Fighting Missouri drug discounts at Eighth Circuit, Novartis points to recent ruling from court

ST. LOUIS (CN) — Novartis Pharmacy hopes a recent ruling by the Eighth Circuit will bolster its efforts in the same court to block a Missouri law requiring the drug giant to give medical providers unlimited access to discounted drugs for their pharmacies.

The law, Senate Bill 751, requires drugmakers to accept orders for providers eligible for discounts under the 340B program, a federal initiative designed to serve low-income and uninsured patients by offering more comprehensive medical services. The law allows these providers to have an unlimited number of contracts with pharmacies.

Novartis sued then-Attorney General Andrew Bailey and members of Missouri’s pharmaceutical board in 2024, shortly after the rules were signed into law. Novartis claims it violates both the Dormant Commerce Clause and the Supremacy Clause of the constitution.

U.S. District Judge M. Douglas Harpool, a Barack Obama appointee, originally denied Novartis’ request for an injunction, prompting this appeal.

During a hearing on Thursday, Novartis attorney Jessica L. Ellsworth, of Washington D.C.-based Hogan Lovells US LLP, said the Missouri law goes too far.

“The whole purpose of this statute is that Missouri wanted to expand the amount of reduced priced drugs that are available to Missouri covered entities,” Ellsworth told the three-judge panel. “The problem, your honor, is that the way it did so was by regulating manufacturers.”

Ellsworth cited an Eighth Circuit decision last June in Association for Accessible Medicines v. Ellison, a case which challenged a Minnesota law prohibiting manufacturers from imposing excessive price increases on generic or off-patent drugs. The appeals court in that case found that the law had the impermissible effect of controlling prices outside the state.

Ellsworth said that decision applies directly to this case.

“The reason that this court held that statute violated the Dormant Commerce Clause was that it regulated the drug manufacturers sales to their wholesalers that took place outside of Minnesota, because the drugs ended up in Minnesota later down in the distribution chain,” Ellsworth said. “That decision rejects virtually all of the arguments that the state defendants are making in this appeal here.”

Missouri Solicitor General Louis J. Capozzi III pushed back on that claim.

“Ellison is easily distinguished because the Minnesota law set prices for out-of-state transactions,” he said. “That’s what makes this case different. Missouri does not set prices. The federal government sets prices.”

Manufacturers must participate in the 340B Program and its price controls as a condition for having Medicare Part B and Medicaid pay for their therapies. Capozzi noted that 20 other states have similar laws.

“Novartis wants the 340B program to reach as narrowly as possible, because it does not want to sell drugs at the federally set 340B price,” Capozzi said.

Ronald S. Connelly, of Powers Pyles Sutter & Verville, PC in Washington D.C., represented the Missouri Hospital Association and Missouri Primary Care Association during the hearing. He said that Missouri law addresses the delivery and distribution of drugs under 340B — not pricing.

“The 340B statute entitles covered entities to purchase an unlimited number of 340B drugs,” Connelly argued. “Any harm that they believe they have suffered comes at the hands of the 340B program, not the state of Missouri. The 340B statute imposes only two requirements on covered entities: no diversion and no duplicate discounts. So, in other words, it’s addressing who the drugs can go to once the covered entity purchases.”

Ellsworth countered that the Minnesota law in Ellison also did not set the dollar amount for any drug sale.

“What it did was it prevented a price increase by the manufacturer, so it pegged the price that it would be sold down the line in Minnesota to the company’s existing price,” Ellsworth said. “Missouri law operates in the same way to peg the price in Missouri to something external to Missouri." She added that “in both cases, the state is saying when a drug is sold here, it must be at this price from some external factor, the company’s existing price, or the 340B price.”

Inits brief, Novartis argues the law puts drug manufacturers at an unfair disadvantage.

“Importantly, the 340B Program governs only the price that covered entitiespay to purchase the drug; covered entities turn around and charge full price to patientswhen the drug is dispensed,” the company argues. “Simple math says that the more product a covered entity can buy low and sell high, the more lucrative the 340B Program is for that covered entity’s bottom line. The covered entities’ response to this incentive structure — combined with a well-established lack of transparency — has led to the current dispute.”

But Missouri pushed back on the pharmacy giant’s assertion that the law is a cash grab for wealthy hospitals at the expense of drug manufacturers.

“Novartis accuses safety-net hospitals of colluding with ‘major for-profit chains such as Walmart and CVS’ to leverage 340B’s ‘price controls’ through a ‘deliberately opaque’ algorithm to create a ‘massive windfall,’” Missouri states in its own brief. “That is not how the Supreme Court and this Court have described 340B. The truth is that Novartis dislikes 340B because it cuts into Novartis’s already massive profits.”

U.S. Circuit Judges Lavenski R. Smith and Duane Benton, both George W. Bush appointees, and Ralph R. Erickson, a Donald Trump appointee, made up the panel. They took the case under advisement, and there is no timetable for a ruling.

Follow @joeharris_stl