AstraZeneca is suing Hawaii over a state statute that requires pharmaceutical companies to offer discounted “340B” drugs to contract pharmacies. The company claims the statute is preempted by federal law and that federal appeals courts have made it clear that federal statute regulating such drugs does not require manufacturers to provide discounted drugs to “unlimited” contract pharmacies.

Hawaii is in the United States Court of Appeals for the Ninth Circuit. The Ninth Circuit’s jurisdiction covers the western United States, including the states of Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington, as well as the U.S. territories of Guam and the Northern Mariana Islands. Thus if this case is appealed, the outcome of the appeal will likely to some degree apply here in California, at least as to the preemption issue.

The 340B Drug Pricing Program, established under Section 340B of the Public Health Service Act (42 U.S.C. § 256b), requires pharmaceutical manufacturers participating in Medicaid to offer discounted outpatient drugs to qualifying “covered entities” such as safety-net hospitals, community health centers, and certain clinics serving low-income or underserved populations.

These entities can contract with external pharmacies (known as “contract pharmacies”) to dispense the discounted drugs to their patients, but the federal statute itself does not explicitly mandate that manufacturers provide these discounts through an unlimited number of such pharmacies.

Over the past few years, disputes have arisen as some manufacturers, including AstraZeneca, have imposed restrictions on contract pharmacy arrangements, citing concerns over program integrity, duplicate discounts, and diversion of drugs to ineligible patients. Federal appeals courts have largely sided with manufacturers on this point, ruling that the 340B statute does not prohibit such restrictions.

In response, several states have enacted laws to protect access to 340B discounts via contract pharmacies, effectively requiring manufacturers to honor unlimited arrangements. Hawaii joined this trend on May 30, 2025, when Governor Josh Green signed Act 143 (also known as Senate Bill 3202) into law, with an effective date of July 1, 2025.

The AstraZeneca complaint cites the Third Circuit’s decision in Sanofi Aventis U.S. LLC v. HHS (58 F.4th 696, 706 (3d Cir. 2023)), which held that restrictions on contract pharmacy discounts “do[es] not violate Section 340B” and enjoined HHS from enforcing a contrary interpretation. Similarly, the D.C. Circuit in Novartis Pharms. Corp. v. Johnson (102 F.4th 452, 459 (D.C. Cir. 2024)) rejected the idea that Section 340B prohibits manufacturers from imposing “any conditions” on discounts involving contract pharmacies. AstraZeneca notes that Hawaii submitted amicus briefs in both cases supporting unlimited access, but the courts ruled against that position.

Should this case be favorable to drug makers, and be successfully affirmed by the 9th Circuit Court of Appeals, it will become binding on California unless the U.S. Supreme Court hears the case.  It is therefore a case of interest to those states who are included in 9th Circuit jurisdiction.