Background

On March 31, a divided 2-1 panel of the U.S Court of Appeals for the Fourth Circuit decided that the federal drug discount provisions under Section 340B of the Public Health Service Act (PHSA) preempted a West Virginia state law designed to protect contract pharmacy rights for 340B covered entities. The decision is notable not only for its outcome, but also because the majority opinion relied on a legal theory not advanced by any party and one that diverges from prior decisions in the Third, D.C., Eighth, and Fifth Circuits. The West Virginia Attorney General has petitioned for rehearing en banc.

Less than a month later, on April 27, the U.S. Department of Justice (DOJ) filed yet another “Statement of Interest” in federal court in Washington State – DOJ has been pushing its position on preemption for months in other courts, but the Fourth Circuit decision unquestionably gives that position greater viability – asserting that a similar state law is likewise preempted by federal law. In doing so, the DOJ repeatedly cited the reasoning of the Fourth Circuit and further argued that court decisions upholding such state laws were incorrectly decided.

The upshot of what are numerous cases across the country and now a divergence of positions in the various courts of appeal is that the issue of contract pharmacies will, very likely, be in front of the U.S. Supreme Court in the foreseeable future. For the reasons discussed next, it is critical that health centers independently make their voice heard as these cases move forward.

Unique Rights for FQHCs to Use Contract Pharmacies

Notably absent from both the Fourth Circuit’s decision and the DOJ’s filings is any discussion of a critical statutory provision: the same PHSA that establishes Section 340B also creates, under Section 330, the federal health center program. Section 330 requires health centers to provide pharmaceutical services (pharmacy is literally referred to as a “required” service under Section 330) and explicitly authorizes health centers to provide required services by their own “staff” or through contractual arrangements. This omission is significant because only health centers, unlike other covered entities, state officials, or hospital advocates, can assert this distinct statutory authority to provide pharmacy services by contract.

Key Takeaway

Hospitals, state attorneys general, and other stakeholders cannot fully present the unique statutory role of FQHCs in 340B litigation because they are not Section 330 grantees and do not, like a state Primary Care Association, represent the interests of Section 330 grantees. Absent direct advocacy by the health centers community, courts are unlikely to consider the distinct federal rights Congress has afforded to FQHCs.

For health centers, this dynamic is not new. Unlike other health care providers, including hospitals and other federal grantees, health centers have an array of unique and enforceable rights regarding payment rates for Medicaid and Medicare services, Federal Tort Claims Act malpractice claims coverage, program income flexibility and in many other areas. Those rights stem from the unique role that FQHCs occupy in the federal statutory scheme to provide health care to medically underserved areas, the uninsured, and those otherwise unable to pay for health care services. While other health care advocates have admirable and parallel aims, they cannot represent the interests of health centers in the flood of 340B litigation as effectively as health centers can themselves.

Next Steps

As litigation over state 340B protections continues and appears increasingly likely to reach the U.S. Supreme Court, health centers should consider how best to ensure their perspectives and statutory rights are represented. This may include direct participation in litigation or other advocacy efforts to ensure that courts fully understand and account for the unique legal framework governing FQHCs.

Given the trajectory of current litigation, health centers should act now to ensure their statutory rights are clearly articulated and defended. If you would like guidance on engaging in litigation, submitting comments, or otherwise advancing your organization’s position, please contact Steve Kuperberg or Edward T. Waters.