Drug Manufacturers Lose Their Appeal Against Arkansas Law on Discounts to Hospitals Utilizing Outside Pharmacies

Mason Hart

Drug Manufacturers Lose Their Appeal Against Arkansas Law on Discounts to Hospitals Utilizing Outside Pharmacies

The United States Supreme Court upheld a lower court decision on Monday, holding that an Arkansas statute mandating drug makers to offer discounts to doctors who use outside pharmacies does not violate federal law.

The high court declined to hear the appeal of the Pharmaceutical Research and Manufacturers of America, or PhRMA, action against Arkansas Insurance Commissioner Alan McClain under Act 1103 of 2021.

“This is a big win for Arkansas’ drug-access law,” stated Attorney General Tim Griffin in a press statement.

PhRMA has appealed the 8th U.S. Circuit Court of Appeals’ decision that federal law does not preempt Arkansas law.

Act 1103 requires pharmaceutical companies to offer federal drug discounts to hospitals that work with third-party pharmacies. To be covered by Medicaid, drugmakers must offer outpatient medications at discounted prices to certain hospitals and other entities treating low-income patients, according to a federal program.

Many program-eligible providers contract with outside pharmacies to deliver prescription medications, allowing them to avoid maintaining in-house pharmacies.

PhRMA and individual drug makers filed a lawsuit in the United States District Court for the Eastern District of Arkansas, claiming that the state statute violated federal guidelines governing the 340B Drug Pricing Nondiscrimination Act. The court’s decision was appealed to the 8th Circuit.

“Act 1103 fills a gap in federal law that manufacturers previously exploited to deny equal drug access to rural patients,” Griffin told reporters Monday. “Today’s win means that manufacturers must continue to provide equal access to patients across Arkansas.”

A PhRMA spokesperson told Reuters in a statement that the organization continues to believe Arkansas’ and similar laws are incompatible with federal law, that the use of contract pharmacies under the federal program is prone to “abuse,” and that “federal policymakers need to step in to fix this vital safety net program.”

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In 2010, federal officials said that providers might contract with an unlimited number of pharmacies, rather than only one, as earlier advice allowed.

“For 25 years, drug manufacturers represented by PhRMA distributed 340B drugs to covered entities’ contract pharmacies,” the 8th Circuit’s decision stated. “Then, in 2020, medication manufacturers began instituting distribution policies that restricted or prevented covered entities from working with outside pharmacies to provide 340B drugs to patients. This caused covered organizations that rely on contract pharmacies to be unable to serve patients in need.

Pharmaceutical companies have alleged that increased usage of the scheme leads to abuses such as duplicative discounts and a lack of accountability.

Arkansas is the first state to enact legislation opposing drug makers’ tightening of discounts.

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