(CN) — An Arkansas state law requiring drug manufacturers to discount drug prices for federal Medicare and Medicaid programs interferes with federal law, a pharmaceutical lobbying group argued Wednesday before an Eighth Circuit panel.
A three-judge panel of the St. Louis-based Eighth Circuit took up the case revolving around whether the federal government’s 340B drug discount program is preempted by Arkansas’ Act 1103, which governs distribution of drugs discounted under the federal 340B program to pharmacies in the state. A lower court rejected a claim by the Pharmaceutical Research and Manufacturers of America, or PhRMA, which hinged on the theory that the Arkansas law is the state’s attempt to dictate how the federal program should operate.
At arguments on Wednesday, attorney Phillip J. Perry for the lobbying group argued that Arkansas has no authority to impose conditions on participation in “a uniquely federal program.”
“That program is entirely federal, it’s inextricably linked to Medicaid and to Medicare Part B,” Perry told the panel during arguments. “But Arkansas here has decided to try to regulate the federal 340B program and its subsidies itself.”
Perry’s arguments centered on the lobbying group’s claim that Arkansas’ law is preempted by federal law. But under questioning from the panel, Perry, who is with the law firm Latham & Watkins in Washington, acknowledged there is no express preemption provision in the federal statute.
“So these are both implied preemption arguments,” he said.
The federal 340B drug discount program, first established in 1992, requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to organizations that care for many uninsured and low-income patients, according to the American Hospital Association. The Pharmaceutical Research and Manufacturers of America sued Arkansas state officials in 2021 for declaratory and injunctive relief, arguing that the mandates in Act 1103 are both "preempted and unconstitutional."
“Act 1103 is not preempted,” said Ronald S. Connelly with the law firm of Powers Pyles Sutter & Vernille in Washington, who represented Community Health Centers of Arkansas and Piggott Community Hospital as interveners in the case.
“The preemption analysis begins with the intent of Congress and the intent of Congress is to provide discounts to health care providers so that they can treat more patients and provide more services,” he added as he began addressing the panel, which included Chief U.S. Circuit Judge Lavenski R. Smith, as well as U.S. Circuit Judges Ralph R. Erickson and Michael J. Melloy.
Connelly said Congress and the federal executive branch have been aware for three decades that state laws coexist with the 340B drug discount program and that the program “is silent on drug distribution.”
He spent a large portion of his time before the panel arguing that the 340B federal scheme addresses pricing, while the Arkansas state law governs distribution.
“At the time 1103 comes into force the drugs have been purchased at a 340B price,” Connelly said. “Act 1103 simply says that a manufacturer must deliver those previously priced drugs to the community pharmacy under contract with the health care provider where they can be dispensed to the covered entities’ patients.”
Booth Rand, general counsel for the Arkansas Insurance Department, told the panel that the department has the authority to regulate this area because the Arkansas law requires that the state insurance department issue rules to implement the legislation.
Under questioning from Smith, Rand said Louisiana is the only other state with a statute similar to Arkansas’.
“So conceptionally let’s say 40 states enact similar statutes with different regulations, why wouldn’t that pose a potential barrier or a potential hinderance to the natural purposes to the …federal law?”
“We believe that issue is for Congress,” Rand said. “If Congress believes that states should perform no roles …in 340B, they need to put that in the legislation, they have not said that states cannot get involved in this particular field of distribution or delivery.
"So the answer to that question to me is a congressional decision, not a judicial one.”
The appellate panel — all George W. Bush appointees — did not indicate when a decision would be reached.
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