Overview
California legislators recently introduced AB 1460, which would prohibit prescription drug manufacturers from engaging in discriminatory practices aimed at providers participating in the 340B drug pricing program (covered entities) and pharmacies that contract to dispense drugs on behalf of such providers (contract pharmacies). The bill defines discriminatory practices as those that “impose additional conditions, prohibit, restrict, deny, or interfere with a covered entity’s purchase or delivery” of 340B-purchased drugs through a contract pharmacy.
In Depth
COMPARISON WITH SIMILAR BILLS
As of the date of this article, eight states have enacted laws to prevent drug manufacturers from imposing restrictions on the purchase of drugs through the 340B program, and 23 states have bills pending in their state legislature (see appendix). The language of AB 1460 differs from many similar laws and bills in both scope and length. Other states have included:
- Provisions to prohibit a wider range of drug manufacturer actions that might interfere with covered entities’ access to discounted drugs purchased through the 340B program
- Antidiscrimination provisions applicable to pharmacy benefit managers and other third-party payors
- Explicit language to limit provisions to in-state entities and language to establish the state’s position on federal preemption and compliance with the US Constitution.
In contrast, AB 1460 is a single paragraph of four lines of text. It prohibits manufacturer restrictions on purchases of 340B drugs for dispensing through a “specified pharmacy,” which is not defined but explicitly includes contract pharmacies.
RESTRICTION OF REBATE MODELS
Other state laws enacted and introduced to date have largely been in response to restrictions that drug manufacturers began imposing on sales of 340B-purchased drugs dispensed through contract pharmacy arrangements in mid-2020. Multiple federal courts have found that the 340B statute does not prohibit drug manufacturers from imposing such restrictions. As a result, covered entities turned to state legislatures for relief from these restrictions.
More recently, several drug manufacturers have taken steps to incorporate rebate models into the 340B program. These models would require covered entities to purchase drugs outside of the 340B program, then submit data to manufacturers and request a rebate to the 340B price on each dispense of a drug eligible for 340B pricing, in some cases with eligibility for the 340B price being determined by the manufacturer. These rebate models are currently the subject of federal litigation, but covered entities are increasingly interested in using state laws to prevent their implementation, similar to the way in which state laws are being used to limit manufacturer restrictions on contract pharmacy arrangements.
As currently drafted, AB 1460 would not prohibit or restrict manufacturer rebate models in California.
LIKELIHOOD OF DRUG MANUFACTURER CHALLENGES
All eight of the state laws protecting 340B covered entities have been subject to legal challenges from drug manufacturers. To date, decisions in these lawsuits have largely upheld the state laws, including one federal appellate court decision. Cases are currently pending in the US Courts of Appeals for the Fourth and Fifth Circuits and in federal district courts in Arkansas, West Virginia, Maryland, Minnesota, Mississippi, and Missouri. The Supreme Court of the United States previously denied a petition for certiorari made by manufacturers in the cases challenging the Arkansas law.
This pattern of drug manufacturer challenges to state 340B laws suggests that the California law might be subject to similar challenges if enacted, although the US Supreme Court potentially could rule on the underlying legal concepts that are subject to dispute before or during any legal challenge to the California law.
Appendix: Other States With Similar Laws Pending or Enacted
Minnesota, Missouri, Arkansas, Louisianna, Mississippi, West Virginia, Maryland, and Kansas have already enacted laws. Laws are pending in California, Oregon, Idaho, Utah, Colorado, New Mexico, Texas, Oklahoma, Nebraska, Kansas, North Dakota, South Dakota, Iowa, Illinois, Kentucky, Michigan, Tennessee, Georgia, Florida, New York, Vermont, New Hampshire, and Rhode Island.
Note that in Kansas, the attorney general argued in federal court that the 2024 enacted law was unenforceable. Accordingly, state lawmakers have introduced a new bill to shore up issues with the prior one.
