South Dakota law protecting drug discounts for hospitals stays in effect as lawsuit proceeds
A South Dakota law that prevents drug companies from restricting federal drug discounts for hospitals and other providers will remain in effect for now, a judge has decided.
Chicago-based AbbVie Inc., whose products include the wrinkle-remover Botox and the arthritis drug Humira, sued the state earlier this year in the U.S. District Court of South Dakota. The lawsuit challenges the legality of Senate Bill 154, which lawmakers and Governor Larry Rhoden approved in March. It blocks drugmakers from deciding which pharmacies hospitals can use to access discounted medication.
Judge Roberto Lange did not dismiss AbbVie’s case against the state of South Dakota, but declined to issue a preliminary injunction that would have barred the new law from taking effect while the case plays out.
The dispute centers on a provision in federal law known as 340B, which requires drugmakers who want to participate in Medicare and Medicaid to give steep discounts to providers like hospitals or clinics that serve low-income patients. Those health care providers, in turn, mark up the cost of those discounted drugs to make up the difference between their operating costs and the low reimbursement rates the Medicare and Medicaid programs pay for medical care.
Initially, only providers whose primary clientele were Medicare and Medicaid patients were eligible for the discounts, but the discounts were later extended to places dubbed “sole community providers,” such as hospitals serving rural areas.
That dramatically expanded the number of providers who got the discounts, and spurred drug companies to limit the number of pharmacies from which hospitals and clinics could access the discounted drugs.
The drug company argues in the South Dakota case that the state overstepped its authority by passing a law that regulates interstate commerce, in this instance commerce involving pharmaceuticals.
It also argues that the new state law interferes with a federal pilot program meant to address some of the issues surrounding 340B payments by offering rebates to program participants, rather than upfront discounts.
In his ruling this week, Judge Lange said the state law will not prevent the drug company from participating in the federal pilot program, and that questions surrounding interstate commerce can be sorted out as the case proceeds.
