A United States District Court judge for the District of Columbia has granted summary judgment to the government, finding that the Secretary of the Department of Health and Human Services had the discretion to reject Johnson & Johnson’s program to offer rebates instead of discounts to 340B covered entities. In reaching his conclusion, Judge Rudolph Contrebas analyzed the plain text of the statute as well as the statute’s legislative history and purpose.
Congress enacted the 340B program to enable non-profit and public hospitals that serve underserved populations, such as uninsured and low-income patients, to purchase outpatient drugs at a discount, allowing these hospitals to stretch limited federal resources, to reduce the price of outpatient drugs for patients, and to expand health services to the patients and communities they serve. In order to incent pharmaceutical manufacturers to participate in the 340B program, manufacturers seeking to sell pharmaceuticals to the Medicaid program are required to participate.
In late 2024, Johnson & Johnson approached the Health Resources Services Agency about its plans to administer the 340B program for certain drugs on a rebate model, rather than making the discounts available when initially purchased by the hospitals. HRSA advised Johnson & Johnson that implementing its rebate models would be inconsistent with the statutory requirements of the 340B program and would require approval by the Secretary of HHS. Johnson & Johnson filed suit in federal court alleging that HRSA’s action violated the Administrative Procedures Act and was arbitrary and capricious.
The Court first examined the language of the statute, which provides that the “Secretary shall enter into an agreement with each manufacturer of covered outpatient drugs under which the amount required to be paid (taking into account any rebate or discount, as provided by the Secretary) to the manufacturer for covered outpatient drugs … purchased by a covered entity….” (emphasis provided by the Court). The Court found that it “need not strain to understand the plain text of the statute….Based on the plain and unambiguous language of the 340B statute, HRSA has the authority to provide for rebates, or not.”
But the Court expressly did not stop its analysis with the statutory text. It also examined the purpose and legislative history of the 340B statute, which was intended to stretch federal resources as far as possible in order to reach more eligible patients. Quoting from the Congressional Record stating that the 340B price reductions were to be “implemented at the discretion of the Secretary,” the Court found that the purpose and legislative history also supported the Secretary’s discretion to deny Johnson & Johnson’s rebate program.
The opinion in Johnson & Johnson Healthcare Systems, Inc. v. Kennedy, is linked here.
Whatley Kallas, LLP represents several hospitals in their pursuit of claims under the 340B program.