Drugmaker sues Arkansas over pricing

Act 1103 violates federal and state rights, filing says

A major manufacturer of several blockbuster drugs used to treat high cholesterol, cancer and gastrointestinal distress is calling foul on an Arkansas law it claims requires it to sell certain of its drugs to contract pharmacies at steep discounts in violation of federal law — the third such lawsuit of its kind since passage of the 2021 law.

AstraZeneca Pharmaceuticals LP — the pharmaceutical manufacturer behind such successful drugs as Crestor, Symbicort and Nexium — filed a complaint in federal court in Little Rock last month claiming that Act 1103 of 2021 violates federal patent law as well as the U.S. Constitution’s contract clause and the takings clauses in the U.S. and Arkansas constitutions.

The lawsuit — which names Arkansas Insurance Commissioner Alan McClain as the defendant — is the latest salvo fired in a three-year battle between the state and pharmaceutical manufacturers over Arkansas Act 1103 of 2021. The 340B Drug Pricing Nondiscrimination Act requires that drug discounts authorized by the Section 340B Drug Pricing Program be extended to independent contract pharmacies operating in Arkansas.

The pricing program was created by Congress in 1992 to protect hospitals and clinics caring for low-income patients from escalating drug prices by requiring drugmakers to provide outpatient drugs to eligible health care organizations — “covered entities” — at significantly reduced prices. Under the terms of the program, drugmakers that wish to participate in the Medicare and Medicaid marketplaces must agree to participate in the 340B Drug Pricing Program as well.

As of March 2024, according to the National Association of Community Health Centers, 29 states have enacted 32 state-level laws to protect 340B savings to community health centers. Two states’ laws — Arkansas and Louisiana — specifically address contract pharmacies. As of March 7, the association said, 13 states have pending legislation introduced to protect 340B savings, five of which specifically address contract pharmacies.

The lawsuit comes on the heels of an 8th Circuit decision in a similar lawsuit upholding the Arkansas law. A three-judge panel ruled that Act 1103 acts as a deterrent to prevent drug manufacturers from interfering with contractual arrangements between a covered entity and a contract pharmacy and does not pose any obstacle to the manufacturers’ ability to comply with both federal regulations and state law.

That 2021 lawsuit by the Pharmaceutical Research and Manufacturers of America — PhRMA, a trade group representing a number of bio-pharmaceutical research companies — alleged that Arkansas lawmakers inappropriately regulated and altered the federal 340B Pro

gram by imposing conflicting requirements on the program and regulating commercial transactions taking place entirely outside of Arkansas. PhRMA argued that in doing so, Act 1103 violated both the Supremacy and Commerce clauses of the U.S. Constitution.

On Dec. 29, 2022, U.S. District Judge Billy Roy Wilson dismissed the PhRMA complaint, and on March 12, Wilson’s ruling was affirmed by the 8th Circuit Court of Appeals. It is not known if PhRMA will appeal the ruling, which it can do by requesting an en banc hearing by the full 8th Circuit or by petitioning the U.S. Supreme Court to take up the case.

A similar lawsuit filed by Novo Nordisk in December — which was transferred to Wilson from U.S. District Judge James M. Moody Jr. — has been stayed by mutual agreement until the PhRMA complaint is resolved. On Friday, the AstraZeneca lawsuit was transferred to Wilson from U.S. District Judge Brian Miller in response to a Notice of Related Cases filed by McClain citing Wilson’s familiarity with the complexities of the 340B Program.

In its lawsuit, AstraZeneca claims that requiring drugmakers to provide discounted drugs to contract pharmacies violates federal patent law as well as the U.S. and Arkansas constitutions.

Among AstraZeneca’s claims, Act 1103:

■ Creates a direct conflict with U.S. patent law by requiring drug manufacturers to provide contract pharmacies with their patented drugs at steep discounts.

■ Violates the U.S. Constitution’s Article 1, Section 10, Clause 1 because it “substantially interferes” with the operation of contractual agreements between the drug manufacturers and the U.S. Department of Health and Human Services, which oversees the 340B program through the Health Resources and Services Administration, one of 11 agencies that fall under the HHS umbrella.

■ Violates the U.S. Constitution’s Fifth Amendment and Article 2, Section 2 of the Arkansas Constitution by requiring drug manufacturers to transfer ownership of their prescription drugs to another private party — in this case the contract pharmacies and the covered entities to which they contract — without fair market compensation.

The pharmaceutical giant is seeking an order declaring that Act 1103 is preempted by federal patent law and that it violates the constitutions of the United States and of Arkansas and to enjoin McClain from enforcing the law against AstraZeneca.

Booth Rand, general counsel for the Arkansas Insurance Department, acknowledged that he had seen the complaint but said he was not at liberty to discuss the pending litigation in any detail.

“The Insurance Department has received the lawsuit and has filed an answer,” Rand said in an email. “Astra has raised a number of federal defenses to Act 1103 not raised by PhRMA in the other proceeding, and we disagree with all of them. We will obviously defend this matter as it goes forward.”

John Vinson, chief executive officer of the Arkansas Pharmacists Association, said the impetus for Act 1103 was restrictions the drug manufacturers themselves began implementing during the covid-19 pandemic. He said those restrictions hampered the ability of health care providers in Arkansas to provide 340B program prescriptions to patients, which in turn restricted an important revenue source allowing those providers to maintain or expand their services. He said the timing of the AstraZeneca lawsuit seemed to indicate the drug manufacturer’s displeasure with the 8th Circuit ruling regarding PhRMA.

“It appears AstraZeneca doesn’t like the 8th Circuit ruling,” Vinson said, “so rather than comply with the law, they’re going to file another lawsuit.”

Vinson took particular issue with AstraZeneca’s claim that the 340B discounts are not passed on to patients, saying it misrepresents the program’s purpose. In its complaint, AstraZeneca said a 2018 Government Accountability Office survey revealed that 45% of covered entities admitted that they don’t pass along any discount to any of their patients and that the remaining 55% “may provide discounts to patients only in limited cases.”

He said the 340B Program was designed to provide a financial benefit to hospitals and clinics which treat high percentages of lower income patients in an effort to defray some of the cost of treatment, “because they tend to be in … very rural areas … that otherwise might not have a clinic or hospital if not for the 340B benefit.”

“You might think the patient is going to get all of these discounts, but that’s not why the program was created,” Vinson said. “It was created to give the benefit — the money and the discount — to the entity so that the entity can continue to exist. Sometimes the entity may pass the discount along to the patient if they’re uninsured or under-insured and otherwise wouldn’t get the prescription … but each entity designs the criteria to decide [how that revenue is used].”

He said not all covered entities are rural, that nonprofit hospitals like UAMS or Arkansas Children’s Hospital, which have large patient populations dependent on Medicaid or who are uninsured altogether, also benefit from 340B revenue. That revenue, he said, provides funding in many cases to allow a covered entity to treat more patients, to expand its offerings or, in the case of many rural health care providers, to simply keep the doors open.

The savings generated from the discounted 340B drugs, Vinson said, go back into the provider’s operating revenues, “to open OB or whatever services to deliver babies or to provide children’s services or any number of things — salaries, light bulbs — whatever is needed to operate or expand services.”

Vinson said that during the pandemic, drug companies began to push back against the use of contract pharmacies by covered entities in Arkansas, prompting state health officials to seek help from the General Assembly. The result — House Bill 1881 that was signed into law as Act 1103 — was sponsored by state Rep. Michelle Gray, R-Melbourne, in the House and by then-state Sen. Jason Rapert, R-Conway, in the Senate.

“A group of us went to the Legislature and said what’s happening is harming our patients, our hospitals and our clinics,” Vinson said. “We said our theory was that community pharmacies are legislated and granted their authority by the state, not Congress, and for a manufacturer to interfere with that relationship … Act 1103 prohibited manufacturers from doing that. And of course, they sued us in federal court, but so far a judge in Little Rock and the three-judge panel in St. Louis agreed with the state Legislature that it does have the right to regulate what community pharmacies can do in the retail setting. That’s kind of where we are.”

Since the 8th Circuit ruling, Vinson said, some 14 drug manufacturers have removed their restrictions in Arkansas, but he said another 14 or 15 have yet to do so.