Can states compel prescription drug manufacturers to deliver steeply discounted medicines to unlimited numbers of pharmacies?  That is the issue that has been kicking around federal courts for a few years now, and the Fourth Circuit has now weighed in by answering “no.” 

We are talking here about drugs purchased under the federal government’s 340B Drug Pricing Program, and the Fourth Circuit’s recent opinion is significant for a couple of reasons.  First, the stakes are extremely high: Eligible purchasers bought $81.4 billion in covered outpatient drugs under the 340B program in 2024, and that figure is rising rapidly year by year.  Second, the Fourth Circuit’s opinion creates a circuit split on an issue that has generated intense interest from healthcare providers and pharmaceutical manufacturers alike.  In other words, the odds of the Supreme Court stepping in have increased.

The case is Pharmaceutical Research and Manufacturers of America v. McCuskey, No. 25-1054, 2026 WL 898259 (4th Cir. Mar. 31, 2026) (to be published in F.4th), and the opinion addresses whether states can prevent pharmaceutical manufacturers from limiting delivery of 340B-discounted drugs to so-called “contract pharmacies.” 

In a nutshell, if drug manufacturers want to participate in Medicare and Medicaid, they have to offer their drugs at a discount to certain healthcare providers—called “covered entities”—which typically care for low-income and rural populations.  When Congress first created the 340B program in 1992, few covered entities had in-house pharmacies, so HHS issued a guidance allowing each covered entity to use one external contract pharmacy where the covered entity’s patients could fill their prescriptions.

But then, in a guidance issued concurrently with the passage of the Affordable Care Act in 2010, HHS said that covered entities could use an unlimited number of contract pharmacies, which caused the use of contract pharmacies to increase twentyfold.  This is a problem and increases the risk of abuse through duplicate discounts and drug diversion.  Several drug manufacturers therefore imposed their own pharmacy limits, and the Third Circuit and the DC Circuit have ruled that federal law allows manufacturers to implement those limits.  We reported on those cases here and here. 

States therefore have stepped in and passed their own laws prohibiting manufacturers from limiting the numbers of contract pharmacies, or even requesting that covered entities and pharmacies submit claims data supporting eligibility for the discounted prices.  Drug manufacturers predictably have challenged these laws in multiple courts (see our latest report on those cases here).  Most courts have ruled against the manufacturers, including the Fifth and Eighth Circuits.  See AbbVie, Inc. v. Murrill, 166 F.4th 528 (5th Cir. 2026); Pharmaceutical Research Mfrs. v. McClain, 95 F.4th 1136 (8th Cir. 2024). 

The Fourth Circuit has gone the other way.  Like other states, West Virginia passed a contract pharmacy law that prohibits manufacturers from limiting the acquisition of 340B-discounted drugs or requesting claims data to verify eligibility.  The Fourth Circuit held that federal law preempted West Virginia’s law because the state law specially targeted participants in the federal 340B program (drug manufacturers) and altered the bargain that Congress struck with manufacturers when it created the program. 

The key issue is this: While other courts have characterized state contract pharmacy laws as merely regulating delivery of medicines, which is purportedly outside the scope of the federal 340B statute, the Fourth Circuit recognized that West Virginia was really regulating price, which is what the federal 340B statute is all about.  As the Fourth Circuit put it,

West Virginia . . . imposes conditions on drug manufacturers by virtue of their participation in the 340B program.  The result is that more drugs will be sold at bargain prices.

McCuskey, 2026 WL 2026 WL 898259, at *1 (emphasis added).  Price versus delivery.  That’s probably the most simplistic way to see this controversy.  States can regulate health and safety, and they ostensibly can regulate how covered entities have discounted drugs delivered to pharmacies, and by extension to their patients. 

But does that really make a difference?  The Fourth Circuit didn’t think so.  Government programs grounded in Congress’s spending power operate based on consent.  For the 340B program, that is true in a constitutional sense and also literally—the manufacturers participate in the 340B program under a Pharmaceutical Pricing Agreement executed with HHS.  Contract pharmacy laws like West Virginia’s interfere with that agreement. 

For one thing, the state law facially targets a federal domain and “springs obligations on manufacturers specifically by virtue of their participation in a federal program.”  Id. at *7.  Moreover, in conceiving the 340B program, Congress leveraged its spending power to forge a bargain, offering federal funds (Medicare and Medicaid spending) in exchange for compliance with certain conditions (offering drugs to covered entities at steep discounts).  West Virginia’s law seeks to “add conditions, uninvited,” thus disrupting the bargain.  Id. at *7-*8. 

The result is federal preemption.  The law directly purported to change the terms of the federal 340B program, where Congress “did not merely set a floor to which States may add additional obligations.”  Id. at *9.  Approving West Virginia’s law would upset the bargain that Congress struck, and it would also allow states to enact additional and unique obligations whenever they are unhappy with federal requirements. 

There were more specific problems with the statute.  The law intruded on HHS’s enforcement authority in numerous ways.  And it likewise interfered with audits by prohibiting manufacturers from requesting claims data.  Thus, “[t]he substantive provisions interfere at a high level with Congress’s exercise of its spending power and at an operational level with HHS’s enforcement authority and specific enforcement activities.  No possible construction of [West Virginia’s law] avoids this result.  As such, it is likely preempted.”  Id. at *12.

The PhRMA v.McCuskey opinion does not stand alone.  As we were writing this blogpost, the Fourth Circuit filed an unpublished opinion holding that Maryland’s contract pharmacy law was also likely preempted.  See Abbvie, Inc. v. Brown, No. 24-1939, 2026 U.S. App. LEXIS 10581 (4th Cir. Apr. 14, 2026).  One judge dissented from both opinions, with a long dissent in McCuskey that echoed points made in the Fifth Circuit and Eighth Circuit opinions—mainly that the West Virginia statute “regulates delivery.”  We understand that point, but as noted above, the difference between regulating “delivery” and regulating “price” is difficult to articulate.  The pharmacies are purchasing the medicines no matter what.  The only question is what price they will pay for them.  Surely a cert petition is coming, if not filed already.