Novo Nordisk Calls HHS ‘Advisory Opinion’ on Obligations for Drug Manufacturers Arbitrary, Capricious

On Friday in the District of New Jersey, Novo Nordisk Inc. and Novo Nordisk Pharma Inc. filed a complaint against the Department of Health and Human Services (HHS), HHS Secretary Alex Azar, HHS General Counsel Robert Charrow, the Health Resources and Services Administration (HRSA), and HRSA Administrator Thomas Engels, alleging that a decision by the HHS that purportedly will impose binding obligations on pharmaceutical manufacturers was in violation of the Administrative Procedure Act (APA) in that it overstepped HHS’s statutory authority, failed to follow notice-and-comment procedures, was “arbitrary and capricious,” and was unconstitutional.

This litigation arises from an “advisory opinion” issued Dec. 30, 2020, by HHS regarding Section 340B of the Public Health Service Act, which says that drug manufacturers must offer outpatient products at low prices to “covered entities,” which are hospitals and health service providers expected to serve low-income and vulnerable individuals, to ensure access to prescription medications for those patients. The advisory opinion, according to the plaintiffs, “constitutes a final rule” in reality that says drug manufacturers “are ‘obligated’ to deliver their ‘covered outpatient drugs to those contract pharmacies and to charge the covered entity no more than the 340B ceiling price for those drugs’ whenever a contract pharmacy acts as a covered entity’s ‘agent.’ ”

Novo Nordisk asserted that despite limitations that only covered entities meeting the statutory requirements may buy drugs from manufacturers at the discounted rates pursuant to 340B, “many covered entities have entered into arm’s-length agreements with for-profit, commercial pharmacies — known as ‘contract pharmacies’ — that allow the pharmacies to acquire and dispense manufacturers’ discounted drugs and to share in the profits resulting from selling manufacturers’ discounted drugs at the full market price to patients who are not uninsured or needy.” The plaintiffs argued that this practice has “dramatically” expanded the 340B program so that contract pharmacies, which are not covered entities, end up benefiting at manufacturers’ expense. Because of this, Novo Nordisk announced that it would begin to no longer accept requests that covered outpatient drugs be transferred to contract pharmacies, although it still would comply with 340B in offering discounted drug prices to “all eligible covered entities,” the complaint said.

Novo Nordisk summed up its dispute with the advisory opinion by arguing that it states “finally and unequivocally” that drug manufacturers are “legally obligated” to allow their low-price drugs reserved for eligible covered entities to be transferred to these contract pharmacies — and, further, “to wherever covered entities may demand,” according to the complaint, “be it the lunar surface, low-earth orbit, or a neighborhood pharmacy,” the advisory opinion stated.

The plaintiffs claimed that by the scope of the 340B statute, they are in compliance simply by continuing to offer low-price drugs to covered entities because the statute itself does not require manufacturers to “facilitate the transfer” of the low-price drugs to contract pharmacies; even in their purported statutory compliance, the plaintiffs argue, they still may face “enforcement action, severe and accumulating monetary penalties, and potential revocation of its ability to participate in the Medicare and Medicaid programs” because of Novo Nordisk’s initiative declining to cover drugs to be sent to contract pharmacies.

Specific allegations made by the plaintiffs include violations of the APA: that the HHS is attempting to force binding obligations where such do not exist in statute, “contrary to law and in excess of statutory authority”; that the HHS did not observe the required notice-and-comment procedure in the rulemaking; and that the advisory opinion is “arbitrary and capricious” because it “relies on irrational and illogical reasoning.”

The plaintiffs also claimed that the rule is “contrary to constitutional right” under the APA and cite the Fifth Amendment’s Taking Clause, which bars the taking of private property “for public use, without just compensation.” The plaintiff argued that the HHS decision is a “confiscatory regulation” that “imposes … new and unexpected obligations on manufacturers that do not serve any valid public purpose” — a decision that would not even assure that the “transferred property will be used for a public use,” according to the complaint.

Novo Nordisk is seeking an order affirming that the defendants are in violation of the APA and a declaration that they may still decline to transfer its discounted drugs to contract pharmacies, among other reasonable relief.

The plaintiffs are represented by King & Spalding