States May Not Add Delivery/Data Conditions to the Federal 340B Spending-Power Bargain: Targeted 340B-Participant Statutes Are Likely Preempted

1. Introduction

In Pharmaceutical Research and Manufacturers of America v. John B. McCuskey (consolidated with actions brought by AbbVie, Incorporated and Novartis Pharmaceuticals Corporation), the Fourth Circuit reviewed a preliminary injunction blocking enforcement of West Virginia’s S.B. 325, codified at W. Va. Code § 60A-8-6a. The plaintiffs—drug manufacturers and an industry trade association—challenged the statute as preempted by federal law governing the 340B Drug Pricing Program, 42 U.S.C. § 256b.

The key dispute was whether West Virginia could, by state law, require 340B-participating manufacturers to (i) deliver 340B drugs to locations (including contract pharmacies) authorized by 340B entities and (ii) refrain from conditioning delivery on the submission of claims/utilization data—despite federal courts holding that the 340B statute is “silent about delivery” and does not itself compel delivery to unlimited contract pharmacies.

The Fourth Circuit affirmed the injunction, holding S.B. 325 is likely preempted because it targets and reshapes the federal spending-power “bargain” Congress struck with non-state entities (manufacturers) and interferes with HHS’s exclusive enforcement and the program’s operational mechanisms.

2. Summary of the Opinion

Judge Richardson (joined by Judge Rushing) affirmed the district court’s grant of a preliminary injunction. The majority concluded:

  • Likelihood of success on the merits: S.B. 325 is likely preempted because it intrudes on the field of the federal 340B bargain and also conflicts operationally with the federally centralized enforcement scheme.
  • Irreparable harm: manufacturers face imminent, unrecoverable penalties or unrecoverable compliance costs (a “Hobson’s choice”).
  • Equities and public interest: enjoining likely-unconstitutional state action causes minimal cognizable state harm; patient access to the underlying drugs is not directly impaired by the injunction; West Virginia’s asserted harms were too speculative on the record.

Judge Benjamin dissented, arguing the majority departed from the “principle of party presentation,” improperly introduced a spending-power-centered preemption framework not argued by the parties, and misapplied ordinary preemption principles. In the dissent’s view, S.B. 325 is a traditional health-and-safety/pharmacy regulation in a sphere where § 340B is silent, so the presumption against preemption should apply and preemption should fail.

3. Analysis

3.1. Precedents Cited

A. Spending Clause as “contract” and notice/consent concepts

  • Medina v. Planned Parenthood S. Atl., 606 U.S. 357 (2025): Cited for Medicaid as a federal-state “bargain,” and for framing Spending Clause enactments as consent-based arrangements. The majority uses Medina to characterize the integrated Medicaid/340B architecture as a set of bargains with distinct counterparties (states vs. manufacturers).
  • Cummings v. Premier Rehab Keller, P.L.L.C., 596 U.S. 212 (2022): Supports the principle that Spending Clause legislation operates like a contract; the majority uses this to justify treating 340B obligations as “bargain” terms and to frame West Virginia’s law as an attempted unilateral rewrite of that bargain.
  • Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1 (1981) and Gebser v. Lago Vista Indep. Sch. Dist., 524 U.S. 274 (1998): Reinforce the “contract” analogy and consent premise; they underpin the majority’s view that the 340B scheme is centrally federal and depends on predictable, nationally uniform terms.
  • Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012): Used to emphasize the anti-coercion principle as a sovereignty-protecting feature of federal-state spending bargains; the majority contrasts that cooperative-federalism context with federal bargains made directly with private entities.

B. Supremacy Clause structure, targeting, and the presumption against preemption

  • Murphy v. Nat'l Collegiate Athletic Ass'n, 584 U.S. 453 (2018): Provides the dual-sovereignty baseline and the idea that state laws cannot interfere with federal prerogatives.
  • North Dakota v. United States, 495 U.S. 423 (1990) and United States v. Washington, 596 U.S. 832 (2022): Provide intergovernmental-immunity concepts; the majority does not apply immunity directly but uses it analogically to scrutinize state laws that “single out” federal relationships.
  • Goodyear Atomic Corp. v. Miller, 486 U.S. 174 (1988) and Boeing Co. v. Movassaghi, 768 F.3d 832 (9th Cir. 2014): Cited for the idea that the more directly a state targets federal functions, the less Congress must say to displace it.
  • Bates v. Dow Agrosciences LLC, 544 U.S. 431 (2005) and Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996): Provide the traditional presumption against preemption in areas of historic state regulation; the majority distinguishes those contexts by characterizing S.B. 325 as not an ordinary health-and-safety regulation, but as regulation of a federally created relationship.
  • GenBioPro, Inc. v. Raynes, 144 F.4th 258 (4th Cir. 2025) and United States v. Locke, 529 U.S. 89 (2000): GenBioPro supplies the majority’s limiting principle: the presumption against preemption is not triggered where the state regulates an area with significant federal presence or “targets a federal domain.” The majority treats S.B. 325 as facially targeting a federal domain because it operates only by reference to § 256b participation.
  • Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341 (2001): Central to the majority’s anti-presumption move. Buckman held states cannot intrude into the “relationship between a federal agency and the entity it regulates.” The majority analogizes S.B. 325 to Buckman because it inserts West Virginia into HHS’s 340B regulatory relationship with manufacturers and covered entities.

C. Preemption taxonomy and “field” framing

  • 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), and Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363 (2000): Provide the conceptual framework: express/field/conflict preemption and their overlap. The majority uses these cases to justify field preemption-like reasoning supported by “specific conflicts” that “underscore” why the field is preempted.
  • Va. Uranium, Inc. v. Warren, 587 U.S. 761 (2019): Used for the proposition that field definition depends on “what the State did, not why it did it.” This supports the majority’s move to define the relevant field by the actual operative scope of S.B. 325: it regulates only 340B-participating manufacturers acting within 340B transactions.

D. Spending-bargain interference and “non-state recipient” cases

  • N.Y. State Dep't of Soc. Servs. v. Dublino, 413 U.S. 405 (1973): Used to describe cooperative-federalism schemes in which states may supplement federal conditions.
  • Lawrence Cnty. v. Lead-Deadwood Sch. Dist. No. 40-1, 469 U.S. 256 (1985): A cornerstone for the majority’s “bargain interference” principle. Lawrence County held a state may not add conditions that “substantial[ly] interfere” with Congress’s grant to a non-state recipient. The majority analogizes S.B. 325 to South Dakota’s attempt to redirect federal funds: West Virginia is unilaterally appending conditions to a federal bargain with private manufacturers.

E. 340B-specific enforcement and contract pharmacy litigation

  • Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110 (2011): Central to the majority’s “exclusive enforcement” theory. Astra held Congress made HHS the sole enforcer of § 340B; the majority treats S.B. 325 as an unauthorized, state-created enforcement/supplementation mechanism in the same program space.
  • 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): Used for two critical propositions:
    1. § 340B is “silent about delivery” and does not require manufacturers to ship to unlimited contract pharmacies; and
    2. the statutory “offer … for purchase” language is best read in contract-law terms as fixing price but leaving other terms negotiable, requiring at least a “bona fide offer.”
    The majority treats these holdings as foreclosing West Virginia’s attempt to obtain by state law what HHS could not compel under federal law.

F. Preliminary injunction standards

  • Am. Fed'n of Tchrs. v. Bessent, 152 F.4th 162 (4th Cir. 2025) and Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008): Provide the four-factor preliminary injunction standard and the “clear showing” burden.
  • 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), and Leaders of a Beautiful Struggle v. Balt. Police Dep't, 2 F.4th 330 (4th Cir. 2021): Support the district court’s irreparable harm and public interest analyses (including that a state is not harmed by being enjoined from likely unconstitutional action).

G. The dissent’s “party presentation” authorities

  • Clark v. Sweeney, 146 S. Ct. 410 (2025), United States v. Sineneng-Smith, 590 U.S. 371 (2020), Greenlaw v. United States, 554 U.S. 237 (2008), and Lomax v. Ortiz-Marquez, 590 U.S. 595 (2020): The dissent uses these to argue the majority improperly introduced a Spending Clause-centered theory not raised by the parties.

3.2. Legal Reasoning

A. The majority’s core move: from “delivery regulation” to “bargain reshaping”

The majority reframes S.B. 325 not as a generally applicable pharmacy or distribution regulation, but as a statute that operates only when a manufacturer participates in the federal 340B program and makes a § 256b “offer.” By defining “340B drug” and “340B entity” through federal statutory cross-references and attaching penalties to conduct occurring within 340B transactions, West Virginia “directly and exclusively targets participants in a federal spending-power program.”

This is pivotal because it changes the baseline: the court treats the state law as intruding into a “federal domain,” reducing the force of the presumption against preemption and supporting a field-preemption-like conclusion even though § 340B does not comprehensively specify all transactional terms (e.g., delivery).

B. “Field” identification driven by what the state law does

Relying on Va. Uranium, Inc. v. Warren and GenBioPro, Inc. v. Raynes, the majority defines the relevant field by S.B. 325’s actual operative effect: it regulates the terms of the federally created 340B manufacturer–covered entity relationship. That is why the majority rejects the framing used by other circuits (described in footnote 12) that characterize the field more generally as “pharmacy distribution” or “distribution of drugs to patients.”

C. Spending-power bargain as a structural preemption concern

The opinion’s most novel (and precedential) element is its emphasis that, where Congress has used the Spending Clause to strike a bargain with non-state entities, a state may not “reshape” that bargain by adding new conditions that attach solely by virtue of participation. Invoking Lawrence Cnty. v. Lead-Deadwood Sch. Dist. No. 40-1, the majority treats S.B. 325 as the functional equivalent of a state attempting to alter Congress’s chosen terms without providing any compensating “upside” (e.g., additional federal market access).

D. Operational conflicts underscoring preemption

In addition to structural “field” intrusion, the majority identifies program-operation conflicts:

  • Exclusive enforcement by HHS: Under Astra USA, Inc. v. Santa Clara Cnty., Congress centralized 340B enforcement in HHS. S.B. 325 requires state enforcers and courts to decide whether a manufacturer made an “offer” under § 256b, thereby intruding on the uniform federal enforcement scheme.
  • Administrative dispute resolution (ADR) and “overcharge” concepts: The majority cites 42 C.F.R. § 10.21(a)(1) and the 2024 ADR expansion describing overcharge claims to include limitations on the ability to purchase at/below ceiling price, suggesting delivery restrictions could fall within federally supervised dispute mechanisms.
  • Audit and anti-diversion/duplicate-discount mechanisms: Congress required covered entities to permit audits. The majority reasons that manufacturers’ ability to request claims/utilization data can be integral to developing “reasonable cause” and “supporting documentation,” and that S.B. 325’s data-conditioning ban frustrates these enforcement tools.

E. The dissent’s counter-framework: ordinary preemption and statutory silence

The dissent argues the majority improperly “took a turn at bat” by building a Spending Clause overlay not briefed by the parties, and that ordinary preemption principles should control. On that approach, because § 340B is “silent about delivery,” state law may fill the gap; the presumption against preemption is at its apex given public health/pharmacy regulation; and S.B. 325 does not conflict with HHS’s pricing/eligibility enforcement because it imposes no penalty for violating § 340B itself.

3.3. Impact

  • Fourth Circuit rule (practical effect): State “340B delivery” statutes that expressly key obligations and penalties to § 256b participation face heightened vulnerability in the Fourth Circuit, especially when framed as altering the federal bargain rather than regulating general distribution.
  • Reframing the national split: The majority expressly rejects the “price vs. delivery” lens used elsewhere and instead focuses on “targeting federal program participants” and “spending-bargain reshaping.” That reframing may deepen inter-circuit disagreement with decisions like AbbVie, Inc. v. Fitch and Pharm. Rsch. & Mfrs. of Am. v. McClain, while aligning with AbbVie, Inc. v. Drummond.
  • Federal program design leverage: The opinion supplies a template for challenging state laws that regulate only by reference to participation in a federal Spending Clause program—even where the federal statute is silent on the specific regulated term—by characterizing the state law as an impermissible unilateral modification of Congress’s bargain.
  • Enforcement centralization emphasis: By tying preemption to Astra USA, Inc. v. Santa Clara Cnty. and to federal ADR/audit mechanisms, the decision encourages future litigants to foreground administrative uniformity and exclusive federal remedial schemes, not merely substantive statutory commands.

4. Complex Concepts Simplified

  • Spending-power “bargain”: When Congress offers benefits (funds, market access) in exchange for conditions, the relationship resembles a contract: recipients choose whether to accept and, if they do, must comply with stated terms.
  • Field preemption: Even without an explicit preemption clause, a state law can be invalid if Congress has reserved a regulatory space to federal control. Here, the majority treats the 340B manufacturer–covered entity relationship as that space.
  • Conflict/obstacle preemption: A state law is invalid if it makes compliance with federal law impractical or undermines how Congress designed the federal program to work (including who enforces it and what procedures apply).
  • Presumption against preemption: Courts often assume states keep their traditional powers (like health and safety regulation) unless Congress clearly says otherwise. The majority narrows this presumption where the state law targets a federally created relationship rather than regulating health/safety generally.
  • Contract pharmacies: Pharmacies that dispense drugs on behalf of covered entities. The key federal point (per Sanofi Aventis U.S. LLC v. U.S. Dep't of Health and Hum. Servs. and Novartis Pharm. Corp. v. Johnson) is that § 340B does not itself mandate unlimited contract-pharmacy delivery.

5. Conclusion

The Fourth Circuit’s majority opinion establishes a significant preemption principle for 340B-related state legislation: when a state law operates only by targeting participants in a federal Spending Clause program and attempts to add conditions to Congress’s chosen bargain with private entities, it likely intrudes on a federally occupied field and interferes with centralized federal enforcement. By affirming a preliminary injunction against West Virginia’s S.B. 325, the court shifts the focus from whether a statute regulates “delivery” or “price” to whether it re-writes the terms of a federally created bargain and disrupts the federal program’s uniform administration.