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

95 F.4th 1136

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Plaintiff - Appellant v. Alan MCCLAIN, in his official capacity as Commissioner ofthe Arkansas Insurance Department, Defendant - AppelleeCommunity Health Centers of Arkansas; Piggott Community Hospital, Intervenors - AppelleesAmerican Hospital Association; Arkansas Hospital Association;340B Health, Amici on Behalf of Appellee(s)

No. 22-3675

United States Court of Appeals, Eighth Circuit

Submitted: September 20, 2023

Filed: March 12, 2024

Appeal from United States District Court for the Eastern District of Arkansas - Central

Counsel who presented argument on behalf of the appellant and appeared on the appellant's brief, was Philip J. Perry, of Washington, DC. The following attorney(s) also appeared on the appellant's brief; Andrew D. Prins, of Washington, DC., Brittany M.J. Record, of Washington, DC., Cherish Alise Drain, of Washington, DC., Joseph Eli Begun, of Washington, DC.

Counsel who presented argument on behalf of appellee Alan McClain and appeared on the appellee's brief, was Kendall Booth Rand, of Little Rock, AR. The following attorney(s) also appeared on the appellee's brief; Allison Plowman Hatfield, of Little Rock, AR.

Counsel who presented argument on behalf of appellees Community Health Centers of Arkansas and Piggott Community Hospital, and appeared on the appellees' brief, was Ronald S. Connelly, of Washington, DC. The following attorney(s) also appeared on the appellees' brief; William von Oehsen, of Washington, DC., Barbara Straub Williams, of Washington, DC., Mark Ogunsusi, of Washington, DC., Fernando Montoya, of Washington, DC.

Counsel who appeared on the amicus brief of 340B Health, American Hospital Association and Arkansas Hospital Association was William B. Schultz, of Washington, DC., and Casey Trombley-Shapiro Jonas, of Washington, DC.

Before SMITH, Chief Judge,¹ MELLOY and ERICKSON, Circuit Judges.

MELLOY, Circuit Judge.

Pharmaceutical Research and Manufacturers of America ("PhRMA"), an association representing pharmaceutical manufacturers, initially brought this case against Arkansas Insurance Department Commissioner Alan McClain in his official capacity arguing that federal law impliedly preempts Arkansas Code § 23-92-604(c) ("Act 1103"). PhRMA argues that both the Section 340B Program and the Federal Food, Drug, and Cosmetic Act ("FDCA") preempt Act 1103 under theories of field, obstacle, and impossibility preemption. The district court² found that Act 1103 was not preempted by federal law under any theory. We affirm.

I.

For three decades, many Arkansas health care providers have participated in the Section 340B Program, a drug pricing program established by Congress in 1992. 42 U.S.C. § 256b(a)(1). Section 340B incentivizes pharmaceutical manufacturers to provide qualified health care providers, referred to as "covered entities," with pricing discounts on certain drugs prescribed to individuals and families whose incomes fall below the federal poverty level. Since the beginning, covered entities have contracted with outside pharmacies, referred to as "contract pharmacies," for the distribution and dispensation of 340B drugs. This is in large part due to the fact that building or maintaining a pharmacy is cost-prohibitive for many covered entities. Additionally, the outsourcing of pharmacy services has allowed for drug dispensation closer to where low-income patients reside. Furthermore, in some states, like Arkansas, state law prohibits most nonprofit and government-funded providers from operating their own in-house pharmacies.

For 25 years, drug manufacturers represented by PhRMA distributed 340B drugs to covered entities' contract pharmacies. Then, in 2020, drug manufacturers began implementing distribution policies that limited or prohibited covered entities from contracting with outside pharmacies for the dispensation of 340B drugs to patients. This caused covered entities dependent on contract pharmacies to become unable to serve patients in need. The Arkansas General Assembly responded in 2021 by passing Act 1103, Ark. Code Ann. § 23-92-604(c), which applies to drug distribution agreements between manufacturers and covered entities in Arkansas. Act 1103 prohibits manufacturers from limiting covered entities' ability to contract with outside pharmacies.

After the passage of Act 1103, PhRMA brought this lawsuit against Commissioner McClain, the head of the agency charged with enforcing Act 1103. For purposes of this appeal, PhRMA takes issue with Ark. Code Ann. § 23-92-604(c), arguing that it is preempted by Section 340B and the FDCA and is therefore unconstitutional.³ After PhRMA filed suit, Piggott Community Hospital and Community Health Centers of Arkansas (collectively, "Intervenors") intervened. Piggott Community Hospital is a 340B hospital that is owned and operated by the City of Piggott, Arkansas. Community Health Centers of Arkansas is a nonprofit comprised of eleven community health centers that all participate in the 340B Program. PhRMA and Intervenors filed cross-motions for summary judgment, which the district court granted in favor of Intervenors. PhRMA appeals the district court's decision. We affirm.

II.

"Article VI of the Constitution provides that the laws of the United States 'shall be the supreme Law of the Land; . . . any Thing in the Constitution or Laws of any state to the Contrary notwithstanding.' " Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992) (citing Art. VI, cl. 2). It has long been established "that state law that conflicts with federal law is 'without effect.' " Id. (citation omitted); see, e.g., M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 427, 4 L.Ed. 579 (1819). "Congress may . . . pre-empt, i.e., invalidate, a state law through federal legislation." Oneok, Inc. v. Learjet, Inc., 575 U.S. 373, 376, 135 S.Ct. 1591, 191 L.Ed.2d 511 (2015). "But even where, as here, a statute does not refer expressly to pre-emption, Congress may implicitly pre-empt a state law, rule, or other state action." Id. Where preemption is alleged, " '[t]he purpose of Congress is the ultimate touchstone' of pre-emption analysis." Cipollone, 505 U.S. at 516, 112 S.Ct. 2608 (quoting Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S.Ct. 1185, 55 L.Ed.2d 443 (1978)). Congress may impliedly preempt state law "either through 'field' pre-emption or 'conflict' preemption." Oneok, Inc., 575 U.S. at 377, 135 S.Ct. 1591. Field preemption exists where "Congress has forbidden the State to take action in the field that the federal statute pre-empts." Id. "By contrast, conflict pre-emption exists where 'compliance with both state and federal law is impossible,' or where 'the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' " Id. (quoting California v. ARC Am. Corp., 490 U.S. 93, 100, 101, 109 S.Ct. 1661, 104 L.Ed.2d 86 (1989)) (internal quotation marks omitted). In either situation, federal law must prevail.

Notwithstanding the supremacy of federal law, "[c]onsideration of issues arising under the Supremacy Clause 'start[s] with the assumption that the historic police powers of the States [are] not to be superseded by . . . Federal Act unless that [is] the clear and manifest purpose of Congress.' " Cipollone, 505 U.S. at 516, 112 S.Ct. 2608 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947)). Indeed, there is a "presumption that state or local regulation of matters related to health and safety is not invalidated under the Supremacy Clause." Hillsborough Cnty., Fla. v. Automated Med. Lab'ys, Inc., 471 U.S. 707, 715, 105 S.Ct. 2371, 85 L.Ed.2d 714 (1985).

PhRMA argues that Section 340B impliedly preempts Act 1103 through field and obstacle preemption and that the FDCA preempts Act 1103 through impossibility preemption. "We review de novo the district court's resolution of cross-motions for summary judgment, 'viewing the evidence in the light most favorable to the nonmoving party and giving the nonmoving party the benefit of all reasonable inferences.' " Principal Nat'l Life Ins. Co. v. Rothenberg, 70 F.4th 1046, 1052 (8th Cir. 2023) (quoting Dallas v. Am. Gen. Life & Accident Ins. Co., 709 F.3d 734, 736 (8th Cir. 2013)). We will affirm a district court's grant of summary judgment when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

A.

1.

PhRMA first argues that Section 340B preempts Act 1103 under theories of field and obstacle preemption. Congress established Section 340B of the Public Health Services Act as a pharmaceutical pricing program that "imposes ceilings on prices drug manufacturers may charge for medications sold to specified health-care facilities." Astra USA, Inc. v. Santa Clara Cnty., Cal., 563 U.S. 110, 113, 131 S.Ct. 1342, 179 L.Ed.2d 457 (2011); 42 U.S.C. § 256b. These health care providers "perform valuable services for low-income and rural communities but have to rely on limited federal funding for support," and the 340B Program was designed in part to support this work. Am. Hosp. Ass'n v. Becerra, 596 U.S. 724, 738, 142 S.Ct. 1896, 213 L.Ed.2d 251 (2022). The 340B Program is administered by the Secretary of Health and Human Services ("HHS") and "superintended by the Health Resources and Services Administration" ("HRSA," an HHS agency), who help implement and enforce the prices that pharmaceutical manufacturers charge to covered entities. Astra USA, Inc., 563 U.S. at 113, 131 S.Ct. 1342; 42 U.S.C. § 256b.

The 340B Program "has three basic parts: (1) a cap on drug makers' prices, (2) restrictions on covered entities, and (3) compliance mechanisms" for both covered entities and manufacturers. Sanofi Aventis U.S. LLC v. U.S. Dep't of Health & Hum. Servs., 58 F.4th 696, 699 (3d Cir. 2023). First, as a condition of participating in Medicaid, drug manufacturers must...