Pharm. Research & Mfrs. of Am. v. McClain

645 F.Supp.3d 890

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff v. Alan MCCLAIN, in his official capacity as Commissionerof the Arkansas Insurance Department, DefendantCommunity Health Centers of Arkansas; Piggott Community Hospital, Intervenors

Case No. 4:21-CV-864-BRW

United States District Court, E.D. Arkansas, Central Division

Signed December 12, 2022

Andrew D. Prins, Pro Hac Vice, Philip J. Perry, Pro Hac Vice, Latham & Watkins LLP, Washington, DC, Joshua C. Ashley, Friday, Eldredge & Clark, LLP, Little Rock, AR, for Plaintiff.

Kendall Booth Rand, Arkansas Insurance Department, Legal Division, Little Rock, AR, for Defendant.

Barbara Straub Williams, Pro Hac Vice, Ronald S. Connelly, Pro Hac Vice, Powers Pyles Sutter & Verville, Washington, DC, George Nathan Steel, Robert Alexander Gaines, Steel | Wright | Gray PLLC, Little Rock, AR, for Intervenors.

ORDER

BILLY ROY WILSON, UNITED STATES DISTRICT JUDGE

Pending are Plaintiff's Motion for Summary Judgment on Preemption (Doc. No. 24), Defendant Leslie Rutledge's Cross-Motion for Summary Judgment (Doc. No. 32), and Intervenors' Cross-Motion for Summary Judgment on Preemption (Doc. No. 35). The parties have responded and replied.¹ For the reasons set out below, Plaintiff's motion is DENIED. Intervenors' cross-motion is GRANTED. Defendant Leslie Rutledge's cross-motion is DENIED as MOOT.

I. BACKGROUND²

Plaintiff claims Act 1103 enacted by the Arkansas General Assembly in 2021 is unconstitutional. Plaintiff represents several prescription drug manufacturing companies. Defendant Alan McClain is the Commissioner of the Arkansas Insurance Department, which is the agency charged with the implementation and enforcement of Act 1103.

Plaintiff named Leslie Rutledge in her official capacity as the Attorney General of Arkansas as a Defendant in this case.³ On September 9, 2022, Ms. Rutledge filed a motion for summary judgment arguing that she was not a proper party to he lawsuit under Arkansas law.⁴ On October 5, 2022, the parties filed a stipulation of dismissal where they agreed that Ms. Rutledge has no authority to enforce the relevant Arkansas law at issue, and requested that she be dismissed.⁵ On that same day, I granted the dismissal.⁶ Accordingly, Ms. Rutledge's Cross-Motion for Summary Judgment is DENIED as MOOT.

Intervenor Piggott Community Hospital ("PCH") is located in Piggott, Arkansas, and is designated under the Medicare program as a critical access hospital ("CAH"). PCH is owned and operated by the City of Piggott and participates in the 340B Program based on its governmental ownership and CAH status.⁷

Intervenor Community Health Centers of Arkansas ("CHCA") is a non-profit organization comprised of eleven community health centers located in Arkansas. All of CHCA's members participate in the 340B Program by receiving funding under Section 330 of the Public Health Service Act ("PHSA").⁸

This case arises out of a dispute between drug manufacturers and the Arkansas Insurance Department ("AID") about the use of "contract pharmacies" as a part of the Federal 340B drug program. Plaintiff contends that these contract pharmacies "have found illegal ways to leverage the 340B discounts to their financial benefit, often without assisting the vulnerable patient populations that the 340B program was intended to help."⁹

Plaintiff contends that provisions found in Act 1103 inappropriately regulate and alter the Federal 340(B) Program, impose requirements that directly conflict the program, and regulate commercial transactions occurring entirely outside of Arkansas.¹⁰ Plaintiff argues that Act 1103 is invalid under both the Supremacy and Commerce Clauses of the U.S. Constitution. Plaintiff seeks declaratory judgment and injunctive relief.¹¹

On September 29, 2021, Plaintiff filed its Complaint.¹² On August 9, 2022, the parties filed an joint motion to stay the proceedings on the commerce clause claim until the preemption claim has been resolved.¹³ I granted the motion on that same day.¹⁴ So, the only issue ripe for consideration at this point is preemption.

On August 8, 2022, Plaintiff filed its Motion for Summary Judgment on Claim I.¹⁵ First, Plaintiff contends that the 340B Program is strictly a federal scheme that is not subject to state regulation. Second, Plaintiff argues that Act 1103 conflicts with the 340B Program by essentially adding "contract pharmacies" to the list of "covered entities" as defined in the statute. Third, Plaintiff asserts that Act 1103 conflicts with the enforcement authority granted to HHS and its agency the Health Resources and Services Administration ("HRSA") by establishing a separate enforcement scheme with additional penalties. Fourth, Plaintiff contends that Act 1103 conflicts with the Federal Food, Drug, and Cosmetic Act ("FDCA") "by mandating how federally regulated drugs may be distributed in Arkansas" without regard to federal safety standards.¹⁶

In response, Defendant and Intervenors seek a narrow interpretation of the provisions in Act 1103 and contend that even if I agree with Plaintiff's broad interpretation of Act 1103, a fact issue remains on the ownership status of the discounted drugs as they are distributed through the system.¹⁷

On September 9, 2022, Intervenors filed a Cross-Motion for Summary Judgment on Claim I.¹⁸ Intervenors contend that the 340(B) Program only regulates drug pricing, and the disputed provisions in Act 1103 only regulate drug distribution in Arkansas, so no preemption exists. I agree.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate only when there is no genuine issue of material fact, so that the dispute may be decided on purely legal grounds.¹⁹ The Supreme Court has established guidelines to assist trial courts in determining whether this standard has been met:

The inquiry performed is the threshold inquiry of determining whether there is the need for a trial -- whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.²⁰

The Court of Appeals for the Eighth Circuit has cautioned that summary judgment is an extreme remedy that should only be granted when the movant has established a right to the judgment beyond controversy.²¹ Nevertheless, summary judgment promotes judicial economy by preventing trial when no genuine issue of fact remains.²² This court must view the facts in the light most favorable to the party opposing the motion.²³ The Eighth Circuit has also set out the burden of the parties in connection with a summary judgment motion:

[T]he burden on the party moving for summary judgment is only to demonstrate, i.e., "[to point] out to the District Court," that the record does not disclose a genuine dispute on a material fact. It is enough for the movant to bring up the fact that the record does not contain such an issue and to identify that part of the record which bears out his assertion. Once this is done, his burden is discharged, and, if the record in fact bears out the claim that no genuine dispute exists on any material fact, it is then the respondent's burden to set forth affirmative evidence, specific facts, showing that there is a genuine dispute on that issue. If the respondent fails to carry that burden, summary judgment should be granted.²⁴ Only disputes over facts that may affect the outcome of the suit under governing law will properly preclude the entry of summary judgment.²⁵

III. DISCUSSION

A. 340(B) Drug Program

The 340B Drug Program, is a federal prescription drug discount plan established by Congress in 1992²⁶. The Secretary of HHS administers the program. The 340(B) Program requires, as a condition of a manufacture's participation in Medicaid and Medicare Part B, that it sell its outpatient drugs at a discounted price to "covered entities," which are defined by statute to include 15 types of public and not-for-profit hospitals, community centers, and other federally funded clinics serving low-income patients.²⁷

Specifically, all drug manufacturers participating in the 340B Program must "offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price."²⁸ The 340B Program "ceiling prices," which are calculated according to a prescribed statutory formula,²⁹ are lower than the amounts other purchasers would pay. These drug pricing discounts are intended to "enable [covered entities] to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services."³⁰

To participate in the 340B Program, manufacturers are required to sign a contract with HHS known as the Pharmaceutical Pricing Agreement ("PPA"), which incorporates the statutory obligations of the 340B Program and expresses the manufacturers' agreement to abide by those obligations.³¹ If, at some point, HHS determines that a drug manufacturer has failed to comply with its 340B Program obligations, the manufacturer's PPA can be terminated, which prevents the manufacturer from receiving coverage for its drugs under Medicare and Medicaid.³²

Under the 340B Program, covered entities are prohibited from requesting "duplicate discounts or rebates," which means that covered entities may not request both a 340B Program discount and a Medicaid rebate for the same drug.³³ Covered entities are also prohibited from engaging in "diversion," which is defined by statute as the practice of "resell[ing] or otherwise transfer[ring]" a covered outpatient drug "to a person who is not a patient of the entity."³⁴

B. Act 1103

Plaintiff's organization permitted 340B discounted drugs to be shipped to pharmacies under contract with covered entities and treated contract pharmacies the same as in-house pharmacies for over 25 years.³⁵ Beginning in July 2020, drug manufacturers began implementing policies that either eliminated or restricted...