For more than a decade, the drug industry and the federal government fought on opposite sides of a running battle over a little-known federal discount program. Now, for the first time, they are on the same side.
The Department of Justice filed amicus briefs in February backing pharmaceutical manufacturers in two cases challenging state laws designed to protect the 340B drug pricing program, a federal mechanism that requires drugmakers to offer deep discounts to safety-net hospitals and clinics. The reversal, reported by Endpoints News, marks the first time the federal government has intervened on the industry's behalf in the program's history.
The outcome could determine which patients get care and which hospitals stay open.
The 340B program, created by Congress in 1992, requires pharmaceutical manufacturers participating in Medicaid to give certain safety-net providers discounts on outpatient drugs. The idea is straightforward: hospitals that serve high volumes of low-income and uninsured patients use the discounts to generate revenue, which they reinvest in care. The program has grown fast. In 2024, covered entities purchased $81.4 billion in outpatient drugs under 340B, up from $43.9 billion in 2021, according to Drug Channels citing HRSA data. Disproportionate Share Hospitals, which serve the largest share of low-income patients, accounted for $64.1 billion of that total.
The disputes center on contract pharmacies. Many safety-net hospitals do not have in-house pharmacies, so they contract with third-party chains like CVS or Walgreens to dispense 340B drugs to patients. Over the past several years, manufacturers including Novartis and AbbVie have moved to restrict this arrangement, capping the number of contract pharmacies a hospital can use or requiring that pharmacies be within a limited geographic radius. The companies argue the restrictions are necessary to prevent fraud and duplicate discounts.
Hospitals and states pushed back. Arkansas, Mississippi, Minnesota, and Washington have all passed laws protecting contract pharmacy access. Federal appellate courts upheld similar laws in Arkansas and Mississippi, with the Eighth Circuit finding in PhRMA v. McClain that the Arkansas statute did not conflict with federal law. Washington Governor Bob Ferguson signed Senate Bill 5981 in March 2026, and Novartis and AbbVie filed separate lawsuits challenging it within days in federal court in western Washington. The law takes effect June 10, 2026, with civil penalties of up to $5,000 per day per violation.
The federal government, through DOJ, is now backing the manufacturers. According to Law360, state laws that block drugmakers from imposing restrictions on contract pharmacies violate federal law, the Trump administration said. The DOJ briefs were signed by attorneys who previously worked in the drug industry, a point noted by 340B Report in its coverage of the filings. The agency that administers 340B, HRSA, had previously opposed manufacturer restrictions and sent enforcement letters to companies imposing them. But courts have been increasingly skeptical of that enforcement authority. The D.C. Circuit has ruled that courts cannot defer to HRSA's interpretation of the 340B statute and should apply only the lesser Skidmore standard of deference.
The stakes are real. AbbVie, which makes Humira and Skyrizi, has said its 340B discounts run around 60 percent of market value and bring some drug costs down to pennies. The company claims Washington's new law will cost it tens of millions of dollars in unrecoverable discounts, per OPB. A 2024 report from the AHA-affiliated consultancy Healthsperien estimated drugmakers lose about 7 percent of annual U.S. drug revenue to the 340B program.
For hospitals, the program is often the difference between solvency and closure, particularly in rural areas. The Moses Lake Community Health Center in Washington wrote to Governor Ferguson urging him to sign SB 5981, saying the program helps cover chronic disease care and mental health services. The American Hospital Association, representing nearly 5,000 hospitals and health systems, has consistently opposed manufacturer restrictions.
Safety-net hospitals are also dealing with Medicaid cuts that Congress passed last year, making 340B revenue more critical to their finances. HRSA has separately moved to restructure how 340B discounts are delivered, proposing a rebate model that would require hospitals to purchase drugs at full price and wait for the discount to come back. The AHA sued to block that pilot program in December, and a federal judge paused it. HHS abandoned the pilot in February but restarted the rulemaking process a week later, per Healthcare Brew.
Minnesota's Court of Appeals ruled in February that the state's 340B contract pharmacy law did not engage in unconstitutional extraterritorial regulation, upholding the statute. That decision followed an earlier ruling by the Eighth Circuit in PhRMA v. McClain upholding Arkansas's similar law. Both state-court victories are now in direct tension with the DOJ position.
What DOJ argued goes to the core legal question: whether the 340B statute grants manufacturers broad authority to impose distribution conditions, and whether state laws protecting contract pharmacies are preempted by federal law. Federal appellate courts have consistently held that Section 340B does not prohibit manufacturers from imposing conditions on drug distribution to covered entities, provided those conditions do not prevent bona fide offers at ceiling prices or violate Section 340B on their face. The answer will determine whether safety-net hospitals can continue to rely on third-party pharmacies to reach patients, or whether manufacturers can unilaterally reshape the program to reduce their discount obligations.
For hospitals already facing Medicaid cuts and an uncertain rebate rulemaking, the DOJ briefs add a new front in a fight they thought they were winning.
† Add attribution such as: 'AbbVie says its 340B discounts run around 60% of market value' or include the unverified footnote: '† Source-reported; not independently verified.'
†† Attribute more explicitly: 'the DOJ briefs were signed by attorneys who previously worked in the drug industry, 340B Report noted,' or add the unverified footnote: '† Source-reported; not independently verified.'
