In a pivotal decision upholding False Claims Act (“FCA”) litigation against drug manufacturers that participate in the 340B Drug Pricing Program, the U.S. Court of Appeals for the Ninth Circuit reversed the dismissal of a qui tam FCA action against drug manufacturers by Adventist Health System (“Adventist”). This decision clears the way for Adventist, a California-based 340B covered entity, to pursue FCA allegations against manufacturers for charging inflated prices that do not comply with the 340B statutory ceiling price. Powers attorneys Bill von Oehsen and Ron Connelly represented Adventist in this case.
Background
In 2021, Adventist filed a complaint against AbbVie and other drug manufacturers alleging that the manufacturers did not comply with the 340B statutory ceiling price for 340B drugs, causing federal and state health care programs to pay inflated drug prices in violation of the FCA.
The FCA imposes civil liability on individuals or entities that defraud the federal government by knowingly submitting, or causing to be submitted, a false or fraudulent claims for payment or approval. The FCA is enforced through a “unique public-private scheme” where private parties – or “relators” – bring claims in the name of the government. These cases are known as qui tam or “whistleblower” actions.
The 340B statute requires manufacturers to sell covered entities drugs at or below a statutorily set “ceiling price.” Adventist specifically alleged that multiple drug manufacturers engaged in schemes to charge prices exceeding the statutory ceiling price. These schemes unlawfully inflated drug prices, causing federal and state health care programs to pay improper prices. Thus, the schemes caused the federal government to pay false claims in violation of the FCA.
On March 21, 2024, the U.S District Court for the Central District of California dismissed the complaint for failure to state a claim, holding that Astra USA, Inc. v. Santa Clara County (“Astra”) barred the FCA claim. 563 U.S. 110 (2011).[1] In Astra, the U.S Supreme Court held that the 340B statute does not allow covered entities to sue manufacturers for failing to comply with 340B requirements, requiring covered entities to use the Health Resources and Services Administration’s (HRSA’s) Alternative Dispute Resolution (ADR) process to pursue overcharge claims. The district court applied the reasoning in Astra, holding that Adventist’s claims “were not cognizable because Section 340B lacks a private right of action and Adventist’s claims are in essence claims to enforce Section 340B.” The district court further reasoned that, if the FCA claims were to proceed, it would disrupt the ADR process that Congress created to enforce the 340B statute. Adventist appealed.
Decision
On March 17, 2026, in a unanimous decision, the Ninth Circuit reversed the dismissal of Adventist’s qui tam FCA action, ruling that Adventist’s FCA claims are not barred by the 340B statute or Astra. The court outlined three reasons for this: (1) the absence of a private right of action under the 340B statute is immaterial; (2) Adventist is not “in essence” suing to enforce the 340B statute; and (3) barring Adventist’s claims would undermine the FCA.
First, the court relied on Ninth Circuit precedent which “makes clear that FCA claims are available to parties even when other statutory causes of action are unavailable.” See United States ex re. Sutton v. Double Day Office Services, Inc., 121 F.3d 531 (9th Cir. 1997). Under Sutton, the court explained that an FCA plaintiff brings its action “standing in the shoes of the government,” so it is irrelevant whether the plaintiff has a separate statutory cause of action or not.
Second, the court distinguished Astra by emphasizing that Adventist “seeks to enforce the FCA,” not the 340B statute. Thus, the FCA claims are not “in essence” claims to enforce the 340B statute. The court explained that Adventist seeks FCA liability of $5,000 to $10,000 for each false claim plus treble damages. In contrast, 340B statutory liability through the HRSA ADR process is reimbursement of the overcharges or termination of the manufacturer’s 340B pharmaceutical pricing agreement.
Third, the court found that precluding Adventist’s FCA claims would imply that the 340B statute preempts the FCA. This would directly undermine Congress’s intent for the FCA to reach “all types of fraud, without qualification.”
Final Notes
The case now returns to the district court for further consideration of the FCA claims. The United States Department of Justice declined to intervene in this case.
Powers is assessing the ability of covered entities to use the FCA to legally challenge other instances of manufacturers charging inflated prices, particularly as drugmakers continue to place ever more restrictions on their 340B drugs. The firm will continue to monitor developments on 340B litigation. Please contact Powers’ drug pricing team, or your lead Powers attorney, if you have any questions.
[1] United States ex rel. Adventist Health Sys./W. v. AbbVie Inc., No. 2:21‑cv‑04249‑DSF‑SKx (C.D. Cal. Mar. 21, 2024), accessible at: https://fcablog.sidley.com/wp-content/uploads/sites/5/2024/03/2024.03.18-Opinion-U.S.-ex-rel.-Adventist-Health-System-West-v.-AbbVie-21-cv-04249-C.D.-Cal.-151.pdf