States May Not Add Conditions to the Federal 340B Spending-Power Bargain: Targeted “Contract-Pharmacy Delivery” Mandates Are Likely Preempted

I. Introduction

The Fourth Circuit’s published decision addresses a fast-growing clash between States and drug manufacturers over the federal 340B Drug Pricing Program, 42 U.S.C. § 256b. West Virginia enacted S.B. 325 (W. Va. Code § 60A-8-6a) to prevent participating manufacturers from (i) limiting delivery of 340B-priced drugs to locations authorized by 340B entities (including contract pharmacies) and (ii) requiring claims or utilization data as a condition of delivery.

The plaintiffs—PhRMA and multiple manufacturers—contended that S.B. 325 is preempted because it attempts to force manufacturers to provide 340B drugs to an unlimited number of contract pharmacies and curtails manufacturers’ ability to obtain data needed to police diversion and duplicate discounts. West Virginia defended the statute as an ordinary pharmacy/healthcare regulation about “delivery,” not “price,” especially in light of federal appellate decisions holding § 340B is “silent about delivery.”

The key issue became not merely whether S.B. 325 touches “delivery,” but whether a State may single out federal-program participants and thereby reshape the federal bargain itself—a question the majority treats as structurally different in the spending-power context.

II. Summary of the Opinion

Judge Richardson (joined by Judge Rushing) affirmed a preliminary injunction, holding manufacturers are likely to succeed on their claim that S.B. 325 is preempted. The majority frames § 340B as a “spending-power bargain” (a contract-like exchange) between the federal government and private manufacturers: access to the Medicaid market in exchange for statutorily defined discounts to covered entities, accompanied by federal restrictions (e.g., diversion and duplicate-discount prohibitions) and a federal enforcement scheme.

West Virginia, dissatisfied with how that bargain operates after litigation rejecting HHS’s attempt to compel broad contract-pharmacy delivery, enacted S.B. 325 to add conditions to manufacturers’ participation. The majority holds Congress has “ousted” States from this “field” because S.B. 325 targets only those who participate in the federal 340B arrangement and changes the terms of that federally created relationship. It also finds likely “operational” interference with HHS’s exclusive enforcement role under Astra USA, Inc. v. Santa Clara Cnty., and with audit/dispute-resolution mechanisms.

On the remaining Winter factors, the court finds irreparable harm from imminent enforcement and unrecoverable penalties/compliance costs, and concludes equity and public interest favor enjoining likely unconstitutional enforcement.

Judge Benjamin dissented, faulting the majority for relying on a “spending power” framework not argued by the parties, and for departing from other circuits that have upheld similar state laws as non-preempted “delivery” regulations.

III. Analysis

A. Precedents Cited (and How They Shaped the Decision)

• Medina v. Planned Parenthood S. Atl., 606 U.S. 357 (2025) and Cummings v. Premier Rehab Keller, P.L.L.C., 596 U.S. 212 (2022) (with Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1 (1981) and Gebser v. Lago Vista Indep. Sch. Dist., 524 U.S. 274 (1998)): These cases supply the majority’s foundational move: spending-power statutes “operate based on consent” and are “in what amounts essentially to a contract.” The court uses this contract analogy not for remedies (as in Cummings) but to characterize what it means for a State to impose additional terms on a federal bargain made with non-state entities.
• Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110 (2011): Central to the majority’s “operational interference” analysis. Astra recognizes that Congress made HHS the “sole enforcer” of § 340B. The Fourth Circuit leans on that exclusivity to argue that state enforcement regimes—though nominally enforcing state duties—intrude into a federally administered compliance and dispute system.
• Sanofi Aventis U.S. LLC v. U.S. Dep't of Health and Hum. Servs., 58 F.4th 696 (3d Cir. 2023) and Novartis Pharm. Corp. v. Johnson, 102 F.4th 452 (D.C. Cir. 2024): These decisions held § 340B is “silent about delivery,” limiting HHS’s power to mandate unlimited contract-pharmacy distribution. The majority treats these cases as proving that West Virginia’s statute is not “filling a gap” Congress left to States; rather, it is imposing a requirement that federal law does not demand—thus altering the federal bargain. Novartis is also used to show HHS retains authority to police whether manufacturers make “at least a bona fide offer,” so States are not needed to ensure baseline functionality.
• Lawrence Cnty. v. Lead-Deadwood Sch. Dist. No. 40-1, 469 U.S. 256 (1985): The majority’s key analogy. In Lawrence County, South Dakota could not redirect federal payments that Congress gave local governments to use for “any governmental purpose.” The Fourth Circuit draws a broader principle: when Congress strikes a spending-power bargain with non-state entities, States may not “append” additional conditions that “substantially interfere” with Congress’s arrangement. This case underwrites the opinion’s concept of “uninvited” state additions to federal bargains.
• Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341 (2001): Used to reject (or at least weaken) the presumption against preemption. The majority reasons that S.B. 325 injects the State into “the relationship between a federal agency and the entity it regulates,” which is “inherently federal in character,” like fraud-on-the-FDA claims in Buckman.
• GenBioPro, Inc. v. Raynes, 144 F.4th 258 (4th Cir. 2025): Supplies the majority’s method for defining the relevant “field” by the state law’s text and effect, not by a tautological restatement of the federal statute. The majority distinguishes GenBioPro (a state rule with downstream effects on a federally regulated drug) from S.B. 325 (a statute that applies only by virtue of participation in the federal program).
• Murphy v. Nat'l Collegiate Athletic Ass'n, 584 U.S. 453 (2018), North Dakota v. United States, 495 U.S. 423 (1990), and United States v. Washington, 596 U.S. 832 (2022): These cases anchor the Supremacy Clause framework and the intergovernmental-immunity discussion. Although the court does not decide the case on immunity, it borrows the doctrine’s “targeting federal functions” instincts to justify heightened skepticism toward S.B. 325’s program-participant-specific burdens.
• 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), Kansas v. Garcia, 589 U.S. 191 (2020), Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947), Va. Uranium, Inc. v. Warren, 587 U.S. 761 (2019): These authorities supply preemption taxonomy (express/field/conflict), the fluidity between categories, and the idea that “specific conflicts” can underscore field preemption.
• Preliminary-injunction standards: Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008), Air Evac EMS, Inc. v. McVey, 37 F.4th 89 (4th Cir. 2022), Mountain Valley Pipeline, LLC v. 6.56 Acres of Land, Owned by Sandra Townes Powell, 915 F.3d 197 (4th Cir. 2019), Leaders of a Beautiful Struggle v. Balt. Police Dep't, 2 F.4th 330 (4th Cir. 2021): These cases structure the court’s affirmance on irreparable harm, equities, and public interest.

B. Legal Reasoning

1. Reframing the “delivery vs. price” debate as a “bargain interference” problem.
The majority’s decisive move is conceptual: S.B. 325 is not treated as a neutral healthcare regulation that incidentally affects a federally regulated market. Instead, because S.B. 325 defines its targets by cross-reference to § 256b (“340B drug,” “covered entity,” participation in the federal program), the statute is treated as one that exists only because the federal spending-power arrangement exists. On this view, West Virginia is not regulating pharmacies generally; it is regulating the terms on which private parties perform a federally created exchange.

2. “Ousting” States from the field: the field is the 340B relationship itself.
The court defines the relevant “field” by what S.B. 325 does: it “directly changes the terms” of the federal 340B relationship and “springs obligations on manufacturers specifically by virtue of their participation in a federal program.” That is why the majority finds the presumption against preemption inapplicable: the State is not exercising traditional police power in a general way, but “targets a federal domain.”

3. Spending-power structure matters: States cannot unilaterally add terms to Congress’s deal with private actors.
Relying heavily on the “contract” analogy from Cummings and Pennhurst, and on Lawrence County, the majority reasons that Congress struck a “careful bargain” with manufacturers: participate in Medicaid and 340B, and provide specified discounts (and accept federal compliance constraints) in exchange for access to a massive market. Because federal courts had already concluded Congress did not require unlimited contract-pharmacy delivery (per Sanofi and Novartis), West Virginia’s statute is cast as adding “downsides” without additional “upside.” The constitutional problem, as the majority frames it, is not merely that the State regulates in an adjacent area, but that it changes the attractiveness and uniformity of Congress’s incentive structure.

4. Operational conflicts reinforce preemption.
Even apart from the “field” theory, the majority identifies practical clashes:

• Exclusive federal enforcement: Because Congress made HHS the sole enforcer (Astra), state officials necessarily intrude when they must decide whether there has been an “offer” under § 340B (a predicate for S.B. 325 liability).
• ADR/overcharge framing: The court points to 42 C.F.R. § 10.21(a)(1) (as revised in 2024) and the broadened concept of “overcharge claims” including assertions that “a manufacturer has limited the covered entity's ability to purchase” at or below ceiling price, suggesting overlap between state enforcement and federal dispute resolution.
• Audits and data: Because diversion/duplicate-discount policing requires “reasonable cause” and documentation, the court views S.B. 325’s data-condition ban as hampering manufacturers’ ability to gather the information needed to trigger audits and pursue federal remedies.

5. Preliminary injunction affirmed under the Winter framework.
The majority accepts unrecoverable penalty exposure ($50,000 per package/violation) and compliance costs as irreparable harm, notes imminent enforcement, and concludes equities and the public interest favor enjoining likely unconstitutional state action.

C. Impact

1. A new Fourth Circuit template for preemption in “federal program participant” statutes.
The decision’s most consequential doctrinal contribution is its rule-like emphasis that when a state law:

• applies only because an entity participates in a federal spending-power program, and
• functions to add (or subtract) conditions to the federal exchange,

then preemption analysis shifts away from ordinary “traditional police power” presumptions and toward the protection of the federal bargain’s uniformity. This approach could extend beyond 340B to other federal programs where participation is voluntary but structured by uniform federal terms.

2. Deepening the inter-circuit conflict over 340B delivery statutes.
The majority explicitly acknowledges contrary outcomes elsewhere, citing:

• AbbVie, Inc. v. Fitch, 152 F.4th 635 (5th Cir. 2025)
• Pharm. Rsch. & Mfrs. of Am. v. McClain, 95 F.4th 1136 (8th Cir. 2024)

and contrasting a district court decision finding preemption (AbbVie, Inc. v. Drummond, No. CIV-25-726, 2025 WL 3048929 (W.D. Okla. Oct. 31, 2025)). By rejecting the “delivery vs. price” framing and focusing on “targeting federal program participants,” the Fourth Circuit creates a sharper doctrinal split that increases the likelihood of Supreme Court review—especially because many States have enacted materially similar laws.

3. Federalism and administration: insulating HHS’s enforcement design.
The opinion treats uniform administration as part of the federal “field” even when the underlying statutory term (delivery) is not comprehensively regulated. If adopted more broadly, this reasoning strengthens arguments that States cannot create parallel enforcement systems that require state decisionmakers to interpret predicates central to federal enforcement (e.g., what constitutes a compliant “offer,” “purchase,” or program-defined status).

4. Practical effects for stakeholders.
In the Fourth Circuit, States face heightened risk that statutes compelling manufacturers to ship to contract pharmacies (or prohibiting data conditions) will be enjoined as likely preempted. Manufacturers gain leverage to set at least some delivery and data terms (so long as they continue to make “bona fide” 340B offers). Covered entities and contract pharmacies, meanwhile, may see greater variability in access depending on negotiated terms and HHS’s enforcement stance, rather than uniform state mandates.

IV. Complex Concepts Simplified

• “Spending-power bargain”: Congress can offer benefits (money, market access, reimbursements) in exchange for conditions. Courts often describe this as contract-like: accept the deal, and you accept its terms.
• “Field preemption”: Even without an express preemption clause, a State can be blocked from regulating in an area Congress meant to control exclusively. Here, the “field” is not “pharmacy delivery” broadly; the majority treats it as “the federally created 340B relationship and its terms.”
• “Conflict/obstacle preemption”: Even if a State is not in an exclusively federal field, a state law can be invalid if it makes it impossible to comply with federal law or if it obstructs Congress’s objectives.
• “Intergovernmental immunity” (discussed but not applied): A doctrine that bars States from regulating the federal government directly or discriminating against it or its contractors. The majority uses it as an analogy: the more a state law targets federal operations, the less tolerance there is for state interference.
• “Contract pharmacies” in 340B: Pharmacies that dispense drugs on behalf of covered entities that may not have in-house pharmacies. The core dispute is whether manufacturers must ship 340B-priced drugs to multiple/unlimited contract pharmacies.
• “Diversion” and “duplicate discounts”: Federal limits preventing covered entities from reselling 340B drugs to nonpatients (diversion) and from obtaining both a 340B discount and a Medicaid rebate for the same drug (duplicate discount).

V. Conclusion

The Fourth Circuit’s majority opinion establishes a significant (and contested) preemption principle for 340B-related state legislation: when a State singles out participants in a federal spending-power program and attempts to add terms to the federal exchange—here, mandatory delivery to locations authorized by 340B entities and limits on data conditions—it likely intrudes into a federally “ousted” field and interferes with HHS’s exclusive enforcement architecture under Astra USA, Inc. v. Santa Clara Cnty.

The dissent underscores both methodological concerns (party presentation) and the national litigation landscape, where other circuits have upheld similar statutes as traditional delivery regulations in a domain of state police power. That sharp divergence, together with the opinion’s novel “bargain interference” framing, positions this dispute as a prime candidate for further appellate and Supreme Court attention.