§ 340B’s Silence on Contract-Pharmacy Delivery Leaves Room for State “Non-Interference” Laws (and Such Laws Survive Takings, Contracts Clause, and Vagueness Attacks)

1. Introduction

In AbbVie v. Murrill (consolidated with appeals by AstraZeneca and PhRMA), the Fifth Circuit reviewed Louisiana Act 358, a statute that bars drug manufacturers (and distributors) from “deny[ing], restrict[ing], prohibit[ing], or otherwise interfer[ing]” with a covered entity’s acquisition of a discounted § 340B drug and its delivery to a covered entity’s contract pharmacy. The plaintiffs—manufacturers and an industry trade association—argued that Act 358 is preempted by the federal § 340B Drug Pricing Program, and also raised constitutional challenges under the Takings Clause, Contracts Clause, and Due Process (void-for-vagueness).

The case arises from a modern fault line in the 340B ecosystem: many “covered entities” (safety-net clinics and hospitals) rely on contract pharmacies to dispense 340B-purchased drugs, while some manufacturers adopted policies limiting delivery to—or use of—contract pharmacies, viewing the arrangement as enabling “arbitrage.” After federal courts curtailed HHS’s attempt to mandate contract-pharmacy delivery via agency action, states began enacting “anti-interference” laws like Louisiana’s Act 358.

Procedurally, this opinion is a substituted panel opinion issued after granting an intervenor’s petition for panel rehearing; the petition for rehearing en banc was denied. The court affirmed summary judgment for Louisiana (and the Louisiana Primary Care Association as intervenor).

2. Summary of the Opinion

  • Jurisdiction: Federal-question jurisdiction existed because the manufacturers brought a classic Ex parte Young suit seeking prospective relief against a state official on preemption grounds; the “defensive preemption” jurisdictional limitation in Elam v. Kansas City Southern Railway Co. did not apply.
  • No federal preemption: Act 358 is not preempted by § 340B under field, conflict, or obstacle preemption. § 340B is silent on delivery logistics and contract pharmacies, leaving room for state regulation of drug distribution and pharmacy practice.
  • No taking: Act 358 does not effect a physical taking (it does not compel a transfer of property) and does not amount to a regulatory taking under Penn Cent. Transp. Co. v. City of New York.
  • No Contracts Clause violation: Act 358 does not substantially impair AstraZeneca’s Pharmaceutical Pricing Agreement (PPA) with HHS because the PPA is silent on delivery terms and Act 358 does not rewrite the PPA’s obligations.
  • Not unconstitutionally vague: “Interfere,” read in context with “deny, restrict, prohibit,” provides an intelligible standard; and the statute plainly applies to core conduct (refusing delivery to a contract pharmacy), defeating a facial vagueness challenge.

3. Analysis

A. Precedents Cited

1) The Fifth Circuit’s controlling template: AbbVie, Inc. v. Fitch

The court treated AbbVie, Inc. v. Fitch as the decisive guidepost. In Fitch, the Fifth Circuit had already rejected preemption and takings challenges to Mississippi’s “materially indistinguishable” statute. The panel emphasized that although Fitch arose at the preliminary-injunction stage, its reasoning turned on “pure questions of law” about § 340B’s scope and the nature of state “non-interference” duties. On de novo review at summary judgment, the court adopted Fitch’s legal analysis and applied it to Act 358.

2) Federal 340B limits on HHS ≠ limits on state police power: Sanofi Aventis U.S. LLC v. U.S. Dep't of Health & Hum. Servs. and Novartis Pharms. Corp. v. Johnson

Manufacturers leaned heavily on Sanofi Aventis U.S. LLC v. U.S. Dep't of Health & Hum. Servs. (3d Cir.) and Novartis Pharms. Corp. v. Johnson (D.C. Cir.), which held that § 340B does not authorize HHS to require manufacturers to deliver discounted drugs to an unlimited number of contract pharmacies. The Fifth Circuit accepted the “premise” (those cases constrain agency authority) but rejected the manufacturers’ inference (that the same silence forecloses state regulation). The court reframed those decisions as separation-of-powers/administrative-law holdings about delegated federal authority—not as federal “occupation of the field.”

3) Sister-circuit confirmation of § 340B “silence”: Pharm. Rsch. & Mfrs. of Am. v. McClain

The panel cited Pharm. Rsch. & Mfrs. of Am. v. McClain (8th Cir.) for the proposition that Congress’s “silence on pharmacies in the context of 340B” supports state regulatory room. McClain also reinforced the court’s rejection of the argument that such statutes “regulate pricing,” emphasizing instead that they regulate delivery/distribution conduct after the covered entity purchases the drug.

4) The jurisdiction lane markers: Shaw v. Delta Air Lines, Inc., Planned Parenthood of Hou. & Se. Tex. v. Sanchez, and Elam v. Kansas City Southern Railway Co.

Louisiana argued the district court lacked subject-matter jurisdiction, invoking Elam v. Kansas City Southern Railway Co. for the proposition that defensive preemption does not create federal jurisdiction. The Fifth Circuit distinguished Elam (state-law suit where preemption was a defense) from this case, which fits the Shaw v. Delta Air Lines, Inc. and Planned Parenthood of Hou. & Se. Tex. v. Sanchez rule: a plaintiff seeking to enjoin state enforcement of a purportedly preempted law presents a federal question under 28 U.S.C. § 1331. The panel also cited Ex parte Young and Reed v. Goertz to underscore the doctrinal basis for prospective relief against state officials.

5) The presumption against preemption and police powers: Rice v. Santa Fe Elevator Corp. and Fifth Circuit doctrine

The panel invoked the “presumption against preemption,” especially strong in traditional state domains such as public health and consumer protection, citing Rice v. Santa Fe Elevator Corp. and the Fifth Circuit’s en banc decision in Franks Inv. Co. LLC v. Union Pac. R.R. Co.. Act 358 was characterized as fitting “comfortably” within daily state regulation of pharmacies and drug distribution.

6) Takings, Contracts, and vagueness frameworks

  • Takings: The court relied on Cedar Point Nursery v. Hassid to distinguish physical takings from regulation, and on Penn Cent. Transp. Co. v. City of New York (with Pa. Coal Co. v. Mahon) for the regulatory-takings balancing test.
  • Contracts Clause: The panel applied the two-step approach described in Sveen v. Melin, drawing on Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co. and distinguishing Allied Structural Steel Co. v. Spannaus.
  • Vagueness: The court applied civil-vagueness standards via Coates v. City of Cincinnati, Tex. Democratic Party v. Abbott, and Vill. of Hoffman Estates v. Flipside, Hoffman Estates, Inc., and used noscitur a sociis (with support from authorities including Yates v. United States) to interpret “interfere.”

B. Legal Reasoning

1) What Act 358 regulates (and what it does not)

A central move in the court’s reasoning is categorical: § 340B regulates pricing ceilings, covered-entity eligibility, and program integrity constraints (e.g., diversion, duplicate discounts, audits), but it does not regulate “delivery logistics” or “the role of pharmacies” in distributing drugs to patients. Act 358 occupies that left-open space by preventing manufacturer “interference” with covered entities’ chosen distribution arrangements through contract pharmacies.

2) Field preemption rejected: no “complete ouster of state power”

The panel emphasized that field preemption requires a clear congressional intent to occupy the field. Because § 340B is silent on contract-pharmacy delivery and distribution logistics, and because states have traditional authority over pharmacy practice and drug distribution, the court held that Act 358 is not field preempted.

3) Conflict and obstacle preemption rejected: no impossibility, no “unacceptable obstacle”

  • No “expansion” of covered entities: The court treated as “simply incorrect” the argument that Act 358 expands the class of 340B beneficiaries by forcing discounts to contract pharmacies. Contract pharmacies do not buy at the 340B price; covered entities purchase and retain title, while pharmacies dispense as intermediaries.
  • No clash with HHS’s enforcement exclusivity: While HHS is the sole enforcer of § 340B compliance, Louisiana enforces Act 358’s separate anti-interference obligations. The regimes address different subject matter; thus, there is no enforcement “overlap” creating a conflict.
  • Not a price-control statute: AstraZeneca’s obstacle-preemption theory—premised on Act 358 “regulat[ing] pricing”—failed because the statute regulates conduct (interference with acquisition/delivery), not price ceilings.
  • Congressional “balance” includes federalism choices: Citing Chamber of Com. of U.S. v. Whiting, the court reasoned that part of the federal statutory balance is Congress’s choice not to regulate delivery logistics—leaving that space to states unless Congress amends § 340B.

4) Spending Clause context: caution, not an implied preemption “ratchet”

In an important doctrinal aside, the court rejected the notion that because § 340B is spending-power legislation, state supplementation is more suspect. It cited the Moyle v. United States concurrence flagging the open question whether a spending-power statute operating on private parties can preempt state law, and invoked avoidance principles (with McClure v. Ashcroft) and a recent Supreme Court statement in Landor v. La. Dep't of Corr. & Pub. Safety. The upshot: nothing about the spending-power setting justified finding preemption here, especially given § 340B’s silence.

5) Takings: “non-interference” is not compelled transfer

Following AbbVie, Inc. v. Fitch, the court treated Act 358 as imposing a negative obligation (do not interfere) rather than a compelled transfer or forced sale beyond what § 340B already requires. For regulatory takings, the court found (i) limited economic impact given manufacturers still receive payment (albeit discounted), (ii) diminished “reasonable investment-backed expectations” because contract pharmacies have been part of 340B for decades, and (iii) a strong public-purpose character (access to medications for rural/low-income patients).

6) Contracts Clause: no substantial impairment of the PPA

The key step-one question under Sveen v. Melin is substantial impairment. The court concluded there was none because Act 358 does not change PPA terms and the PPAs are silent on delivery. Distinguishing Allied Structural Steel Co. v. Spannaus, the panel characterized Act 358 as non-retroactive contract rewriting and as regulation within traditional state police powers. Echoing Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., the court stressed that regulated-industry participants contract against the backdrop of foreseeable supplemental regulation.

7) Vagueness: “interfere” narrowed by context and facial-challenge standards

PhRMA’s focus on the breadth of “interfere” failed for two reasons. First, applying noscitur a sociis, the court read “interfere” alongside “deny, restrict, prohibit,” producing a workable anti-obstruction standard rather than an all-purpose ban on communications (like audit information requests). Second, under Vill. of Hoffman Estates v. Flipside, Hoffman Estates, Inc., a facial vagueness challenge to a civil statute outside the First Amendment requires vagueness in all applications; because refusal to deliver to a contract pharmacy is plainly covered, the facial challenge could not succeed.

C. Impact

  • Reinforces a Fifth Circuit rule permitting state “contract pharmacy protection” statutes: Together with AbbVie, Inc. v. Fitch, this decision entrenches (within the Fifth Circuit) the principle that § 340B’s silence on delivery logistics leaves room for state anti-interference laws.
  • Separates “agency lack of authority” from “state lack of authority”: The opinion’s most portable doctrinal contribution is its clarification that federal-court holdings limiting HHS under § 340B (e.g., Sanofi Aventis U.S. LLC v. U.S. Dep't of Health & Hum. Servs., Novartis Pharms. Corp. v. Johnson) do not imply that states are preempted from regulating the same practical subject matter via police powers.
  • Limits constitutional litigation avenues: By rejecting takings, Contracts Clause, and vagueness challenges, the court signaled that the principal battleground is legislative (Congress amending § 340B) rather than constitutional.
  • Practical consequence for manufacturers’ distribution policies: In states with similar statutes, manufacturers’ unilateral restrictions on contract-pharmacy delivery risk state enforcement under unfair trade practices regimes, even though federal law does not itself compel unlimited contract-pharmacy delivery.

4. Complex Concepts Simplified

  • 340B “covered entities”: Clinics/hospitals serving vulnerable populations that can buy certain outpatient drugs at a capped “ceiling price.”
  • Contract pharmacy: A third-party pharmacy that dispenses drugs on behalf of a covered entity, often because the covered entity lacks an in-house pharmacy.
  • Preemption (field vs. conflict vs. obstacle):
    • Field preemption: Congress fully occupies a regulatory field, leaving no room for states.
    • Conflict preemption: It is impossible to comply with both state and federal law.
    • Obstacle preemption: State law stands as an “unacceptable obstacle” to Congress’s objectives.
  • Ex parte Young suit: A way to sue state officials in federal court for prospective injunctive/declaratory relief to stop enforcement of an allegedly unconstitutional or preempted state law.
  • Physical vs. regulatory taking: A physical taking involves compelled physical occupation/appropriation; a regulatory taking asks (under Penn Central) whether a regulation’s burden is so severe it effectively requires compensation.
  • Contracts Clause “substantial impairment”: Not every law affecting a contract is unconstitutional; courts first ask whether the law substantially rewrites the bargain and upends reasonable expectations.
  • Void-for-vagueness: A law is unconstitutional if people of common intelligence must guess what it means; in civil cases, the standard is especially demanding, and facial challenges generally fail if the law clearly covers core conduct.
  • Noscitur a sociis: A word’s meaning is informed by neighboring terms—here, “interfere” is narrowed by “deny, restrict, prohibit.”

5. Conclusion

AbbVie v. Murrill cements a federalism-centered rule for the 340B landscape: because § 340B is silent on contract-pharmacy delivery and drug-distribution logistics, states may fill that space with anti-interference statutes regulating pharmacy distribution without triggering field, conflict, or obstacle preemption. The decision further narrows constitutional off-ramps for manufacturers—rejecting takings, Contracts Clause, and vagueness theories—and clarifies that federal judicial limits on HHS’s § 340B authority do not translate into implied limits on state police power. In practical terms, the Fifth Circuit has aligned itself with a growing appellate consensus that treats contract-pharmacy delivery as a domain Congress left open to state regulation unless and until Congress speaks more directly.