Case 3:21-cv-00634-FLW-LHG Document 62-1 Filed 04/19/21 Page 1 of 64 PageID: 5352
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF NEW JERSEY
`
`
`
`
`SANOFI-AVENTIS U.S., LLC,
`
`
` Plaintiff,
`
` v.
`
`U.S. DEPARTMENT OF HEALTH AND
`HUMAN SERVICES, et al.,
`
`
` Defendants.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`No. 3:21-CV-634
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`
`
`
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`
`
`
`
`
`
`DEFENDANTS’ MOTION TO DISMISS OR, IN THE ALTERNATIVE,
`FOR SUMMARY JUDGMENT
`
`

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`Case 3:21-cv-00634-FLW-LHG Document 62-1 Filed 04/19/21 Page 2 of 64 PageID: 5353
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`TABLE OF CONTENTS
`BACKGROUND ............................................................................................................................................................ 3
`
`I.
`
`II.
`
`III.
`
`STATUTORY AND REGULATORY BACKGROUND ................................................................ 3
`
`PHARMACEUTICAL COMPANIES UNILATERALLY RESTRICT ACCESS
`TO 340B DISCOUNTS FOR SAFETY-NET PROVIDERS .......................................................... 9
`
`PHARMACEUTICAL COMPANIES SUE TO PREVENT HHS’s
`ENFORCEMENT OF THE 340B STATUTE ...................................................................................12
`
`STANDARD OF REVIEW ......................................................................................................................................13
`
`ARGUMENT .................................................................................................................................................................14
`
`I.
`
`THE COURT LACKS JURISDICTION TO REVIEW THE GENERAL
`COUNSEL’S LEGAL ADVICE...............................................................................................................15
`
`A.
`
`B.
`
`The Advisory Opinion Does Not Constitute Final Agency Action ................................16
`
`Sanofi’s Attempt to Upend the Settled Operation of the 340B Program is
`Time-Barred .......................................................................................................................................19
`
`II.
`
`EVEN IF THE GENERAL COUNSEL’S LEGAL ADVICE WAS
`REVIEWABLE, SANOFI’S CLAIMS FAIL........................................................................................24
`
`A.
`
`B.
`
`C.
`
`Notice-and-Comment Rulemaking is Not Required Because the Advisory
`Opinion Is An Interpretive Rule .................................................................................................24
`
`Sanofi Fails to State a Claim that the AO Violates HHS’ Good Guidance
`Rule .......................................................................................................................................................26
`
`Sanofi Fails To State A Claim On The Merits Because Lilly’s Obligation to
`Offer Discounted Drugs To Covered Entities Is Imposed By the 340B
`Statute Itself .......................................................................................................................................27
`
`III.
`
`THE ADMINISTRATIVE-DISPUTE RESOLUTION MECHANISM
`MANDATED BY CONGRESS WAS LAWFULLY ESTABLISHED......................................31
`
`A.
`
`B.
`
`C.
`
`ADR Board Members Are Lawfully Appointed Inferior Officers ...................................31
`
`The ADR Process Does Not Infringe the Power of the Judiciary ...................................39
`
`The Secretary Fully Complied with Notice-And-Comment Requirements in
`Promulgating the ADR Rule.........................................................................................................46
`
`1.
`
`2.
`
`HHS did not terminate the ADR Rulemaking in advance of issuing
`the final rule. .......................................................................................................................46
`
`The ADR Rule is a logical outgrowth of the NPRM.............................................48
`i
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`

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`D.
`
`The ADR Rule is Substantively Compliant with the APA..................................................50
`
`CONCLUSION .............................................................................................................................................................53
`
`
`
`ii
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`
`Cases
`
`TABLE OF AUTHORITIES
`
`Am. Hosp. Ass’n v. Dep't of Health & Hum. Servs.,
`2021 WL 616323 (N.D. Cal. Feb. 17, 2021).........................................................................11
`
`Am. Med. Ass’n v. United States,
`887 F.2d 760 (7th Cir. 1989) ...............................................................................................50
`
`Appalachian States Low-Level Radioactive Waste Comm’n v. O’Leary,
`93 F.3d 103 (3d Cir. 1996) ..................................................................................................25
`
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009)............................................................................................................13
`
`Astra USA, Inc. v. Santa Clara Cty.,
`563 U.S. 110 (2011)........................................................................................................ 6, 45
`
`Beard v. Braunstein,
`914 F.2d 434 (3rd Cir. 1990) ...............................................................................................43
`
`Bell Atl. Corp. v. Twombly,
`550 U.S. 544 (2007)............................................................................................................13
`
`Bennett v. Spear,
`520 U.S. 154 (1997)...................................................................................................... 16, 18
`
`Biggerstaff v. FCC,
`511 F.3d 178 (D.C. Cir. 2007) .............................................................................................21
`
`CFTC v. Schor,
`478 U.S. 833 (1986)............................................................................................................44
`
`Chao v. Rothermel,
`327 F.3d 223 (3d Cir. 2003) ................................................................................................24
`
`Cierco v. Lew,
`190 F. Supp. 3d 16 (D.D.C. 2016) .......................................................................................47
`
`City of Portland v. EPA,
`507 F.3d 706 (D.C. Cir. 2007) .............................................................................................51
`
`Clayton Cty., Ga. v. FAA,
`887 F.3d 1262 (11th Cir. 2018) ...........................................................................................17
`
`Commonwealth of Pennsylvania v. HHS,
`80 F.3d 796 (3rd Cir. 1996) ..................................................................................... 34, 36, 38
`
`
`
`iii
`
`

`

`Case 3:21-cv-00634-FLW-LHG Document 62-1 Filed 04/19/21 Page 5 of 64 PageID: 5356
`
`Council Tree Commc’ns, Inc. v. FCC,
`619 F.3d 235 (3d. Cir. 2010) ...............................................................................................48
`
`Crowell v. Benson,
`285 U.S. 22 (1932)..............................................................................................................44
`
`Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin.,
`710 F.2d 842 (D.C. Cir. 1983) .............................................................................................47
`
`DaimlerChrysler Corp. v. Cuno,
`547 U.S. 332 (2006)............................................................................................................13
`
`Diliberti v. United States,
`817 F.2d 1259 (7th Cir. 1987) ....................................................................................... 19, 20
`
`Edison Elec. Inst. v. OSHA,
`411 F.3d 272 (D.C. Cir. 2005) .............................................................................................21
`
`Edmond v. United States,
`520 U.S. 651 (1997).....................................................................................................passim
`
`FCC v. Prometheus Radio Proj.,
`(Prometheus), 141 S. Ct. 1150 (2021)............................................................................ 31, 50
`
`Free Enter. Fund v. Pub. Co. Acc't Oversight Bd.,
`561 U.S. 477 (2010)................................................................................................ 33, 37, 38
`
`Golden and Zimmerman, LLC v. Domenech,
`599 F.3d 426 (4th Cir. 2010) ......................................................................................... 17, 18
`
`Herr v. U.S. Forest Svc.,
`803 F.3d 809 (6th Cir. 2015) ...............................................................................................19
`
`In re Grand Jury Invest.,
`916 F.3d 1047 (D.C. Cir. 2019) ............................................................................... 35, 36, 38
`
`Indep. Equip. Dealers Ass’n (“IEDA”) v. EPA,
`372 F.3d 420 (D.C. Cir. 2004) ............................................................................16, 17, 18, 20
`
`Indus. & Fin. Mkts. Ass’n v. U.S. Commodity Futures Trading Comm’n,
`67 F. Supp. 3d 373 (D.D.C. 2014) .......................................................................................52
`
`Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd.,
`684 F.3d 1332 (D.C. Cir. 2012) ............................................................................... 34, 37, 38
`
`Int’l Union, United Mine Workers of Am. v. U.S. Dep’t of Labor,
`358 F.3d 40 (D.C. Cir. 2004)...............................................................................................47
`
`
`
`iv
`
`

`

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`
`Kalaris v. Donovan,
`697 F.2d 376 (1983)................................................................................................ 37, 44, 45
`
`Kannikal v. Att’y Gen. of the U.S.,
`776 F.3d 146 (3d Cir. 2015) ................................................................................................20
`
`Lehman v. Nakshian,
`453 U.S. 156 (1981)............................................................................................................20
`
`Lomak Petroleum, Inc. v. FERC,
`206 F.3d 1193 (D.C. Cir. 2000) ...........................................................................................14
`
`Long Island Care at Home, Ltd. v. Coke,
`551 U.S. 158 (2007)............................................................................................................50
`
`Lujan v. Defs. of Wildlife,
`504 U.S. 555 (1992)............................................................................................................13
`
`Menominee Indian Tribe of Wisconsin v. EPA,
`947 F.3d 1065 (7th Cir. 2020) ....................................................................................... 17, 18
`
`Minard Run Oil Co. v. U.S. Forest Serv.,
`670 F.3d 236 (3d Cir. 2011) ................................................................................................16
`
`Mobil Oil Expl. & Producing Se. Inc. v. United Distrib. Cos.,
`498 U.S. 211, 230-31 (1991) ......................................................................................... 51, 52
`
`Morse v. Lower Merion School Dist.,
`132 F.3d 902 (3d Cir. 1997) ................................................................................................53
`
`Murray’s Lessee v. Hoboken Land & Improvement Co.,
`59 U.S. 272 (1855)..............................................................................................................41
`
`Nat’l Ass’n of Mfrs. v. Dep. of Def.,
`138 S. Ct. 617 (2018) .........................................................................................19, 41, 42, 43
`
`Nat’l Mining Ass’n v. Mine Safety & Health Admin.,
`116 F.3d 520 (D.C. Cir. 1997) .............................................................................................51
`
`Nazareth Hosp. v. Sec’y U.S. Dep’t of Health & Hum. Servs.,
`747 F.3d 172 (3d Cir. 2014) .......................................................................................... 51, 52
`
`Neto v. Thompson,
`No. 20-00618, 2020 WL 7310636 (D.N.J. Dec. 10, 2020) ....................................................13
`
`NVE, Inc. v. HHS,
`436 F.3d 182 (3d. Cir. 2006) ................................................................................... 48, 51, 52
`
`
`
`v
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`

`

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`
`Ocean Cty. Landfill Corp. v. USA EPA Region II,
`631 F.3d 652 (3d Cir. 2011) .......................................................................................... 18, 19
`
`Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC,
`138 S. Ct. 1365 (2018) ........................................................................................................41
`
`Paucar v. Att’y Gen. of the U.S.,
`545 Fed. App’x 121 (3d Cir. 2013) ......................................................................................19
`
`Pennsylvania Department of Human Services v. United States,
`897 F.3d 497 (3d Cir. 2018) ................................................................................................25
`
`Perez v. Mortgage Bankers Ass’n,
`575 U.S. 92 (2015)........................................................................................................ 24, 25
`
`Peri & Sons Farms, Inc. v. Acosta,
`374 F. Supp. 3d 63 (D.D.C. 2019) .......................................................................................21
`
`Pipeline Const. Co. v. Marathon Pipe Line Co.,
`458 U.S. 50 (1982)........................................................................................................ 41, 43
`
`Post Acute Med. at Hammond, LLC v. Azar,
`311 F. Supp. 3d 176 (D.D.C. 2018) .....................................................................................49
`
`Pub. Citizen v. Nuclear Reg. Comm’n,
`901 F.2d 147 (D.C. Cir. 1990) .............................................................................................21
`
`Sekula v. FDIC,
`39 F.3d 448 (3d Cir. 1994) ..................................................................................................24
`
`Seward v. N.J. Div. on Civ. Rights,
`2012 WL 10667917 (D.N.J. March 29, 2012) ......................................................................53
`
`Shalala v. Guernsey Mem. Hosp.,
`514 U.S. 87 (1995)..............................................................................................................25
`
`Soccer Ctrs., LLC v. Zuchowski,
`No. 17-1024, 2017 WL 4570290 (D.N.J. Oct. 13, 2017)................................................. 13, 14
`
`Stern v. Marshall,
`564 U.S. 462 (2011)................................................................................................ 41, 42, 43
`
`Thomas v. Union Carbide Agric. Prods. Co.,
`473 U.S. 568 (1985)...................................................................................................... 42, 44
`
`Vt. Yankee Nuclear Power Corp. v. Natural Res. Def. Council,
`435 U.S. 519 (1978)............................................................................................................47
`
`Statutes
`
`
`
`vi
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`5 U.S.C. § 553 ............................................................................................................ 24, 46, 48
`
`5 U.S.C. § 702 ........................................................................................................................16
`
`5 U.S.C. § 706(2)(A) ........................................................................................................ 27, 50
`
`28 U.S.C. § 2401(a) .......................................................................................................... 19, 20
`
`42 U.S.C. § 256b .............................................................................................................passim
`
`42 U.S.C. § 1396r-8(a)(1) ........................................................................................................ 3
`
`44 U.S.C. § 1507 ....................................................................................................................48
`
`Patient Protection and Affordable Care Act (“ACA”),
`Pub. L. No. 111-148, 124 Stat. 119 (2010) ............................................................................ 6
`
`Veterans Health Care Act of 1992,
`Pub. L. No. 102-585, 106 Stat. 4943 (1992), codified at § 340B, Public Health Service Act ... 3
`
`U.S. Const. art. II................................................................................................................ 2, 32
`
`Rules
`
`Federal Rule of Civil Procedure 12(b)(6) .................................................................................13
`
`Federal Rule of Civil Procedure 56..........................................................................................13
`
`Regulations
`
`340B Drug Pricing Program Administrative Dispute Resolution Process,
`75 Fed. Reg. 57,233 (Sept. 20, 2010) ............................................................................... 7, 46
`
`340B Drug Pricing Program; Administrative Dispute Resolution,
`81 Fed. Reg. 53,381 (Aug. 12, 2016) ............................................................................... 7, 46
`
`340B Drug Pricing Program: Administrative Dispute Resolution,
`85 Fed. Reg. 80,632 (Dec. 14, 2020) ............................................................................passim
`
`40 C.F.R. § 10.24 ............................................................................................................passim
`
`42 C.F.R. § 10.11 .................................................................................................................... 6
`
`42 C.F.R. § 10.20 ............................................................................................................... 9, 38
`
`42 C.F.R. § 10.21 ............................................................................................................. 40, 45
`
`42 C.F.R. § 10.23 ........................................................................................................... 8, 9, 50
`
`
`
`vii
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`42 C.F.R. § 10.24 ............................................................................................................passim
`
`42 C.F.R. § 10.3 ........................................................................................................... 8, 36, 43
`
`78 Fed. Reg. 12,702-01 (Feb. 25, 2013)...................................................................................47
`
`79 Fed. Reg. 19,848-01 (Apr. 10, 2014) ..................................................................................47
`
`82 Fed. Reg. 1,210 (Jan. 5, 2017) ............................................................................................30
`
`83 Fed. Reg. 60,804-01 (Nov. 27, 2018) ..................................................................................47
`
`84 Fed. Reg. 37,821 (Aug. 2, 2019).........................................................................................47
`
`Food Labeling; Gluten-Free Labelling of Fermented or Hydrolyzed Foods,
`85 Fed. Reg. 49,240 (Aug. 13, 2020) ...................................................................................46
`
`Good Guidance Practices,
`85 Fed. Reg. 78,770-02 (Dec. 7, 2020) ................................................................................26
`
`Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services,
`75 Fed. Reg. 10,272-01 (Mar. 5, 2010) .................................................................5, 16, 22, 23
`
`Notice Regarding Section 602 of the Veterans Health Care Act of 1992; Contract Pharmacy
`Services,
`61 Fed. Reg. 43,549-01 (Aug. 23, 1996) ................................................................ 3, 4, 15, 21
`
`Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Patient and Entity
`Eligibility,
`61 Fed. Reg. 55,156 (Oct. 24, 1996) ....................................................................................52
`
`Other Authorities
`
`About the Unified Agenda,
`https://www.reginfo.gov/public/jsp/eAgenda/StaticContent/UA_About.myjsp
`(last visited Feb. 16, 2021) ..................................................................................................48
`
`Administrative Agencies Are Just Like Legislatures and Courts-Except When They’re Not,
`59 Admin. L. Rev. 79 (2007)......................................................................................... 40, 41
`
`HHS Gen. Counsel, Advisory Opinion 20-06 on Contract Pharmacies Under the 340B Program,
`available at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/340B-
`AO-FINAL-12-30-2020_0.pdf ............................................................................................11
`
`H.R. Rep. No. 102-384, pt. 2 (1992) .............................................................................. 3, 28, 29
`
`https://phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Org/PDF/P-R/PhRMA-
`Petition-for-340B-ADR-Rulemaking_November-2020.pdf...................................................60
`
`
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`Novartis 340B Policy Changes,
`https://www.novartis.us/news/statements/new-policy-related-340b-program ................... 10, 11
`
`
`
`ix
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`This case, which—most unusually—challenges
`
`two discrete agency issuances on every
`
`conceivable ground, culminates a brazen strategy by a cohort of large, highly profitable pharmaceutical
`
`companies 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 crucial role in facilitating
`
`healthcare for vulnerable patients ever since.
`
`But late in 2020 Plaintiff Sanofi and several of 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
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`arrangements (called “contract pharmacies”) have been an integral part of the 340B Program’s
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`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. Sanofi and other manufacturers’
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`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.
`
`Sanofi’s ultimate goal in this suit is manifestly clear in its complaint: It seeks to have this Court
`
`sanction Sanofi’s rewrite of its statutory obligations in a way that would drastically restrict many
`
`providers’ access to discounted drugs (and, in so doing, boost Sanofi’s profits). Sanofi seeks to advance
`
`that goal by first asking this Court to declare unlawful and set aside a reiteration by HHS’s General
`
`
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`

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`Counsel of the agency’s consistent, twenty-four-plus-year interpretation of the 340B statute—an
`
`interpretation with which Sanofi and its peers had complied, without challenge or question, for
`
`decades. In addition to that stunning request, Sanofi further asks this Court permanently to block
`
`implementation of a new rulemaking that establishes a straightforward, statutorily mandated
`
`administrative dispute-resolution mechanism Congress devised to resolve disputes over 340B
`
`Program violations. In other words, Sanofi seeks to head off resolution by HHS of the legality of its
`
`recent, industry disrupting 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 grant either request because Sanofi’s claims uniformly lack
`
`merit. This Court cannot opine on the merits of the General Counsel’s legal advice because its issuance
`
`is not a final agency action and because Sanofi’s challenge is time-barred, since the analysis broke no
`
`new ground and merely reiterated the agency’s consistent position since at least 1996. Moreover, even
`
`if Sanofi’s challenge to the General Counsel’s opinion were justiciable, it still would fail on the merits
`
`because the opinion imposes no new requirements on manufacturers and instead only confirms
`
`obligations imposed when Congress created the 340B Program. Sanofi’s attacks on the administrative-
`
`dispute resolution rule are equally flawed. Because decision-makers are supervised by, and can be
`
`removed at will by, the HHS Secretary, they constitute inferior officers properly appointed under
`
`Article II of the U.S. Constitution. Sanofi’s Article III challenge fails because it rests on false premises
`
`regarding the Board’s powers and the claims it may hear. And Sanofi’s claims under the Administrative
`
`Procedure Act cannot carry the day; HHS followed statutory notice-and-comment procedures and, as
`
`the Supreme Court repeatedly has confirmed, it is reversible error to impose additional requirements
`
`on the agency under the guise of facilitating “notice” to the public. Finally, the Secretary fully explained
`
`the reasonable choices made in designing the new dispute-resolution system, satisfying substantive
`
`APA requirements.
`
`The Court should dismiss each of Sanofi’s claims or grant summary judgment to HHS.
`
`
`
`
`
`2
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`

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`
`I.
`
`BACKGROUND
`STATUTORY AND REGULATORY BACKGROUND
`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
`
`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 “a significant portion of [their] annual revenues” through
`
`drug coverage in federal health-insurance programs. See Am. Compl. (“Compl.”) at ¶ 24, 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
`
`
`
`3
`
`

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`relying on these contract pharmacies to take delivery from manufacturers of drugs purchased by the
`
`covered entity and then to dispense those drugs to the covered entities’ low-income patients. Id.
`
`In 1996 HHS issued interpretive guidance to aid covered entities in best practices for the use
`
`of contract pharmacies. 61 Fed. Reg. 43,549. HHS explained that “[i]t would defeat the purpose of
`
`the 340B program if these covered entities could not use their affiliated pharmacies in order to
`
`participate,” because “[o]therwise, they would be faced with the untenable dilemma of having either
`
`to expend precious resources to develop their own in-house pharmacies (which for many would be
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`impossible) or forego participation in the program altogether.” Id. at 43,550. Rather than imposing
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`any new requirements on manufacturers not found in the 340B statute, the 1996 guidance confirmed:
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`“It has been the Department’s position that if a covered entity using contract pharmacy services requests to
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`purchase a covered drug from a participating manufacturer, the statute directs the manufacturer to sell
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`the drug at the discounted price,” and that, “[i]f the entity directs the drug shipment to its contract
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`pharmacy,” that in no way “exempts the manufacturer from statutory compliance.” Id. at 43,549
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`(emphasis added). Thus twenty-five years ago HHS interpreted the statute to preclude manufacturers
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`from denying purchases by covered entities using contract pharmacies, and nothing in the guidance
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`suggested that the agency viewed this statutory obligation as voluntary on the part of drug makers. On
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`the contrary, the choice presented under the guidance was for covered entities to determine whether
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`to establish such arrangements because they remain liable and responsible, “under any distribution
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`mechanism, [for] the statutory prohibition on drug diversion.” Id. HHS explained the policy rationale
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`for this interpretation—restricting covered entities’ access to 340B discounts to those operating an in-
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`house pharmacy would not be “within the interest of the covered entities, [or] the patients they serve,
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`[or] consistent with the intent of the law.” Id. at 43,550. Critically, the agency explicitly rejected the
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`argument, suggested in comments to the proposed guidance, that the use of contract pharmacies
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`constitutes an unauthorized expansion of the 340B Program: “The statute is silent as to permissible
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`drug distribution systems,” and contains “no requirement for a covered entity to purchase drugs
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`directly from the manufacturer or to dispense drugs itself.” Id. at 43,549. On the contrary, “[i]t is clear
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`4
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`Case 3:21-cv-00634-FLW-LHG Document 62-1 Filed 04/19/21 Page 15 of 64 PageID: 5366
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`that Congress envisioned that various types of drug delivery systems would be used to meet the needs
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`of the very diversified group of 340B covered entities.” Id.
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`Consistent with HHS’s interpretation of the 340B statute and its 1996 guidance implementing
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`its terms, covered entities have for decades relied on contracts with outside pharmacies to serve their
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`patients and access the discounts Congress provided. Indeed, these arrangements proved so pivotal
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`to