Merck Files Suit Against HHS and HRSA Regarding 340B Policy

A suit was filed last Friday in the District of Columbia by plaintiff Merck Sharp & Dohme LLC against defendants U.S. Department of Health and Human Services (HHS), Health and Human Services Secretary Xavier Becerra, U.S. Health Resources and Services Administration (HRSA), and Carole Johnson as Administrator of HRSA. The complaint for declaratory and injunctive relief alleges that the defendants violated the Administrative Procedure Act (APA).

The complaint cites two prior suits that the District of Columbia District Court had “vacated and declared unlawful agency actions that are strikingly similar to the agency action challenged” in the current complaint.

The prior suits challenged the validity of ‘violation letters’ that defendant HRSA had sent out to pharmaceutical manufacturers which asserted that the manufacturers had violated the 340B statute since they had not offered their covered outpatient drugs at discounted prices to certain health care providers, which is a condition of having the drugs covered under Medicaid and Medicare Part B. In the earlier complaints, the court granted declaratory relief to the manufacturers and vacated the violation letter sent by defendant HRSA.

The defendants recently sent plaintiff Merck an identical letter that it had sent to the plaintiffs in the earlier suits.

The complaint notes that plaintiff Merck has adopted multiple policies that attempt to account for 340B program noncompliance. The plaintiff contends that it has “worked diligently to communicate with HRSA regarding Merck’s policies and the reasons why they are lawful, necessary and appropriate,” through written communication. Each of Merck’s written communications requested further meetings with defendant HRSA, but the requests were never followed-up on.

Part of the plaintiff’s initiative includes a request that “certain 340B covered entities that wish to use contract pharmacies provide limited claims-level transactional data through a third-party vendor, so that these transactions can be appropriately vetted.” The complaint describes this approach to be consistent with HRSA guidelines since the provision of claims data is typical in the healthcare industry as a means of verifying eligibility.

Importantly, the complaint emphasizes that Merck’s initiative allows all covered entities to purchase covered outpatient drugs regardless of their provision of the requested claims-level data. Merck also contends that its initiative has no impact on the health care providers that do not use contract pharmacies.

Following the letter from defendant HRSA, the plaintiff received a letter from defendant Johnson on May 6, 2022, which was nearly identical to the prior letters. The letter wrote that the HRSA had concluded that Merck’s actions “resulted in overcharges and are in direct violation of the 340B statute” since “nothing in the 340B statute grants the manufacturer the right to place conditions on the fulfillment of its statutory obligation” to provide covered outpatient drugs. The letter ended by threatening Merck with civil monetary penalties if its noncompliance continued.

The plaintiff notes that none of the prior suits, in which district courts had vacated the violation letters, are acknowledged in the defendants’ letters. Merck’s response to the two letters pointed out both the purported legal and factual inaccuracies of the letter. As of the date the complaint was filed, the defendants had yet to respond.

The complaint cites four violations of the Administrative Procedure Act (agency action taken in excess of statutory jurisdiction of authority, arbitrary and capricious agency action, agency action taken without observance of procedure required by law, and agency action contrary to constitutional right, power, privilege, or immunity). Merck is seeking that the court set aside and vacate the violation letters, declare that Merck’s policy is not in violation of Section 340B, impose an injunction preventing the defendants from imposing civil monetary penalties, litigation fees, and more.

The plaintiff is represented by Sidley Austin LLP.