Supreme Court Decides Astra USA v. Santa Clara County

On March 29, 2011, the U.S. Supreme Court decided Astra USA v. Santa Clara County, No. 09-1273, holding that Section 340B health care facilities may not bring suits to enforce ceiling-price contracts running between drug manufacturers and the Secretary of Health and Human Services.

Section 340B of the Public Health Services Act imposes ceilings on prices drug manufacturers may charge for medications sold to specified health care facilities, who are primarily local providers of medical care for the poor. The Health Resources and Services Administration (HRSA) and the Department of Health and Human Services (HHS) superintend the program, which is tied to the much larger Medicaid Drug Rebate Program.  In the 340B Program, manufacturers contract with HHS through Pharmaceutical Pricing Agreements (PPAs) to charge covered entities no more than predetermined ceiling prices.  HRSA may penalize manufacturers who overcharge a covered entity, and administers overcharge complaints through a formal procedure subject to review under the Administrative Procedure Act.  Santa Clara County (County), the operator of several 340B entities, filed suit against Astra and eight other pharmaceutical companies.  The County alleged that the manufacturers were overcharging 340B entities in violation of the PPAs and sought compensatory damages for breach of contract as intended beneficiaries of the manufacturer-HHS PPAs. The District Court dismissed the complaint, concluding that the PPAs conferred no enforceable rights on 340B entities.  The Ninth Circuit reversed, holding that section 340B entities may proceed against drug manufacturers as third-party beneficiaries of PPAs.  

The Supreme Court reversed, holding that suits by 340B entities to enforce ceiling-price contracts running between drug manufacturers and the Secretary of HHS are incompatible with the statutory regime.  Congress vested the authority to oversee compliance with the 340B program with HHS, and gave no such authority to section 340B entities.  The Court rejected the argument that the section 340B entities were third-party contract beneficiaries of the PPAs, noting that the PPAs were not negotiated and simply put into effect the statutory scheme.  A third-party suit to enforce an HHS-drug manufacturer agreement is thus in essence a suit to enforce the statute itself, which the County concedes the statute does not permit. 

Justice Ginsburg delivered the decision for a unanimous Court.  Justice Kagan took no part in the consideration or decision of the case. 

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