December 22, 2010—Centuries-old legal precedents make it clear that safety-net providers can sue drug manufacturers for allegedly charging them more for medicines than the 340B drug discount program allows, two California counties and their 340B-enrolled medical facilities argue in papers filed with the U.S. Supreme Court last week.
Congress decided to use contracts between the federal government and manufacturers as the means of providing drug discounts to hospitals and clinics serving large numbers of low-income patients, the counties observe in their Dec. 13 brief in the closely watched 340B case, Astra USA Inc. v. County of Santa Clara (Case No. 09-1273). In doing so, it "evinced no evidence to depart" from ancient common law principles that intended beneficiaries of such agreements may sue to obtain the promised benefits they believe they are being denied, the counties say.
Eight groups representing 340B providers nationwide, four states and the District of Columbia, two groups representing older Americans and two groups of law professors made the same point this week in friend-of-the-court briefs backing the California counties.
Hearing Date Approaches
The nine manufacturers that the counties accuse of overcharging them filed their briefs in the landmark 340B case in November. They contend that the counties cannot sue them because the 340B statute does not expressly grant them such a right. A federal appeals court ruled in December 2009 that the counties had a common law right to sue as the intended beneficiaries of pricing agreements between the companies and the federal government.
The manufacturers' position is backed in amicus briefs filed by Pharmaceutical Research and Manufacturers of America (PhRMA), the U.S. Chamber of Commerce, and two advocacy groups.
The U.S. Solicitor General's office, which represents the federal government in litigation, argues in its brief supporting the drug companies that the pricing agreements are not contracts and, even if they are regarded as such, they do not grant the counties the right to sue. The drug manufacturers, in contrast, do not contest that the agreements are contracts. On Dec. 17, the Solicitor General sought the High Court's permission to participate in the Jan. 19 oral arguments in the case.
Copies of all the briefs filed in the case are available on the American Bar Association Web site.
Administrative Process Assailed
A victory for the California counties would establish that 340B providers may ultimately turn to the courts for relief for alleged overcharging irrespective of whether they use the current voluntary administrative dispute resolution process.
The availability of such a remedy, the California counties say in their brief, is "necessary in light of the near-complete absence of federal enforcement to remedy manufacturer overcharges." The 340B providers that support the counties echo that argument in their brief.
The 340B program, they say, is "devoid of an effective administrative enforcement mechanism for addressing manufacturer overcharges," due perhaps to the Office of Pharmacy Affairs' (OPA) lack of financial and staff resources and lack of proper statutory authority to initiate meaningful enforcement action.
"In actual practice, manufacturers can overcharge covered entities with impunity," they assert.
Providers, they say, have received "no meaningful response" from OPA or its parent agency, the Health Resources and Services Administration (HRSA), to numerous requests that it investigate and act on indications of overcharging. They note that, to the best of their knowledge, OPA and HRSA have never used their existing dispute resolution mechanism "to resolve a single dispute involving alleged 340B overcharges against a manufacturer."
The process, they say, is "a vacant promise."
Congress and the Department of Health and Human Services Office of Inspector General have repeatedly cited such deficiencies in hearings and reports and OPA has acknowledged them itself, they say, "yet none of this galvanized the agency to implement more effective administrative measures."
Congress recognized these shortcomings again when, in this year's Affordable Care Act, it ordered the creation of a mandatory dispute resolution process for 340B, the groups say. "The changes made by [health care reform] to the 340B enforcement program are not mere tweaks to the prior system," they continue. "Rather, they represent fundamental reforms and are an overt acknowledgement that the existing administrative enforcement system was both inadequate and unacceptable."
The brief was filed on behalf of 340B providers by the Hemophilia Alliance, the National Alliance of State and Territorial AIDS Directors, the National Association of Counties, the National Association of Public Hospitals and Health Systems, the National Family Planning and Reproductive Health Association, the National Health Care for the Homeless Council, Planned Parenthood Federation of America, and Safety Net Hospitals for Pharmaceutical Access.
Rights to Enforce Medicaid Agreements
The chief law enforcement officers of Arizona, the District of Columbia, Kansas, Missouri and West Virginia also filed a brief supporting the California counties. Their filing focused mainly on the consequences of a ruling in the manufacturers' favor on their ability to sue such companies for allegedly misstating their drug prices to reduce the rebates they owe to state Medicaid programs.
"A ruling that 340B entities many not sue as intended third-party beneficiaries would doubtless be invoked by drug manufacturers to argue that the states cannot enforce the [Medicaid] rebate agreement as intended third-party beneficiaries," the five attorneys general say.
AARP and the National Senior Law Center also filed a joint brief supporting the counties' position, explaining that they are "profoundly concerned about the impact that the court's decision may have on [older Americans'] access to affordable prescription drugs." Their brief also focused on the adverse affect of a ruling in the drug companies' favor on state laws "permitting recipients of federal benefits to enforce contracts against private providers [of nursing home care] for violations including improper billing, unlawful eviction from nursing homes, inadequate medical care, and hazardous lead paint."
A group of professors of U.S. contract law and a second group of scholars who study the federal courts also filed briefs supporting the counties.