The pharmaceutical industry appears to have won over the U.S. Supreme Court justices in arguing that healthcare providers do not have the right to sue drug makers for violating drug price ceilings set in government contracts.

During Jan. 19 oral arguments in Astra USA v. Santa Clara County, the justices challenged the respondents' position that beneficiaries of these contracts can enforce a pharmaceutical pricing agreement between the Secretary of HHS and manufacturers.

"We never envisioned making them [340B entities] beneficiaries and allowing them to sue," Justice Ruth Bader Ginsburg told David Frederick, counsel for Santa Clara. "That would be quite disruptive of our program."

Justice Sonia Sotomayor said she thought it was very clear that proof you received benefit of a contract is not proof that the parties intended to confer an enforceable right on you.

"What am I missing?" she asked. "Where in the contract is there one provision, one sentence, one anything that requires the manufacturers, other than the price benefit, to do something that could be characterized as enforcement?"

Frederick, of Kellogg, Huber, Hansen, Todd, Evans & Figel, responded that the provision in the agreement "that says 'thou shall not charge the covered entities more than the ceiling price,' is exactly where you find the intended third-party beneficiary rights, because that's their money that's being spent."

Justice Breyer Asks What Recourse Entities Have If They Are Overcharged

In the case before the court, nine pharmaceutical companies are challenging a ruling by the U.S. Court of Appeals for the Ninth Circuit that 340B entities have the right to sue to get drug manufacturers to accurately report their average manufacturer price and best price of all Medicaid covered drugs and ceiling prices for all Section 340B drugs (Also see "Supreme Rx: 340B Pricing, Baycol Class Action To Get High Court Review" - Pink Sheet, 29 September, 2010.).

The Medicaid Act requires drug makers to enter contracts with the Secretary of HHS to provide drug rebates to states and Section 340B of the Public Health Service Act requires them to enter into a separate contract to provide discounted prices to certain healthcare providers, which are referred to as 340B entities.

The County of Santa Clara, Calif. filed a class action on behalf of itself and other California counties that fund public hospitals and other public healthcare providers for the costs of prescription drugs through the Section 340B program. They allege that drug manufacturers violated the ceiling prices set forth in the program, thus breaching a government contract intended for their benefit.

Justice Stephen Breyer expressed sympathy for the respondents' position. He asked Lisa Blatt, counsel for the pharma companies, what Santa Clara is supposed to do if they think they are being overcharged. "So what are they supposed to do if they're right?" he asked. "How do they get the money?"

Blatt, a partner at Arnold & Porter, said that until 2010 they have gotten the money "at the mercy of the vastly larger Medicaid rebate program," run on behalf of the states. She added that if the Secretary of HHS does not respond to complaints of overcharging, 340B entities can't enforce the government contract.

Breyer asked why is it reasonable to think the Secretary of HHS would have entered into a contract which is going to benefit 340B entities if they have no remedy.

Pharma Pricing Agreement Is Not An Ordinary Contract, Government Says

Ginger Anders, assistant to the Solicitor General, argued on behalf of the United States, which submitted an amicus brief in support of the drug companies.

"The pharmaceutical pricing agreement should not be construed to permit 340B entities to bring suit to enforce drug manufacturers' price reporting requirements for two reasons," Anders stated. She said the agreement is not an ordinary contract and does not transform the 340B program from a regulatory scheme into a contractual one.

Justice Samuel Alito asked how this agreement could be distinguished from an ordinary contract. Anders responded: "I think when the statute directs an agency to enter into an agreement for the sole purpose of memorializing the parties' opt-in to the regulatory scheme and directs what the terms shall be. . . that's when the contract is simply a regulatory mechanism."

Anders further stated that allowing 14,000 covered entities to bring individual suits in different courts without HHS consultation could lead to substantial dis-uniformity in pricing.

Frederick asserted that he thought the disruption claim "is a canard, because what we are talking about here is one price that would govern" all 14,500 covered entities.

"So if Santa Clara gets the discount price for Lipitor, say, that is the best price, and it will be charged and chargeable to all of the 340B entities across the nation," he said. So "one suit actually can solve the deficiencies in the government enforcement program, and the government can participate in this suit."

Chief Justice John Roberts, Jr., replied that that seems "to put an awful lot of power and authority in the hands of one beneficiary and one lawyer" who can file a suit saying "'we get a hundred doses of Lipitor from this program; we think we should get less.'"

"And if they win, the pricing of Lipitor under this program has changed," Roberts said. "That strikes me as an argument in favor of leaving the enforcement with the Secretary."

Brenda Sandburg (b.sandburg@elsevier.com)

Supreme Court Is Wary Of Healthcare Provider Suits Alleging Overpricing By Pharma

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