On August 27, 2008, the Ninth Circuit U.S. Court of Appeals reversed a trial court's dismissal of claims brought by California's County of Santa Clara on behalf of certain federally funded medical clinics known as 340B covered entities. In essence, the lawsuit alleged that a group of pharmaceutical manufacturers violated the standard Pharmaceutical Pricing Agreement ("PPA") that each entered into with the U.S. Department of Health and Human Services. The PPA required the manufacturer to sell pharmaceuticals to 340B entities for an amount equal to the average manufacturer price in the preceding calendar quarter reduced by a rebate percentage. Santa Clara alleged that the pharmaceutical manufacturers routinely charged an amount in excess of the upper limit set by the PPA. The Ninth Circuit determined that Santa Clara had standing to bring these claims as a third-party beneficiary to the PPA.

Pharmaceutical manufacturers should expect other communities with 340B entities to bring similar lawsuits following the Ninth Circuit's ruling. In addition, the Ninth Circuit also defined protected purchasers to include the federal Department of Veterans Affairs, Department of Defense, the Public Health Service and the Indian Health Service. This has the potential of posing significant financial risk to pharmaceutical manufacturers.