We recently attended the ACI Drug & Medical Device Seminar in New York, where we always enjoy catching up with old friends, making new acquaintances, and hearing what’s new in our drug and device sandbox. This year we spoke on the extensive and active litigation that is currently going on over the 340B drug pricing program. We product liability litigators don’t often focus on drug pricing, but litigation over 340B discounts has become big enough that it has grabbed our attention, in a major way. The stakes are substantial: Spending under the 340B program was estimated at $66 billion in 2023, and it is expected to become the largest federal prescription drug program by 2028.
Today we provide an update on litigation over the use of “contract pharmacies” to dispense prescription drugs purchased at steep 340B discounts. We described the contours of that litigation here and here, and the latest development is from a lawsuit challenging Utah’s law mandating that manufacturers sell medicines at 340B discounts to unlimited numbers of pharmacies. In Abbvie, Inc. v. Brown, No. 2:25-cv-00271, 2025 U.S. Dist. LEXIS 228160 (D. Utah No. 19, 2025), a federal court in Utah recently ruled that federal law preempts Utah’s contract pharmacy law and also that the Utah law enacted an unconstitutional taking.
To recap, prescription drug manufacturers who want to participate in Medicare and Medicaid spending have to offer drugs under the 340B program at steep discounts to certain safety net healthcare providers—so-called “covered entities.” Because not all covered entities have in-house pharmacies, they are allowed to contract with outside pharmacies to dispense medicines to their patients. These “contract pharmacies” are thus eligible to purchase drugs at the 340B discounted prices. For a variety of reasons, the use of contract pharmacies has exploded over the last 15 years, and many manufacturers have concluded, with substantial justification, that this exponential growth threatens the integrity of the program. So, several of them have tried to apply the brakes by imposing reasonable limitations.
Multiple states have struck back by passing laws mandating that manufacturers continue to sell 340B discounted drugs to unlimited numbers of pharmacies—including Utah. In Brown, a group of prescription drug manufacturers sued to enjoin Utah’s law under which manufacturers are not allowed to limit delivery of discounted drugs to contract pharmacies, nor can manufacturers require the submission of claims data or other information as a condition of delivery. 2025 U.S. Dist. LEXIS 228160, at *12-*13.
In challenging that law, the manufacturers argued (1) that federal law preempts the Utah law, (2) that the Utah law enacted an unconstitutional taking, and (3) that the Utah law violates Due Process and the Commerce Clause. In denying the state’s motion to dismiss, the district court agreed with the manufacturers on preemption and the Takings Clause. On preemption, the district court observed that the federal 340B statute did not necessarily occupy the entire field. But regardless, the Utah statute conflicted with federal law because the Utah statute permits the transfer of drugs at 340B prices to entities that do not serve vulnerable populations. As the court observed, “under [the Utah statute], entities that potentially do not dispense drugs to patients at all may acquire . . . drugs at 340B prices.” Because that is “directly contrary” to the 340B program’s purpose, federal law preempts the state law.
On takings, the manufacturers argued that the Utah statute forced them to transfer property for the benefit of private parties “without serving any valid purpose,” including allowing diversion of drugs to ineligible providers. The district court agreed. Sure, the manufacturers’ participation in the 340B program is voluntary, but they did not voluntarily accede to the wider parameters imposed by Utah’s law. In other words, Utah “may not broaden the bargain by riding the coattails of a federal benefit.” Id. at *28.
The district court did, however, grant the state’s motion to dismiss the manufacturers’ claims based on the Due Process Clause and Commerce Clause. On due process, the statute’s language—and particularly its use of the terms “interfere” and “pharmacy”—were not so vague as to make the law unconstitutional, and although the statute did not expressly include a scienter requirement, its penalties provision included one by referenced to another law. Id. at *28-*33.
Finally, the manufacturers’ Commerce Clause failed because, even though Utah’s statute had extraterritorial effects, “[s]tates retain authority under their general police powers to regulate matters of legitimate local concern, even though interstate commerce may be affected.” Id. at *33. The Utah statute is limited in application to pharmacies in Utah, and the manufacturers did not allege facts demonstrating discrimination against other states.
This is a good outcome for prescription drug manufacturers, but it is not the last word. Stay tuned.