The pharmaceutical trade group PhRMA and several drug manufacturers including AbbVie Inc. and Novartis Pharmaceuticals Corp. sued West Virginia officials after the state enacted S.B. 325 in 2024, which prohibits manufacturers from restricting drug deliveries to contract pharmacies under the federal 340B program. The law targets manufacturers participating in the 340B program, which requires them to offer discounted drugs to safety-net healthcare providers in exchange for access to the Medicaid market.
Judge Richardson, writing for the majority, found that S.B. 325 directly targets federal program participants and seeks to 'add conditions, uninvited, to a federal spending-power bargain with non-state entities.' The court emphasized that 'S.B. 325 singles out 340B manufacturers and explicitly adds requirements to compel the very result HHS could not mandate,' noting that federal courts have already determined Congress did not require unlimited contract pharmacy deliveries. Richardson concluded the law operates in a preempted field because it 'directly changes the terms of drug manufacturers' federally created 340B relationships with covered entities.'
The case consolidated three separate challenges filed in the Southern District of West Virginia, where Judge Thomas E. Johnston granted a preliminary injunction in 2024. West Virginia had argued S.B. 325 was merely a traditional pharmacy regulation that didn't alter federal discount requirements, while manufacturers contended the law directly regulated discounts at the heart of the federal program.
The decision creates a circuit split with the Fifth and Eighth Circuits, which have upheld similar state laws targeting 340B contract pharmacy restrictions. The ruling could impact pending challenges to comparable laws in other states and may influence how courts analyze state regulation of federal spending programs. Judge Benjamin dissented, arguing the majority improperly applied spending power analysis not briefed by the parties.