AbbVie, a Chicago-based drug manufacturer, is suing the state of South Dakota, claiming a bill signed to law hinders its ability to have a free market.
The bill prohibits all drugmakers participating in the federal 340B program from interfering with entities that benefit from it.
340B is a federal program meant to serve communities and improve health care access in rural areas. At the bare bones of the 340B program, it requires pharmaceutical manufactures that participate in Medicaid and Medicare to sell drugs at a cheaper price to health care entities enrolled in the program. That includes hospitals.
Those entities can then sell the drugs at a higher price than they paid. The profit margin is helping those hospitals to improve health care and conditions for low-income patients in the area.
Some hospital systems acquire the discounted drugs and then sell them to local, for-profit pharmacies. Such pharmacies don’t qualify as eligible under the 340B program.
As a result of this, some pharmaceutical companies have added restrictions on who they will disperse the drugs to. That began to creep into South Dakota.
“Mobridge would be a perfect example of when a hospital system contracts with pharmacies to get these 340B prices. And what’s happened is now more recently, the pharmaceutical companies have decided they’re going to pick winners and losers. And they’re only going to contract for those 340B prices for one pharmacy. So unfortunately, then what happens is some pharmacies are left out and some are left in, and some are winners and some are losers,” said Rep. Taylor Rehfeldt, the House’s prime sponsor of SB 154.
She said the bill ensures that contracting pharmaceutical manufacturers cannot discriminate between pharmacies. They must work with all pharmacies within an area at the discounted price points.
AbbVie, the company suing the state, said SB 154 has many issues. The company claims it’s an attempt to regulate federal law, something a state can’t do. It also claims the law has issues regarding interstate commerce under the Commerce Clause of the US Constitution.
AbbVie’s complaint also said it opens the door for misuses of the program. It alleges that for-profit pharmacies who contract with hospitals are acquiring the cheap drugs and then selling them at full price and pocketing the difference. For-profit commercial pharmacies don’t qualify as eligible under the 340B program.
AbbVie Inc. said this allows for-profit pharmacies to “pocket billions of dollars every year…at the expense of both manufacturers” like AbbVie “and the needy patients” 340B is supposed to serve.
Sen. Tim Reed, SB 154’s other prime sponsor, doesn’t buy it.
“It has to do with their profits. They’re trying to limit the 340B program as much as possible, so they don’t have to sell these discounted drugs to these critical access hospitals. They’re trying to find every way they possibly can to, you know, to limit that,” Reed said. “And that’s why we had to respond back with laws in South Dakota that we can take you to court, and not, you know, doing anything that’s discriminating against our rural hospitals. But it comes down to profits.”
He said this isn’t an attempt to change federal law. Rather, he said it’s an attempt to give the state a way to hold drug manufacturers accountable and ensure they are “following the rules” by entering contracts with 340B entities.
Though, AbbVie said the concern that hospitals and pharmacies could use the program for financial gain exists.
Rep. Brandei Schaefbauer opposed SB 154 during session, saying it needed a fiscal note. She said she wants to see local pharmacies and hospitals succeed, but it’s not clear at this moment who the real beneficiaries of the bill are.
“We don’t know what our hospitals are making off of this program in South Dakota. When a hospital gets a drug at a really low price, they increase their price," Schaefbauer said. "Well, then that goes to the insurance companies which then really goes to the patients in their premiums and out-of-pocket pay. So, we don’t have any of that stuff here in South Dakota. Our hospitals do not have to give us those records."
She said during the House Health and Human Services’ hearing of the bill, opponents claimed it could have between $2-4 million of impact on taxpayers. The Legislative Research Council said a fiscal note wasn’t needed for the bill to pass.
In all, Schaefbauer said the bill really shouldn’t have even come to the state Legislature in the first place.
“We need to go back to the federal level on this whole process, on this whole bill,” Schaefbauer said.
AbbVie said the bill violates its free market, arguing SB 154 constitutes the "taking" of AbbVie's property by entities not "entitled to it." The drug company added it creates a "forced transfer to another private party" of AbbVie's private property. The company claims that constitutes an irreparable injury.
Rep. Taylor Rehfeldt said despite the tensions, drug companies agreed to this.
“If you don’t want to play by the rules, then just don’t participate. And at the end of the day, [pharmaceutical manufacturers] don’t have to participate. There is nothing that forces them to do the 340B pricing and to participate in the 340B program,” Rehfeldt said. “So, they can, at any time, any day, just decided that they don’t want to. But if they’re going to participate, then they need to follow the rules, and they need to follow the intent of helping rural health care.”
Similar challenges to AbbVie’s have been filed against other states. Last month, the Eighth Circuit Court of Appeals upheld a similar Arkansas law.
AbbVie claims South Dakota’s law differs because the contract pharmacies don’t “serve as the agent of” the 340B entity. It's asking the court to declare the law unconstitutional.
