Spending-Power Bargain Preemption: States May Not Add Conditions to the Federal 340B Manufacturer–Covered Entity Relationship

1. Introduction

This decision addresses whether a State may use its police powers to impose additional obligations on drug manufacturers because they participate in the federal 340B Drug Pricing Program, a statutory scheme Congress created as part of the Medicaid drug-financing architecture. The plaintiffs include the trade association Pharmaceutical Research and Manufacturers of America and several manufacturers (including AbbVie-related entities and Novartis). The defendants are West Virginia officials charged with enforcing West Virginia S.B. 325 (codified at W. Va. Code § 60A-8-6a), including the Attorney General, Board of Pharmacy members, and the Insurance Commissioner.

The central dispute arises from the national controversy over “contract pharmacies” in 340B: covered entities (safety-net providers) often lack in-house pharmacies and therefore contract with retail/specialty pharmacies to dispense drugs on their behalf. Manufacturers, concerned about diversion and duplicate discounts, adopted policies limiting contract-pharmacy delivery and/or requiring claims/utilization data as a condition of delivery. After federal appellate decisions held that § 340B is “silent about delivery” and does not compel delivery to unlimited contract pharmacies, West Virginia enacted S.B. 325 to forbid manufacturers from (i) restricting delivery to locations authorized by a 340B entity and (ii) conditioning delivery on submission of claims/utilization data.

The key legal issue on appeal was whether federal law likely preempts S.B. 325, justifying the extraordinary remedy of a preliminary injunction. The Fourth Circuit held the manufacturers were likely to succeed on preemption and that the remaining Winter factors also supported an injunction.

2. Summary of the Opinion

The majority frames 340B as a federal “bargain” in two senses: a spending-power “contract-like” agreement and a discount “bargain price.” West Virginia’s statute, in the court’s view, does not merely regulate pharmacies or drug distribution generally; it “directly and exclusively targets” entities by virtue of their participation in the federal 340B scheme and attempts to “reshape the contractual bargain Congress made with private manufacturers.”

The Fourth Circuit affirms the preliminary injunction on the ground that S.B. 325 is likely preempted because:

• Field/structural intrusion: By singling out 340B participants and altering the federally created manufacturer–covered entity relationship, West Virginia intrudes into a “federal domain” tied to Congress’s spending-power bargain with non-state entities.
• Operational conflicts: S.B. 325 likely interferes with HHS’s exclusive enforcement role under 340B and with federal mechanisms involving offers, dispute resolution, and audits, including the federal ADR framework (as updated in 2024) and audit-related information needs.

The court also holds the district court did not abuse its discretion in finding irreparable harm and that the balance of equities and public interest favored the injunction. The majority expressly declines to reach the Takings Clause theory because likely success on one claim suffices.

3. Analysis

3.1 Precedents Cited (and How They Shape the Decision)

A. Spending Clause “contract” framing and the “bargain” concept

• Medina v. Planned Parenthood S. Atl., 606 U.S. 357 (2025): Cited for the proposition that Medicaid is a classic “bargain” and that Congress can structure spending-power arrangements as agreements. The majority uses Medina to emphasize that 340B sits within an interconnected set of bargains: (i) the federal–state Medicaid funding bargain and (ii) the federal–manufacturer 340B bargain.
• Cummings v. Premier Rehab Keller, P.L.L.C., 596 U.S. 212 (2022); Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1 (1981); Gebser v. Lago Vista Indep. Sch. Dist., 524 U.S. 274 (1998): These are used to ground the “spending power operates based on consent” and “contract analogy.” The majority’s doctrinal move is to treat interference with the federally offered bargain as a preemption-relevant harm even where the federal statute leaves some terms unspoken.
• Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012): Used to note anti-coercion limits and contextualize why the design of spending programs matters.
• N.Y. State Dep't of Soc. Servs. v. Dublino, 413 U.S. 405 (1973): Invoked to contrast “cooperative federalism” programs—where States supplement federal conditions— with bargains between Congress and non-state entities, where state “interventions” can constitute interference.
• Lawrence Cnty. v. Lead-Deadwood Sch. Dist. No. 40-1, 469 U.S. 256 (1985): A cornerstone for the majority’s anti-commandeering-by-condition logic: a State may not append conditions that substantially interfere with Congress’s funding bargain with a different recipient. The majority analogizes: Congress made the bargain with manufacturers; West Virginia cannot “add its own downsides, without offering any additional upside to compensate.”

B. 340B’s structure, enforcement exclusivity, and contract pharmacy litigation

• Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110 (2011): Cited for two key points: (i) HHS is the “sole enforcer” of § 340B, and (ii) PPAs are not ordinary “bargained-for contracts.” The majority uses Astra to strengthen its view that State enforcement mechanisms in this space threaten national uniformity and intrude upon Congress’s chosen enforcement architecture.
• Sanofi Aventis U.S. LLC v. U.S. Dep't of Health and Hum. Servs., 58 F.4th 696 (3d Cir. 2023): Quoted for the conclusion that § 340B is “silent about delivery” and that the program imposes a price term while leaving non-price terms to negotiation. The Fourth Circuit treats Sanofi as settling that HHS could not compel unlimited contract-pharmacy delivery and then reads West Virginia’s statute as a state attempt to obtain “the very result HHS could not mandate.”
• Novartis Pharm. Corp. v. Johnson, 102 F.4th 452 (D.C. Cir. 2024): Used similarly to Sanofi to confirm statutory silence and to highlight the idea of “bona fide offer.” The majority uses this both to show what federal law requires (a bona fide offer at/under ceiling price) and to argue that disputes over whether conduct undermines the “offer” are already federally policed—leaving States no room to create parallel regimes.
• Pharm. Rsch. & Mfrs. of Am. v. Walsh, 538 U.S. 644 (2003): Used for background on the Medicaid Drug Rebate Program and as an example of Congress allowing States to use prior authorization leverage to negotiate discounts—contrasted with 340B, where the majority reads no similar invitation for state supplementation.

C. Preemption architecture and the “federal domain” concept

• Murphy v. Nat'l Collegiate Athletic Ass'n, 584 U.S. 453 (2018): Used for dual sovereignty framing and basic Supremacy Clause principles.
• North Dakota v. United States, 495 U.S. 423 (1990); United States v. Washington, 596 U.S. 832 (2022): Cited for intergovernmental-immunity principles and the idea that States may not regulate or discriminate against the federal government or those with whom it deals. The majority does not apply intergovernmental immunity as controlling, but uses its animating concerns as an “analogous scenario” lens to view state targeting of federal-program participants.
• Goodyear Atomic Corp. v. Miller, 486 U.S. 174 (1988); Boeing Co. v. Movassaghi, 768 F.3d 832 (9th Cir. 2014): Cited for the proposition that the more directly a State targets federal functions, the less Congress must say to displace state law.
• Bates v. Dow Agrosciences LLC, 544 U.S. 431 (2005); Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996): Cited on the presumption against preemption.
• GenBioPro, Inc. v. Raynes, 144 F.4th 258 (4th Cir. 2025); United States v. Locke, 529 U.S. 89 (2000): Crucial to the majority’s refusal to apply the presumption against preemption where a State “targets a federal domain” or regulates in an area of significant federal presence. The majority characterizes S.B. 325 as not traditional health/safety regulation but as regulation of the federal relationship itself, making GenBioPro central to the “no presumption” conclusion.
• Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341 (2001): Used to analogize S.B. 325 to state-law intrusion into a federal agency–regulated entity relationship, deemed “inherently federal in character.”
• Kansas v. Garcia, 589 U.S. 191 (2020); Arizona v. United States, 567 U.S. 387 (2012); English v. Gen. Elec. Co., 496 U.S. 72 (1990); Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363 (2000); Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947); Va. Uranium, Inc. v. Warren, 587 U.S. 761 (2019): These supply the taxonomy of express/field/conflict preemption and the method for identifying “the field” by what the State “did” and the “actual effect.” The majority uses these to (i) define the field as 340B program requirements because S.B. 325 only operates by reference to § 256b participation and definitions, and (ii) conclude Congress “ousted” States from that field.
• Chamber of Com. of U.S. v. Whiting, 563 U.S. 582 (2011); Dawson v. Steager, 586 U.S. 171 (2019); Hillsborough Cnty v. Automated Med. Lab'ys, Inc., 471 U.S. 707 (1985): Cited to illustrate contrasts—state laws of general applicability or traditional health regulation that only incidentally affect federal programs.

D. Preliminary injunction standards

• Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008): The four-factor preliminary injunction test.
• Am. Fed'n of Tchrs. v. Bessent, 152 F.4th 162 (4th Cir. 2025): Clarifies the burden for preliminary injunctions and that all factors must be satisfied to grant.
• Air Evac EMS, Inc. v. McVey, 37 F.4th 89 (4th Cir. 2022); Mountain Valley Pipeline, LLC v. 6.56 Acres of Land, 915 F.3d 197 (4th Cir. 2019); Leaders of a Beautiful Struggle v. Balt. Police Dep't, 2 F.4th 330 (4th Cir. 2021); Pierce v. N.C. State Bd. of Elections, 97 F.4th 194 (4th Cir. 2024); Nken v. Holder, 556 U.S. 418 (2009): Provide standards of review and explain equities/public interest considerations.
• Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991); Moreno v. Bosholm, 151 F.4th 543 (4th Cir. 2025): Cited to justify the court’s ability to apply the proper governing law even if parties did not emphasize the spending-power framing; this point also responds to the dissent’s “party presentation” objection.

3.2 Legal Reasoning

A. Re-characterizing the “field”: not “drug delivery” generally, but state-imposed conditions on a federally created relationship

The opinion’s decisive move is definitional: it rejects describing S.B. 325 as a general “pharmacy regulation.” The statute’s operative scope is tethered to federal 340B participation: it defines “340B drug” and “340B entity” by express reference to 42 U.S.C. § 256b, and its prohibitions activate only when manufacturers are making “any offer” under § 340B and dealing with “covered entities.” Accordingly, the majority treats the statute’s “actual effect” as a targeted attempt to re-write non-price terms of the 340B offer.

B. Why “spending-power bargain” design matters (in the majority’s view)

The court distinguishes two types of spending-power arrangements:

• Federal–State bargains (cooperative federalism): where States are counterparties and may be invited to supplement federal conditions.
• Federal bargains with non-state entities: where state “interventions” risk “substantial interference” by appending conditions to a bargain Congress struck with a different recipient.

On that theory, S.B. 325 is problematic not merely because it touches a federally regulated topic, but because it imposes additional burdens only on those who opted into the federal program—effectively changing the cost-benefit calculus Congress set to induce participation.

C. Preemption conclusions: structural “ousting” plus operational conflicts

The majority articulates two overlapping routes to likely preemption:

• Structural/field intrusion: Congress “ousted” the States from this domain because allowing States to add program-participation conditions would undermine Congress’s ability to offer uniform bargains and would let States “reshape” the federal deal whenever dissatisfied.
• Operational conflict: S.B. 325 likely interferes with HHS’s exclusive enforcement authority (from Astra) and with federal mechanisms addressing whether an “offer” is bona fide and whether delivery limitations constitute an “overcharge claim” under the broadened ADR definition in 42 C.F.R. § 10.21(a)(1). The court also stresses audit practicality: manufacturers may need claims/utilization data to substantiate diversion/duplicate discount concerns, yet S.B. 325 bars conditioning delivery on such data.

D. The preliminary injunction factors

Having found likely preemption, the court affirms the district court’s remaining Winter findings:

• Irreparable harm: imminent enforcement risk plus unrecoverable penalties (including $50,000 per package-level violation) and compliance costs create a “Hobson’s choice.”
• Equities & public interest: States have little cognizable harm in being restrained from enforcing likely-preempted laws; West Virginia’s asserted patient-impact harms were treated as insufficiently developed on this record.

3.3 Impact

A. A doctrinal pivot in 340B preemption litigation

The majority identifies an existing nationwide split (notably referencing AbbVie, Inc. v. Fitch, 152 F.4th 635 (5th Cir. 2025) and Pharm. Rsch. & Mfrs. of Am. v. McClain, 95 F.4th 1136 (8th Cir. 2024)), and explicitly rejects their “delivery-not-price” framing. The Fourth Circuit’s approach makes targeting—i.e., regulating only by virtue of 340B participation—central to the preemption analysis.

B. Broader federalism consequences beyond 340B

By grounding preemption in the integrity of federal spending-power bargains with private entities, the reasoning potentially reaches other federal programs that use participation conditions to shape private conduct. The opinion signals that even where Congress leaves terms “blank” (as Sanofi and Novartis say about delivery), States may not treat those blanks as permission to impose their own program-participation conditions, at least where the state law is not generally applicable and instead is keyed to the federal relationship itself.

C. Litigation incentives and enforcement architecture

The decision strengthens arguments that state-level enforcement regimes (civil penalties, restitution, state AG actions) are preempted when they functionally adjudicate whether federal program duties were satisfied (e.g., whether “any offer” was made). It also raises the stakes of federal ADR regulations—especially the expanded definition of “overcharge claims” to include limitations on the “ability to purchase” at or below the ceiling price.

4. Complex Concepts Simplified

• 340B ceiling price: A federally calculated maximum price (“ceiling”) that participating manufacturers must offer to “covered entities” for certain outpatient drugs.
• Covered entity: A safety-net provider category listed in § 340B (e.g., certain hospitals and clinics) eligible to buy at the 340B price.
• Contract pharmacy: A third-party pharmacy that dispenses drugs on behalf of a covered entity that lacks an in-house pharmacy.
• Diversion: Reselling/transferring 340B-priced drugs to nonpatients (forbidden by § 256b(a)(5)(B)).
• Duplicate discount: Receiving both a 340B discount and a Medicaid rebate on the same drug transaction (forbidden by § 256b(a)(5)(A)).
• Preemption (field vs. conflict):
  • Field preemption: Congress is understood to have reserved a regulatory area to federal control, so States cannot regulate there—even consistently.
  • Conflict preemption: State law either makes compliance with federal law impossible or stands as an obstacle to federal objectives.
• Spending-power “bargain”: The idea that Congress can offer benefits (funds, market access) in exchange for accepting conditions; the majority treats state-added conditions on that bargain as a distinctive kind of federal interference.

5. Conclusion

The Fourth Circuit’s published decision establishes (at least at the preliminary-injunction stage) a significant rule for 340B and potentially other federal programs: when a State imposes obligations only on participants in a federal spending-power program—thereby altering the federally struck bargain with non-state entities—such a law is likely preempted. The court’s analysis deemphasizes the familiar “price vs. delivery” dichotomy and instead treats the statute’s participation-based targeting, its interference with HHS’s exclusive enforcement role, and its disruption of federal compliance mechanisms as the core preemption problems.

The dissent argues the majority improperly reframed the case around the Spending Clause without party briefing and would have applied a traditional presumption against preemption, treating S.B. 325 as a health-and-safety delivery regulation. The resulting divide tees up continued circuit-level conflict over whether state “contract pharmacy protection” laws can coexist with § 340B’s silence on delivery.