On Friday, September 12, 2025, the U.S. Court of Appeals for the Fifth Circuit issued an unpublished decision upholding a Mississippi law that protects 340B contract pharmacy arrangements. The ruling came in a case brought by drug manufacturer AbbVie, which sought to block the law through a preliminary injunction. While not binding precedent or the final word in the case, the opinion makes the Fifth Circuit the second federal appellate court, joining the Eighth Circuit, to reject key legal arguments advanced by drug manufacturers challenging similar state laws nationwide.

Background on 340B and Contract Pharmacies

Under the federal 340B drug discount statute, 42 U.S.C. § 256b, a drug manufacturer that wishes to make a prescription drug it manufactures eligible for reimbursement under the Medicaid prescription drug benefit must agree to offer the same drug at a discount to identified categories of safety net providers, including community health centers and other federal grantee clinics as well as certain nonprofit hospitals. (The statute calls such safety net providers “covered entities.”)

However, in 2023 and 2024, both the Third and D.C. Circuits upheld the ability of drug manufacturers to place some limitations on the delivery of 340B drugs to pharmacies with which the covered entities have contracted to receive and dispense those drugs to the covered entities’ patients. The Circuit Courts reasoned that because the federal 340B statute did not address (was “silent” regarding) the delivery and dispensing of 340B drugs, the manufacturers were free, under state contract law, to impose good faith restrictions regarding delivery on their offers to sell.

In 2024, Mississippi was among the first states to implement a law (H.B. 728) prohibiting drug manufacturers from interfering with the rights, under Mississippi state contract law, of 340B covered entities to contract with pharmacies to receive and dispense 340B drugs on behalf of the covered entities. As they have done in nearly every state to adopt such a law, several manufacturers and the pharmaceutical trade association, PhRMA, sued.

The Fifth Circuit’s Analysis

The Fifth Circuit ruling rejected two of the principal arguments the manufacturers have advanced in these lawsuits: first, by imposing a requirement relating to a federal statute, the state laws impose an economic “taking” without compensation prohibited by the Fifth Amendment; and second, the federal 340B statute was so comprehensive (or created such irreconcilable conflicts with state enforcement) it preempted states from regulating the delivery and dispensing of 340B drugs.

1. The “Takings” Argument: The Fifth Circuit observed that under the state law, the manufacturer “still receives payment of the full discounted amounts to which it is entitled under Section 340B,” and the state law “simply imposes on drug manufacturers a negative obligation of noninterference with covered entities’ arrangements with contract pharmacies.”

The Fifth Circuit took note of 1996 guidance from the Health Resources and Services Administration (HRSA), the federal agency that administers the 340B statute, recognizing the 340B statute contemplated contractual arrangements with pharmacies to receive and dispense 340B drugs because, at the time, “‘only a very small number of the 11,500 covered entities used in-house pharmacies (approximately 500),’ meaning that [for manufacturers] the potential for dispensation of Section 340B drugs by contract pharmacies was foreseeable.” The Fifth Circuit determined HRSA’s 1996 guidance “appear[ed] to contemplate that state law might protect covered entities’ ‘right’ to purchase drugs at 340B prices and have them dispensed at multiple pharmacies.”

2. Preemption Argument: The Fifth Circuit found “there is no federal framework so pervasive [under the 340B statute] that Congress left no room for state supplementation.” The Fifth Circuit also cited to the previous Third, D.C. and Eighth Circuit rulings, all of which found the 340B statute is “silent about delivery.” Finally, the Fifth Circuit concluded Mississippi’s enforcement scheme does not conflict with Section 340B’s enforcement scheme.

What’s Next

The Fifth Circuit’s opinion was not its final word on this subject. This ruling is limited to AbbVie’s request for preliminary relief. A separate Fifth Circuit panel has already heard argument in another case brought by manufacturers, and the court stressed that future factual finding could alter its analysis, such as evidence that state law allows covered entities to evade 340B requirements.

Still, the Fifth Circuit’s opinion signals alignment with other appellate courts upholding state 340B contract pharmacy protections. For now, the momentum continues to favor states and covered entities defending the right to maintain contract pharmacy arrangements.