In a significant--and likely to be controversial--decision, the Ninth Circuit yesterday reinstated a putative class action filed by Santa Clara County, Calif., against more than 10 pharmaceutical manufacturers for allegedly overcharging hospitals for their medications.

In County of Santa Clara v. Astra USA, Inc., __ F.3d __, 2008 WL 3916268 (9th Cir. Aug. 27, 2008), the question addressed was whether "Section 340B covered entities"--certain federally funded medical clinics--were intended direct beneficiaries of drug discount pricing agreements between the federal government and manufacturers. Section 602 of the Veterans Health Care Act of 1992, Pub. L. No. 102-585, 106 Stat. 4943, 4967, entitled “Limitations on Prices of Drugs Purchased by Covered Entities,” directs the Secretary of Health and Human Services to enter agreements with pharmaceutical manufacturers capping the price at the "average manufacturer price," as defined. 42 U.S.C. § 256b(a)(1). Pursuant to that statute, the Secretary entered into a standard Pharmaceutical Pricing Agreement ("PPA") with several manufacturers. The putative class action alleged, under federal contract law, that the County and several of its federally funded medical clinics were charged more than the PPAs allowed. The Ninth Circuit panel concluded that Section 340B covered entities are intended third-party beneficiaries of the PPAs with enforceable rights (even in the absence of a contractual right to sue, and the absence of a statutory private right of action), and rejected the argument that the primary jurisdiction doctrine required referral of the matter to the Secretary for agency resolution.