United States: pharmaceutical antitrust

In summary

The past year has continued to see an increase in US case law and other developments in the area of pharmaceutical antitrust. This article looks at, among other things: antitrust claims under the rule of reason test announced by the US Supreme Court in FTC v Actavis for innovator and generic settlements of pharmaceutical patent litigation involving alleged reverse payments or ‘pay-for-delay’; product-hopping antitrust claims against innovator pharmaceutical companies that introduce new versions of brand-name drugs facing generic competition; and pharmaceutical pricing developments involving legislation, regulations and legal challenges in court.

Discussion points

• Recent motion-to-dismiss decisions and a trial verdict concerning reverse payment claims
• Legislation and legal challenges to pharmaceutical manufacturers’ pricing practices

Referenced in this article

• FTC v Actavis
• In re Humira (Adalimumab) Antitrust Litigation
• In re Bystolic Antitrust Litigation
• In re Opana Antitrust Litigation
• US Supreme Court
• Sherman Act

Reverse payment case law under Actavis

The US Supreme Court’s June 2013 decision in FTC v Actavis opened a floodgate for more than 30 separate antitrust cases that have been filed or revived under that decision. Reverse payment claims generally allege that an innovator pharmaceutical company provided financial inducement to a potential generic competitor to settle patent litigation concerning the innovator’s drug product, or to obtain a later settlement entry date than the generic company otherwise would have accepted, absent the innovator’s financial inducement. The majority opinion in Actavis rejected the deferential ‘scope of the patent’ test, but the majority opinion likewise rejected the Federal Trade Commission’s (FTC) proposed ‘quick look’ rule of presumptive unlawfulness. Instead, the Supreme Court charted a middle course, holding that ‘the FTC must prove its case as in other rule-of-reason cases’.^[1]

In doing so, the Supreme Court expressly reserved an option for innovators to provide financial settlement consideration to generic companies beyond the value of early entry alone:

Where a reverse payment reflects traditional settlement considerations, such as avoided litigation costs or fair value for services, there is not the same concern that a patentee is using its monopoly profits to avoid the risk of patent invalidation or a finding of noninfringement.^[2]

The Supreme Court expressly delegated to the lower courts the task of figuring out how to apply the rule of reason to alleged reverse payment settlements. In the years since, we have seen conflicting district court decisions, the first jury verdicts and the first appellate decisions. As discussed below, the only certainty thus far is that the reverse payment waters are far from settled.

Pleading standards under Actavis

Following the Supreme Court’s Actavis decision, some courts have concluded that a reverse payment may include certain non-cash transfers of value from a brand company to a generic company at or near the time of their patent settlement. These non-cash transfers of value may sometimes include no authorised generic (no-AG), co-promotion, licensing and distribution agreements.^[3] Courts, however, have grappled with how precisely a plaintiff must allege monetary estimates of value transferred to generic challengers,^[4] with several courts requiring that ‘plaintiffs plead information sufficient to estimate the value’ of the non-cash transfer of value.^[5]

For example, in January 2022, the court in Bystolic dismissed reverse payment claims as to each settlement between the brand company and the six generic defendants that shared ‘first filer’ status. The court held that the plaintiffs did not sufficiently allege facts to ‘support the plausible inference of a large and unexplained reverse payment under Actavis’.^[6] The brand company, for instance, entered into a supply agreement with one of the generic defendants, which plaintiffs alleged ‘exceeded the fair value of any products delivered or services’ and ‘was a pretextual conduit of cash in exchange for an agreement not to compete’.^[7] The court rejected those allegations as nothing more than ‘labels and conclusions’ that ‘could be asserted in every case in which there is a side agreement with a generic manufacturer who agrees to honor a patent’.^[8] The court explained that ‘[i]f those naked allegations were enough to require an answer and to shift the burden to the defendant to prove fair value and the absence of pretext, there would be nothing left of the Supreme Court’s rejection of the per se rule in Actavis’.^[9] The plaintiffs have since amended their complaints, and motions to dismiss those amended complaints are currently pending before the court.

Additionally, in March 2022, the court in Sensipar held that the plaintiffs’ amended complaints failed to allege ‘facts that might support a plausible theory of a conspiracy between Amgen and Teva to exclude other generic cinacalcet manufacturers from the market’.^[10] The court reasoned that ‘the earlier settlers had no contractual expectation or right requiring Amgen to settle its other pending infringement claims in a way that allowed those earlier settlers’ acceleration clauses to take effect’.^[11] The court explained that ‘even further assuming that Amgen and Teva could have theoretically violated antitrust law by avoiding triggering the acceleration clauses in the settlement agreements of other generic cinacalcet manufacturers, the Amgen-Teva Agreement did not, in fact, have that effect’ because litigation with one of those other generic manufacturers ‘would have further opened the door to everyone else’.^[12]

As to whether Amgen’s settlement with Teva delayed generic competition from Teva, the court previously permitted that reverse payment claim to go forward. The court reasoned that by allegedly ‘giving up its claim to all but US$40 million (and not even the full US$393 million of revenues Teva had earned from its at-risk launch), Amgen was permitting Teva to retain at least some of the profits Teva had earned at Amgen’s expense’, which ‘constitutes a “transfer of value” to Teva that may be proven’ to be ‘large and unjustified’.^[13] The court further explained that the acceleration provision may constitute an ‘additional transfer of value’ when factored into the overall settlement and rule of reason analysis.^[14]

Also, in July 2022, the court in Seroquel rejected a causation argument related to a settlement between AstraZeneca and Handa, concluding that discovery is needed to assess the argument that ‘Handa’s product lacked FDA approval until May 2017 – long after the period when Plaintiffs claim they should have been able to buy it – and so the launch was blocked by the FDA, and not Defendants’.^[15] But the court dismissed reverse payment claims as to the settlement between AstraZeneca and Accord, finding the plaintiffs’ causation theory to be conclusory and implausible because Accord had ‘conceded in its [abbreviated new drug application] litigation with AstraZeneca that it infringed the #437 patent’.^[16] ‘Thus, at the time they struck their settlement agreement, both Accord and AstraZeneca knew that without such an agreement, Accord could not lawfully enter the market before May 28, 2017 unless it won at trial on its invalidity defenses.’^[17] ‘[F]our generics that proceeded to trial after the Accord/AstraZeneca settlement was reached lost their invalidity challenges both at trial and then on appeal before the Federal Circuit.’^[18]

The court also rejected the plaintiffs’ argument that:

it would have been economically rational for AstraZeneca to enter into an alternative settlement agreement with Accord – ie, where Accord conceded that it infringed the #437 patent and in the absence of any allegation that the #437 patent was invalid or weak such that Accord could have prevailed or believed that it could have prevailed at trial on its invalidity defense.^[19]

And the court found that ‘the allegation that the reverse payment was worth $107 million is by itself insufficient to support a plausible inference that AstraZeneca made a large and unjustified payment because it had serious doubts about the patent’s validity’,^[20] particularly when ‘AstraZeneca’s annual sales of brand Seroquel XR® in the United States exceeded $1 billion’^[21] and ‘[t]hose kinds of revenue figures breed patent litigation, and multi-billion dollar jury awards’.^[22]

Further, in August 2022, the US Court of Appeals for the Seventh Circuit affirmed the dismissal of reverse payment claims concerning biological drug Humira. The plaintiffs had alleged that ‘AbbVie paid biosimilar manufacturers in the form of European agreements that allowed the biosimilars to enter the European market’ while agreeing to ‘AbbVie-friendly’ generic entry dates in the US.^[23] The ‘package deals’ allegedly bought AbbVie ‘more lucrative monopoly time in the US (worth billions of dollars in revenue for AbbVie)’.^[24] But the district court rejected this theory because the settlements increased competition ‘by bringing competitors into the market when patents otherwise prohibited competition’.^[25]

On appeal, the Seventh Circuit agreed with the district court, emphasising that Actavis ‘rejected the possibility of treating an “implicit net payment” as equivalent to an actual payment, characterizing the reverse-payment problem as “something quite different” from an opportunity cost’, such as the ‘money that AbbVie is said to have left on the table in Europe’ by allowing biosimilars to launch earlier.^[26] As the Seventh Circuit explained, ‘[o]n each continent AbbVie surrendered its monopoly before all of its patents expired, and the rivals were not paid for delay’.^[27] ‘It would be much too speculative to treat the different entry dates as some kind of “reverse payment” rather than a normal response to a different distribution of legal rights under different patent systems.’^[28] Thus, ‘the US settlement and the EU settlement are traditional resolutions of patent litigation’ that do not violate antitrust laws.

Finally, later in August 2022, the district court in the EpiPen litigation permitted some reverse payment claims to move forward against Mylan. The court found that the plaintiffs plausibly alleged a reverse payment claim where ‘Teva agreed to delay its launch of an EpiPen generic’ and did so allegedly ‘in exchange for Mylan’s agreement to delay its launch of a Nuvigil generic and settle patent litigation with Teva over Mylan’s Nuvil generic’.^[29] The complaint also included ‘additional facts about the alleged merits of the Teva and Nuvigil litigation, the status of each litigation when the parties settled, and the parties’ motivations for entering an unlawful reverse payment settlement’.^[30] The court also found that another settlement with Intelliject was plausibly alleged to constitute a reverse payment ‘because it involved an agreement to delay entry of a competing product into the EAI market’, and ‘the relatively short duration of delay before entry of the competing Intelliject product, likely indicates that strength of Intelliject’s defenses to the patent litigation’.^[31] The court, however, dismissed the reverse payment allegations against Sandoz as conclusory, observing that the plaintiffs ‘fail to assert any facts’ in support of that settlement potentially constituting a reverse payment.^[32]

Summary judgment under Actavis

Courts have likewise grappled with how to apply Actavis at summary judgment when evaluating evidence. Many summary judgment decisions have focused on whether business agreements executed contemporaneously with patent settlements are ‘large and unjustified’. In these decisions, district courts have generally denied summary judgment based on various disputed factual issues unique to each case. For example, those decisions analysed: whether there was sufficient evidence to support allegations that the compensation for services was significantly above fair market value; whether the services were unnecessary or unwanted; whether the agreements for services included ‘unusual’ terms; whether the brand company failed to follow certain industry or internal practices; and the extent to which such business agreements may be ‘linked’ to the patent settlement.^[33]

For instance, in June 2021, the court in Namenda found that there were disputed factual issues as to the value associated with a distribution and supply agreement negotiated at the time of the parties’ patent settlement. In reaching this conclusion, the court rejected the plaintiff’s ‘generic inducement test’ where the ‘trier of fact can consider only the generic’s perspective’ and ‘it does not matter if [the brand company] expected to save money in the long run’ under the distribution and supply agreement.^[34] Instead, the court held that a ‘factfinder must also be allowed to consider the net benefits to the branded manufacturer, which could include, among other things, reduced Medicaid liabilities and saved manufacturing costs – all in addition to the saved litigation costs from settling’.^[35] Actavis made clear that ‘litigation expenses saved through the settlement’ and ‘compensation for other services’ are not exhaustive and that the factfinder may address other considerations.^[36] ‘The only consideration that cannot factor into whether the reverse settlement was made are the expected profits from delayed competition.’^[37]

Other district courts have also denied summary judgment where factual and expert evidence adequately supported plaintiffs’ causation theories of earlier generic entry that in the but-for world the generic challenger would have launched at risk, prevailed in the patent case, or entered into an alternative, ‘no-payment’ settlement agreement.^[38] At the same time, other district courts, such as in AndroGel, have rejected patent-based causation theories as unsupported and ‘simply too procedurally burdensome and speculative’ when there were no concrete developments in the underlying patent case in which to base such a causation theory.^[39]

One of the most notable causation decisions is Wellbutrin, where the Third Circuit affirmed a grant of summary judgment for the defendants. The Third Circuit held that the plaintiffs ‘did not take into account Andrx’s blocking patent’ and that it is not enough ‘to show that Anchen wanted to launch its drug; they must also show that the launch would have been legal’.^[40] The plaintiffs’ but-for theory that Anchen would have prevailed in the patent litigation failed because the ‘unrebutted analysis was that Andrx would have an 80 per cent chance of proving infringement’ and the parties did not ‘identify any other evidence in the record that speaks to the possible outcomes of the Anchen/Andrx litigation’.^[41] Notably, the size of the reverse payment alone was an insufficient ‘surrogate’ for the weakness of the patent.^[42] Additionally, the court rejected the plaintiffs’ but-for theory that Andrx had ‘an independent economic interest’ in providing a licence to Anchen and that licence negotiations were nearly complete days before the alleged reverse payment was made.^[43] The plaintiffs failed to point to evidence showing ‘it is more likely than not that Anchen would have obtained a licence’, and it is possible that ‘negotiations would have stalled and failed’.^[44]

Trials under Actavis

Several cases, such as Modafinil and Solodyn, have proceeded to trial since Actavis but were resolved by settlements mid-trial. Three reverse payment cases, however, have proceeded through trial to judgment.

In Nexium, the private plaintiffs had calculated a reverse payment of US$22 million, argued that the contemporaneously executed business agreements ‘provided a steady flow of revenue to Ranbaxy’ during the same period it agreed not to launch its generic Nexium product and offered evidence that ‘even if Ranbaxy had won its litigation instead of settling, Ranbaxy would not have secured such favourable arrangements’.^[45] But at trial, the jury reached a verdict for the defendants despite finding that there had been a reverse payment. The jury found that, although AstraZeneca had market power and there had been a ‘large and unjustified’ payment, the reverse payment did not cause delayed generic entry because AstraZeneca would not have agreed to an earlier settlement entry date absent a reverse payment.^[46] The US Court of Appeals for the First Circuit affirmed the jury’s verdict for the defendants.^[47]

More recently, following an administrative bench trial in the FTC’s Opana suit, the FTC’s chief administrative law judge (ALJ) concluded that an alleged reverse payment between Endo and Impax was not anticompetitive. Endo and Impax had settled the underlying patent litigation and entered into a settlement and licence agreement (SLA) and a development and co-promotion agreement (DCA).^[48] The SLA included a no-AG provision and a potential cash credit to Impax if Opana sales fell below a certain threshold.^[49] The DCA was executed contemporaneously with the SLA and provided an up-front payment of US$10 million for the development of a Parkinson’s disease treatment, with potential payments up to US$30 million at certain milestones.^[50]

The ALJ concluded that the DCA ‘was a bona fide product development collaboration, and that the US$10 million payment was justified by the profit-sharing rights given to Endo under the DCA’.^[51] Despite finding that the SLA was ‘large and unjustified’, the ALJ concluded that any anticompetitive harm was outweighed by pro-competitive benefits because ‘Endo’s acquisition of additional patents, and successful assertion of those additional patents in litigation, has led to all generic manufacturers, other than Impax, being enjoined from selling a generic version of Opana ER’, and ‘absent the SLA, such after-acquired patents also would have been successfully asserted to enjoin Impax from selling generic Opana ER’.^[52]

The FTC Commission unanimously rejected the ALJ’s decision, concluding that ‘Impax failed to show that the challenged restraint furthered any cognisable procompetitive justifications’, and ‘even if Impax had satisfied this burden, Complaint Counsel identified a viable less restrictive alternative’.^[53] In an April 2021 decision, the US Court of Appeals for the Fifth Circuit denied a petition for review and found that the Commission did not commit any legal errors and that substantial evidence supported the Commission’s factual findings.^[54] The Fifth Circuit observed that the settlement ‘saved Endo only US$3 million in litigation expenses’ and that only US$10 million in payments were associated with services, such that ‘over US$100 million of Endo’s payment remains unjustified’.^[55] Impax’s ‘principal attack on the finding of anticompetitive effect [was] that the Commission needed to evaluate ‘the patent’s strength, which is the expected likelihood of the brand manufacturer winning the litigation’, but the Fifth Circuit rejected that argument, holding that the FTC need not assess the ‘likely outcome of the patent case’.^[56] The Fifth Circuit also discounted the impact of the patents acquired after the settlement because ‘the impact of an agreement on competition is assessed as of “the time it was adopted”’.^[57] Ultimately, the Fifth Circuit concluded that substantial evidence supports the Commission’s conclusion that the parties could have entered a less restrictive alternative settlement that did not include the payments.^[58]

But in the parallel private-plaintiff litigation concerning Opana, a jury subsequently found in favour of the defendants in July 2022. After Impax settled mid trial, the jury went on to find ‘that while Endo had market power for the brand name drug and made a reverse payment to delay Impax’s generic from entering the market, the deal between the companies was not unreasonably anti-competitive’.^[59] Endo argued that purchasers of Opana were relying on ‘guesswork’ and ‘speculation’ to argue that generic Opana could have been sold earlier but for the alleged reverse payment.^[60] Like in the FTC case, Endo argued that the ‘underlying patent deal was procompetitive because it is the only reason a generic version of Opana has been consistently available on the market for nine years, with seven to go, since it included a broad license covering current and future Opana-related patents’.^[61] Endo emphasised that it ‘would have never given Impax both an earlier entry date and a broad license to its Opana-related patents’.^[62]

With this July 2022 trial verdict, private plaintiffs have now lost both of the jury trials – Nexium and Opana – that have proceeded to verdict since Actavis was decided in 2013.

California deviates from Actavis

At the state level, California enacted a new reverse payment law (AB 824), effective from January 2020, which deviates from the rule of reason standard announced in Actavis and codifies that certain alleged reverse payment settlements are to be treated as presumptively anticompetitive.^[63] Initially, the law was unsuccessfully challenged at the district court level,^[64] and that challenge was rejected for lack of standing by the US Court of Appeals for the Ninth Circuit in July 2020.^[65]

But, in February 2022, a federal district court in California held that AB 824 may only be enforced ‘with respect to settlement agreements negotiated, completed, or entered into within California’s borders’.^[66] The district court denied the California Attorney General’s request to ‘allow California to continue to enforce AB 824 whenever a settlement agreement is made in connection with in-state pharmaceutical sales if that agreement artificially distorts the pharmaceutical market in California’.^[67] The court rejected the Attorney General’s expansive interpretation that would have created risks for a much broader set of settlements because the ‘dormant Commerce Clause precludes the application of a state statute to commerce that takes place wholly outside of the State’s borders, whether or not the commerce has effects within the State, and the critical inquiry is whether the practical effect of the regulation is to control conduct beyond the boundaries of the State’.^[68]

Product-hopping antitrust cases

Plaintiffs have also attempted to use antitrust laws to challenge brand manufacturers’ introduction of new versions of existing drugs. In these product-hopping cases, plaintiffs allege that brand pharmaceutical manufacturers violate the antitrust laws by introducing new versions and discontinuing older versions of brand drugs in an alleged attempt to thwart generic competition and generic substitution laws.^[69]

Pre-2015 decisions: TriCor, Prilosec and Suboxone

In one of the first ‘product hopping’ decisions, the court in TriCor rejected the defendants’ argument that any product change that is an improvement is per se legal under the antitrust laws.^[70] Instead, the court concluded that the introduction of a new product should be assessed under the rule of reason approach, requiring the plaintiffs to demonstrate that the anticompetitive harm from the formulation change outweighed any benefits of introducing a new version of the product. The court in TriCor denied the defendants’ motion to dismiss, finding the plaintiffs’ specific allegations – that the defendants bought back supplies of the old formulation and changed product codes for the old products to ‘obsolete’ to prevent pharmacies from filling TriCor prescriptions with generic versions of the old formulation – sufficient to support the plaintiffs’ antitrust claims.^[71]

In Prilosec, the district court concluded that antitrust laws do not require new products to be superior to existing ones and that consumer choice plays into the analysis of a product-hopping claim.^[72] In granting the defendants’ motion to dismiss, the court found that where defendants left the old product on the market but heavily (and successfully) promoted their new product, the plaintiffs could not allege that the defendants interfered with competition because consumer choice was not eliminated.^[73]

In Suboxone, direct and indirect purchasers alleged that the defendants unlawfully shifted patients from Suboxone tablets to Suboxone film by falsely disparaging and fabricating safety concerns about the tablet, and by removing Suboxone tablets from the market just as generic versions of the tablets were set to enter the market. The court denied the defendants’ motion to dismiss the product-hopping claims, holding that ‘what is clear from the case law is that simply introducing a new product on the market, whether it is a superior product or not, does not, by itself, constitute exclusionary conduct. The key question is whether the defendant combined the introduction of a new product with some other wrongful conduct [that stymies competition]’.^[74] The court determined that the defendants’ conduct fell somewhere in between the conduct at issue in TriCor and Prilosec. The court found that the conduct was more problematic than in Prilosec because the defendants removed the Suboxone tablets from the market, but less problematic than in TriCor because the defendants did not buy back existing Suboxone tablets or label the tablets obsolete.^[75] The court nonetheless found that the plaintiffs had sufficiently pleaded ‘other wrongful conduct’ insofar as removing the tablets from the market in conjunction with fabricating safety concerns could coerce patients to switch from the tablet to the film.^[76]

Two appellate decisions: Namenda and Doryx

Namenda and Doryx were the first cases to address pharmaceutical product-hopping claims beyond the motion to dismiss stage. In Namenda, the court granted a motion for a preliminary injunction on a limited record related to product-hopping claims as to the defendants’ plan to transition Alzheimer’s patients from an older, twice-daily drug to a newer, once-daily formulation.^[77] Unlike in TriCor and Suboxone, in which the defendants fully removed the older formulation from the market, the Namenda defendants planned to continue making the older formulation available to any patient who had a medical need for it. Nonetheless, the Namenda court held that the plaintiff had met its burden of demonstrating a substantial risk that the plan to transition patients would harm competition because generics would not be able to take advantage of automatic state substitution laws to the extent generics hoped.^[78]

The defendants appealed the decision to the US Court of Appeals for the Second Circuit, raising an issue of first impression in the circuit courts regarding the circumstances under which alleged product hopping may violate the Sherman Act.^[79] Despite the continued availability to any patient with a need for the older formulation, the Second Circuit affirmed the district court’s decision and cited Berkey Photo^[80] in its holding that although neither product withdrawal nor product improvement alone is anticompetitive, the combination of product withdrawal with other conduct that coerces, rather than persuades, consumers to switch products can be anticompetitive under the Sherman Act.^[81] The Second Circuit substantially relied upon the district court’s findings in its conclusion that the combination of introducing a new version of the drug and ‘effectively withdrawing’ the old version was sufficiently coercive that it violated the Sherman Act.^[82]

The US Court of Appeals for the Third Circuit in Doryx, however, became the first court to evaluate product-hopping claims, with the benefit of full discovery, at the summary judgment stage. In Doryx, the plaintiffs alleged that numerous product reformulations (including changes from capsules to tablets, changes to dosage strength and introduction of score lines to the tablets), coupled with the subsequent discontinuation of older versions, constituted anticompetitive product hopping. The court denied the defendants’ motion to dismiss on the ground that the court would be required to consider facts beyond the pleadings to decide the product-hopping issue.^[83] However, the court noted that the plaintiffs’ product-hopping theory was ‘novel at best’ and conveyed scepticism that product hopping even constitutes anticompetitive conduct under the Sherman Act.^[84]

After full discovery, the Doryx court granted summary judgment for the defendants and dismissed all claims, holding that the introduction of a reformulated drug and withdrawal of the older version was not exclusionary conduct where the generic was not foreclosed from competing.^[85] The court also rejected the plaintiffs’ contention that the product reformulations were anticompetitive because they were insufficiently innovative, noting that no intelligible test for innovation ‘sufficiency’ had been offered and doubting that courts could ever fashion one.^[86] As to the role of state-substitution laws in the analysis of product-hopping claims, the court rejected the notion that the brand excluded competition by denying the generic the opportunity to take advantage of the ‘regulatory bonus’ afforded by state substitution laws. Rather, the court held that generics can compete without automatic substitution through advertising and cost competition, and concluded that brand manufacturers have no duty to facilitate generic manufacturers’ business plans by keeping older versions of a drug on the market.^[87] The US Court of Appeals for the Third Circuit affirmed the lower court’s grant of summary judgment in the defendants’ favour.^[88]

Post-Namenda and Doryx: Solodyn, Asacol and Suboxone revisited

Since the Namenda and Doryx decisions, additional courts have addressed product-hopping claims at the motion-to-dismiss stage. The Solodyn court dismissed the plaintiffs’ product-hopping claim, holding that because the defendants kept the older strengths of Solodyn on the market until two years after the older strengths faced generic competition, the introduction of newer strengths did not limit customer choice and was therefore not anticompetitive.^[89]

In Asacol, the direct and indirect purchasers alleged that the defendants engaged in a product hop that thwarted generic competition for branded drug Asacol by first introducing and promoting Asacol HD (a high-dose version of Asacol), years later introducing the drug Delzicol with the same active ingredient and dose as Asacol, and shortly thereafter removing Asacol from the market prior to the entry of generic Asacol products. Relying on Namenda, the Asacol court dismissed the plaintiffs’ claims of a product hop between Asacol and Asacol HD because Asacol continued to be sold side-by-side with Asacol HD for several years after Asacol HD was introduced.^[90] However, the court allowed the plaintiffs’ claims of a product hop from Asacol to Delzicol to survive the defendants’ motion to dismiss, where the defendants allegedly withdrew Asacol from the market shortly after introducing the close substitute Delzicol.^[91] Following a settlement with direct purchasers, the court denied summary judgment as to the remaining indirect-purchasers’ claims based on disputed factual issues concerning coercion, causation and product market, but it did not revisit the legal framework for product-hopping claims.^[92]

Subsequent to the 2014 motion-to-dismiss decision in Suboxone related to the purchaser plaintiffs’ complaints, state plaintiffs filed complaints with similar claims, and the court revisited its product-hopping analysis in light of the Namenda, Doryx and Asacol decisions rendered since the earlier Suboxone decision. The court reached the same result as it did in its previous decision in which it analysed the product-hopping claims in view of TriCor and Prilosec, determining that the conduct was more akin to the claims allowed to proceed in Namenda than to claims dismissed in Doryx and Asacol because the old Suboxone product was withdrawn prior to generic entry.^[93] The private plaintiffs’ and the state attorneys general’s cases were coordinated for pretrial discovery, and the court recently denied summary judgment.^[94]

Further, the court in Loestrin relied heavily on Namenda when denying the defendants’ motion to dismiss the product-hopping claims.^[95] The court found that the removal of the earlier version of the drug prior to generic entry was distinguishable from the conduct in Doryx and Solodyn (product removed after generic competition) and Prilosec (no product removal), and in line with allegations in Suboxone, TriCor and Asacol, which survived motions to dismiss.^[96] At summary judgment, however, the Loestrin court rejected the plaintiffs’ argument ‘that no showing of anticompetitive conduct is required beyond the hard switch itself’; the court instead required the plaintiffs to come forward with evidence of ‘anticompetitive conduct to coerce consumers to switch’ products to prove their product-hopping claim.^[97] The court found that there was competing evidence on the issue of coercion, which was ‘all fodder for the jury’ under the circumstances, and therefore allowed the product-hopping claim to proceed to trial.^[98]

Finally, in the indirect-purchaser action in Namenda, the court granted summary judgment for the defendant on the plaintiff’s hard-switch theory of liability because the plaintiff failed to ‘demonstrate that it was personally harmed by the hard switch’.^[99] Instead, the plaintiff simply relied on class-wide evidence and did not ‘prove its own case, with evidence relating to its own customers, and its own reimbursements’.^[100] Despite being afforded an opportunity to provide additional evidence, the court subsequently granted summary judgment for the defendant in July 2021 because the plaintiff again failed to ‘identify which of [its] reimbursements were attributable to the “hard switch”’.^[101]

Pharmaceutical manufacturer pricing practices

The pharmaceutical industry continues to see substantial activity on a number of fronts directed at the pricing of prescription drugs. Federal legislators persist in pursuing a variety of proposed changes, some of which have passed in Congress while others remain stalled. Most notably, Congress passed the Inflation Reduction Act (IRA), which includes drug pricing components that have been pushed by Democratic lawmakers for several years, such as direct government negotiation of drug prices under Medicare. The FTC appears poised for action on manufacturer rebate agreements with pharmacy benefit manager (PBM) middlemen for formulary access, after launching an inquiry into the PBM industry and issuing an enforcement policy statement to put the industry ‘on notice’ as to when these agreements may be unlawful. Congress, likewise, has increased its focus on PBMs, expressing concerns that certain PBM practices lead to higher drug prices for consumers and calling for regulation of those practices and increased transparency. State lawmakers continue to pass new laws targeting key issues in the ongoing drug pricing debate, adding to existing complexity and compliance obligations. Litigation remains active as well, with developments in a range of cases regarding marketplace practices and pricing in government programmes.

Legislation and regulation relating to pharmaceutical pricing

Federal legislation and regulation

Legislative proposals on drug pricing remained active in 2022, with some long-sought proposals becoming law. However, the prospects for additional meaningful federal legislation on drug pricing continue to be uncertain, despite activity on both sides of the aisle and public support for action. The most significant legislative activity was passage of the IRA in August 2022, a bill that was pushed by the Biden administration and includes curtailed versions of long-time wish list drug pricing components for Congressional Democrats, including:

• empowering the Department of Health and Human Services (HHS) to ‘negotiate’ drug prices (with civil monetary penalties and the threat of an excise tax of up to 95 per cent for non-compliance) on a narrowed set of certain older, innovator drugs for Medicare Part B and D and to make those prices available to commercial plans;
• imposing mandatory rebates on certain Medicare Part B and D drugs with price increases greater than the rate of inflation, similar to inflation-based rebates in Medicaid;
• capping annual out-of-pocket costs for prescription drugs under Medicare Part D; and
• limiting co-payments for insulin to US$35 per month under Medicare Part D.^[102]

Manufacturers have already signalled their intention to challenge the Act’s Medicare price negotiation provisions.^[103] The IRA also further delayed implementation of the Trump-era rule that would eliminate the anti-kickback law safe harbour for drug manufacturer rebates paid to Medicare Part D plan sponsors (or their contracted PBMs) and replace it with new safe-harbour protections, such as one for discounts that pass through directly to patients at the point of sale.^[104] The latest delay in the IRA, which pushes back implementation until 2032, followed an earlier delay that was used to generate savings to pay for bipartisan gun-control legislation passed in June 2022.^[105] These continued delays raise doubts that the rule will ever be allowed to take effect.

Other significant drug pricing proposals remained stalled. A package of four bills introduced in 2021 to revise aspects of antitrust and patent enforcement likewise has made little recent progress.^[106] The antitrust portions of these bills would create a presumption of anticompetitive conduct for certain ‘reverse payment’ patent settlements, instances of ‘product hopping’ and ‘sham’ petitioning. The patent changes would cap the number of patents in an infringement action resulting from the ‘patent dance’ information exchange created by the Biosimilar Products Innovation Act. Three of the bills advanced through the House Judiciary Committee to the congressional floor in the last quarter of 2021, but have yet to get to a vote.^[107]

Duelling majority and minority reports from the House Oversight and Reform Committee reflect why it has been – and may continue to be – difficult to advance further federal legislation on the subject of drug pricing, with lawmakers unable to agree on which industry players should be targeted, let alone how to go about doing so.^[108] The December 2021 reports present findings from eight interim staff reports and five public hearings as part of the Committee’s drug-pricing investigation that kicked off in January 2019. The Democrats’ Majority Staff Report focuses on ‘reverse payment’ patent settlements, ‘product hopping’, patent ‘thicketing’ and other drug manufacturer conduct that the Majority Report concludes suppresses competition from less-expensive generic and biosimilar drugs, leading to higher prices.^[109] By contrast, the Republicans’ Minority Staff Report takes aim at the role of PBMs and concludes that PBMs drive up drug prices by leveraging the influence these intermediaries have to force manufacturer price concessions for popular drugs.^[110] The Minority Report explains that pharmaceutical manufacturers must raise prices to pay these growing rebates and discounts, which PBMs then largely pocket rather than pass along to consumers.

Notably, following those reports, there has been further attention from both parties on PBM practices. The proposed Pharmacy Benefit Manager Transparency Act of 2022, introduced in May 2022 with a Republican and a Democrat sponsor, seeks to ban certain PBM practices, such as spread pricing^[111] and unfair clawbacks of reimbursement payments from pharmacies, as unfair and deceptive acts and practices under the Federal Trade Commission Act of 1914 (the FTC Act), unless certain exceptions apply.^[112] Also, in an effort to improve transparency, the bill would require PBMs to disclose annually to the FTC certain aggregate financial information, such as the spread retained by the PBM and any clawbacks.^[113] In a 17 June 2022 letter to the US Government Accountability Office (GAO), a group of House Republicans raised concerns about the ‘central role’ PBMs play in ‘the market price of prescriptions’, given their position in the pharmaceutical supply chain.^[114] The letter asks the GAO to study how PBMs are reimbursed for services provided to commercial health plans, the effect of PBM formularies and related manufacturer contracts on commercial health plan drug spending, and the role of Employee Retirement Income Security Act (ERISA) fiduciary requirements on the services PBMs provide.

For its part, the FTC appears to be following the direction from the Biden administration to be more aggressive on drug pricing, although action by the FTC may have been hampered by the absence of a working Democratic majority from October 2021, when Commissioner Rohit Chopra stepped down, to May 2022 when the Senate confirmed Alvaro Bedoya as his replacement. In a 9 July 2021 Executive Order and remarks at the end of 2021, President Biden called on the FTC to take action concerning the costs of drugs and healthcare, flagging, in particular, the need to facilitate competition from generic and biosimilar alternatives and prevent allegedly anticompetitive agreements.^[115] The FTC’s Statement of Regulatory Priorities for 2022 reflects these administration’s priorities, pledging to define rules to address ‘unfair methods of competition’ linked to ‘pay for delay agreements’ as well as other ‘unfair or deceptive acts or practices’.^[116] More generally, that FTC Statement asserted that case-by-case antitrust enforcement ‘has proven insufficient, leaving behind a hyper-concentrated economy whose harms to American workers, consumers, and small businesses demand new approaches’.^[117] FTC rule-making for pharmaceuticals, if pursued, could trigger legal challenges as well as substantial changes, increased uncertainty and significant compliance challenges for the industry.

The FTC, like some in Congress, has also focused its attention on the role of PBMs and their effect on drug pricing. On 7 June 2022, the FTC announced a Section 6(b) inquiry into the PBM industry.^[118] The study will analyse vertically integrated PBMs and their impact on access to and affordability of prescription drugs, including the effect of manufacturer rebates on formulary design and drugs costs. The use of clawbacks, steering patients to PBM-affiliated pharmacies and administrative restrictions on coverage (eg, prior authorisations), and other practices also fall within the scope of the study.^[119] This 6(b) inquiry follows the FTC’s failed February 2022 effort to gain consensus on such a study (the Commission deadlocked 2-2) and subsequent request for public comment on the impact of PBM practices.^[120]

Shortly after announcing its 6(b) inquiry, the FTC issued a 16 June 2022 enforcement policy statement concerning manufacturer-PBM formulary rebate practices that the FTC described as a ‘top priority’.^[121] The policy statement focuses on rebates and fees paid by manufacturers to PBMs in ‘exchange for excluding lower-cost drug products’.^[122] According to the FTC, formulary agreements that ‘foreclose competition from less expensive alternatives’ may be unlawful restraints of trade (Sherman Act Section 1), unlawful monopolisation (Sherman Act Section 2) or exclusive dealing (Clayton Act Section 3).^[123] Also, the policy statement asserts that formulary agreements that exclude less expensive alternatives ‘in a manner that shifts costs to payer and patients’, may be unlawful as an unfair method of competition or unfair act or practice (FTC Act Section 5), as well a violation of the Robinson-Patman Act’s commercial bribery provision (Section 2(c)).^[124] This policy statement follows the FTC’s 5 August 2021 solicitation for public comment on contract terms that may harm competition, which identified exclusive formulary positions by allegedly dominant drugs as an example of problematic conduct to be addressed through rule-making and the FTC’s 28 May 2021 report on ‘rebate wall’ practices, which some have argued foreclose competition from less expensive drugs.^[125] FTC chair Lina Khan stated that the new enforcement policy statement was meant to put ‘the entire prescription drug industry on notice’ that the FTC will not hesitate to ‘bring our full authorities to bear’ if it sees ‘illegal rebate practices that foreclose competition’.^[126]

State legislation

Following the same pattern as recent years, states continue to be active on drug pricing, passing legislation on a range of issues. In 2021, states debated more than 650 bills that purported to reduce or control drug prices and enacted more than 30 of them.^[127] In the first half of 2022, more than 280 state drug laws had been introduced, several of which would go beyond mere reporting requirements and institute various degrees of price control.^[128] Among other changes, states have passed laws that require pricing transparency from pharmaceutical manufacturers, mandate disclosures from PBMs and insurers, including rebates and fees received from manufacturers, cap consumer cost-sharing on certain drugs and create the framework for drug importation programmes.^[129] A growing number of states have taken issue with the growth of ‘co-pay accumulator’ programmes, and have acted to ensure that the benefits of manufacturer co-pay assistance offers reach consumers and are not co-opted by commercial health plans through the use of these programmes, which exclude manufacturer co-pay assistance from counting towards a consumer’s deductible or out-of-pocket maximum. At least 11 states require commercial health plans and self-funded non-ERISA plans to count the value of any co-pay assistance – manufacturer coupons, non-profit assistance programmes or prescription discounters – towards patient deductibles or out-of-pocket maximums.^[130] States may also pursue additional legislation touching more directly on drug pricing following the Supreme Court’s 2020 decision in Rutledge v Pharmaceutical Care Management Association, which outlined a pathway for states to implement PBM-focused ‘cost regulation’ that would not be pre-empted by federal ERISA law.^[131]

Litigation relating to pharmaceutical pricing

Litigation regarding pharmaceutical pricing remains active, with cases addressing a range of issues, including the limits on enforcers’ ability to seek disgorgement in antitrust cases in federal court, sham patent litigation, allegedly exclusionary formulary agreements and other exclusionary conduct, novel theories of liability under the federal Racketeer Influenced and Corrupt Organizations (RICO) statute, ‘patent thickets’, regulatory changes affecting pricing under federal government programmes and other topics.

Disgorgement claims by federal and state enforcers

The FTC and state enforcers have seen the ripple effects of the Supreme Court’s April 2021 decision in AMG, which held that the ‘permanent injunction’ remedy available to the FTC in federal court under Section 13(b) of the FTC Act does not also permit the court to award equitable monetary relief, such as disgorgement.^[132] In In re: Generic Pharmaceuticals Pricing Antitrust Litigation, the court relied on AMG to dismiss price-fixing claims seeking disgorgement under Section 16 of the Clayton Act brought by state attorneys general, reasoning that the injunctive relief provision in Section 16 of the Clayton Act invoked by the states is similar to Section 13(b) of the FTC Act and required a similar result.^[133]

In a joint action by the FTC and state attorneys general against Martin Shkreli and Vyera Pharmaceuticals for allegedly using exclusive ingredient supply agreements and other restrictive contracts to block generic competition to Vyera’s Daraprim product, the FTC dropped its claims for monetary relief following AMG, and the state attorney generals agreed not to seek civil penalties or forfeitures in exchange for the defendants’ agreement to withdraw their jury demands.^[134] The court permitted the state attorney generals, however, to pursue equitable claims for disgorgement under state antitrust and unfair competition laws.^[135] Following a bench trial win for the enforcers, the court ordered Mr Shkreli to pay US$64 million in disgorgement and issued an unprecedented lifelong ban for Mr Shkreli, barring him from ‘participating in the pharmaceutical industry in any capacity’.^[136]

Sham patent litigation

In October 2021, the court in Zytiga dismissed claims that the defendants used sham patent litigation to delay generic competition. In granting the defendants’ motion to dismiss, the court held that the defendants’ ‘infringement action, though unsuccessful, was not objectively baseless’.^[137] The court explained that the patent action ‘was a triable one, in my view, and was hard fought by both parties’.^[138] The court emphasised that the patent action required a 30-page Markman ruling, and only after an eight-day bench trial requiring another 70-page opinion was the court able to find that the patent was invalid.^[139] The obviousness issue ‘required close analysis of multiple factors’, including the argument that the patent was not obvious from the prior art and whether the commercial success of Zytiga, which ‘yielded billions of dollars in sales’, was attributed to a ‘blocking patent’.^[140] Considering these multiple factors, the court held that the defendants ‘presented a plausible case, if not a winning one’.^[141]

Challenges to formulary deals, ‘patent thickets’ and other potentially exclusionary conduct

Private plaintiffs continue to challenge certain manufacturer rebating and patenting practices as unlawfully exclusionary, focusing on formulary agreements that allegedly exclude less expensive alternatives and ‘patent thickets’. These cases come at the same time as federal enforcers and lawmakers are taking a closer look at the same conduct.

Several recent lawsuits contend that manufacturers used rebate arrangements (and other practices) to unlawfully exclude competing drugs from payer coverage.

Most recently, in July 2022, the US Court of Appeals for the Tenth Circuit upheld a summary judgment dismissal of antitrust claims alleging that a manufacturer executed an exclusionary formulary contracting scheme to maintain a monopoly.^[142] In that case, Sanofi argued that Mylan used conditional rebate contracts for EpiPen, the leading epinephrine auto-injector product for anaphylaxis, to block Sanofi’s Auvi-Q product from formulary coverage, thereby unlawfully maintaining an alleged monopoly for EpiPen.^[143] Applying primarily an exclusive dealing lens, the Tenth Circuit found no evidence that Mylan’s rebate agreements for preferred and exclusive formulary positions substantially foreclosed Auvi-Q from the market.^[144] As the Court explained, Mylan’s conduct did not impair Sanofi’s ability to compete because the Mylan ‘rebate agreements were short and easily terminable’; rebates in exchange for exclusivity were ‘a normal competitive tool’ in the epinephrine auto-inject market that ‘stimulate price competition’; and ‘when Sanofi beat Mylan’s price it succeeded’ in gaining coverage and in some instances its own exclusivity.^[145] The Court also found no evidence of coercion; PBMs only risked losing discounts for rejecting Mylan’s exclusive contracts, therefore Sanofi only needed to offer ‘a better product or a better deal’ to avoid exclusion.^[146]

Lower federal courts also continue to address similar claims. Beginning in 2017, purchaser and competitor plaintiffs sued Johnson & Johnson (J&J) and Janssen for allegedly using exclusionary contracts with health insurers and healthcare providers (eg, hospitals and clinics) to thwart biosimilar competition.^[147] While the antitrust theories supporting these actions survived motions to dismiss, the last of these cases settled in early 2022 without further substantive decisions from the courts.^[148] Similarly, in a June 2021 lawsuit, Mylan Pharmaceuticals alleged that Teva sought to protect its Copaxone product by contracting to exclude generic competitors from formularies and to prefer Copaxone over generics at specialty pharmacies.^[149] Teva also allegedly engaged in regulatory abuses, improperly prevented generic substitution and violated kickback rules in providing donations to charities that were used as co-pay assistance to Medicare patients.^[150] Direct and indirect purchasers filed separate lawsuits based on the same conduct, and motions to dismiss remain pending in all actions.^[151] More recently, Regeneron filed an antitrust suit against Amgen in May 2022, alleging that Amgen leveraged its product portfolio in a bundled rebate scheme to coerce insurers and PBMs to favour Amgen’s Repatha over Regeneron’s Praluent.^[152]

Plaintiffs’ use of novel theories of liability under the federal RICO statute to challenge formulary agreements have encountered additional setbacks. Defendants in a litigation in the Northern District of Minnesota regarding Mylan’s drug EpiPen successfully tossed RICO claims based on alleged violations of the Anti-Kickback Statute, despite the court allowing the claims to proceed just last year. The court in that case initially permitted direct purchasers of EpiPen to bring RICO claims based on allegations that Mylan’s rebates to PBMs for favourable formulary status were kickbacks in violation of the Anti-Kickback Statute.^[153] To get past the issue that private litigants cannot sue directly under the Statute, the court accepted the plaintiffs’ rationale that violations of the Statute constitute bribery in violation of the Travel Act, a statute that qualifies as a predicate for RICO claims. In ruling on the defendants’ renewed motion to dismiss, filed after the plaintiffs amended their complaint to add an antitrust claim and additional defendants, the court reversed course and granted the defendants’ motion.^[154] The court held that bribery under the Anti-Kickback Statute is broader than bribery under the Travel Act, and therefore cannot from a predicate act for plaintiffs’ RICO claims.^[155] The same issue is currently being briefed in the District of New Jersey, where the court allowed similar claims to proceed based on the initial motion-to-dismiss ruling from the Northern District of Minnesota case in the EpiPen litigation^[156] and in direct purchasers’ suit against Teva regarding Copaxone.^[157]

Certain other contracting practices in the pharmaceutical industry have also come under antitrust scrutiny. For instance, in early 2021, the US Court of Appeals for the Third Circuit addressed allegations concerning an exclusive supply agreement for the active pharmaceutical ingredient (API) in vasopressin, a blood pressure treatment.^[158] Plaintiff Fresenius alleged that while seeking to submit an abbreviated new drug application (ANDA) for vasopressin, it realised that the only suppliers of the API were subject to exclusive-dealing arrangements with Par Pharmaceutical.^[159] These arrangements allegedly are part of Par’s efforts to ‘“lock up difficult-to-source API” to prevent competitors from entering the [intravenous vasopressin injection] market’.^[160] The district court granted Par’s motion for summary judgment, concluding that the existence of Par’s patents on its brand vasopressin product broke the chain of causation and that Fresenius’ theory that it would have successfully challenged those patents was ‘unduly speculative’ because ‘there was never an underlying patent challenge or an underlying ANDA from which a jury could make a reasoned decision on how such hypothetical patent action on invalidity or infringement would have been resolved’.^[161] But the Third Circuit reversed, holding that the district court should have analysed whether a reasonable jury could have found that Par’s patents would have blocked Fresenius’s entry.^[162] The Third Circuit noted, however, that ‘[o]n remand, the District Court may choose to consider whether the exclusivity agreement even constitutes anticompetitive conduct because if it does not, then no patent analysis is needed’.^[163] Following remand, the parties have filed supplemental summary judgment briefs with the district court, and, in a non-public order from October 2021, the court appears to have granted the defendants’ motion for summary judgment.^[164]

In December 2021, the court in Colcrys granted the defendants’ motions to dismiss for failure to adequately allege that three settlement agreements are part of a larger antitrust conspiracy to order market entry and restrict output – deviating from reverse payment allegations that are typically alleged in connection with patent settlements.^[165] The court first evaluated whether the separate patent settlements that Takeda made with Par, Amneal and Watson, respectively, could constitute direct evidence of a restraint of trade. The court found that the mere fact that the agreements occurred at a similar time using similar terms and structures does not transform the agreements into direct evidence of a conspiracy.^[166] At most, the court stated, the similarity and timing could constitute circumstantial evidence.^[167] But the court was ultimately not satisfied with Value Drug’s alleged circumstantial evidence, which hinged on one point: the purpose of the conspiracy, as evinced by the settlement agreements, is to prevent Colcrys’s price from collapsing by keeping out all entrants but the two allowed by the settlements.^[168] The court rejected this argument based on the inclusion of the ‘escape clauses’ in the settlement agreements that allowed the generic manufacturers to sell their version of generic Colcrys under certain conditions, including if another generic manufacturer entered the market.^[169] The proposed theory, the court stated, ‘makes no economic sense’ and ‘it forecloses an inference of concerted action among the four competitors’ because the presence of the ‘escape clauses’ did not forestall a price collapse, it guaranteed it.^[170]

The plaintiffs, however, were permitted to amend their complaints and subsequently survived another motion to dismiss, at least in part. In a March 2022 decision, the court permitted the amended conspiracy claim to go forward, explaining that by entering into the alleged conspiracy, ‘Par would face no other generic competition when it took over selling Takeda’s authorized generic’, ‘Par also extended its market exclusivity period as the only generic from 180 days to 837 days’ and ‘Watson and Amneal obtained 135 days of limited competition with only Par in the market for generics, allowing the generic price to be maintained at least twenty percent higher than when more than three generics sell on the market with the brand’.^[171] But the court rejected the plaintiffs’ allegations of separate bilateral conspiracies because ‘[o]rdering the market as alleged here required all four conspirators’ active and knowing participation to derive the benefit to the conspirators’.^[172] The court found that ‘[t]his reality alone necessitates a finding all three Generics participated in one conspiracy with Takeda, rather than three separate bilateral conspiracies’.^[173]

Finally, challenges to ‘patent thickets’ as exclusionary conduct also continue. In 2019, class-action plaintiffs filed antitrust complaints concerning AbbVie’s best-selling biological drug Humira. The plaintiffs alleged that AbbVie developed an anticompetitive patent thicket to protect Humira, arguing that AbbVie ‘secured over 100 patents designed solely to insulate Humira from any biosimilar competition’ and then entered into unlawful patent settlement agreements.^[174] In June 2020, the district court granted a motion to dismiss, recognising that the patent thicket claim is a ‘new kind of antitrust claim’ that ‘brings together a disparate set of aggressive but mostly protected actions’.^[175] The court held that the ‘allegations – even when considered broadly and together for their potential to restrain trade – fall short of alleging the kind of competitive harm remedied by antitrust law’.^[176] On appeal, the Seventh Circuit affirmed, holding that the ‘patent laws do not set a cap on the number of patents any one person can hold – in general, or pertaining to a single subject’.^[177] The court emphasised that plaintiffs ‘have abjured any reliance on the Walker Process doctrine [for alleged procurement of patents by fraud], which makes it hard to see how AbbVie can be penalized for its successful petitions to the Patent Office’.^[178]

Government drug pricing programmes and challenges to co-pay accumulators

Federal courts continue to address disputes concerning the federal government’s 340B Drug Pricing Program, with the Supreme Court weighing in on the federal government’s authority to vary reimbursement rates paid to hospitals and ultimately cut those rates. The 340B programme requires pharmaceutical manufacturers to provide outpatients drugs at significant discounts to ‘covered entities’ serving a high proportion of needy patients, such as hospitals and clinics in low-income areas. As the 340B programme grew faster than expected in terms of spending, manufacturers raised concerns about the increasing use of contract pharmacies to manage drug purchases for covered entities, and the potential for fraud, duplicate discounts and drug diversions. Pharmacy chains and PBMs – such as Walgreens, CVS Health and Express Scripts – have allegedly dominated these 340B contract pharmacy relationships, where they may earn per-prescription fees that are ‘much higher than a pharmacy’s typical gross profit from a third-party payer’.^[179] As a result, certain drug makers took steps to limit 340B discounts for prescription drugs dispensed via contract pharmacies.

In 2020, HHS issued an advisory opinion that any pharmacy contracting with 340B covered entities must get the same drug discounts that the hospitals get under the current law, and followed up with violation letters to certain manufacturers. Drug makers challenged the advisory opinion and HHS violation letters through lawsuits in federal courts. HHS voluntarily withdrew the advisory opinion after unsuccessfully moving to dismiss the challenges brought against it, but maintained enforcement of the violation letters.^[180] The challenges to the violation letters resulted in a split among lower federal courts on whether manufacturers can impose conditions on contract pharmacies under the 340B programme.^[181] Appeals from these rulings remain pending.^[182]

In a separate controversy surrounding the 340B programme, the Supreme Court addressed the authority of HHS to manage reimbursement rates paid to 340B covered entities. Hospitals and hospital associations challenged HHS’s power under the outpatient prospective payment system to cut the statutory reimbursement rates that the federal government pays to 340B covered entities. The Supreme Court, in a unanimous decision, held that the government did not have the authority to adjust the reimbursements rates to covered entities, unless the government conducts a survey of the covered entities’ acquisitions costs (which the government had not performed in the first instance).^[183]

Co-pay accumulator programmes have been the subject of litigation regarding the flow of benefits provided by manufacturer co-pay assistance programmes. In an important win for manufacturers, a 17 May 2022 federal court decision rejected a Centers for Medicare & Medicaid Services (CMS) rule change that would have required drug manufacturers to include consumer co-pay assistance in Medicaid ‘best price’ calculations in certain circumstances.^[184] The CMS rule, scheduled to be effective from 1 January 2023, directed manufacturers to include co-pay assistance in best price calculations if the co-pay assistance ultimately benefited a health plan through an accumulator programme. The court held that any financial assistance a drug manufacturer pays to a patient ‘does not qualify as a price made available from a manufacturer to a best-price-eligible purchaser’, and therefore co-pay assistance to patients (even if absorbed by the payer through the accumulator programme) does not fall within the best price calculation under the terms of the applicable statute.^[185] The court also acknowledged the difficulty in tracking payments made by the manufacturers to patients and incorporating those payments into the best price calculation.^[186] Separately, in what appears to be the first manufacturer challenge to the operation of a co-pay accumulator programme, J&J filed a May 2022 lawsuit against SaveOn Specialty Assistances, partner to PBM Express Scripts, for tortious interference with J&J’s co-pay assistance agreements with patients and related deceptive practices. J&J alleges that SaveOn artificially inflated patients’ co-pays to coerce patients to enrol in a SaveOn programme that would, in turn, enrol those patients in J&J’s co-pay assistance programme. The scheme allegedly resulted in J&J overpaying for co-pay assistance by at least US$100 million and SaveOn profiting on those overpayments through fees received from its health plan customer.^[187]

Overall, between proposed legislation, policy changes and litigation, the pharmaceutical sector continues to face significant scrutiny and legal challenges.^[188]

Notes