Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 1 of 48 PageID #: 1021
`
`
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE SOUTHERN DISTRICT OF INDIANA
`INDIANAPOLIS DIVISION
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`No. 1:21-cv-81-SEB-MJD
`
`
`
`
`ELI LILLY AND COMPANY, and
`LILLY USA, LLC
`
` Plaintiffs,
`
` v.
`
`U.S. DEPARTMENT OF HEALTH AND
`HUMAN SERVICES, et al.,
`
`
` Defendants.
`
`
`
`
`
`
`
`
`
`
`
`DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR
`PRELIMINARY INJUNCTION
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 2 of 48 PageID #: 1022
`
`
`BACKGROUND .............................................................................................................................................. 2
`
`TABLE OF CONTENTS
`
`I.
`
`II.
`
`III.
`
`STATUTORY AND REGULATORY BACKGROUND .......................................................... 2
`
`PHARMACEUTICAL COMPANIES UNILATERALLY RESTRICT ACCESS
`TO 340B DISCOUNTS FOR SAFETY-NET PROVIDERS ..................................................... 7
`
`PHARMACEUTICAL COMPANIES SUE TO PREVENT HHS’s
`ENFORCEMENT OF THE 340B STATUTE ........................................................................... 10
`
`STANDARD OF REVIEW .......................................................................................................................... 10
`
`ARGUMENT................................................................................................................................................... 11
`
`I.
`
`LILLY CANNOT SUCCEED ON THE MERITS .................................................................... 13
`
`A.
`
`B.
`
`C.
`
`ADR Board Members Are Inferior Officers .................................................................... 13
`
`The ADR Process Does Not Infringe the Power of the Judiciary ............................... 19
`
`The ADR Rule is Procedurally Compliant With The APA ............................................ 25
`
`1. HHS did not terminate the ADR Rulemaking in advance of issuing the
`final rule. .......................................................................................................................... 25
`
`2. The ADR Rule is a logical outgrowth of the NPRM. .............................................. 27
`
`D.
`
`The ADR Rule is Substantively Compliant with the APA. ............................................ 29
`
`1. The ADR Rule does not exceed HHS’s statutory authority. ................................... 29
`
`2. The ADR Rule is not arbitrary and capricious. ......................................................... 30
`
`II.
`
`LILLY HAS NOT ESTABLISHED IRREPARABLE HARM ................................................ 34
`
`A.
`
`B.
`
`Allegations of structural constitutional harms are insufficient to support a
`preliminary injunction. ......................................................................................................... 34
`
`Litigation Expenses Are Not Irreparable Harm. ............................................................. 35
`
`III.
`
`THE BALANCE OF THE EQUITIES AND THE PUBLIC INTEREST WEIGH
`AGAINST THE REQUESTED INJUNCTION........................................................................ 37
`
`
`
`i
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 3 of 48 PageID #: 1023
`
`CASES
`
`TABLE OF AUTHORITIES
`
`Alto Dairy v. Veneman,
`336 F.3d 560 (7th Cir. 2003) ............................................................................................................... 28, 29
`
`Am. Med. Ass’n v. United States,
`887 F.2d 760 (7th Cir. 1989) ............................................................................................................... 27, 29
`
`Am. Petroleum Inst. v. Jorling,
`710 F. Supp. 421 (N.D.N.Y. 1989) ........................................................................................................... 35
`
`Amundsen v. Chi. Park Dist.,
`218 F.3d 712 (7th Cir. 2000) ...................................................................................................................... 31
`
`Ariz. Hosp. & Healthcare Ass’n v. Betlach,
`865 F. Supp. 2d 984 (D. Ariz. 2012) ......................................................................................................... 37
`
`Arthrex, Inc. v. Smith & Nephew, Inc.,
`941 F.3d 1320 (Fed. Cir. 2019) .................................................................................................................. 18
`
`Association of American Railroads v. U.S. Department of Transportation,
`821 F.3d 19 (D.C. Cir. 2016) ..................................................................................................................... 17
`
`Astra USA, Inc. v. Santa Clara Cty.,
`563 U.S. 110 (2011) .......................................................................................................................... 4, 24, 38
`
`Bader v. Wernert,
`178 F. Supp. 3d 703 (N.D. Ind. 2016) ...................................................................................................... 36
`
`Bank of N. Shore v. Fed. Deposit Ins. Corp.,
`743 F.2d 1178 (7th Cir. 1984) .................................................................................................................... 30
`
`Baskin v. Bogan,
`983 F. Supp. 2d 1021 (S.D. Ind. 2014) ..................................................................................................... 35
`
`Bernard v. Individual Members of Ind. Med. Licensing Bd.,
`392 F. Supp. 3d 935 (S.D. Ind. 2019) ....................................................................................................... 34
`
`Cal Pharmacists Ass’n v. Maxwell-Jolly,
`596 F.3d 1098 (9th Cir. 2010), vacated & remanded sub nom,
`Douglas v. Indep. Living Ctr. of S. Cal., Inc., 565 U.S. 606 (2012) .............................................................. 37
`
`CFTC v. Schor,
`478 U.S. 833 (1986) ..................................................................................................................................... 24
`
`Cierco v. Lew,
`190 F. Supp. 3d 16 (D.D.C. 2016) ............................................................................................................ 26
`
`
`
`ii
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 4 of 48 PageID #: 1024
`
`City of Portland v. EPA,
`507 F.3d 706 (D.C. Cir. 2007) ................................................................................................................... 33
`
`Clinton v. Jones,
`520 U.S. 681 (1997) ..................................................................................................................................... 31
`
`Cmty. Pharmacies of Ind. v. Ind. Family & Social Servs. Admin.,
`801 F. Supp. 2d 802 (S.D. Ind. 2011) ....................................................................................................... 36
`
`Cook Cty. v. Wolf,
`962 F.3d 208 (7th Cir. 2020) ...................................................................................................................... 33
`
`Cornish v. Dudas,
`540 F. Supp. 2d 61 (D.D.C. 2008) ............................................................................................................ 37
`
`CoverDyn v. Moniz,
`68 F. Supp. 3d 34 (D.D.C. 2014) .............................................................................................................. 37
`
`Crowell v. Benson,
`285 U.S. 22 (1932) ....................................................................................................................................... 24
`
`Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin.,
`710 F.2d 842 (D.C. Cir. 1983) ................................................................................................................... 26
`
`Dinner Bell Mkts., Inc. v. United States,
`116 F. Supp. 3d 905 (S.D. Ind. 2015) ....................................................................................................... 36
`
`E. St. Louis Laborers’ Local 100 v. Bellon Wrecking & Salvage Co.,
`414 F.3d 700 (7th Cir. 2005) ...................................................................................................................... 36
`
`Edmond v. United States,
`520 U.S. 651 (1997) ........................................................................................................................ 13, 14, 18
`
`FCC v. Fox Television Stations, Inc.,
`556 U.S. 502 (2009) ..................................................................................................................................... 30
`
`Fed. Trade Comm’n v. Owens-Corning Fiberglas Corp.,
`626 F.2d 966 (D.C. Cir. 1980) ................................................................................................................... 31
`
`Free Enterprise Fund v. Public Company Accounting Oversight Board,
`561 U.S. 477 (2010) ........................................................................................................................ 14, 17, 18
`
`Freytag v. Comm’r of Internal Revenue,
`501 U.S. 868 (1991) ..................................................................................................................................... 31
`
`FTC v. Standard Oil Co. of Cal.,
`449 U.S. 232 (1980) ..................................................................................................................................... 36
`
`
`
`iii
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 5 of 48 PageID #: 1025
`
`GEFT Outdoors, LLC v. City of Westfield,
`922 F.3d 357 (7th Cir. 2019), cert. denied, 140 S. Ct. 268 (2019) ............................................................ 11
`
`Gill v. Whitford,
`138 S. Ct. 1916 (2018) ................................................................................................................................. 38
`
`In re Grand Jury Invest.,
`916 F.3d 1047 (D.C. Cir. 2019) ............................................................................................. 15, 16, 17, 18
`
`Indus. & Fin. Mkts. Ass’n v. U.S. Commodity Futures Trading Comm’n,
`67 F. Supp. 3d 373 (D.D.C. 2014) ............................................................................................................ 34
`
`Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd.,
`684 F.3d 1332 (D.C. Cir. 2012) .................................................................................................... 15, 17, 18
`
`Int’l Union, United Mine Workers of Am. v. U.S. Dep’t of Labor,
`358 F.3d 40 (D.C. Cir. 2004) ..................................................................................................................... 26
`
`Kalaris v. Donovan,
`697 F.2d 376 (1983) ................................................................................................................ 17, 23, 24, 25
`
`Long Island Care at Home, Ltd. v. Coke,
`551 U.S. 158 (2007) ..................................................................................................................................... 29
`
`Lucia v. Securities and Exchange Commission,
`138 S. Ct. 2044 (2018) ................................................................................................................................. 31
`
`Madsen v. Women’s Health Ctr., Inc.,
`512 U.S. 753 (1994) ..................................................................................................................................... 38
`
`Mazurek v. Armstrong,
`520 U.S. 968 (1997) ..................................................................................................................................... 11
`
`Michigan v. U.S. Army Corps of Eng’rs,
`667 F.3d 765 (7th Cir. 2011) ...................................................................................................................... 36
`
`Minerva Dairy, Inc. v. Brancel,
`No. 17-cv-299-jdp, 2017 WL 3575710 (W.D. Wis. Aug. 18, 2017) ..................................................... 35
`
`Mobil Oil Expl. & Producing Se. Inc. v. United Distrib. Cos.,
`498 U.S. 211 (1991) ..................................................................................................................................... 33
`
`Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,
`463 U.S. 29 (1983) ....................................................................................................................................... 30
`
`Munaf v. Geren,
`553 U.S. 674 (2008) ..................................................................................................................................... 11
`
`
`
`iv
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 6 of 48 PageID #: 1026
`
`Murray’s Lessee v. Hoboken Land & Improvement Co.,
`59 U.S. 272 (1855) ....................................................................................................................................... 21
`
`N. Pipeline Const. Co. v. Marathon Pipe Line Co.,
`458 U.S. 50 (1982) ....................................................................................................................................... 21
`
`N.Y. State Rest. Ass’n v. N.Y.C. Bd. of Health,
`545 F. Supp. 2d 363 (S.D.N.Y. 2008),
`rev’d on other grounds, 556 F.3d 114 (2d Cir. 2009) .................................................................................... 35
`
`Nat’l Mining Ass’n v. Mine Safety & Health Admin.,
`116 F.3d 520 (D.C. Cir. 1997) ............................................................................................................ 33, 34
`
`Nken v. Holder,
`556 U.S. 418 (2009) ..................................................................................................................................... 37
`
`Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC,
`138 S. Ct. 1365 (2018) .......................................................................................................................... 21, 22
`
`Otsuka Pharm. Co. v. Burwell,
`2015 WL 1962240 (D. Md. Apr. 29, 2015) .............................................................................................. 37
`
`Perez v. Mortg. Bankers Ass’n,
`575 U.S. 92 (2015) ....................................................................................................................................... 33
`
`Post Acute Med. at Hammond, LLC v. Azar,
`311 F. Supp. 3d 176 (D.D.C. 2018) .......................................................................................................... 28
`
`Preston v. Thompson,
`589 F.2d 300 (7th Cir. 1978) ...................................................................................................................... 35
`
`Pub. Serv. Co. of N.H. v. Town of W. Newbury,
`835 F.2d 380 (1st Cir. 1987) ....................................................................................................................... 35
`
`Renegotiation Bd. v. Bannercraft Clothing Co.,
`415 U.S. 1 (1974) ......................................................................................................................................... 36
`
`Ritter v. Thigpen,
`828 F.2d 662 (11th Cir. 1987) .................................................................................................................... 31
`
`Schneider Nat’l, Inc. v. Interstate Com. Comm’n,
`948 F.2d 338 (7th Cir. 1991) ...................................................................................................................... 30
`
`Schwab v. Sec’y, Dep’t of Corr.,
`507 F.3d 1297 (11th Cir. 2007) .................................................................................................................. 31
`
`Seaside Civic League, Inc. v. U.S. Dep’t of Housing & Urban Dev.,
`2014 WL 2192052 (N.D. Cal. 2014) ......................................................................................................... 37
`
`
`
`v
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 7 of 48 PageID #: 1027
`
`Sherwood v. Marquette Transp. Co.,
`587 F.3d 841 (7th Cir. 2009) ...................................................................................................................... 36
`
`Spencer v. Dist. of Columbia,
`416 F. Supp. 2d 5 (D.D.C. 2006) .............................................................................................................. 38
`
`St. James Hosp. v. Heckler,
`760 F.2d 1460 (7th Cir. 1985) ............................................................................................................. 33, 34
`
`Stern v. Marshall,
`564 U.S. 462 (2011) ........................................................................................................................ 21, 22, 23
`
`Thomas v. Union Carbide Agric. Prods. Co.,
`473 U.S. 568 (1985) .............................................................................................................................. 22, 23
`
`Toledo, Peoria & W. Ry. v. Surface Transp. Bd.,
`462 F.3d 734 (7th Cir. 2006) ...................................................................................................................... 30
`
`Triangle Const. & Maint. Corp. v. Our Virgin Islands Labor Union,
`425 F.3d 938 (11th Cir. 2005) .................................................................................................................... 36
`
`United Church of the Medical Center v. Medical Center Commission,
`689 F.2d 693 (7th Cir. 1982) ...................................................................................................................... 35
`
`United States v. L.A. Tucker Truck Lines, Inc.,
`344 U.S. 33 (1952) ....................................................................................................................................... 31
`
`Winter v. Nat. Res. Def. Council, Inc.,
`555 U.S. 7 (2008) ......................................................................................................................................... 11
`
`Withrow v. Larkin,
`421 U.S. 35 (1975) ....................................................................................................................................... 31
`
`U.S. CONSTITUTION
`
`U.S. Const. art. II, § 2, cl. 2, ........................................................................................................................... 13
`
`STATUTES
`
`5 U.S.C. § 553 ................................................................................................................................................... 25
`
`5 U.S.C. §§ 701 et seq. ....................................................................................................................................... 25
`
`5 U.S.C. § 706 ............................................................................................................................................ 29, 30
`
`42 U.S.C. § 256b ......................................................................................................................................... passim
`
`42 U.S.C. § 1396r-8 ............................................................................................................................................ 2
`
`44 U.S.C. § 1504 ............................................................................................................................................... 26
`
`
`
`vi
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 8 of 48 PageID #: 1028
`
`44 U.S.C. § 1505 ............................................................................................................................................... 26
`
`Patient Protection and Affordable Care Act,
`Pub. L. No. 111-148, 124 Stat. 119 (2010) ................................................................................................ 4
`
`Veterans Health Care Act of 1992,
`Pub. L. No. 102-585, 106 Stat. 4943 (1992),
`codified at § 340B, Public Health Service Act, 42 U.S.C. § 256b (1992) .................................................. 2
`
`REGULATIONS
`
`40 C.F.R. § 10.24 .............................................................................................................................................. 28
`
`42 C.F.R. § 10.11 ................................................................................................................................................ 4
`
`42 C.F.R. § 10.20 ............................................................................................................................. 6, 17, 32, 33
`
`42 C.F.R. § 10.21 .............................................................................................................................................. 20
`
`42 C.F.R. § 10.22 ................................................................................................................................................ 6
`
`42 C.F.R. § 10.23 .................................................................................................................................... 6, 28-29
`
`42 C.F.R. § 10.24 ........................................................................................................................................ passim
`
`42 C.F.R. § 10.3 ..................................................................................................................................... 6, 16, 23
`
`340B Drug Pricing Program; Administrative Dispute Resolution,
`81 Fed. Reg. 53,381 (Aug. 12, 2016). .................................................................................................. passim
`
`340B Drug Pricing Program Administrative Dispute Resolution Process,
`75 Fed. Reg. 57,233 (Sep. 20, 2010) ..................................................................................................... 5, 26
`
`340B Drug Pricing Program: Administrative Dispute Resolution Regulation,
`85 Fed. Reg. 80,632 (Dec. 14, 2020), (codified at 42 C.F.R. pt. 10)............................................... passim
`
`Change to the Definition of “Human Organ” Under Section 301 of the National
`Organ Transplant Act of 1984; Withdrawal,
`83 Fed. Reg. 60,804-01 (Nov. 27, 2018) .................................................................................................. 26
`
`Control of Communicable Diseases: Interstate; Scope and Definitions,
`78 Fed. Reg. 12,702-1 (Feb. 25, 2013) ...................................................................................................... 26
`
`Food Labeling; Gluten-Free Labelling of Fermented or Hydrolyzed Foods,
`85 Fed. Reg. 49,240 (Aug. 13, 2020) ......................................................................................................... 25
`
`Memorandum for the Heads of Executive Departments and Agencies,
`74 Fed. Reg. 4435 (Jan. 26, 2009) ............................................................................................................. 27
`
`
`
`vii
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 9 of 48 PageID #: 1029
`
`Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services,
`75 Fed. Reg. 10,272-01 (Mar. 5, 2010) ....................................................................................................... 4
`
`Notice Regarding Section 602 of the Veterans Health Care Act of 1992; Contract
`Pharmacy Services,
`61 Fed. Reg. 43,549-01 (Aug. 23, 1996) ................................................................................................ 2, 3
`
`Occupational Safety and Health Investigations of Places of Employment,
`79 Fed. Reg. 19,848-01 (Apr. 10, 2014) ................................................................................................... 26
`
`Withdrawal of Proposed Rule “Medicare and State Health Care Programs: Fraud
`and Abuse; Safe Harbor Under the Anti-Kickback Statute for Waiver of Beneficiary
`Coinsurance and Deductible Amounts”,
`84 Fed. Reg. 37,821-01 (Aug. 2, 2019) ..................................................................................................... 26
`
`OTHER AUTHORITIES
`
`11A Charles Alan Wright & Arthur P. Miller, Federal Practice & Procedure § 2948.1 (3d ed.) .......... 34, 35
`
`About the Unified Agenda, REGINFO.GOV,
`https://www.reginfo.gov/public/jsp/eAgenda/StaticContent/UA_
`About.myjsp (last visited Feb. 16, 2021) .................................................................................................. 26
`
`Alan B. Morrison, Administrative Agencies Are Just Like Legislatures and Courts-Except
`When They’re Not,
`59 Admin. L. Rev. 79 (2007) ..................................................................................................................... 20
`
`Anne Joseph O’Connell, Agency Rulemaking and Political Transitions,
`105 Nw. U. L. Rev. 471 (2011) .................................................................................................................. 27
`
`BREAKING: HRSA Is Investigating Whether Manufacturer Policies to Restrict
`340B Pricing at Contract Pharmacies Violates Statute, 340B Report (Sept. 2, 2020),
`https://340breport.substack.com/p/breaking-hrsa-is-investigating-whether ..................................... 8
`
`HHS Gen. Counsel, Advisory Opinion 20-06 on Contract Pharmacies
`Under the 340B Program,
`https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/
`340B-AO-FINAL-12-30-2020_0.pdf .................................................................................................. 9, 10
`
`H.R. Rep. No. 102-384, pt. 2 (1992) ............................................................................................................... 2
`
`Novartis 340B Policy Changes,
`https://www.novartis.us/news/statements/new-policy-related-340b-program ................................. 8
`
`Reginfo.gov, Historical Unified Agenda and Regulatory Plan,
`https://www.reginfo.gov/public/do/eAgendaHistory (last visited Feb. 16, 2021). ........................ 27
`
`
`
`viii
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 10 of 48 PageID #: 1030
`
`This case is part of a brazen strategy by a cohort of large, highly profitable pharmaceutical
`
`companies—led by Plaintiff Eli Lilly—unilaterally to upend the decades-old, settled operation of a
`
`statutory program that provides discounted medications to safety-net healthcare providers and their
`
`uninsured and underinsured patients. Nearly thirty years ago Congress struck a bargain with drug
`
`companies by creating the “340B Program”: Participating manufacturers gain valuable access to
`
`coverage for their products under Medicaid and Medicare Part B in exchange for providing discounted
`
`drugs (at or below a statutory ceiling price) to certain safety-net healthcare providers. The providers,
`
`in turn, can generate much-needed revenue through sale of those medications (particularly to patients
`
`who are insured) or pass along the discounts directly to patients. The 340B Program has served a
`
`critical role in facilitating healthcare for vulnerable patients ever since.
`
`But late in 2020 Lilly and its peers, clearly dissatisfied with the scope of the 340B Program,
`
`unilaterally imposed onerous and non-statutory restrictions on providers’ access to 340B discounted
`
`drugs. Specifically, the manufacturers announced that no longer will they honor (or honor without
`
`significant restrictions) discounted-drug orders placed by eligible healthcare providers but shipped to,
`
`and dispensed by, outside pharmacies. These outside-pharmacy arrangements (called “contract
`
`pharmacies”) have been an integral part of the 340B Program’s operation for decades, since the vast
`
`majority of 340B-eligible providers do not operate an in-house pharmacy and thus rely on contract
`
`pharmacies to serve patients. Lilly and other manufacturers’ abruptly announced changes—impacting
`
`healthcare entities serving the country’s most vulnerable patients, in the midst of a global pandemic—
`
`have upended the settled operation of the 340B program and spawned a raft of litigation against the
`
`Department of Health and Human Services (“HHS”), the agency to which Congress delegated
`
`oversight and implementation of the 340B Program.
`
`Lilly’s ultimate goal in this suit is manifestly clear in its complaint: It seeks to have this Court
`
`sanction Lilly’s rewrite of its statutory obligations in a way that would drastically restrict many
`
`providers’ access to discounted drugs (and, in so doing, boost Lilly’s profits). In this emergency
`
`motion, however, Lilly seeks to advance that goal by blocking implementation of a new rulemaking
`
`that establishes a straightforward, statutorily mandated administrative dispute-resolution mechanism
`
`
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 11 of 48 PageID #: 1031
`
`Congress devised to resolve disputes over 340B Program violations. In other words, Lilly seeks to
`
`head off resolution by HHS of the legality of its recent changes by asking this Court to enjoin the
`
`agency’s newly available adjudication system—a system established by statute and modeled on
`
`numerous other administrative bodies.
`
`There is no cause for this Court to do so. As demonstrated herein, Lilly is unlikely to succeed
`
`on the merits of its challenge to the rule: decision-makers are supervised by, and can be removed at
`
`will by, the HHS Secretary, and thus constitute inferior officers; Lilly’s Article III challenge rests on
`
`false premises regarding the ADR Board’s powers and the claims it may hear; the rule was issued only
`
`after notice-and-comment procedures and fully complies with the APA; and the Secretary fully
`
`explained the choices made in designing the new system, thereby satisfying substantive APA
`
`requirements. Moreover, Lilly faces no irreparable harm in being “subjected to” the dispute-resolution
`
`mechanism Congress envisioned. And the public interest firmly lies in allowing the agency charged
`
`with oversight of the 340B Program to resolve, in the first instance, whether the recent manufacturer
`
`restrictions are lawful, thereby providing clarity for both covered entities and drug makers.
`
`BACKGROUND
`
`STATUTORY AND REGULATORY BACKGROUND
`
`I.
`
`In 1992 Congress created a program, administered by the Secretary of Health and Human
`
`Services (“HHS”), through which certain safety-net healthcare providers, including hospitals,
`
`community health centers, and other federally funded entities (collectively known as “covered
`
`entities”) serving low-income patients could receive drug discounts. See Veterans Health Care Act of
`
`1992, Pub. L. No. 102-585, § 602, 106 Stat. 4943, 4967-71 (1992), codified at § 340B, Public Health
`
`Service Act, 42 U.S.C. § 256b (1992). The program has dual benefits: Drug discounts “enable these
`
`entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and
`
`providing more comprehensive services,” H.R. Rep. No. 102-384, pt. 2, at 12 (1992) (conf. report),
`
`and also may benefit uninsured and underinsured patients, when covered entities opt to pass along
`
`the discounts by helping patients afford costly medications. Congress expressly conditioned drug
`
`
`
`2
`
`

`

`Case 1:21-cv-00081-SEB-MJD Document 32 Filed 02/16/21 Page 12 of 48 PageID #: 1032
`
`makers’ access to an incredibly valuable federal benefit—coverage of their products under Medicaid
`
`and Medicare Part B—on manufacturers’ choice to participate in this drug-discount scheme, known
`
`as the “340B Program.” 42 U.S.C. § 1396r-8(a)(1); 42 U.S.C. § 256b(a). Pharmaceutical companies
`
`thus may opt out of providing discounted drugs to safety-net healthcare providers and their low-
`
`income patients, but then lose access to “billions of dollars in revenue” annually through drug
`
`coverage in federal health-insurance programs. See Am. Compl. (“Compl.”) at ¶ 157, ECF No. 17.
`
`During the early years of the 340B Program, it became clear that fewer than five percent of
`
`the covered entities statutorily eligible to participate in the 340B Program operated in-house
`
`pharmacies; instead, the vast majority of safety-net providers relied on arrangements with outside
`
`pharmacies, called “contract pharmacies,” to dispense prescriptions to patients. See Notice Regarding
`
`Section 602 of the Veterans Health Care Act of 1992; Contract Pharmacy Services, 61 Fed. Reg.
`
`43,549-01, 43,550 (Aug. 23, 1996) (hereinafter “1996 Guidance”). And because “covered entities
`
`provide medical care for many individuals and families with incomes well below 200% of the Federal
`
`poverty level and subsidize prescription drugs for many of their patients, it was essential for them to
`
`access 340B pricing.” Id. at 43,549. Covered entities participating in the 340B Program thus began
`
`relying on these contract pharmacies to take delivery from manufacturers of drugs purchased by the
`
`covered entity and then to