States May Regulate 340B Patient-Level Distribution: Fifth Circuit Declines to Enjoin Mississippi’s Contract-Pharmacy “Non‑Interference” Law

Introduction

In AbbVie v. Fitch, the U.S. Court of Appeals for the Fifth Circuit (unpublished, per curiam) affirmed the denial of a preliminary injunction requested by a group of drug manufacturers (collectively, “AbbVie”) against Mississippi’s H.B. 728. The Mississippi statute bars manufacturers from interfering with covered entities’ use of contract pharmacies to dispense discounted drugs obtained under the federal 340B program.

The case sits at the intersection of federal 340B drug discount policy, state police powers over public health and consumer protection, and manufacturers’ recent efforts to restrict or channel contract pharmacy arrangements. AbbVie alleged that H.B. 728 both effects an unconstitutional taking and is preempted by federal law. The district court denied preliminary relief, and the Fifth Circuit affirmed, emphasizing the stringent standards governing preliminary injunctions and the thin record presented.

While noting that the statute could be “problematic” if it indeed facilitates diversion contrary to 340B’s prohibitions, the court held AbbVie had not shown a substantial likelihood of success on the merits of either takings or preemption. The opinion breaks new ground within the Fifth Circuit by clarifying that, on the record presented, 340B does not occupy the field of patient-level distribution or the role of pharmacies and that a state may impose a negative obligation of non-interference on manufacturers without creating a likely takings or conflict‑preemption problem at the preliminary stage.

Summary of the Opinion

The Fifth Circuit affirmed the district court’s denial of a preliminary injunction. It held that AbbVie failed to demonstrate a substantial likelihood of success on:

Physical takings: H.B. 728 does not compel manufacturers to transfer title or possession to third parties, expand volumes, or sell at prices different from those already required by federal law. Rather, it imposes a negative obligation not to interfere once covered entities have purchased 340B drugs.
Regulatory takings: Applying the Penn Central framework, the court found the economic impact uncertain and not clearly confiscatory, the interference with reasonable investment-backed expectations limited, and the statute’s public-health character strong—together weighing against a likely regulatory taking.
Field preemption: Section 340B does not comprehensively regulate patient-level distribution or the role of pharmacies; Congress’s silence in that domain leaves room for state regulation, especially given traditional state authority in public health and consumer protection.
Conflict preemption: H.B. 728 does not expand the class of 340B “covered entities” and does not penalize violations of 340B itself; instead, it targets manufacturer interference with covered entities’ use of contract pharmacies, a distinct subject. No “impossibility” or “obstacle” conflict was shown on this record.

Accordingly, the court concluded the district court did not abuse its discretion in denying preliminary injunctive relief.

Background and Procedural Posture

Congress enacted § 340B in 1992 to support providers serving low-income and uninsured patients by capping manufacturer prices for covered drugs sold to “covered entities.” The statute bars duplicate discounts and diversion, provides audit rights, and establishes manufacturer recovery from noncompliant covered entities. While HRSA’s 1996 guidance allowed one contract pharmacy where an entity lacked an in-house pharmacy, 2010 guidance allowed unlimited contract pharmacies for all covered entities, prompting a dramatic expansion in contract pharmacy arrangements.

Manufacturers—including AbbVie—responded by implementing policies limiting covered entities’ use of contract pharmacies (e.g., one contract pharmacy within 40 miles), citing concerns about diversion and duplicate discounts. HHS issued a 2020 advisory opinion asserting manufacturers must deliver 340B drugs to contract pharmacies acting as covered entities’ agents at the ceiling price. Multiple circuits rejected HHS’s position as inconsistent with the statute’s text, and HHS withdrew the opinion.

States then legislated to preserve contract pharmacy models. Mississippi’s H.B. 728 forbids manufacturer “interference” with covered entities’ use of contract pharmacies. It incorporates enforcement through the Mississippi Consumer Protection Act, including potential civil and criminal penalties and business licensure consequences.

AbbVie sued the Mississippi Attorney General, alleging takings and preemption and seeking declaratory and injunctive relief. The district court denied a preliminary injunction. The Fifth Circuit affirmed.

The Mississippi Law (H.B. 728)

H.B. 728 prohibits manufacturers from directly or indirectly denying, restricting, prohibiting, or otherwise interfering with covered entities’ acquisition and delivery of 340B drugs to a contract pharmacy authorized under a contract with the covered entity. A “340B drug” is defined as a drug “subject to any offer for reduced prices” under § 256b and “purchased by a covered entity.” Violations are enforceable under the Mississippi Consumer Protection Act with injunctions, civil/criminal penalties, restitution, and possible licensure consequences.

Issues Presented

Takings: Does H.B. 728 effect a physical or regulatory taking by compelling discounted transfers to private pharmacies or otherwise appropriating property rights without just compensation?
Preemption: Is H.B. 728 preempted by § 340B under field or conflict preemption—either because Congress occupied the field or because the state law stands as an obstacle to federal purposes or creates conflicting enforcement?
Preliminary injunction standard: Has AbbVie shown a substantial likelihood of success on the merits and satisfied the other equitable factors?

Holdings

Physical takings: No substantial likelihood. The law imposes a negative obligation (non‑interference) rather than a compelled transfer or occupation; manufacturers still receive the 340B price upon sale to covered entities.
Regulatory takings: No substantial likelihood under Penn Central. Economic impact is not clearly severe; expectations were limited given foreseeable contract-pharmacy distribution; the statute’s character furthers public health.
Field preemption: Unlikely. 340B does not regulate patient-level distribution or pharmacies, leaving room for state regulation in traditional areas of state authority.
Conflict preemption: Unlikely. H.B. 728 does not expand “covered entities” and does not penalize § 340B violations; it targets interference with distribution via contract pharmacies, a different subject matter.
Preliminary injunction: Denial affirmed; AbbVie did not carry its burden on the merits or record development necessary for extraordinary relief.

Analysis

Precedents Cited and Their Roles

Astra USA, Inc. v. Santa Clara County (2011): Clarifies HHS as the primary federal enforcer of 340B and that covered entities lack a private right of action under 340B. Used to frame federal enforcement scope and to distinguish that Mississippi’s law does not penalize 340B violations, but rather separate “interference” conduct.
Sanofi Aventis U.S. LLC v. HHS (3d Cir. 2023) and Novartis Pharms. Corp. v. Johnson (D.C. Cir. 2024): Both recognize 340B’s silence on delivery and contract pharmacies; they rejected HHS’s advisory opinion compelling delivery to contract pharmacies. The Fifth Circuit leverages those holdings to reinforce that Congress did not regulate patient-level distribution, leaving space for state law.
O’Melveny & Myers v. FDIC (1994): Matters left unaddressed by a federal scheme are presumed to be governed by state law. Central to the field-preemption analysis.
Arizona v. United States (2012); Rice v. Santa Fe Elevator (1947); Hillsborough County v. Automated Medical Labs (1985); R.J. Reynolds v. Durham County (1986): Framework for field and conflict preemption; caution against inferring field preemption merely from comprehensiveness; only a dominant federal interest or pervasive scheme displaces states.
Gobeille v. Liberty Mutual (2016); Castro v. Collecto (5th Cir. 2011): Recognize traditional state police powers in public health and consumer protection; inform the presumption against preemption.
White Buffalo Ventures v. UT Austin (5th Cir. 2005); In re Davis (5th Cir. 1999 en banc); Deanda v. Becerra (5th Cir. 2024): Reiterate the presumption against preemption and “tie goes to the state.”
Penn Central Transportation Co. v. New York City (1978); Cedar Point Nursery v. Hassid (2021); Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency (2002); Yee v. City of Escondido (1992): Define the boundary between per se physical takings and regulatory takings, and the flexible Penn Central test applied here.
Keystone Bituminous Coal Ass’n v. DeBenedictis (1987): Government action for important public interests weighs against a taking; relied upon to characterize H.B. 728’s public-health aims.
PhRMA v. McClain (8th Cir. 2024): Notes congressional silence on pharmacies in 340B; adds cross-circuit support for state involvement in aspects 340B does not cover. Certiorari denied.
Crosby v. National Foreign Trade Council (2000): “Two remedies on the same activity” and obstacle analysis; used to show H.B. 728 addresses different conduct than 340B’s federal enforcement apparatus.
Sanofi Aventis U.S., LLC v. HHS (D.N.J. 2021): Cited for the magnitude of average 340B discounts (25–50%), bearing on economic impact under Penn Central.
Mississippi bailment authorities (Miss. Code Ann. § 75-7-403; Baggett v. McCormack (1896)): Inform the court’s footnoted doubt that manufacturers retain a compensable property interest post‑purchase when acting as bailees for covered entities’ property. The court did not resolve the issue, but flagged it as a potential independent barrier to a takings claim.

Legal Reasoning

1) Takings

Physical takings require government-compelled occupation, transfer, or access. H.B. 728 neither forces manufacturers to expand sales beyond § 340B’s requirements nor alters the price Congress set. The statute instead enforces a “non‑interference” regime once a covered entity has purchased the drug. Manufacturers continue to be paid the 340B price for covered sales, and the law does not grant third parties (contract pharmacies) a right of access to manufacturers’ property in the Cedar Point sense. The court thus rejected a per se physical taking theory on this record.

For regulatory takings, Penn Central governs. The court weighed:

Economic impact: While manufacturers may experience increased discounted sales due to broader distribution through contract pharmacies, they still recoup substantial portions of market price, and no record showed confiscatory effect.
Investment-backed expectations: Contract-pharmacy distribution was foreseeable; as early as 1996 HRSA acknowledged state-law agency concepts could support such arrangements, and by 2010 HRSA guidance contemplated unlimited contract pharmacies.
Character of the government action: H.B. 728 aims to expand patient access and provider services for vulnerable populations—an important public interest favoring the state under Keystone.

On balance, AbbVie did not show a substantial likelihood of success under Penn Central.

Notably, in a detailed footnote, the court questioned whether manufacturers have a compensable property interest after the covered entity purchases a 340B drug. By state-law lights, a manufacturer with mere temporary custody of a buyer’s goods may be only a bailee without a compensable ownership interest as against the buyer (the bailor). The court did not decide this point, but if correct, it would independently undermine takings claims insofar as the challenged regulation applies post‑purchase.

2) Preemption

Field preemption: The court found no pervasive congressional design to occupy the field of patient distribution or pharmacy roles. To the contrary, Congress knew how to regulate distribution mechanics (e.g., manufacturers and wholesalers to covered entities) but left patient-level distribution to silence. Under O’Melveny and the presumption against preemption in domains of traditional state authority (public health, consumer protection), the gap is filled by state law. A “comprehensive” statute does not by itself signal field preemption, and the court declined to infer it here.

Conflict preemption: There is no impossibility or obstacle on this record. H.B. 728 does not:

Expand the set of 340B “covered entities.” Contract pharmacies remain agents or delegates for covered entities; they do not become “covered entities” themselves.
Impose penalties for violating § 340B itself. Instead, it penalizes a different harm—manufacturer interference with covered entities’ distribution arrangements.

Given those distinctions, H.B. 728 does not “concern the same subject matter” as § 340B’s federal enforcement regime, and no clear “obstacle” to congressional objectives was shown. The presumption against preemption further resolves doubt in the State’s favor.

Impact and Implications

Although unpublished and limited to the preliminary injunction posture, the decision carries meaningful signals for stakeholders:

State legislative authority: The opinion reinforces that, absent clear congressional command, states retain room to regulate the patient‑facing distribution of 340B drugs and the role of contract pharmacies, including through consumer-protection enforcement.
Manufacturers’ contract-pharmacy restrictions: While other circuits have recognized that 340B itself does not compel manufacturers to deliver to contract pharmacies, this decision suggests states may, within their police powers, prohibit manufacturer interference with covered entities’ chosen distribution channels after purchase.
Takings litigation: The decision highlights two hurdles: (a) the “negative obligation” framing is ill‑suited to per se takings; and (b) Penn Central balancing will weigh public-health character heavily. The footnoted property-interest doubt (bailee v. owner post‑purchase) could become a potent threshold defense to takings claims.
Preemption landscape: The court’s field‑preemption analysis aligns with the Third and D.C. Circuits’ observations that 340B is silent on patient distribution. Together with the Eighth Circuit’s recognition of congressional silence on pharmacies, this opinion strengthens the case for state authority in this narrow domain.
Enforcement dualism: The court distinguishes state penalties for “interference” from federal remedies for 340B violations. States can apply their own consumer‑protection tools to regulate conduct outside the four corners of § 340B’s enforcement scheme.
Record development matters: The court repeatedly stressed the “sparse record.” Future challenges may rise or fall on concrete evidence of diversion, duplicate discounts, or operational conflicts with federal auditing and compliance obligations.

Cautionary notes:

Unpublished status: Not precedential under 5th Cir. R. 47.5, though persuasive.
Preliminary posture: The court did not resolve ultimate merits; as-applied challenges with robust evidence could produce different outcomes.
Unreached issues: Because no taking was found, the court did not address “public use” or the “voluntary participation” doctrine.

Complex Concepts Simplified

340B Program: A federal statute that caps manufacturer prices for drugs sold to certain safety‑net providers (“covered entities”). Covered entities must avoid duplicate discounts (no 340B plus Medicaid rebate on the same unit) and diversion (no resale to non‑patients). The statute gives HHS and manufacturers audit rights and recovery for violations.
Contract Pharmacies: Pharmacies that, by contract, dispense drugs on behalf of covered entities. HRSA guidance has oscillated between limited and unlimited use, but federal courts have held 340B is silent on patient‑level delivery conditions.
Physical Takings vs. Regulatory Takings:
- Physical taking: Government requires a physical occupation or transfer of property or grants third-party access (e.g., an easement). Typically per se compensable.
- Regulatory taking: Government restricts use so severely it becomes functionally equivalent to a taking; analyzed via Penn Central’s balance of economic impact, reasonable expectations, and character of government action.
Field Preemption: Federal law so pervasively regulates a field that there is no room for states to supplement.
Conflict Preemption: A state law is preempted if it is impossible to comply with both state and federal law or if the state law obstructs federal objectives.
Presumption Against Preemption: Courts presume Congress did not intend to displace state laws in areas of traditional state authority (e.g., public health, consumer protection) unless Congress clearly says otherwise.
Bailment and Property Interest: If a buyer owns the goods and the seller merely holds them temporarily for delivery, the seller may be a bailee with possession but without an ownership interest. A takings claim generally requires the claimant to have a compensable property interest at the time of the alleged taking.
Negative vs. Positive Obligations: Laws that prohibit interference (negative obligations) are less likely to be treated as compelled transfers of property than laws requiring affirmative conveyance or mandated access.

Practical Takeaways for Stakeholders

Manufacturers:
- Expect continued state efforts to protect contract‑pharmacy models. Policies restricting contract pharmacies may face state “non‑interference” prohibitions.
- Document diversion and duplicate-discount risks with admissible evidence. On a stronger factual record, as‑applied challenges may fare differently.
- Reassess takings theories where title passes to covered entities before delivery; bailment principles may defeat property‑interest arguments.
Covered Entities and Contract Pharmacies:
- State “non‑interference” protections may bolster access and operational continuity, subject to ongoing federal compliance—especially diversion and duplicate-discount prohibitions.
- Maintain robust compliance protocols and audit readiness; state protection does not excuse federal 340B obligations.
States and Attorneys General:
- H.B. 728’s framing—penalizing interference rather than purporting to enforce 340B—helps avoid conflict with Astra’s “sole federal enforcer” premise.
- Design enforcement to target state-law harms (e.g., interference, unfair practices), not to enforce 340B per se.

Unresolved Questions and Future Litigation

Property interest post‑purchase: Whether manufacturers retain a compensable interest after sale, when acting as bailees, remains undecided but potentially dispositive for takings claims.
As-applied preemption: A fuller record could show specific conflicts (e.g., interference with federal auditing rights or documented diversion) that might sharpen obstacle‑preemption arguments.
Scope of “interference”: Line-drawing between permissible manufacturer compliance safeguards and prohibited “interference” could invite future statutory-interpretation disputes.
Dormant Commerce Clause and extraterritoriality: Not raised or decided here, but often implicated in state regulation of national distribution systems.

Conclusion

AbbVie v. Fitch crystallizes a significant, albeit preliminary, rule of engagement in the 340B arena within the Fifth Circuit: 340B’s silence on patient-level distribution and pharmacy roles leaves room for states to regulate those functions, including by prohibiting manufacturer “interference” with contract‑pharmacy arrangements. On this record, such non‑interference mandates are unlikely to qualify as takings and are not field or conflict preempted.

The court’s analysis turns on three pillars: the preliminary injunction standard and the sparse evidentiary record; the presumption against preemption in traditional state domains; and the Penn Central factors, which disfavor takings where the government’s action is aimed at public health and does not destroy economic use. The opinion also flags a potentially foundational barrier to takings claims—the lack of a post‑purchase property interest when the manufacturer is merely a bailee.

While unpublished and confined to the preliminary stage, the decision provides a roadmap for states seeking to safeguard contract‑pharmacy distribution and for parties litigating the boundaries of 340B’s federal scheme. The bottom line: Absent clear congressional direction to the contrary, states may regulate how 340B drugs reach patients, and manufacturers bear a heavy burden to prove that such regulation either effects a taking or is preempted by federal law.