Bloomberg Law
Oct. 31, 2022, 5:33 PMUpdated: Oct. 31, 2022, 8:19 PM

Eli Lilly, HHS Highlight Contrasts in Drug Discount Legal Row (1)

Ian Lopez
Ian Lopez
Senior Reporter

Pharmaceutical giant Eli Lilly and the Department of Health and Human Services faced intense scrutiny from a federal appeals court as they advanced starkly contrasting positions on a government drug discount program that could shape access to drugs for low-income Americans.

Both Eli Lilly and the HHS allege federal law overseeing the program is straightforward yet come “to completely opposite conclusions” on what it requires of drugmakers providing discounted products, Judge Frank Easterbrook of the US Court of Appeals for the Seventh Circuit said in a Monday hearing

The hearing was before a three-judge panel and is part of a dispute over whether the government’s 340B drug discount program requires pharmaceutical giants to ship steeply discounted products to for-profit pharmacies.

In the HHS’s view, federal law requires drugmakers in the program to offer their discounted products to pharmacies that have contracts with health providers to dispense medicines to at need-patents. Lilly, however, believes the statute doesn’t require the drugmaker to offer discounts to an unlimited number of so-called contract pharmacies.

Also at issue is whether the HHS can enforce its view of how the program should operate, an effort it previously tried but which was met with legal action from drugmakers.

Congress didn’t give the HHS the authority to make up new rules when erecting the legal framework around the drug discount program, John O’Quinn, a Kirkland & Ellis partner representing Lilly, argued in the hearing.

But the agency’s attempts to force Lilly to ship certain discounted products suggest the agency “could change the situation on the ground,” O’Quinn said.

In representing the HHS, Department of Justice attorney Alisa Klein contended that “the point” of the 340B program is to help providers get drugs to people in underserved communties. That renders Lilly’s position that it won’t ship discounted products to contract pharmacies untenable, she said.

The appeal fits into a broader battle between drugmakers and the government raging across US courtrooms. The US Court of Appeals for the District of Columbia Circuit is presiding over a similar fight between Novartis and the HHS, and was the scene of an October hearing over both sides’ interpretations of what’s required under 340B.

Easterbrook said both parties would need to file further briefs with the court.

Discount Fight

Congress created the 340B program to help health-care providers ensure that low-income patients can access their medications. It requires drugmakers to offer their products to certain providers at deeply discounted prices in exchange for participating in Medicaid and Medicare Part B.

In 2020, however, drugmakers began limiting shipments of these lower-cost products to certain pharmacies that contract with health-care entities, pointing to concerns over duplicated discounts and fraud.

That same year, the HHS put out an advisory opinion stating drugmakers had to honor contract pharmacy arrangements.

The agency later withdrew that opinion, but it still went after drugmakers with a series of individual letters notifying them of noncompliance and threatening financial penalties.

The US District Court for the Southern District of Indiana has since vacated the letter used against Lilly, though it deemed the drugmaker didn’t have free rein to curb discounts.

Lilly in turn appealed, urging the Seventh Circuit to hold that the company doesn’t have an “unwritten obligation” to provide 340B discounted products “to for-profit contract pharmacies without restriction.”

Judge John Lee during the hearing asked why Lily didn’t instead ask Congress to address the law rather than having the court read into its meaning.

If you’re requesting the court “write another term in the statute, why isn’t that something you should ask Congress to do?” Lee said to O’Quinn.

Easterbrook meanwhile questioned Lilly’s decision to appeal, as the company “seems to have won in the district court.”

The HHS in its own brief countered that federal law doesn’t “allow drug manufacturers to add provisos to their obligations under the 340B statute. That would be akin to letting the fox guard the henhouse.”

The case is Eli Lilly v. Becerra, 7th Cir., No. 21-03128, 10/31/22.

(Updates with additional reporting throughout.)

To contact the reporter on this story: Ian Lopez in Washington at

To contact the editor responsible for this story: Brent Bierman at

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