Opinion Analysis: Third-Party Beneficiaries Cannot Sue Drug Manufacturers for Over-Charging

Abstract

In a brief, unanimous decision authored by Justice Ruth Bader Ginsburg, the Court reversed a Ninth Circuit decision that had held that state public health care facilities (known as "340B entities") have a right, as third-party beneficiaries of federal Pharmaceutical Pricing Agreements, to enforce those contracts for alleged over-pricing of drugs. In order to participate in state Medicaid programs, pharmaceutical companies enter into price-ceiling contracts with the Secretary of Health and Human Services (HHS). In enacting a complex statutory scheme, the Court held, Congress vested enforcement compliance authority for drug pricing with the Secretary of HHS, and not with the public health facilities.

The Court simply held that suits by these public health care facilities would be incompatible with the statutory scheme that permits pharmaceutical companies to participate in the state Medicaid Rebate and 340 Programs. The Court first noted that the statutory scheme provided no express private right of action to enforce the pricing contracts in the third-party beneficiaries of those contracts. In absence of an express right to sue to enforce compliance, the Ninth Circuit erred in concluding that such entities had a right to pursue relief as third-party beneficiaries of the agreements. The Court held that the statutory scheme vested no auxiliary enforcement role in these 340B entities.

The Court held that the PPA agreements simply incorporate statutory obligations with regard to drug pricing, and register the drug manufacturers' agreements to comply with those terms. Any third-party suit to enforce a PPA agreement, then, would in essence be a suit to enforce the statutory scheme.

The Court' brief decision is largely a statutory construction exercise and forged no new novel jurisprudential grounds. As such, the decision most likely will have circumscribed precedential value beyond the limited facts of the case.