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Supreme Court rules against health care providers in drug pricing suit

By Aman Kakar

[JURIST] The US Supreme Court [official website; JURIST news archive] on Tuesday ruled [opinion, PDF] unanimously in Astra USA v. Santa Clara County, CA [Cornell LII backgrounder] that health care providers that are third-party beneficiaries of a government contract may not sue drug companies for overpricing under federal law. The issue was whether health care providers who qualify for reduced-price drugs under § 340B of the Public Health Services Act [42 USC § 256b] could sue for a violation of an agreement between the federal government and drug manufacturers when they lack federal statutory authority to bring the action. Under the act, drug manufacturers must enter into contracts with the federal government that restrict the price that those manufacturers can charge to providers through the Medicaid system. The statute is silent on the topic of a private cause of action, but the US Court of Appeals for the Ninth Circuit held [opinion, PDF] that federal common law does in fact provide a cause of action under contract law where a third party beneficiary is injured by the drug manufacturer's breach. In an opinion by Justice Ruth Bader Ginsburg, the court rejected the Ninth Circuit's reasoning that third-party suits would spread the enforcement burden:

But spreading the enforcement burden is hardly what Congress contemplated when it made HHS administrator of the interdependent Medicaid Rebate Program and 340B Program. Suits by 340B entities would undermine the agency's efforts to administer these two programs harmoniously and uniformly. Notably, the Medicaid Rebate Program's statute prohibits HHS from disclosing pricing information that could reveal the prices a manufacturer charges for its drugs. Had Congress meant to leave open the prospect of third-party beneficiary suits by 340B entities, it likely would not have barred them from obtaining the very information necessary to determine whether their asserted rights have been violated.

The opinion stresses that the issue of inadequate enforcement authority was resolved by the Congress when it strengthened and formalized the enforcement authority of the Health Resources and Services Administration [official website], made the new adjudicative framework the proper remedy for complaints by third-party entities and rendered the agency's resolutions of the complaints binding. Justice Elena Kagan took no part in the decision of this case.

Santa Clara County [official website], which operates several health care providers had filed the suit against Astra and eight other pharmaceutical companies alleging they were overcharging the health care providers in violation of the Pharmaceutical Pricing Agreements. The county was seeking compensatory damages for breach of contract. Oral arguments [transcript, PDF] for the case were held in January. Astra argued [brief, PDF] that only Congress can provide a cause of action under a federal statute, and that this circumvention of Congressional intent will disrupt the statutory scheme and the Medicaid system. The county argued [brief, PDF] that as third-party beneficiaries, health care providers are entitled to enforce contracts and that such enforcement is necessary given the lack of oversight by the Federal government.

Full post as published by JURIST - The Paper Chase on March 29, 2011 (boomark / email).