Can 340B Covered Entities Sue Drug Manufacturers Directly? Federal Appeals Court Allows False Claims Act Approach to Proceed

340B program safety-net providers (called “covered entities”) have a new tool when drug manufacturers overcharge them for 340B drugs.  In 2011, the Supreme Court ruled that 340B program covered entities cannot sue drug manufacturers directly to enforce provisions of Section 340B.^[1] 

According to the court, only HRSA can enforce the 340B statute and covered entities are required to use the Administrative Dispute Resolution mechanism finally implemented in 2024 after a 14-year delay.  With drug manufacturers becoming increasingly aggressive in their attempts to limit access to 340B pricing and squeeze data out of safety net providers, covered entities have become increasingly frustrated with HRSA’s lack of enforcement efforts and their own inability to pursue claims against drug manufactures without HRSA’s help.

Adventist Health System Allowed to Proceed on Behalf of Government Against Drug Manufacturers

Last month, one covered entity made a breakthrough.  In 2021, Adventist Health System, a California-based covered entity, filed suit against a group of drug manufacturers alleging that they failed to accurately calculate the 340B price for many of their medications, leading the Medicaid program to overpay for 340B drugs.  The suit was filed as a qui tam action under the False Claims Act (FCA), with Adventist Health System representing the interests of the United States and 27 states, Puerto Rico, and the District of Columbia.  The United States District Court for the Central District of California dismissed the case in March 2024.^[2]

On March 18, 2026, the Ninth Circuit Court of Appeals reversed the dismissal and remanded the complaint back to the District Court.^[3] The decision allows Adventist to move forward with its FCA allegations.  The Ninth Circuit found that the case was not precluded by Astra USA or required to proceed through ADR.  Powers attorneys Bill von Oehsen and Ron Connelly represented Adventist in the case.

How Does This Impact Covered Entities?

The Ninth Circuit’s decision opens the door for 340B covered entities to pursue FCA claims against manufacturers directly in federal courts without first exhausting the ADR process.  To take advantage of the mechanism, a covered entity would need to allege that manufacturer actions result in overpayment or improper payment by state and federal health care programs.  Theoretically, those circumstances could exist when a covered entity is unable to access 340B pricing on a drug and must bill Medicaid at non-340B prices, or if a manufacturer charges covered entities in access of the 340B ceiling price.  Not every dispute with drug manufacturers will give rise to a FCA cause of action, but when appropriate covered entities can now take action without waiting for HRSA.