A federal appeals court on Tuesday revived a whistleblower lawsuit that accuses four large drugmakers of defrauding federal and state programs by overcharging for medicines provided to low-income and uninsured patients. In a unanimous 3-0 decision, the 9th U.S. Circuit Court of Appeals in Pasadena, California determined that AbbVie, AstraZeneca, Novartis and Sanofi must defend against allegations they violated the federal False Claims Act through their participation in the Section 340B Drug Pricing Program.
Section 340B, enacted by Congress in 1992, permits certain medical providers to buy prescription drugs at reduced prices. The statute also includes a so-called "penny pricing" provision that requires the drug price not exceed $0.01 when the statutory ceiling price falls below zero.
The lawsuit was brought by Adventist Health System/West, a Roseville, California-based nonprofit health system that operates more than 440 hospitals and clinics. Adventist contends that years of alleged overcharges by the four manufacturers led to inflated Medicare and Medicaid reimbursements. According to the complaint, those overcharges ceased when the U.S. Department of Health and Human Services in 2019 decided to impose large civil fines for violations of Section 340B pricing rules.
Circuit Judge Roopali Desai, writing for the appeals court, noted that while Section 340B does not by itself provide medical providers with a private cause of action against manufacturers for overcharging, providers may nonetheless bring claims under the False Claims Act if the alleged conduct resulted in financial loss to the government. "Adventist's claims 'belong to the government,' and 'it does not matter' that Adventist cannot sue on its own behalf," the opinion states.
The appeals court returned the matter to U.S. District Judge Dale Fischer in Los Angeles. Judge Fischer had dismissed the suit in March 2024. Under the False Claims Act, whistleblowers may sue on behalf of the government and are entitled to a share of any recovery the government obtains.
The named companies and their counsel did not provide comments in response to inquiries. Lawyers for Adventist did not immediately reply to similar requests for comment.
Context and next steps
With the appeals court decision, the case will proceed in district court where factual development and further briefing can determine whether the government suffered compensable losses tied to the pricing practices alleged in the complaint. The False Claims Act mechanism remains the vehicle through which a private whistleblower can pursue claims that are characterized as harming government programs.