Mary Steurer/North Dakota Monitor
North Dakota is being sued over a new law that requires drug manufacturers to sell more of their medications at a discount.
House Bill 1473, signed by Gov. Kelly Armstrong in April, primarily affects drug companies participating in a federal program called 340B.
A drug manufacturer has filed suit over the policy in North Dakota federal court, claiming it is unconstitutional and will hurt its profits. The state denies the company’s claims.
The 340B program was created by Congress in 1992 to improve health care access in low-income communities. It requires participating drug companies to offer discounted products to qualifying hospitals and other medical facilities. Drug companies must take part in 340B in order to participate in federal Medicaid and Medicare programs.
In legislative hearings, proponents of the bill called 340B a critical program for rural North Dakota, subsidizing medication for patients and allowing hospitals to provide a wider range of services.
“This is a lifeblood to rural facilities across the state,” Rep. Jon Nelson, a Rugby Republican and bill sponsor, said during a February committee meeting.
North Dakota this year became one of a handful of states to pass a law limiting drug manufacturers’ freedom to decide where and how they sell 340B drugs.
House Bill 1473 makes it a class B misdemeanor for companies to adopt policies that “deny, restrict, prohibit, or otherwise interfere” with pharmacies’ ability to obtain and dispense products to patients on behalf of 340B hospitals.
In testimony on the proposal, hospital representatives complained that drug companies were cutting off access to medications subsidized through 340B, namely by refusing to sell the drugs to more than one pharmacy hospitals work with.
In an April complaint filed against North Dakota, drug company AbbVie argued that Congress intended for manufacturers to be able to set additional requirements for 340B hospitals to access their products — so long as the medications are offered at the reduced costs mandated by the program.
The company alleges that pharmacies and hospitals are taking advantage of the 340B program by selling the discounted medications at full price. Barring drug manufacturers from placing additional parameters on these sales will only harm the low-income patients the program is intended to benefit, AbbVie wrote in its complaint.
In testimony in favor of House Bill 1473, hospital and pharmacy representatives said that the real reason drug companies are reluctant to sell discounted drugs to more pharmacies is because they want to sell their medication at list price at as many places as possible.
AbbVie also alleges that North Dakota is trying to use a state law to change a federal program, which they say is a violation of the U.S. Constitution’s Supremacy Clause. Any changes to how 340B operates must be approved by Congress, the company argues.
They claim that federal law makes the U.S. Department of Health and Human Services the sole agency in charge of enforcing 340B compliance, leaving no room for state policies like House Bill 1473.
The company further argues that the law is an illegal attempt to regulate business in other states. Since some North Dakota hospitals have agreements with pharmacies across state lines, House Bill 1473 could affect transactions between out-of-state drug companies and pharmacies — which AbbVie says is unconstitutional.
According to the company, the law also violates rights protected under the Fifth Amendment by forcing it to sell its property to a private party.
Companies found in violation of the new law, which takes effect Aug. 1, could face 30 days in jail, a maximum fine of $1,500, or both. The North Dakota Board of Pharmacy can also impose civil penalties on violators, according to testimony on the bill.
AbbVie has asked a federal judge to declare House Bill 1473 unconstitutional and to order that North Dakota cannot enforce it.
Courts across the country have ruled differently on this issue. The D.C. Circuit Court of Appeals and Third Circuit Court of Appeals have both ruled the 340B program does not prevent drug companies from imposing additional requirements on hospitals and pharmacies, the drug manufacturer noted in court filings.
However, the Eighth Circuit in 2024 upheld an Arkansas law similar to House Bill 1473. The Arkansas law makes it illegal for drug companies to prevent hospitals from using pharmacies to get 340B drugs into the hands of patients.
The Eighth Circuit includes North Dakota, South Dakota, Minnesota, Iowa, Missouri, Kansas, Nebraska and Arkansas.