Background
Congress created the 340B program as a spending-power bargain, offering drug manufacturers access to the Medicaid market in exchange for discounted drug prices for covered entities. While the federal government allows covered entities to use contract pharmacies for distribution, it has not mandated that manufacturers deliver drugs to an unlimited number of such pharmacies. Frustrated by this limitation, West Virginia enacted S.B. 325 to require manufacturers to deliver 340B drugs to any location authorized by a covered entity, effectively forcing the result that federal regulators could not mandate.
The court’s reasoning
The court reasoned that the Supremacy Clause bars states from interfering with federal prerogatives, particularly when a state law targets a federal domain. The court determined that S.B. 325 directly alters the terms of the federal 340B bargain by imposing additional obligations on manufacturers solely by virtue of their participation in the program. Unlike traditional state regulations, this law injects the state into the relationship between a federal agency and private entities, which is inherently federal in character. The court concluded that Congress has ousted states from this field, as the state law seeks to add conditions to a federal spending-power bargain with non-state entities without offering additional upside to compensate.
S.B. 325 directly and exclusively targets participants in a federal spending-power program. And in doing so, it seeks to add conditions, uninvited, to a federal spending-power bargain with non-state entities.
340B Health; American Hospital Association; West Virginia Hospital Association; West Virginia Primary Care Association, Amici Supporting Appellants.
The dissent
What it means going forward
The ruling prevents West Virginia from enforcing S.B. 325, preserving the existing federal framework for the 340B program where manufacturers are not required to deliver drugs to unlimited contract pharmacies. It signals that states cannot unilaterally reshape federal spending bargains with private entities to impose additional regulatory burdens.
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