Federal court sides with Eli Lilly challenge to HHS expansion of 340B discounts

On March 16, 2021, the United States District Court in Indiana granted plaintiff Eli Lilly’s request for a preliminary injunction to halt implementation of a Department of Health and Human Services (HHS) rule published in December 2020. The rule establishes appeals panels to administer and decide claims by 340B contract pharmacies against drug manufacturers and enables contract pharmacies to receive the same discounts as 340B covered entities and enforce claims for those discounts against drug manufacturers, including subjecting the manufacturers to penalties for failure to offer the discounts.

Eli Lilly and other drug manufacturers challenged this rule in federal courts across the country on the grounds that HHS’ enactment of the rule did not follow the Administrative Procedure Act.  Though a draft form of the rule was published in 2016 and a public comment period was completed, HHS withdrew the rule without issuing a notice of withdrawal. The court found Eli Lilly’s argument that the failure to publish a withdrawal notice and the subsequent gap until the final rule was published in December 2020 likely served to restart the rulemaking process, triggering new obligations of HHS under the Administrative Procedure Act. 

The court battle over this rule marks a next step in a years-long series of skirmishes among the government, drug manufacturers and 340B covered entities and other stakeholders over the size, compliance and accountability of the 340B program.