Could the States Resolve the Contract Pharmacy Impasse?

By Ted Slafsky

After a recent lull in the ongoing battle over whether drug manufacturers can continue to place restrictions on access to 340B discounts in the contract pharmacy setting, things are heating up at the state level.

Recently, Louisiana and its bordering state to the north, Arkansas, took action to require drug manufacturers to restore 340B pricing at contract pharmacies in their respective states.  Louisiana’s law Act 358, which the state Senate passed unanimously and the state House cleared, 97-2, this summer, went into effect Aug. 1. As 340B Report’s Will Newton reported, the law prohibits actions by a drug manufacturer or distributor that would “deny, restrict, prohibit, or otherwise interfere” with the acquisition of a 340B discounted drug at a pharmacy that is under contract with a 340B provider. It specifies that any violation of the law is subject to penalties under Louisiana’s Unfair Trade Practices and Consumer Protection Law. PhRMA and Astra Zeneca both have filed suits in federal court against the state to block the law.

On the day before the Louisiana law went into effect, Teva announced it suspended its contract pharmacy restrictions in the state and Merck said it would “voluntarily honor 340B discounts and chargebacks for contract pharmacy transactions” if hospitals and health centers register with and submit claims data to 340B ESP. Merck said its new, less stringent contract pharmacy policy would apply in both Louisiana and Arkansas.

Meanwhile, the Arkansas Insurance Department (AID) announced Aug. 28, 2023 that it would begin enforcement of Act 1103, the nation’s first 340B contract pharmacy law. Act 1103, which was enacted in 2021 but not enforced until the Aug 28 notice, bars drugmakers from “denying or prohibiting 340B drug pricing for an Arkansas-based community pharmacy that receives drugs purchased under a 340B drug pricing contract pharmacy arrangement with a covered entity.” According to a source in the state that I conferred with just days after the enforcement notice, AID had received formal complaints against at least 17 drugmakers and was in the process of sending each of them notices.

As 340B Report reported, AID previously paused enforcement of Act 1103 to await a ruling by the U.S. 8th Circuit Court of Appeals in St. Louis in a legal challenge to the law, Pharmaceutical Research and Manufacturers of America (PhRMA) v. McClain. However, AID’s recent bulletin said it would resume enforcement “in light of the indeterminate time period for full completion of federal appellate review and the immediate need of hospitals to have enforcement.”

Status of PhRMA’s Challenge to Arkansas Law

A federal district court in Little Rock, Arkansas ruled in December, 2022 against PhRMA’s challenge to the law’s constitutionality. The judge overseeing the case determined that Act 1103 is not preempted by the federal 340B statute nor by the U.S. Food and Drug Administration’s Risk Evaluation and Mitigation Strategies requirements. Bill von Oehsen, a principal at Powers,  Pyles, Sutter & Verville, whose firm represents an Arkansas health center association and community hospital in the case, told me that PhRMA’s other main argument—that the state law violates the federal constitution’s Commerce Clause–was undermined by a recent U.S. Supreme Court decision that found a California state law did not violate the U.S. Constitution’s Commerce Clause.

In fact, the 8^th Circuit is not even considering the commerce clause argument in its evaluation of the case. After listening to the Sept. 20 oral arguments in PhRMA vs. McClain, it remains unclear in what direction the three-judge appellate panel is leaning. Nevertheless, on the same day that the arguments occurred, Teva announced suspension of its contract pharmacy restrictions in Arkansas. von Oehsen believes there is significant momentum at the state level to prohibit drugmakers from placing restrictions and conditions on 340B pricing in the contract pharmacy setting. He anticipates many other state legislatures will push to enact similar laws in their next legislative sessions.

As Congress moves slowly to address the contract pharmacy impasse and the various manufacturer suits against the federal government drag on, you can expect to see many states following the lead of Arkansas and Louisiana. Be prepared for a busy January and February when many state legislators go back to work in their state capitols.

Ted Slafsky is the Publisher and CEO of 340B Report, the only news and intelligence service exclusively covering the 340B program.  Slafsky, who has over 25 years of leadership experience with the 340B program, is also Founder and Principal of Wexford Solutions.  Ted can be reached at ted.slafsky@340Breport.com.

Disclaimer: The views and opinions expressed in this blog are those of the authors. They do not necessarily reflect the official policy or position of any other agency, organization, employer, or company.