Astra USA v. Santa Clara County

RESPONDENT: Santa Clara County, Calif.
LOCATION: United States Court of Appeals for the Ninth Circuit

DOCKET NO.: 09-1273
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 563 US 110 (2011)
GRANTED: Sep 28, 2010
ARGUED: Jan 19, 2011
DECIDED: Mar 29, 2011

David C. Frederick - for the respondents
Ginger D. Anders - Assistant to the Solicitor General, Department of Justice, as amicus curiae, supporting the petitioners
Ginger D. Anders - on behalf of the united states, as amicus curiae, supporting petitioners
Lisa S. Blatt - for the petitioners

Facts of the case

In 2005, Santa Clara County, Calif., filed a class-action lawsuit based on U.S. Department of Health and Human Services reports, alleging that pharmaceutical companies have systemically overcharged hospitals and clinics, making them pay millions of dollars more than necessary for prescription drugs. The Inspector General's report also argued that the government is ill-equipped to ensure that clinics are being charged correctly. The U.S. District Court for the Northern District of California dismissed the case, but in March 2008, the U.S. Court of Appeals for the Ninth Circuit overturned the decision.


Can health care providers sue drug makers for overcharging public hospitals for prescription drugs?

Media for Astra USA v. Santa Clara County

Audio Transcription for Oral Argument - January 19, 2011 in Astra USA v. Santa Clara County

Audio Transcription for Opinion Announcement - March 29, 2011 in Astra USA v. Santa Clara County

Ruth Bader Ginsburg:

Section 340B of the Public Health Services Act places ceilings on the prices drug manufacturers may charge for medications sold to facilities called 340B entities, namely public hospitals, and community health centers that provides services to the poor.

A manufacturer opts into the ceiling price program by signing a form contract composed by the Department of Health and Human Services (HHS), called the Pharmaceutical Pricing Agreement or PPA.

The question presented, may a 340B entity, although not of colleague to the manufacturer, HHS contract.

Nevertheless, it sued to enforce PPA-prescribed ceiling prices.

On behalf of a class comprising 340B entities in California and the counties that fund them, Santa Clara County sued Astra and eight other drug manufacturers.

The County alleged that the defendant manufacturers charged 340B entities more than the PPA-permitted ceiling prices.

Reversing the District Court's dismissal of the County's complaint, the Court of Appeals for the Ninth Circuit held that 340B entities can sue to enforce the PPAs as third party beneficiaries.

The District Court, in our judgment got it right.

Third-party beneficiary suits to enforce 340B may not be maintained.

It is undisputed that the health care facilities have no right of action on the 340B itself.

The County urges however that when a contract is designed to secure a benefit for a third party, here, controlled prices for drug purchases, the intended beneficiary acquires a common law right to enforce that benefit.

The County's argument overlooks that PPAs simply incorporate statutory obligations, and record manufacturers' consent to abide by them.

Containing no negotiable terms, the form agreements serviced a device by which drug manufacturers opt into the 340B program.

A third party-suit to enforce the PPA is essentially a suit to enforce 340B itself.

Important to our decision, the 340B program is tied to the earlier-enacted, much larger Medicaid Drug Rebate Program.

To gain payment of the Medicaid for covered drugs, a manufacturer must into -- enter into a form agreement with HHS undertaking to provide rebates to States on the drug purchases.

The 340B program replicates the rebate programs opt-in contract mechanism, and the 340B ceiling prices are derived from "average" and "best" prices and rebate rates calculated under the Medicaid Rebate Program.

Determining a manufacturer's average and best prices is a complex enterprise that requires recourse to detailed information about the company's sales and pricing.

That information generally, is not available to 340B entities, for Congress has prohibited HHS from disclosing pricing information in a form that could reveal for the manufacturer charges for drugs it produces.

If Congress meant to allow third-party beneficiary suits by 340B entities, it likely would not have barred potential suitors from obtaining the very information necessary to determine whether their asserted rights have been violated.

Moreover, Congress made HHS the administrator of both the Medicaid Rebate Program and the 340B Program.

Interest of States under the Rebate Program sometimes conflict with the interest of 340B entities.

To ensure operation of the two programs harmoniously, and on a uniform nationwide basis, HHS must hold the control rein.

For these reasons, developed more expansively in the Court's opinion, we reverse the judgment of the Court of Appeals, our decision is unanimous.

Justice Kagan took no part in the consideration or decision of the case.