HRSA’s ADR Committee Dismisses NACHC’s 340B Complaint Against Two Drugmakers | Foley Hoag LLP

Key points to remember:

  • In late September, an Administrative Dispute Resolution (ADR) panel for the Health Resources and Services Administration (HRSA), within the Department of Health and Human Services (HHS), issued its first decision.
  • The panel dismissed a complaint by the National Association of Community Health Centers (NACHC) against two pharmaceutical manufacturers, Sanofi-Aventis and AstraZeneca, regarding the manufacturers’ decision to restrict sales of 340B drugs to contract pharmacies.
  • Although the ADR Panel denied NACHC’s request, the ADR Panel’s decision is notable, in part, due to a number of ongoing legal challenges to the Panel’s authority, as well as the development of anticipated rules that may change the ADR process in the future.
  • Given the number of ongoing disputes between manufacturers and covered entities, we may see similar ADR proceedings in the future.



The 340B program requires drug manufacturers to offer outpatient pharmaceutical products to covered entities defined by law (including certain hospitals and certain federal recipients, such as federally qualified health centers) at the greatly reduced 340B ceiling price. While drug manufacturers were initially required to offer 340B rebates only to Covered Entities’ in-house pharmacies, HRSA has since allowed Covered Entities to contract with retail pharmacies to fill prescriptions for acquired 340B drugs at their name. The use of contract pharmacies was initially limited, 61 Fed. Reg. to 43,549, but in 2010 the HRSA issued guidelines allowing covered entities to work with an unlimited number of contracted pharmacies. 75 Fed. Reg. 10.272-79.

The use of contract pharmacies has been a major driver of growth for the 340B program. As a result, throughout 2020, several drugmakers have announced policies to limit the distribution of acquired 340B drugs to contract pharmacies.[1] A number of disputes ensued, some of which are still ongoing.

ADR regulations

Section 7102 of the Patient Protection and Affordable Care Act (ACA) required HHS to implement an ADR process to resolve certain disputes arising from the 340B drug rebate program. While the HRSA issued a Notice of Proposed Rulemaking (NPRM) on this topic on August 12, 2016, 81 Fed. Reg. 53381-88, in 2020 this rule had not been finalized.[2] On October 21, 2020, NACHC filed suit against HHS to compel the agency to promulgate rules to implement the ADR program (NACHC v. Azarno. 1:20-cv-03032 (DDC filed October 21, 2020) (stayed)). In the complaint, the NACHC alleged that HHS has violated this legal requirement since 2010, when the ADR process was first added to Act 340B. More than four years after the proposed rule, on December 14, 2020, HHS issued a final rule to establish an ADR panel empowered to resolve disputes between manufacturers and covered entities and to make final agency decisions, as required by (85 Fed. Reg. 80632-46) (effective January 13, 2021).

On November 18, 2021, HHS submitted a proposed rule titled 340B Drug Pricing Program; Settlement of administrative disputes at the Office of Management and Budget (OMB). As of October 2022, this proposed rule is still pending review by the OMB.

Builder dispute

In 2021, six pharmaceutical manufacturers filed separate lawsuits in federal court challenging HRSA’s policy requiring manufacturers to supply drugs at the $340 billion ceiling price to contracted pharmacies. In their claims, the manufacturers asserted that the HRSA exceeded its authority by allowing unlimited use of contracted pharmacies under the 340B program and, further, that the HRSA’s ADR rule was unconstitutional and inconsistent with the Administrative Procedure Act (APA). Some of the manufacturers who have challenged the ADR Final Rule have won favorable legal results: for example, in the Southern District of Indiana, Eli Lilly obtained a preliminary injunction against HHS, preventing the agency from enforcing the ADR Rule against the manufacturer. But, overall, the legal results have been mixed, as some district courts have allowed HRSA’s contract pharmacy policy to continue. In addition, several of the manufacturers’ victories were based on procedural grounds, i.e. that HRSA had improperly enacted rules relating to contract pharmacies, rather than claiming that HRSA was prohibited from doing so.

Additionally, AstraZeneca sued HHS in response to a Dec. 30, 2020 advisory opinion, AO 20-06, in which HHS said manufacturers were legally required to provide discounted drugs “at a ceiling price of $340 billion.” to the maximum” to pharmacies under contract.[3] The District Court for the District of Delaware found that the HHS advisory opinion was “legally flawed” and noted that the wording of Statute 340B “says nothing about the role that contract pharmacies can play in connection with purchases of 340B drugs by covered entities.” AstraZeneca Pharm. LP vs. Becerra, 543 F. Supp. 3d 47, 59 (D.Del. 2021).[4] Importantly, the court noted that HHS’s and AstraZeneca’s interpretations of 340B “add requirements… [u]under [HHS’] interpretation, pharmaceutical manufacturers are required to deliver 340B drugs to an unlimited number of contracted pharmacies. Under AstraZeneca’s interpretation, Covered Entities are required to purchase their 340B drugs through in-house pharmacies. No requirement is contained in the law, nor (therefore) imposed by it. So…the Court is not authorized to read either of these requirements into the statute. Astra Zeneca, 543 F. Supp. 3d, at 61. The court recognized the statute’s ambiguity and noted that HHS “could reasonably choose to issue an opinion” on certain interpretations, such as whether (or not) manufacturers must provide unlimited number of discounted drugs to contract pharmacies, but added that the statutory language “does not compel” this interpretation, and “Congress has simply not spoken on the matter.” ID.

HHS retracted AO 20-06 on June 18, 2021. In its Notice of withdrawalHHS said its removal “does not affect ongoing efforts to…[HRSA] to enforce the obligations that 42 USC § 256b imposes on drug manufacturers, including the May 17, 2021 HRSA violation letters regarding restrictions on contract pharmacy agreements.[5]

ADR decision

On January 13, 2021, the day the ADR Final Rule came into effect, the NACHC filed its complaint with the ADR Panel against Sanofi-Aventis and AstraZeneca. At the end of September 2022 – twenty months after the NACHC presented its dispute – the panel dismissed the NACHC complaint against the manufacturers.[6] According to the panel, the court of AstraZeneca vs. Becerra 543 F. Sup. 3d 47, 62 (D. Del. 2021) determined that Congress failed to state clearly and unambiguously that manufacturers must supply discounted drugs to an unlimited number of contracted pharmacies. Therefore, the court has already addressed the issue of the NACHC before the panel.[7]

It is possible that there will be future ADR filings related to the contract pharmacy issue, although the development of pending ADR rules may create additional delays. Additionally, the manufacturers’ legal challenges (mentioned above) are currently on appeal; if the federal appeals courts unite around a particular position regarding the legality of the policy, that could solve the problem. Alternatively, if there is a circuit split, the case could go to the Supreme Court. Ultimately, in the absence of a Supreme Court ruling or legislative change regarding the role of contract pharmacies in the 340B program, legal challenges in this area are likely to continue.

[1] Identifier. According to the NACHC Statement“…restrictions imposed on contract pharmacies by drug manufacturers have steadily increased since September 2020… [and] [e]Weight manufacturers are now refusing to ship drugs priced at B340 to contracted pharmacies of covered entities. »

[2] See Final Rules 2020, 340B Drug Pricing Program; Administrative Dispute Settlement Regulations (85 Fed. Reg. 80632-46). Note that on September 20, 2010, HHS issued a Notice of Proposed Rulemaking (ANPRM) seeking comments on the development of an ADR process (75 Fed. Reg. 57233-35). On August 12, 2016, HRSA issued a Notice of Proposed Rulemaking (NPRM) seeking comments on establishing an ADR process (81 Fed. Reg. 53381-88). The 2016 NPRM was removed from the HHS regulatory program with the January 20, 2017 memorandum Regulatory freeze pending review; however, the 2016 NPRM was never officially retired. HHS considered comments submitted in response to the 2016 NPRM in developing the 2020 Final Rule, which was ultimately released on December 14, 2020.

[3] HHS, Advisory Opinion (AO 20-06), On pharmacies under contract under the 340B program (December 30, 2020) available on:

[4] In a February 16, 2022 opinion granting summary judgment to AstraZeneca regarding a May 17, 2021 “violation letter” from the HRSA, the District Court for the District of Delaware wrote that the HHS advisory opinion “was based on a “unwarranted assumption” about the [340B] law, [therefore] AstraZeneca was entitled to compensation. AstraZeneca Pharm. LP vs. Becerra, no. 21-27-LPS, 2022 US Dist. LEXIS 27842, at *5 (D. Del. February 16, 2022).

[7] NACHC, Statement Regarding HHS Rejection of ADR Resolution 340B (September 28, 2022) available on:; John Wilkerson, HHS panel dismisses 340B dispute, dashes health center hopesInsideHealthPolicy (September 29, 2022) available at:; AstraZeneca Pharm. LP vs. Becerra, 543 F. Supp. 3d 47, 62 (D.Del. 2021); see also AstraZeneca Pharm. LP vs. Becerra, no. 21-27-LPS, 2022 US Dist. LEXIS 27842 (D. Del. February 16, 2022).

Comments are closed.