a grant under subpart II of part C of subchapter XXIV
`(relating to categorical grants for outpatient early intervention services for HIV
`disease).
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`(E) A State-operated AIDS drug purchasing assistance program receiving financial
`assistance under subchapter XXIV.
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`(F) A black lung clinic receiving funds under section 937(a) of title 30.
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`(G) A comprehensive hemophilia diagnostic treatment center receiving a grant
`under section 501(a)(2) of the Social Security Act.
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`(H) A Native Hawaiian Health Center receiving funds under the Native Hawaiian
`Health Care Act of 1988.
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`(I) An urban Indian organization receiving funds under title V of the Indian Health
`Care Improvement Act.
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`(J) Any entity receiving assistance under subchapter XXIV (other than a State or
`unit of local government or an entity described in subparagraph (D)), but only if
`the entity is certified by the Secretary pursuant to paragraph (7).
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`(K) An entity receiving funds under section 247c of this title (relating to treatment
`of sexually transmitted diseases) or section 247b(j)(2) of this title (relating to
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`treatment of tuberculosis) through a State or unit of local government, but only if
`the entity is certified by the Secretary pursuant to paragraph (7).
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`(L) A subsection (d) hospital (as defined in section 1886(d)(1)(B) of the Social
`Security Act that—
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`(i) is owned or operated by a unit of State or local government, is a public
`or private non-profit corporation which is formally granted governmental
`powers by a unit of State or local government, or is a private non-profit
`hospital which has a contract with a State or local government to provide
`health care services to low income individuals who are not entitled to
`benefits under title XVIII of the Social Security Act or eligible for
`assistance under the State plan under this subchapter;
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`(ii) for the most recent cost reporting period that ended before the calendar
`quarter involved, had a disproportionate share adjustment percentage (as
`determined under section 1886(d)(5)(F) of the Social Security Act) greater
`than 11.75 percent or was described in section 1886(d)(5)(F)(i)(II) of such
`Act; and
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`(iii) does not obtain covered outpatient drugs through a group purchasing
`organization or other group purchasing arrangement.
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`(M) A children’s hospital excluded from the Medicare prospective payment system
`pursuant to section 1886(d)(1)(B)(iii) of the Social Security Act, or a free-standing
`cancer hospital excluded from the Medicare prospective payment system pursuant
`to section 1886(d)(1)(B)(v) of the Social Security Act, that would meet the
`requirements of subparagraph (L), including the disproportionate share adjustment
`percentage requirement under clause (ii) of such subparagraph, if the hospital were
`a subsection (d) hospital as defined by section 1886(d)(1)(B) of the Social Security
`Act.
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`(N) An entity that is a critical access hospital (as determined under section
`1820(c)(2) of the Social Security Act), and that meets the requirements of
`subparagraph (L)(i).
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`(O) An entity that is a rural referral center, as defined by section 1886(d)(5)(C)(i)
`of the Social Security Act, or a sole community hospital, as defined by section
`1886(d)(5)(C)(iii) of such Act, and that both meets the requirements of
`subparagraph (L)(i) and has a disproportionate share adjustment percentage equal
`to or greater than 8 percent.
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`33.
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`The 340B Statute thus lists 15 different types of entities that can qualify as “covered
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`entities” for purposes of the 340B Program. Contract pharmacies do not make the list.
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`34.
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`Furthermore, neither the 340B Statute nor any other provision of law confers upon
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`Defendants authority to require manufacturers to provide discounts to contract pharmacies through
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`any exception process or carve out through a “safe harbor” for unlisted covered entities, or by
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`claiming that contract pharmacies act as the “agents” of covered entities. That means Defendants
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`have no such authority: As creatures of statute, agencies like HHS and HRSA have no valid power
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`to act “unless and until Congress confers power upon [them].” Wabash Valley Power Ass’n, Inc.
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`v. Rural Electrification Admin., 988 F.2d 1480, 1486 (7th Cir. 1993) (quoting La. Public Service
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`Comm’n v. FCC, 476 U.S. 355, 374 (1986)). Congress has not granted any such authority here.
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`35.
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`Nor does the 340B Statute permit Defendants to obligate manufacturers to offer
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`discounts to contract pharmacies based on the theory that the latter are merely acting as “agents”
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`of covered entities. The 340B Statute contemplates that various entities that themselves are not
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`covered entities may effectively step in the shoes of a covered entity in certain, limited
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`circumstances. See, e.g., 42 U.S.C. § 256b(d)(3)(B)(vi) (referring separately to three types of
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`agents, including “associations or organizations representing the interests of [ ] covered entities,”
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`rather than simply calling them “covered entities”); id. § 256b(d)(1)(B)(v) (same vis-à-vis
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`“wholesalers”); id. § 256b(d)(2)(B)(iv) (same vis-à-vis “distributors”). But Congress did not
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`delegate any discretionary or rulemaking authority to HRSA to add to or subtract from the list of
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`entities that manufacturers are required to treat as “covered entities” under the Program, or to
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`impose a requirement that manufacturers offer 340B discounts to “associations or organizations
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`representing the interests of [ ] covered entities” on pain of penalty.
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`36.
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`To the contrary, Congress limited HRSA’s authority to undertake rulemaking in the
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`340B Program to three specific areas: (1) the establishment of an administrative dispute resolution
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`process, (2) the issuance of precisely defined standards of methodology for calculation of ceiling
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`prices, and (3) the imposition of monetary civil sanctions, see Pharm. Research & Mfrs. of Am. v.
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`U.S. Dep’t of Health & Human Servs., 43 F. Supp. 3d 28, 41 (D.D.C. 2014), the latter of which is
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`specifically limited to instances of overcharging covered entities themselves, not any agents
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`thereof, see 42 U.S.C. § 256b(d)(1)(B)(vi)(II)-(III).
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`37.
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`In short, HRSA has no authority to create exceptions to the statutory limitation that
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`only the explicitly enumerated “covered entities” may receive 340B discounts. Only Congress
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`holds that power. Any agency determination to the contrary is in excess of its statutory authority
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`and contrary to law. 5 U.S.C. § 706(2)(A); see FDA v. Brown & Williamson Tobacco Corp., 529
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`U.S. 120, 125 (2000) (An agency “may not exercise its authority in a manner that is inconsistent
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`with the administrative structure that Congress enacted.” (internal quotation marks omitted)).
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`III. Despite These Statutory Limitations, HRSA Issued Guidance Permitting The Use Of
`Contract Pharmacies In 1996 And Then Expanded That Permission In 2010, But
`Stopped Short Of Requiring Manufacturers To Offer Contract Pharmacies Discounts
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`38.
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`Until 1996, covered entities purchased and dispensed 340B drugs exclusively
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`through in-house pharmacies.
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`39.
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`In 1996, HRSA issued guidance allowing “contract pharmacies”—typically large,
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`commercial, for-profit entities—to sign agreements with covered entities to dispense covered
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`outpatient drugs in connection with the 340B Program. 61 Fed. Reg. 43,549 (Aug. 23, 1996).
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`40.
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`This initial allowance for contract pharmacies, which are not themselves covered
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`entities, was narrow: Only covered entities without an in-house pharmacy could contract with
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`contract pharmacies to dispense 340B drugs to the covered entity’s patients—and even then, each
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`covered entity could contract with just a single contract pharmacy.
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`41.
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`The 1996 guidance made clear that HRSA itself recognized that it lacks authority
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`to expand or contract the universe of covered entities. See id. at 43,550.
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`42.
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`In issuing the 1996 guidance, moreover, HRSA intentionally chose not to follow
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`the notice-and-comment requirements of the APA. See 5 U.S.C. § 553(b), (c). That was because,
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`in HRSA’s view, the guidance amounted merely to an interpretive rule that “create[d] no new law
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`and create[d] no new rights or duties.” 61 Fed. Reg. at 43,550. Compare, e.g., Perez v. Mortg.
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`Bankers Ass’n, 575 U.S. 92, 97 (2015) (“Interpretive rules do not have the force and effect of law
`
`and are not accorded that weight in the adjudicatory process.” (internal quotation marks and
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`citation omitted)), with, e.g., Metro. Sch. Dist. v. Davila, 969 F.2d 485, 489 (7th Cir. 1992)
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`(legislative rules “create new law, rights, or duties,” and must proceed through notice and
`
`comment).
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`43.
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`In short, HRSA’s 1996 allowance for contract pharmacies created no new
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`obligations that do not arise from the statute itself, and it did not require (or even purport to require)
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`manufacturers to deliver 340B discounted product to contract pharmacies.
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`44.
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`The lay of the land from 1996 to 2010 was thus largely consonant with the
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`Program’s aims: In the ordinary course, only covered entities—which, again, uniformly are
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`nonprofit healthcare providers that serve large numbers or proportions of vulnerable patients, not
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`shareholders—could receive 340B discounted drugs from manufacturers. But if a covered entity
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`lacked an in-house pharmacy, it could contract with one (but only one) nearby pharmacy to
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`dispense 340B discounted drugs to its patients, near or far.
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`45.
`
`That all changed in 2010, when HRSA issued new guidance significantly
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`expanding covered entities’ ability to contract with outside, for-profit pharmacies. See 75 Fed.
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`Reg. 10,272 (Mar. 5, 2010).
`
`46.
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`This 2010 guidance allows all covered entities, not just those without an in-house
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`pharmacy, to contract with commercial pharmacies to dispense 340B discounted drugs. It further
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`allows covered entities to enter into an unlimited number of such arrangements with an unlimited
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`number of contract pharmacies—whether the pharmacy is across the street or across the country.
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`47.
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`As in 1996, HRSA styled the 2010 guidance as an interpretive rule, did not go
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`through the notice-and-comment procedures, and made clear that the guidance imposed no
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`obligations. Id. at 10,274; see also id. at 10,273 (2010 guidance “neither imposes additional
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`burdens upon manufacturers, nor creates any new rights for covered entities under the law”).
`
`48.
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`The 2010 guidance has radically altered—and undermined—the 340B Program.
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`No longer is it a program intended to improve access to much-needed drugs among vulnerable
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`patient populations; instead, the Program has become a massive profit-making endeavor for large
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`businesses such as Walgreens, CVS, and other