Healthcare / 340B Drug Pricing Program · False Claims Act

Introduction

For most of the 340B program’s life, a covered entity that thought it was being overcharged had exactly one place to go, and it wasn’t a courthouse. Congress wrote no private right of action into Section 340B, and in Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011), the Supreme Court closed the contract route as well, holding that covered entities can’t sue manufacturers as third-party beneficiaries of their pricing agreements with the government. That left administrative dispute resolution as the only forum, and it has remained a narrow channel while the program itself has grown. So covered entities have been looking for another one. Adventist Health System of West found it in the False Claims Act — not by suing for what it overpaid, but by pointing out that Medicaid and Medicare reimburse providers based on cost, which means the government overpaid right alongside it. The district court called that an end-run around the ban on a 340B private right of action decided in Astra, and dismissed with prejudice. The Ninth Circuit reversed. And while the appeal was pending, the Supreme Court set down its own question about whether covered entities can reach manufacturers at all, on the September 28 conference list. The search for a forum continues.

Executive Summary

In United States ex rel. Adventist Health System of West v. AbbVie Inc., 169 F.4th 1137 (9th Cir. 2026), the Ninth Circuit reversed the dismissal under Federal Rule of Civil Procedure 12(b)(6) of a qui tam complaint brought by a 340B covered entity against pharma manufacturers AbbVie, AstraZeneca, Novartis, and Sanofi. The Ninth Circuit held that the absence of a private right of action under Section 340B does not foreclose False Claims Act claims by covered entities, because an FCA action is independent of the statute whose violation supplies the underlying facts. Adventist wasn’t seeking to recover amounts it allegedly had been overcharged; instead, it was alleging that the manufacturers’ inflated prices caused covered entities to submit inflated reimbursement claims for those drugs to Medicare and Medicaid, and that the government paid them. The court also held that falsity was plausibly pled, and declined to affirm on the manufacturers’ alternative argument, which it treated as a merits question for discovery.

Background

The program and the price

Congress created the 340B Drug Pricing Program in 1992 to improve access to care for low-income and uninsured patients at safety-net hospitals and clinics. Veterans Health Care Act of 1992, Pub. L. No. 102-585, 106 Stat. 4943. Manufacturers opt in by signing a pharmaceutical pricing agreement, or PPA, with the Secretary of Health and Human Services, and in exchange for that agreement they may not charge covered entities more than a statutory ceiling price. 42 U.S.C. § 256b(a)(1). The Health Resources and Services Administration (HRSA), a unit of HHS, administers the program, including a dispute resolution mechanism. 42 U.S.C. § 256b(d)(3); 42 C.F.R. §§ 10.3, 10.21.

The statutory formula can produce a ceiling at or below zero. When it does, the “penny pricing” policy caps the charge at $0.01 per unit. HRSA formally adopted that position in written guidance in 2011 — Clarification of Penny Pricing Policy, Policy Release No. 2011-2 — and then issued a final rule imposing civil monetary penalties for non-compliance, 83 Fed. Reg. 61563 (Nov. 30, 2018), effective January 1, 2019. The timing matters to the falsity question below.

Adventist alleged that it only discovered the overcharges after the penny pricing guidance came into effect and the prices manufacturers were charging for many drugs precipitously dropped to a penny, suggesting that before that manufacturers were ignoring the statutory formula for calculating the ceiling price.

The allegations

Adventist Health System of West is a nonprofit that operates clinics and facilities in several states and qualifies as a 340B covered entity. It bought drugs from the defendants for its patients, and Medicaid and Medicare reimbursed it based on the prices the defendants charged. See 42 C.F.R. § 447.502; 42 U.S.C. § 1395m(g)(1).

The amended complaint alleged that the manufacturers knowingly charged “materially false, unlawfully inflated prices” that “bore no relation to the statutory formula,” for years, and changed course only when the 2019 rule attached penalties. Adventist said it discovered the scheme when prices “dropped precipitously to $0.01 per unit” shortly after January 2019 — a drop it contended market forces and formula changes could not explain. The complaint alleged the fraud “caused the federal and state governments to wrongly pay hundreds of millions of dollars.”

The dismissal

The manufacturers moved to dismiss based on Astra, arguing that there is no private right of action under 340B. Because Astra holds that a covered entity must use the administrative ADR process to challenge a manufacturer’s pricing, they argued, a covered entity cannot sue under the FCA on facts that amount to a 340B pricing violation. The district court agreed, dismissed the amended complaint with prejudice, and reasoned that allowing the claims would disrupt the administrative scheme Congress built. Adventist appealed.

How the overcharge reaches federal money

Here is what made this an FCA case, not a pricing dispute. Adventist was not asking to be paid back for what it was overcharged — that’s what the ADR process is for, and Astra held that was the only route. Adventist said the overcharge did not stop with the covered entity. It was passed through to the government, because that’s how these programs are structured. The complaint identified three channels.

• Medicaid. Covered entities are reimbursed on what they actually paid for the drug. See 42 C.F.R. § 447.502. Inflate the acquisition cost, and you inflate the reimbursement claim that follows it.
• Medicare. Critical access hospitals bill at 101% of drug cost under 42 U.S.C. § 1395m(g)(1). An inflated cost passes straight through — with another one percent riding on top of it.
• Direct federal purchase. Government-funded prisons and clinics bought the drugs themselves and paid the inflated prices directly. No intermediary at all.

Cost-based reimbursement is the mechanism converting a private overcharge into a loss for the federal fisc, thus implicating the False Claims Act. With it, every covered entity that bought a drug and billed for it became an unwitting conduit. The claims the government paid weren’t Adventist’s 340B claims. They were reimbursement claims, submitted by entities with no reason to know the price they passed along was wrong.

Why this is an FCA claim

The manufacturers never submitted a direct claim to Medicare or Medicaid. Adventist argued instead that the manufacturers were liable under § 3729(a)(1)(A), which reaches anyone who “knowingly presents, or causes to be presented,” a false or fraudulent claim for payment, and § 3729(a)(1)(B) reaches anyone who makes or uses a false record or statement material to such a claim. The alleged false claims were the covered entities’ reimbursement claims. The manufacturers’ alleged conduct — charging above the ceiling price, for years — was what made those downstream claims inflated. That was the causal architecture, and it was ordinary FCA law rather than anything peculiar to 340B.

Adventist, the Ninth Circuit stated, “seeks redress for the alleged false claims, not for the alleged violations of Section 340B’s ceiling price formula,” and the court quoted United States ex rel. Sutton v. Double Day Office Services, Inc., 121 F.3d 531 (9th Cir. 1997), for the necessary corollary: “[t]he violation of a statute does not itself create a violation of the FCA.” A 340B pricing violation is not automatically an FCA case. It becomes one when it causes a false claim to be presented — and pleading that chain is the relator’s burden, on remand as much as on appeal.

The remedy confirmed the characterization. Adventist sought civil penalties and treble damages on behalf of the government under § 3729(a)(1) and a relator’s share under § 3730(d)(2). It was not seeking the overcharges it paid out of its own pocket.

Legal Analysis

• The absence of a private right of action under Section 340B is immaterial to an FCA claim. The Ninth Circuit treated FCA claims as “free-standing and independent of Section 340B.” Because Adventist was not seeking reimbursement for overcharges or otherwise seeking relief for a 340B violation, it did not matter that Section 340B gives covered entities no mechanism to sue. The court drew on Sutton, where a relator’s FCA claim survived even though the Service Contract Act supplied no private right of action.
• Astra bars repackaged contract claims, not fraud claims. Astra held that suits to enforce Section 340B and suits to enforce the PPAs are “in substance one and the same,” and that covered entities may not sue as third-party beneficiaries of those agreements. The Ninth Circuit distinguished it on the ground that Adventist did not allege the manufacturers were liable merely for violating Section 340B. The claim was that they caused false claims to be submitted to Medicare and Medicaid — a different wrong, seeking a different remedy, on behalf of a different party.
• The remedies available under the FCA did real work. Following Sutton, the court reasoned that if the action were equivalent to a 340B action, the damages would be Adventist’s own overcharges. They were not. Adventist sought statutory damages plus penalties for the government, and a statutory share of any recovery under § 3730(d)(2). “Standing in the shoes of the government,” the Ninth Circuit wrote, Adventist sought statutory damages, not compensatory damages for its own losses.
• No implied preemption, because there is no “positive repugnancy.” Barring the claims would require holding that Section 340B impliedly preempts the FCA. Repeals by implication are disfavored, and neither statute contains language displacing the other, so the court gave effect to both. It also invoked the presumption that Congress says in a statute what it means — Congress wrote no 340B exception into the FCA, and the Ninth Circuit declined to write one in.
• Falsity was plausibly pled for the pre-2019 period. The manufacturers argued that no penny-pricing obligation existed before the 2019 final rule. The Ninth Circuit disagreed, because Adventist plausibly alleged that the plain text of the statutory formula did not authorize any price above $0.01 regardless of the guidance, and because HRSA’s 2011 written guidance had already directed manufacturers to charge $0.01 when the formula yielded a negative ceiling price. The 2019 rule added penalties; it did not create the obligation.
• The alternative ground was left for remand. The manufacturers also argued that HRSA’s price reporting and verification system rendered the allegations implausible under Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). The court declined to affirm on that basis, calling it a merits argument that turned on factual disputes and required discovery. It remained available below.

Who showed up

The amicus lineup is worth noting. The United States appeared in support of Adventist, through the Civil Division and the United States Attorney for the Central District of California, and the Ninth Circuit quoted the government’s brief for the proposition that the FCA is “the federal government’s primary tool to combat fraud and recover losses due to fraud in federal programs.” The Anti-Fraud Coalition and Ryan White Clinics for 340B Access also supported the relator; the Pharmaceutical Research and Manufacturers of America appeared on the other side. The government’s participation is consistent with its usual position of arguing against limitations on the False Claims Act.

Holding

Adventist asserted cognizable claims for relief under the FCA and had satisfied the applicable pleading requirements. The dismissal was reversed and the case remanded for further proceedings. The Ninth Circuit treated the FCA and its state-law analogues together, no party having argued that the differences mattered. Petitions for rehearing were denied on May 27, 2026.

What to Watch

• On remand, the merits questions that were never reached. Falsity, scienter, materiality and causation now have to be proven across three distinct payment channels, on a factual record that must be developed.
• The Supreme Court’s own 340B question, September 28, 2026. AstraZeneca Pharmaceuticals LP v. Mosaic Health, Inc., No. 25-1070, has been distributed for the long conference. It asks whether safety-net providers have antitrust standing under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), to sue manufacturers over the withdrawal of contract-pharmacy discounts. Different doctrine, same pressure: covered entities looking for a forum that Section 340B and the administrative ADR process did not give them.
• Whether other circuits follow. This is a published Ninth Circuit opinion on a question that has mostly been litigated in district courts. If the FCA is a durable route around Astra, manufacturer exposure under 340B stops being primarily administrative — and the exposure changes character, from ordered reimbursement of overcharges to penalties and treble damages.

What it means for resolving these disputes

For a neutral, the useful observation is that this ruling doesn’t narrow anything. It widens the field at the pleading stage. A manufacturer facing a covered-entity relator now has to litigate a multi-year pricing history across Medicaid, Medicare and direct federal purchasers, with treble damages and per-claim penalties at the end of it, and with the government watching closely enough to have filed a brief. A relator, for its part, faces a causation chain it has to prove entity by entity and claim by claim, having survived a motion to dismiss and nothing more.

That is not a narrowed range of outcomes. It is a wide one, expensive at both ends, with genuine uncertainty on both sides of the caption — which is the profile of a dispute that tends to resolve, and tends to resolve better when the parties get a neutral involved before the discovery bill arrives rather than after. Cases like this one settle on the strength of the causation chain, and that is precisely the thing neither side can price until they’ve spent a great deal of money finding out.

Cases cited in this brief: United States ex rel. Adventist Health Sys. of W. v. AbbVie Inc., 169 F.4th 1137 (9th Cir. 2026) (No. 24-2180), rev’g and remanding No. 2:21-cv-04249-DSF-SK (C.D. Cal.) | Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110 (2011) | United States ex rel. Sutton v. Double Day Off. Servs., Inc., 121 F.3d 531 (9th Cir. 1997) | Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) | Ashcroft v. Iqbal, 556 U.S. 662 (2009) | Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post discusses a published decision for general informational purposes and is not legal advice.