The multi-front litigation over pharma companies' efforts to limit the use of contract pharmacies by 340B covered entities continues, and it’s getting interesting. After courts pushed back on attempts by the U.S. Department of Health and Human Services to require pharma manufacturers to distribute drugs to as many contract pharmacies as the covered entity may designate, states got involved, seeking to use their asserted co-equal powers to regulate healthcare to accomplish the same result. The state-centered litigation has now produced several circuit court decisions, with a potential circuit split developing that might interest the Supreme Court. And, speaking of SCOTUS, the Court will consider at its September 28 conference a case that could determine the contours of the Illinois Brick doctrine, arising from the pharma companies’ efforts to lobby states while also taking independent action on contract pharmacies. As the old adage goes, may you live in interesting times.

Executive Summary

Roughly two dozen states have enacted statutes barring drug manufacturers from restricting delivery of 340B-discounted drugs to a covered entity’s contract pharmacies, and the manufacturers have challenged nearly all of them mostly on preemption grounds, as well as other arguments. The Fifth and Eighth Circuits have upheld those statutes four times between them. The Fourth Circuit, on the other hand, found these state restrictions preempted in two separate cases. However, rehearing en banc has been granted, and thus both of these Fourth Circuit decisions have been vacated. While there is no operative circuit split at this moment, one could develop depending on the outcome of the Fourth Circuit rehearing or in other circuits which have not yet reached the issue. Meanwhile the district courts have overwhelmingly refused to enjoin these statutes, with one notable exception in the Western District of Oklahoma. And in August the Southern District of Mississippi held, on a full summary-judgment actual record, that how the 340B program operates in practice does not change the preemption analysis based on a facial review of the federal and state statutes.

Background: How Contract Pharmacies Became the Battleground

Congress created the 340B program in 1992. As a condition of having their products covered under Medicaid and Medicare Part B, pharma manufacturers must agree to offer certain drugs to “covered entities” — principally federally or state-funded hospitals and community health centers serving low-income patients — at no more than a statutory “ceiling price.” 42 U.S.C. §§ 256b(a)(1), 1396r-8(a)(1), (5).

The statute places four key restrictions on covered entities: a bar on duplicate 340B and Medicaid discounts, § 256b(a)(5)(A); a bar on diversion — a covered entity “shall not resell or otherwise transfer” a discounted drug “to a person who is not a patient of the entity,” § 256b(a)(5)(B); an audit obligation, requiring covered entities to let HHS and manufacturers examine their records for compliance with the first two restrictions, § 256b(a)(5)(C); and recovery liability — a covered entity that violates either ban “shall be liable” to the manufacturer for the amount improperly received, § 256b(a)(5)(D). AbbVie, Inc. v. Fitch, 152 F.4th 635, 640 (5th Cir. 2025). Congress therefore put the substantive compliance duties on covered entities but gave manufacturers the audit and recovery rights. The manufacturer is the party expected to detect the problem and pursue it. That allocation worked tolerably when the number of dispensing points was small. The manufacturers argue that this allocation stopped working when the number of contract pharmacies used by covered entities exploded.

The statute is silent about the issue of delivery, that is, how drugs get from manufacturer to patient. The Health Resources and Services Administration (HRSA), the Department of Health and Human Services unit tasked with administering the 340B program, stepped into the issue in 1996 when it limited a covered entity that lacked an in-house pharmacy to contracting with just a single outside pharmacy. In 2010 it reversed course, permitting covered entities — including those with in-house pharmacies — to contract with an unlimited number of outside pharmacies to receive and dispense drugs under the 340B program. “After the 2010 guidance, the use of contract pharmacies skyrocketed.” Sanofi Aventis U.S. LLC v. U.S. Dep’t of Health & Hum. Servs., 58 F.4th 696, 700 (3d Cir. 2023). As the Government Accountability Office noted, the number of contract pharmacies used by covered entities surged from about 1,300 at the beginning of 2010 to around 23,000 in 2019. U.S. Gov't Accountability Off., GAO-20-212, 340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate Program Needs Improvement 2 (Jan. 2020).

In 2020 manufacturers responded unilaterally, limiting 340B delivery to a covered entity’s in-house pharmacy or a single designated contract pharmacy. HHS issued an advisory opinion declaring that 340B requires delivery to any contract pharmacy a covered entity chooses. The manufacturers sued and prevailed: the Third Circuit in Sanofi and the D.C. Circuit in Novartis Pharms. Corp. v. Johnson, 102 F.4th 452 (D.C. Cir. 2024), both confirmed that 340B is silent on delivery and does not compel shipment to unlimited contract pharmacies. HHS withdrew the opinion. That is when the states stepped in, invoking their police power over healthcare and pharmacy practice to accomplish by state law what HHS could not accomplish by advisory opinion. Arkansas went first with Act 1103 in 2021 — PhRMA sued that September — and roughly two dozen states followed with materially similar statutes. The litigation now before the courts is not about what HHS may require of manufacturers. It is about what a State may require of them.

Understanding the manufacturers’ position in opposition to these state laws requires understanding how contract pharmacies actually stock 340B drugs. The D.C. Circuit’s description in Johnson, 102 F.4th at 457–58, is the one the later opinions quote:

“While some contract pharmacies maintain separate inventories of section 340B drugs, most fill prescriptions from inventories that intermingle discounted and non-discounted drugs. Only after dispensing the drugs do these pharmacies attempt to discern whether individual customers were patients of covered entities . . . . Many pharmacies outsource this determination to third-party administrators, who often receive a larger fee for every prescription deemed eligible for the discount. Once the pharmacy or the administrator categorizes a certain number of prescriptions as eligible, the pharmacy places an order to replenish its section 340B purchases. The covered entity, the pharmacy, and the third-party administrator often divvy up the spread between the discounted price and the higher insurance reimbursement rate. Each of these actors thus has a financial incentive to catalog as many prescriptions as possible as eligible for the discount.”

The replenishment model is thus simply an inventory-accounting method: dispense from a commingled inventory, determine eligibility afterward, reorder at the 340B price to backfill.

From the manufacturers’ standpoint, the proliferation of contract pharmacies accounting for 340B pricing after the fact creates an enforcement problem and affects their ability to vindicate their audit and recovery rights to police diversion and duplicate discounts. But under a replenishment system spread across an unlimited number of contract pharmacies, the manufacturer is auditing a retrospective eligibility determination made by someone else, about a dispensing event that has already happened, in an inventory where 340B and non-340B units were never physically distinguished. Every additional contract pharmacy multiplies those determinations while making each one harder to verify. Whether or not one credits the manufacturers’ estimates of the resulting abuse, the structural point is sound: Congress gave manufacturers a policing role, and the explosion in the number of contract pharmacies made that role progressively harder to perform. That is why manufacturers describe these state statutes as doing something more than regulating delivery logistics.

Action in The Circuits: Which One Held What, and Where Things Stand

As we have seen, the Third Circuit in Sanofi and the D.C. Circuit in Johnson decided whether HHS could compel unlimited contract-pharmacy delivery. The issue of whether a State may prohibit manufacturers from restricting the use of contract pharmacies was not before these courts. They are the backdrop to the split, not part of it. The potential division regarding state efforts in the contract pharmacy issue follows:

• Eighth Circuit — statutes upheld, twice. Pharmaceutical Research & Manufacturers of America v. McClain, 95 F.4th 1136 (8th Cir. 2024), affirmed summary judgment for Arkansas on Act 1103. Novartis Pharms. Corp. v. Hanaway, 180 F.4th 1097 (8th Cir. 2026), affirmed denial of a preliminary injunction against Missouri’s S.B. 751. Status: certiorari denied in McClain on December 9, 2024, 145 S. Ct. 768 (2024); no rehearing or petition reflected in the record in Hanaway as of this writing.
• Fifth Circuit — statutes upheld, twice. AbbVie v. Fitch, 152 F.4th at 640, affirmed denial of a preliminary injunction against Mississippi’s H.B. 728. AbbVie, Inc. v. Murrill, 180 F.4th 747 (5th Cir. 2026), affirmed summary judgment for Louisiana on Act 358 — a full merits record rather than a preliminary posture. Status: no rehearing en banc or certiorari petition reflected in the record as of this writing. An earlier Murrill panel opinion issued February 9, 2026; the July 6 decision is the operative one.
• Fourth Circuit — statutes likely preempted, twice — but both decisions are vacated and rehearing granted. Pharmaceutical Research & Manufacturers of America v. McCuskey, 171 F.4th 675 (4th Cir. 2026) (argued Sept. 9, 2025), reh’g en banc granted (4th Cir. June 2, 2026), affirmed a preliminary injunction against West Virginia’s S.B. 325; Judge Richardson wrote for the majority, Judge Benjamin dissented. Two weeks later, AbbVie, Inc. v. Brown, 2026 WL 1005576 (4th Cir. Apr. 14, 2026) (unpublished), reh’g en banc granted (4th Cir. June 2, 2026), vacated a district court’s denial of an injunction against Maryland’s H.B. 1056 and remanded in light of McCuskey. Those grants vacated the panel opinions. No argument date has been announced as of this writing.

Legal Analysis

The litigation over the state statutes highlights several legal and factual issues. First, while the manufacturers have raised several other legal theories, the primary challenge to these state statutes has been preemption. The first appellate court case to address the issue was McClain, 95 F.4th at 1142, which affirmed summary judgment upholding Arkansas’s Act 1103 against Pharma’s challenges. Pharma argued that Act 1103 was preempted under all three preemption doctrines – field, obstacle and impossibility — and the court rejected all three arguments. The obstacle-preemption passage is the one later courts keep returning to: Act 1103 “does not create an obstacle for pharmaceutical manufacturers to comply with 340B, rather it does the opposite: Act 1103 assists in fulfilling the purpose of 340B.” McClain, 95 F.4th at 1144–45. The reasoning is narrow — Act 1103 neither requires manufacturers to extend 340B pricing to contract pharmacies nor sets or enforces discount pricing at all. The Supreme Court denied certiorari on December 9, 2024, 145 S. Ct. 768 (2024) — at a time when no circuit had disagreed.

Second, the preemption issue highlights the prevailing view (to date) that courts have viewed the states as regulating something different than the federal statute. Murrill held that Congress left the delivery-and-distribution space conspicuously silent, defeating field, conflict and obstacle preemption, and declined to read Sanofi and Johnson as limiting state, as opposed to federal agency, authority. In this view, federal agency authority over the program and state police power over distribution conduct operate independently. Thus, states can legislate in a space a federal agency was told it could not reach by advisory opinion. AstraZeneca Pharmaceuticals LP v. Fitch, 2026 WL 2455376 (S.D. Miss. Aug. 21, 2026), adopted the formulation from Murrill, 180 F.4th at 761: the state law “does not regulate prices; it regulates conduct.” AstraZeneca argued the inverse — that price is the only thing distinguishing a 340B drug from any other drug, so a law reaching 340B drugs necessarily regulates price. The court’s answer was that the 340B statute sets the price and Mississippi’s H.B. 728 governs only where a covered entity’s patient may pick the drug up: “[t]hese drugs would cost the same amount if they were picked up at a covered entity’s in-house pharmacy.” 2026 WL 2455376, at *9. Everything else in this area turns on whether that distinction holds.

The now vacated Fourth Circuit opinions took a different view on the structure of the program. The McCuskey majority did not principally hold that West Virginia was regulating price. Its theory was that West Virginia’s S.B. 325 “springs obligations on manufacturers specifically by virtue of their participation in a federal program,” does not apply equally to all manufacturers selling drugs in the State, and therefore “targets a federal domain.” McCuskey, 171 F.4th at 689. Drawing on Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (2001), the court reasoned that the statute injects the State into a relationship between a federal agency and its regulated entities that is “inherently federal in character.” It then treated Section 340B as spending-power legislation “much in the nature of a contract,” id., and asked whether the State had added uninvited conditions to a federal bargain.

In AbbVie Inc. v. Drummond, 2025 WL 3048930 (W.D. Okla. Oct. 31, 2025), District Judge Wyrick enjoined enforcement of Oklahoma’s H.B. 2048, codified at Okla. Stat. tit. 36, §§ 5403, 5404(B), essentially on these grounds, addressing the delivery/price distinction with a colorful analogy: if Congress required pizza parlors to sell at a 50% discount to anyone named John, and a State then required those parlors to deliver half-priced pies to anyone John designated, “could that state law possibly be described as a mere ‘delivery’ regulation? Of course not.” 2025 WL 3048930, at *5. In other words, the state statutes ostensibly about delivery sneak price through the back door, thus encroaching on 340B’s territory. Federal law does not use the term “340B drug” at all, the court observed, because the drug is the same either way — “[a]ll the 340B Program does is set the price for certain sales of drugs.” Id. at *6.

Judge Wyrick went on to address another factual question about the way contract pharmacies operate: who actually owns the drug sitting on the contract pharmacy’s shelf? This question bears directly on the replenishment model. McClain rests on the premise that contract pharmacies “do not purchase 340B drugs, and they do not receive the 340B price discounts” — the covered entity purchases and holds title, and the pharmacy merely dispenses. McClain, 95 F.4th at 1144. Drummond found the record did not establish that Oklahoma covered entities in fact retain title while the drugs sit at contract pharmacies and held that replenishment “significantly muddies the waters as to who is the actual purchaser of the 340B drugs.” Drummond, 2025 WL 3048930, at *6. If the contract pharmacy is the real purchaser, a statute compelling discounted delivery to it effectively expands the statutory list of covered entities — and contract pharmacies are not among the sixteen designated types. The title question is factual, and it has not been developed in most of these cases.

However, a recent district court opinion was unimpressed, essentially holding that facts about the actual operation of the 340B program did not preclude summary judgment finding that the Mississippi statute at issue there was not preempted. In AstraZeneca v. Fitch, the manufacturer did what Drummond suggests is necessary: it took discovery aimed at showing that Mississippi’s H.B. 728 is preempted based on how the program actually operates, and that earlier courts had incorrectly ruled about how replenishment works and who holds title. Judge Guirola granted the State summary judgment anyway, denied the cross-motion, found the motion to exclude AstraZeneca’s expert moot, and dismissed AstraZeneca’s challenge with prejudice. The reasoning is short and consequential: “The Court’s focus in this case is the language and intent of 340B and H.B. 728, not testimony and evidence related to the manner in which entities operate under those statutes.” 2026 WL 2455376, at *12. The discovery material “has not changed this determination.” Id. at *8. The escape hatch Drummond left open is, at least in this district, shut.

Holdings and Current Consensus

The Eighth Circuit held Arkansas’s Act 1103 preempted under neither field, obstacle nor FDCA impossibility theories (McClain), and held Novartis had not shown a likelihood of success on its dormant Commerce Clause or preemption claims against Missouri’s S.B. 751 (Hanaway). The Fifth Circuit held Louisiana’s Act 358 not preempted and violative of neither the Takings Clause, the Contracts Clause nor vagueness doctrine (Murrill), having earlier affirmed denial of a preliminary injunction against Mississippi’s H.B. 728 (AbbVie v. Fitch). The Southern District of Mississippi held H.B. 728 preempted by neither the 340B statute nor federal patent law, violative of neither the Contracts Clause nor the Takings Clause, and that discovery into the program’s practical operation did not alter the analysis; summary judgment for the State, claims dismissed with prejudice (AstraZeneca v. Fitch). The Western District of Oklahoma reached the opposite conclusion and enjoined Oklahoma’s statute (Drummond). The Fourth Circuit twice held these statutes likely preempted on a spending-power-bargain theory (McCuskey; Brown) — but both panel opinions are vacated pending rehearing en banc.

The consensus therefore favors the states. The Eighth Circuit has upheld these statutes twice and the Fifth Circuit twice; Judge Benjamin’s dissent in Brown catalogues at least eleven district courts that have refused to preliminarily enjoin comparable statutes, including in Colorado, Hawai’i, Maine, Mississippi, Rhode Island, Tennessee and Maryland, see Brown, 2026 WL 1005576, at *3 n.2 (Benjamin, J., dissenting); district courts within the Fifth and Eighth Circuits are following (see AbbVie Inc. v. Jackley, 2026 WL 2280929 (D.S.D. Aug. 7, 2026)); the Supreme Court declined the question in 2024; and the manufacturers’ factual theory has now failed on a full record. Drummond is the conspicuous outlier, and the West Virginia district court whose injunction the Fourth Circuit affirmed is the other.

Where We Are Now

For manufacturers, the litigation posture at the appellate level rests with the Fourth Circuit en banc ruling and the hope that it can create a circuit split interesting to the Supreme Court. The statutory arguments have lost in two circuits, the Supreme Court declined the question in 2024 when there was no split, and the fact-based theory has now failed on a developed record. What remains is the Fourth Circuit sitting en banc. However, there are several pending district court cases in other circuits which could upend the game board and potentially create new circuit splits on preemption or other issues.

For covered entities, hospital associations and their counsel, there is a durable template in the Fifth and Eighth Circuits, tempered by some risk concentrated in the Fourth, and developments to come in other circuits where similar cases are percolating.

What to Watch

First, the Fourth Circuit en banc in McCuskey and Brown — that is where this area gets decided next, and an argument date has not yet been announced. Second, AstraZeneca Pharms. LP v. Mosaic Health, Inc., No. 25-1070 (U.S.), distributed for the Supreme Court’s September 28, 2026 long conference and relisted twice; it presents an antitrust-standing question under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), rather than preemption, but a grant could potentially put 340B contract-pharmacy economics before the Court for the first time. Third, whether the manufacturers seek certiorari from Murrill or Hanaway, a petition filed while the Fourth Circuit sits en banc would present the Court with an unusually well-developed record of disagreement.

Cases cited in this blog: AbbVie, Inc. v. Brown, 2026 WL 1005576 (4th Cir. Apr. 14, 2026), reh’g en banc granted (4th Cir. June 2, 2026) | AbbVie, Inc. v. Drummond, 2025 WL 3048930 (W.D. Okla. Oct. 31, 2025) | AbbVie, Inc. v. Fitch, 152 F.4th 635 (5th Cir. 2025) | AbbVie, Inc. v. Jackley, 2026 WL 2280929 (D.S.D. Aug. 7, 2026) | AbbVie, Inc. v. Murrill, 180 F.4th 747 (5th Cir. 2026) | AstraZeneca Pharms. LP v. Fitch, 2026 WL 2455376 (S.D. Miss. Aug. 21, 2026) | AstraZeneca Pharms. LP v. Mosaic Health, Inc., No. 25-1070 (U.S.) | Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (2001) | Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) | Novartis Pharms. Corp. v. Hanaway, 180 F.4th 1097 (8th Cir. 2026) | Novartis Pharms. Corp. v. Johnson, 102 F.4th 452 (D.C. Cir. 2024) | Pharmaceutical Research & Manufacturers of America v. McClain, 95 F.4th 1136 (8th Cir. 2024), cert. denied, 145 S. Ct. 768 (2024) | Pharmaceutical Research & Manufacturers of America v. McCuskey, 171 F.4th 675 (4th Cir. 2026), reh’g en banc granted (4th Cir. June 2, 2026) | Sanofi Aventis U.S. LLC v. U.S. Dep’t of Health & Hum. Servs., 58 F.4th 696 (3d Cir. 2023)

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This blog post and alert discusses published and slip-copy decisions for general informational purposes and is not legal advice.