Cases & Deals

Pharmaceutical manufacturers prevail before the U.S. Supreme Court in dispute under 340B Drug Pricing Program

Clients Takeda Pharmaceuticals North America, Inc.

Jones Day, on behalf of TAP Pharmaceutical Products Inc. (now known as Takeda Pharmaceuticals North America, Inc.), along with counsel for co-defendants, prevailed before the U.S. Supreme Court. The case, brought as a putative class action brought on behalf of all California counties and their hospitals and clinics, alleged that pharmaceutical companies overcharged hospitals for drugs purchased through the 340B Drug Pricing Program. The 340B Program requires manufacturers, as a condition for participating in Medicaid, to enter into a contract with the Department of Health and Human Services obliging them to sell drugs to certain entities at heavily discounted prices determined by a complex formula. The district court granted defendants' motion to dismiss, finding that neither the 340B statute nor the contract with the Department of Health and Human Services allows entities purchasing drugs under the 340B Program to challenge the manufacturers' calculation of the discounts. Overruling the district court, the Ninth Circuit held that plaintiffs could challenge these calculations under federal common law as third party beneficiaries of the contract. Defendants sought review in the Supreme Court.

The Supreme Court granted certiorari and unanimously reversed. In an opinion authored by Justice Ginsburg, the Court held that when a statutory scheme is implemented by means of a contract, a person that benefits from the contract cannot sue to enforce it as a third-party beneficiary unless Congress affirmatively conferred a private right of action. The Court found not only that Congress did not confer a private right of action, but also that allowing private claims would undermine Congress' intention to vest unified oversight of the 340B Program with the Department of Health and Human Services.

County of Santa Clara is a significant victory. The Ninth Circuit's decision allowing a private right of action under the 340B Program would permit potentially 14,500 entities nationwide, that spend $4 billion annually on outpatient drugs, to sue hundreds of drug manufacturers based on the manufacturers' pricing and sales data for more than 35,000 pharmaceutical products sold pursuant to the 340B Program and the Medicaid Act. The Supreme Court's ruling checked this potential flood of litigation. More broadly, many federal statutes are implemented by requiring businesses as a condition to participating in federal programs to enter into contracts effectuating federal policies, including the Davis-Bacon Act and the Rehabilitation Act. After County of Santa Clara, it will be more difficult for plaintiffs to bring suits to enforce these and similar statutes as purported third-party beneficiaries.

County of Santa Clara et al. v. Astra U.S.A. Inc., et al., 563 U.S. ___ (2011)

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