Case 3:21-cv-00806 Document 1 Filed 01/15/21 Page 1 of 33 PageID: 1
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF NEW JERSEY
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`Civil Action No. 3:21-cv-806
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`COMPLAINT FOR
`DECLARATORY AND
`INJUNCTIVE RELIEF
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`NOVO NORDISK INC.,
`800 Scudders Mill Road,
`Plainsboro, NJ 08536
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`NOVO NORDISK PHARMA, INC.,
`800 Scudders Mill Road, Suite 1A-108
`Plainsboro, NJ 08536
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`
`Plaintiffs,
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`v.
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`
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`UNITED STATES DEPARTMENT OF
`HEALTH AND HUMAN SERVICES
`200 Independence Avenue, S.W.
`Washington D.C. 20201,
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`ALEX M. AZAR II,
`in his official capacity as
`Secretary of Health & Human Services
`Office of the Secretary
`200 Independence Avenue, SW
`Washington, D.C. 20201,
`
`ROBERT P. CHARROW,
`in his official capacity as
`General Counsel of the United States
`Department of Health and Human Services,
`200 Independence Avenue, S.W.
`Washington, D.C. 20201,
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`HEALTH RESOURCES AND SERVICES
`ADMINISTRATION
`5600 Fishers Lane,
`Rockville, Maryland 20852,
`
`THOMAS J. ENGELS, in his official capacity
`as Administrator of the Health Resources and
`Services Administration
`5600 Fishers Lane,
`Rockville, Maryland 20852,
`
`
`Defendants.
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`

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`COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
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`Plaintiffs Novo Nordisk Inc. and Novo Nordisk Pharma, Inc. (collectively, “Novo”), by
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`and through their undersigned attorneys, allege as follows:
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`PRELIMINARY STATEMENT
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`1.
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`This case challenges a final decision by the U.S. Department of Health and Human
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`Services (“HHS”) that purports to impose new binding obligations on drug manufacturers, on
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`threat of significant penalties, but exceeds the agency’s statutory authority and does not comply
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`with the requirements of reasoned decision-making under the Administrative Procedure Act
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`(“APA”).
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`2.
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`Section 340B of the Public Health Service Act requires pharmaceutical
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`manufacturers to offer their outpatient drugs at deeply discounted prices to an enumerated list of
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`“covered entities” for the purpose of ensuring that vulnerable and low-income patients have better
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`access to prescription medications. Manufacturers that fail to comply with the statute’s mandate
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`face enforcement action, significant civil monetary penalties, and potential revocation of the
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`manufacturer’s ability to participate in the federal Medicare and Medicaid programs.
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`3.
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`Under the terms of the statute, and consistent with constitutional limits on forcing
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`private parties to subsidize other private parties, Congress provided that only covered entities that
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`meet the statute’s requirements are entitled to purchase manufacturers’ drugs at discounted prices.
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`See 42 U.S.C. § 256b(a)(4). Congress also made clear that covered entities are prohibited from
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`transferring manufacturers’ drugs to anyone other than their own patients. See id. § 256b(a)(5)(B).
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`This prohibition on “diversion” is essential to ensuring that the program remains within
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`constitutional bounds and serves the statutory purpose of aiding needy patients, not enriching
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`covered entities or commercial third parties at manufacturers’ expense.
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`4.
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`Despite these statutory prohibitions, many covered entities have entered into arm’s-
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`length agreements with for-profit, commercial pharmacies—known as “contract pharmacies”—
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`that allow the pharmacies to acquire and dispense manufacturers’ discounted drugs and to share in
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`the profits resulting from selling manufacturers’ discounted drugs at the full market price to
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`patients who are not uninsured or needy. These contractual arrangements have dramatically
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`increased the size of the 340B program, allowing covered entities and their contract pharmacies to
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`make substantial profits at the expense of manufacturers. It has also made it much harder to ensure
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`compliance with the 340B statute, increasing the risk of 340B drugs being sold to non-patients and
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`the problem of “duplicate discounting,” which occurs when the same drug is subject to both a
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`340B discount and a Medicaid rebate. The systemic abuses resulting from this massive expansion
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`in the use of contract pharmacies is directly contrary to Congress’s intent.
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`5.
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`To address these concerns, Novo announced a new initiative, which took effect in
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`January 2021, that it will no longer accept covered entity requests that Novo transfer its covered
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`outpatient drugs (or cause its covered outpatient drugs to be transferred) to an unlimited number
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`of commercial contract pharmacies servicing hospitals. Novo made clear that it will fully comply
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`with the 340B statute by still offering its outpatient drugs at 340B discounted prices to all eligible
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`covered entities. It also made numerous exceptions in its discretion—going beyond what the
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`statute requires—to ensure that federal grantee covered entities are able to purchase Novo’s
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`outpatient drugs at the discounted price and dispense them through contract pharmacies. But Novo
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`is no longer willing to allow hospital covered entities and commercial contract pharmacies to abuse
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`the 340B program.
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`6.
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`Nothing in the statute or any regulation requires manufacturers to facilitate the
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`transfer of their covered outpatient drugs to third parties at a covered entity’s request. The statute
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`requires only that manufacturers “offer” their covered outpatient drugs “for purchase” at
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`discounted prices to eligible “covered entities.” 42 U.S.C. § 256b(a)(1). Moreover, although HHS
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`has previously issued guidance permitting covered entities to use contract pharmacies, it repeatedly
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`emphasized that its guidance was non-binding and that the statute itself did not address contract
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`pharmacy arrangements. Under the law, manufacturers have discretion to decide when or whether
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`to honor covered entity requests that their discounted drugs be transferred to third parties, including
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`to for-profit, commercial pharmacies.
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`7.
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`On December 30, 2021, HHS’s Office of General Counsel issued what it labeled
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`an “advisory opinion” but what in fact constitutes a final rule that seeks to change the legal
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`requirements that the 340B program imposes on manufacturers. Without textual support, the
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`agency’s decision announces finally and unequivocally that the agency has concluded that drug
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`manufacturers are legally obligated to facilitate the transfer of their discounted drugs to contract
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`pharmacies, which HHS assumed are acting as agents of 340B covered entities. See HHS, Office
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`of the Gen. Counsel, Advisory Opinion 20-06 on Contract Pharmacies under the 340B Program
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`(Dec. 30, 2020) (Ex. A). According to HHS, because the statute requires manufacturers to offer
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`their drugs for purchase at discounted prices, the agency also has authority to require
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`manufacturers to transfer their drugs to wherever covered entities may demand, “be it the lunar
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`surface, low-earth orbit, or a neighborhood pharmacy.” HHS Advisory Opinion, Ex. A at 5.
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`8.
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`HHS’s decision is wrong, contrary to the statute, and inconsistent with the
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`requirements of reasoned decision-making. The 340B statute requires manufacturers to “offer”
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`their covered outpatient drugs to covered entities at 340B prices, and Novo’s initiative fully
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`complies with that statutory requirement. Nothing in the 340B statute requires manufacturers to
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`facilitate the transfer of their deeply discounted drugs to an unlimited number of contract
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`pharmacies. Nor does anything in the statute establish that Congress intended to impose such a
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`significant burden on manufacturers or to allow the 340B program to be abused for commercial
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`gain.
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`9.
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`As a result of HHS’s decision, Novo is exposed to enforcement action, severe and
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`accumulating monetary penalties, and potential revocation of its ability to participate in the
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`Medicare and Medicaid programs. Unless and until HHS’s decision is struck down, Novo is
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`exposed to the threat of accumulating greater and greater liability.
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`10.
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`Novo is therefore bringing this action to seek an order (1) declaring that HHS’s
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`December 30 decision violates the Administrative Procedure Act because it is in excess of HHS’s
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`statutory authority, was issued without following proper procedure, and is not otherwise in
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`accordance with law, (2) declaring that Novo is not required to facilitate the transfer of 340B
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`discounted drugs to contract pharmacies, and (3) enjoining enforcement of HHS’s decision and all
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`actions by HHS inconsistent with that declaratory relief.
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`THE PARTIES
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`11.
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`Novo Nordisk Inc. is the United States based affiliate of a global healthcare
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`company, founded in 1923, with the purpose to drive change to defeat diabetes and other serious
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`chronic diseases, such as obesity, and rare blood and rare endocrine diseases. Novo Nordisk Inc.’s
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`headquarters are located in Plainsboro, New Jersey.
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`12.
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`Novo Nordisk Pharma, Inc. supplies unbranded biologic versions of Novo Nordisk
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`insulin products at a reduced list price to individuals facing affordability challenges. Novo Nordisk
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`Pharma, Inc.’s headquarters are located in Plainsboro, New Jersey.
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`13.
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`Defendant United States Department of Health and Human Services (“HHS”) is an
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`executive branch department in the United States government. It is headquartered in the District
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`of Columbia.
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`14.
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`Defendant Health Resources and Services Administration (“HRSA”) is an
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`administrative agency within HHS that is responsible for administering the 340B program. It is
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`headquartered in Rockville, Maryland.
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`15.
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`Defendant Alex M. Azar II is the Secretary of HHS. His official address is in the
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`District of Columbia. He has ultimate responsibility for overseeing HRSA’s activities, including
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`with regard to administering the 340B program. Secretary Azar is sued in his official capacity.
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`16.
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`Defendant Robert P. Charrow is General Counsel of HHS. His official address is
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`in the District of Columbia. General Counsel Charrow is sued in his official capacity.
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`17.
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`Defendant Thomas J. Engels is the Administrator of HRSA. His official address is
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`in Rockville, Maryland. Administrator Engels is responsible for administering the 340B program.
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`He is sued in his official capacity.
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`JURISDICTION AND VENUE
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`18.
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`Novo brings this action under the Administrative Procedure Act, 5 U.S.C. §§ 701–
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`706, and the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202.
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`19.
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`The Court has subject matter jurisdiction under 28 U.S.C. § 1331 and 28 U.S.C.
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`§ 1361.
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`20.
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`Defendants’ issuance of the December 30 decision constitutes final agency action
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`that is reviewable under the Administrative Procedure Act. See 5 U.S.C. §§ 704 - 706.
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`21.
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`The Court has authority to grant injunctive and declaratory relief and to vacate and
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`set aside the December 30 decision under the Administrative Procedure Act, 5 U.S.C. §§ 701–706,
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`the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202, and the Court’s inherent equitable
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`powers.
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`22.
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`Venue is proper in this district under 28 U.S.C. § 1391(e) and 5 U.S.C. § 703
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`because this action seeks relief against federal agencies and officials acting in their official
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`capacities, Novo resides in this district, and no real property is involved in this action.
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`GENERAL ALLEGATIONS
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`The 340B Drug Pricing Program
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`This case concerns section 340B of the Public Health Service Act, which created
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`A.
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`23.
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`the “340B program” as part of the authority granted in the Veterans Health Care Act of 1992. See
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`42 U.S.C. § 256b; see also Pub. L. No. 102-585, § 602(a), 106 Stat. 4943, 4967 (1992).
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`24.
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`Before Congress created the 340B program, individual manufacturers helped
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`vulnerable patients by voluntarily providing their drugs at significantly reduced prices to
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`institutions that serve the needy. Turning this voluntary support into a legal mandate, the statute
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`requires that any manufacturer that participates in the Medicaid Drug Rebate Program must “offer”
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`its covered outpatient drugs “for purchase” at deeply discounted prices to eligible “covered
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`entities”—disproportionate share hospitals and other service providers that are expected to serve
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`predominantly low-income and vulnerable patients. 42 U.S.C. § 256b(a)(1).
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`25.
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`The discounted 340B price is calculated by determining the difference between the
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`manufacturer’s Average Manufacturer Price and its Medicaid unit rebate amount, as determined
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`under the Medicaid Drug Rebate Program statute, codified at section 1927 of the Social Security
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`Act. Id. § 256b(a)(1)–(2) & (b). The resulting prices, referred to as 340B “ceiling prices,” are
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`significantly lower than the prices at which manufacturers sell their products to other purchasers.
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`For the vast majority of innovator drugs, the mandatory discounts range from at least 23.1% to
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`more than 99.9% of the average price in the market. See 42 U.S.C. § 1396r-8(c); 42 U.S.C.
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`§ 256b(a)(1). Some mandatory 340B ceiling prices are as little as a penny per unit or dose.
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`6
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`26.
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`The purpose of the 340B program is to “reduce pharmaceutical costs for safety-net
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`medical providers and the indigent populations they serve” by creating “a low-cost source of
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`pharmaceutical medication for the indigent patients themselves.” Connor J. Baer, Drugs for the
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`Indigent: A Proposal to Revise the 340B Drug Pricing Program, 57 Wm. & Mary L. Rev. 637,
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`638 (2015) (footnote omitted).
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`27.
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`Although participation in the 340B program is optional, as a practical matter most
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`manufacturers have no choice. If they do not participate in the program, they cannot receive
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`coverage or reimbursement of their products under Medicaid or Medicare Part B. 42 U.S.C.
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`§ 1396r-8(a)(1), (5).
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`28.
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`To indicate their agreement to participate in the 340B program, manufacturers sign
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`a form contract with HHS, referred to as the Pharmaceutical Pricing Agreement. Those agreements
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`are drafted by HHS, they have “no negotiable terms,” and they “simply incorporate the statutory
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`obligations and record the manufacturers’ agreement to abide by them.” Astra USA, Inc. v. Santa
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`Clara Cty., 563 U.S. 110, 117–18 (2011).
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`29.
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`The Pharmaceutical Pricing Agreement does not impose any obligation on
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`participating manufacturers to sell discounted drugs to contract pharmacies, or to cause their
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`discounted drugs to be transferred to contract pharmacies at 340B discounted prices. The
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`Pharmaceutical Pricing Agreement does not contain the term “contract pharmacy,” let alone
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`establish legal obligations on manufacturers with respect to contract pharmacies.
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`30.
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`Failure to comply with the statutory requirements under the 340B program may
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`result in termination of the Pharmaceutical Pricing Agreement (and the manufacturer’s ability to
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`participate in Medicare and Medicaid), as well as enforcement action and potentially the
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`imposition of large civil penalties.
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`31.
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`Under the 340B statute (and the terms of the Pharmaceutical Pricing Agreement),
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`any manufacturer that participates in the 340B program must “offer each covered entity covered
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`outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available
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`to any other purchaser at any price.” 42 U.S.C. § 256b(a)(1).
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`32.
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`Only “covered entities” are eligible to participate in the 340B program, and only
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`“covered entities” and their patients are entitled to receive manufacturers’ prescription drugs at the
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`deeply discounted prices that the statute requires.
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`33.
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`The 340B program does not require covered entities to treat only needy patients
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`with the drugs that manufacturers make available to them at discounted prices, or even (in the case
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`of hospital covered entities) to offer the discounts they receive to needy patients. In short, the
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`discounts that covered entities receive do not have to be, and are typically not, passed on to the
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`patients. Instead, covered entities are permitted to use the 340B drugs to treat any of the patients
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`they serve. By charging the full price of the discounted 340B outpatient drugs to non-needy
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`patients and their insurance companies (and, in the case of hospital covered entities, by charging
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`the full price even to the needy), covered entities are able to obtain significant profits.
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`34.
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`These profits—the “spread” between the discounted price and the full market
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`price—are not supposed to be used to enrich the covered entities or to benefit other commercial
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`parties. Instead, Congress intended that covered entities would invest the profits to provide care
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`and services to uninsured and underinsured patients.
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`35.
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`The 340B program raises obvious concerns because the Constitution prohibits the
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`government from forcing the transfer of property at confiscatory prices from one group to another
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`for private benefit. See U.S. Const. amend. V. Congress designed the 340B program with the
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`intent that there would be a close nexus between the program and its only valid public purpose
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`(helping needy patients). Consistent with that intent, the statute is structured to prevent covered
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`entities from using manufacturers’ drugs to generate commercial profits or to allow the drugs to
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`be transferred or sold for the financial benefit of entities outside the program.
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`36.
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`The statute expressly limits which entities—“covered entities”—are entitled to
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`participate in the 340B program and obtain access to 340B covered outpatient drugs at discounted
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`prices. See 42 U.S.C. § 256b(a)(4). Consistent with its objective of helping vulnerable and low-
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`income patients gain lower-cost access to life-saving medications, the statute defines “covered
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`entities” to include only organizations that predominantly serve low-income patients. The
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`definition includes, for example, federally qualified health centers, children’s hospitals, rural
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`hospitals, and clinics that serve vulnerable patients. Id.
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`37.
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`For-profit third-party pharmacies are not included in the statutory list of “covered
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`entities.” See id. § 256b(a)(4).
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`38.
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`The statute expressly forbids “diversion” by prohibiting covered entities from
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`selling or otherwise transferring any manufacturer’s discounted drugs “to a person who is not a
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`patient of the entity.” Id. § 256b(a)(5)(B) (“With respect to any covered outpatient drug that is
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`subject to an agreement under this subsection, a covered entity shall not resell or otherwise transfer
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`the drug to a person who is not a patient of the entity”).
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`39.
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`The statute also prohibits covered entities from receiving or causing “duplicate
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`discounts or rebates,” which means that they may not obtain a 340B discount and also cause a
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`Medicaid rebate to be issued for the same unit of drug. Id. § 256(a)(5)(A).
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`40.
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`In addition to these express prohibitions, the statute imposes an affirmative
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`obligation on the Secretary of HHS—authority that has been delegated to HRSA—to protect the
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`program’s integrity by “provid[ing] for improvements in compliance by covered entities … in
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`order to prevent diversion” and violations of the statute’s duplicate discount prohibition. Id.
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`§ 256b(d)(2)(A).
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`B.
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`41.
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`The Growth in Contract Pharmacy Arrangements
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`In 1996, HRSA issued non-binding guidance stating that the agency would not
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`prevent covered entities that lacked an in-house pharmacy from entering into a contractual
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`relationship with a single outside pharmacy to dispense covered outpatient drugs to the covered
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`entity’s patients. 61 Fed. Reg. 43,549 (Aug. 23, 1996). HRSA justified this modest expansion of
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`the program on grounds that some covered entities lacked in-house pharmacies and any contract
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`pharmacy would function as an “agent” of a covered entity. See id. at 43,549–50. The guidance
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`made clear that it “create[d] no new law and create[d] no new rights or duties.” Id. at 43,550.
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`42.
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`In 2010, HRSA issued new non-binding guidance that radically changed how
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`covered entities operated under the 340B program. The guidance stated for the first time that the
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`agency would allow covered entities to enter into contractual relationships with an unlimited
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`number of “contract pharmacies.” 74 Fed. Reg. 10,272 (Mar. 5, 2010).
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`43.
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`The 2010 guidance did not purport to impose binding obligations on manufacturers.
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`HRSA did not attempt to promulgate a “contract pharmacy rule” through proper notice-and-
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`comment procedures. Instead, as with the 1996 guidance, HRSA made clear that the non-binding
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`guidance did not create any new rights or impose any new obligations. See id. at 10,273 (“This
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`guidance neither imposes additional burdens upon manufacturers, nor creates any new rights for
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`covered entities under the law”).
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`44.
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`Following issuance of the 2010 guidance, covered entities have dramatically
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`increased their use of contract pharmacies, with a recent study reporting an increase of 4,228%
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`between 2010 and today. See Aaron Vandervelde et al., For-Profit Pharmacy Participation in the
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`340B Program, at 4 (Oct. 2020) (Ex. B). This explosion in the use of contract pharmacies has
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`been driven by the prospect of sharing in the outsized profit margins on the deeply discounted
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`340B drugs.
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`45.
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`Contract pharmacies, which are predominantly large commercial pharmacy chains,
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`do not operate like in-house pharmacies, do not themselves qualify as covered entities, and do not
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`owe a fiduciary obligation to the covered entities. The relationships between covered entities and
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`the for-profit, commercial pharmacies are governed by arm’s-length contracts.
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`46.
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`Under these arrangements, covered entities direct manufacturers to ship 340B-
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`covered outpatient drugs purchased at the 340B discount to contract pharmacies, which then share
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`in the “spread” generated by selling the drugs at higher prices to patients and/or seeking full
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`commercial reimbursement from the patients’ insurance plans. As a result, for-profit pharmacies
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`are able to obtain significant profits from the covered outpatient drugs that manufacturers are
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`required to offer covered entities at deeply discounted prices.
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`47.
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`By dramatically expanding the pool of individuals that have access to the drugs that
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`covered entities are able to purchase at discounted prices—including individuals who would not
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`otherwise qualify as patients of the covered entity—covered entities are able to obtain profits that
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`extend far beyond Congress’s intent when it created the 340B program.
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`48.
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`One study found that in 2018 alone, covered entities and their contract pharmacies
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`have generated more than $13 billion in estimated gross profits from the purchase of
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`manufacturers’ drugs at mandated 340B prices. See Vadervelde Report, Ex. B at 7.
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`49.
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`By bringing commercial pharmacies into the program, there is a significantly
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`greater risk that the covered outpatient drugs will be dispensed to individuals who are not properly
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`classified as “patients” of the covered entity. As HHS has found, contract pharmacy arrangements
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`“create complications in preventing diversion” (for example, contract pharmacies cannot verify
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`patient eligibility in real-time like a covered entity can). HHS, OEI-05-13-00431, Memorandum
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`Report: Contract Pharmacy Arrangements in the 340B Program, at 1 (Feb. 4, 2014) (Ex. C).
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`Indeed, because contract pharmacies often dispense 340B-covered outpatient drugs from the same
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`inventory as drugs dispensed to all other customers (and seek replenishment after the fact), the
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`opportunities for unlawful distributions to ineligible patients increases, allowing covered entities
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`and contract pharmacies to profit from the diversion that Congress intended to prohibit. See GAO,
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`Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight
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`Needs Improvement, GAO-11-836, at 28 (Sept. 2011) (Ex. D) (noting that “approximately two-
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`thirds of diversion findings in HRSA audits involved drugs distributed at contract pharmacies”).
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`50.
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`Contract pharmacy arrangements also “create complications in preventing
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`duplicate discounts.” HHS Report, Ex. C at 2. Because HRSA has only partial insight into which
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`covered entities use which contract pharmacies, and only incomplete information on which
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`covered entities use 340B-discounted drugs for Medicaid-insured patients, there is no effective or
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`comprehensive way to know where a contract pharmacy’s prescriptions are being submitted for
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`duplicate discounts—that is, for both a 340B discount (under the covered entity’s name) and a
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`Medicaid rebate (under the pharmacy’s name).
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`51.
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`Although covered entities and commercial pharmacies are reaping windfalls as a
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`result of being able to obtain access to manufacturers drugs at discounted prices, uninsured and
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`underinsured patients are not benefitting. See HHS Report, Ex. C at 2 (finding that “some covered
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`entities in our study do not offer the discounted 340B price to uninsured patients at their contract
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`pharmacies”); Adam J. Fein, The Federal Program that Keeps Insulin Prices High, Wall. St. J.
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`(Sept. 10, 2020) (Ex. E) (explaining that “almost half the U.S. pharmacy industry now profits from
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`the 340B program, which is designed as a narrow support to certain hospitals,” while patients
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`“don’t benefit,” even though manufacturers have “practically given the product away”).
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`52.
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`In fact, while commercial pharmacies are driving massive growth in the 340B
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`program—at double-digit rates—charity care by hospitals has decreased. Commentators have
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`noted, for example, that while the 340B program has grown at a remarkable rate, the total value of
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`hospitals’ uncompensated care has significantly declined. See Letter from Adam J. Fein to Hon.
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`Lamar Alexander and Hon. Greg Walden in response to request for input on 340B drug pricing
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`program (Oct. 30, 2020) (Ex. F); Adam J. Fein, 340B Program Purchases Reach $24.2 Billion—
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`7%+ of the Pharma Market—As Hospitals’ Charity Care Flatlines, Drug Channels (May 14, 2019)
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`(Ex. G).
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`53.
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`HRSA has failed to protect the 340B program’s integrity. It has refused to address
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`significant and widespread abuses despite repeated reports and concerns raised by other
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`government entities. See GAO, Federal Oversight of Compliance at 340B Contract Pharmacies
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`Needs Improvement, GAO-18-480 (June 2018) (Ex. H); H. Comm. on Energy & Commerce,
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`Review of the 340B Drug Pricing Program, 114th Cong., at 38 (Jan. 11, 2018) (Ex. I); HHS Report,
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`Ex. C.
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`54.
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`HRSA has also neglected to enforce the statutory prohibitions on diversion, despite
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`serious concerns that commercial contract pharmacies are profiting from the 340B program and
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`that covered outpatient drugs are being unlawfully diverted to individuals who are not patients of
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`the covered entities.
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`C.
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`55.
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`Novo’s Initiative to Address Contract Pharmacy Abuses
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`Novo and other manufacturers have exercised their lawful right to decline covered
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`entity requests that they cause discounted covered outpatient drugs to be transferred to an unlimited
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`number of commercial pharmacies.
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`13
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`Case 3:21-cv-00806 Document 1 Filed 01/15/21 Page 15 of 33 PageID: 15
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`56.
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`Novo has thus implemented a new initiative—which took effect in January 2021—
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`making clear that it will no longer indiscriminately accept covered entity requests that it transfer
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`340B-covered outpatient drugs to an unlimited number of third-party commercial contract
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`pharmacies servicing hospital covered entities.
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`57.
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`In implementing this initiative, Novo has confirmed that it will continue to offer
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`“each covered entity” the ability to “purchase” its covered outpatient drugs “at or below the
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`applicable ceiling” price set by statute. 42 U.S.C. § 256b(a)(1).
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`58.
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`Novo’s initiative thus ensures that, as the statute requires, each covered entity is
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`able to purchase Novo’s 340B cover outpatient drugs at discounted prices. If a hospital covered
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`entity does not have an on-site pharmacy capable of dispensing to outpatients, Novo will allow the
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`hospital covered entity to designate a single outside contract pharmacy to dispense the product to
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`the covered entity’s patients, and Novo will facilitate shipment to that single contract pharmacy.
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`59.
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`Novo’s initiative is tailored to address systemic abuses and, going beyond what the
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`statute requires, includes exceptions for the benefit of covered entities and their patients. Under
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`its new initiative, Novo has made an exception whereby it will facilitate shipment of covered
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`outpatient drugs to an unrestricted number of contract pharmacies that are wholly owned by the
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`covered entity. Novo also exempts all federal grantee covered entity types (safety net clinics) from
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`its new initiative, enabling them to continue to use an unlimited number of contract pharmacies.
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`60.
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`There are no legal requirements—no obligations imposed by any statute or
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`regulation—that require Novo to transfer and ship its drugs to an unlimited number of for-profit
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`commercial pharmacies. Contract pharmacies are not supposed to benefit from the 340B program
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`because they are neither covered entities nor patients.
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`14
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`Case 3:21-cv-00806 Document 1 Filed 01/15/21 Page 16 of 33 PageID: 16
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`D.
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`HHS’s December 30, 2020 Decision
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`61. Manufacturers have been transparent with the government about their policies and
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`decisions not to continue honoring covered entity requests to have manufacturers’ drugs
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`transferred to third parties.
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`62.
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`HRSA repeatedly informed manufacturers that agency guidance was not binding or
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`legally enforceable. See Tom Mirga, HRSA Says its 340B Contract Pharmacy Guidance Is Not
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`Legally Enforceable, 340B Report (July 9, 2020) (Ex. J).
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`63.
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`Despite knowing that manufacturers intended to implement policies designed to
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`curb contract pharmacy abuses, HRSA did not identify any statutory provision or other legal
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`requirement that would prevent manufacturers from implementing those policies.
`
`64.
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`65.
`
`66.
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`Novo alerted HRSA to its intent to adopt its initiative on December 1, 2020.
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`HRSA has never contacted Novo to express any concern over Novo’s initiative.
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`In the last two months, covered entities have asked HHS to take enforcement action
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`against manufacturers, including assessing civil monetary penalties, on the view that the statute
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`requires manufacturers to cause their drugs to be transferred to commercial contract pharmacies.
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`They also filed lawsuits seeking to compel HHS to establish a process for adjudicating disputes
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`and to take enforcement action that would require manufacturers to cause their drugs to be
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`transferred to commercial contract pharmacies and pay penalties if they failed to do so. See Ryan
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`White Clinics for 340B Access et al v. Azar et al, No. 20-cv-2906 (D.D.C.); Am. Hosp. Ass’n et al
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`v. HHS et al., No. 20-cv-8806 (N.D. Cal.). (Because Novo was referenced in the covered entities’
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`complaint in the case filed in the Northern District of California, it has filed a motion to intervene,
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`and a proposed motion to dismiss the complaint.)
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`15
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`67.
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`In December 2020, the GAO released a report re-affirming that “the 340B statute
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`does not address contract pharmacy use.” GAO, HHS Uses Multiple Mechanisms to Help Ensure
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`Compliance with 340B Requirements, GAO-21-107, at 15–16 (Dec. 2020) (Ex. K).
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`68.
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`In response to the litigation filed by covered entities, counsel for HHS and HRSA
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`described efforts to com