On January 19, 2011, the U.S. Supreme Court heard arguments in Astra USA, Inc. v. Santa Clara County, a case concerning whether hospitals have a private right of action against drug manufacturers to enforce the requirements of the 340B drug discount program. Under the 340B program, manufacturers are required to provide outpatient drugs at a discount to certain providers, called “covered entities.” More than 15,000 hospitals and clinics currently purchase more than $3.4 billion in drugs at a 30 to 50 percent discount under the program. The Secretary of the U.S. Department of Health and Human Services (HHS) signs agreements with pharmaceutical companies creating binding maximum prices for drugs sold to covered entities, including a public hospital and several clinics operated by Santa Clara County, California.

In a 2005 report entitled “Review of 340B Prices,” the HHS Office of Inspector General (OIG) estimated that 14 percent of total purchases made under the 340B program exceeded the 340B program’s ceiling prices. At issue in the case is whether providers like Santa Clara County have a private right of action to force the drug manufacturers to provide the required discounts. The Ninth Circuit ruled in favor of Santa Clara County in December 2009.

The Obama administration submitted an amicus brief on behalf of the pharmaceutical companies, contending that there is no such right of action. The U.S. Justice Department states that allowing Santa Clara County the right to sue would bring about a plethora of provider lawsuits, while the statute confers enforcement responsibilities solely on the government. Other entities, including the U.S. Chamber of Commerce, filed similar briefs in support of the drug makers.

Notwithstanding the outcome of this particular case, last year’s health care reform law contains provisions that have the potential to strengthen enforcement with 340B drug discount program requirements. Indeed, on September 20, 2010, HHS issued a notice of proposed rulemaking and request for comments outlining its plan to implement section 7102(a) of the Affordable Care Act, which requires the Secretary of HHS to impose civil monetary penalties against manufacturers who overcharge covered providers for 340B program drugs. Individual penalties would reach as high as $5,000 per instance and would apply to any manufacturer that “knowingly and intentionally” charges a price above the 340B program ceiling. A copy of the Federal Register notice is available by clicking here.

Also on September 20, 2010, HHS issued a separate advance notice of proposed rulemaking and request for comments outlining its plan to implement a provision of the same section of the Affordable Care Act, which requires the Secretary to develop an administrative dispute resolution process for providers to use when they believe that a manufacturer has overcharged. HHS did not propose a specific model. A copy of the Federal Register notice is available by clicking here.