Commercial – Court enjoins enforcement of West Virginia drug statute

Where West Virginia enacted a state law that imposes additional conditions on drug manufacturers participating in a federal government program, the district court‘s order enjoining enforcement was affirmed. The manufacturers were likely to prevail on their preemption argument and the remaining injunction elements were satisfied.

Background

In 1992, Congress established Section 340B of the Public Health Service Act. The 340B program requires drug manufacturers, as a condition of coverage of their products under Medicaid and Medicare Part B, to agree to offer certain drugs to “covered entities” “at or below the applicable ceiling price.” Dissatisfied with the scale of drug discounts required by Congress in the 340B program, West Virginia enacted S.B. 325, which imposes additional conditions on drug manufacturers by virtue of their participation in the 340B program.  The result is that more drugs will be sold at bargain prices.

Challenging these impositions, participating manufacturers sued in federal court to enjoin S.B. 325’s enforcement. The district court granted a preliminary injunction after holding that federal law likely preempts the West Virginia statute and that the manufacturers are entitled to equitable relief.

Analysis

To identify a legitimate claim of state-law interference with federal law, courts must consider the type of interference. And when the state law threatens to interfere with a spending-power bargain, courts must consider characteristics of that bargain. Here,

S.B. 325 directly and exclusively targets participants in a federal spending-power program. And in doing so, it seeks to add conditions, uninvited, to a federal spending-power bargain with non-state entities.

S.B. 325 directly changes the terms of drug manufacturers’ federally created 340B relationships with covered entities. And it does not merely compel its own constituents to participate in an otherwise-voluntary federal program. It instead affects only those who have already agreed to participate in 340B. In doing so, S.B. 325 alters the 340B program’s fundamental bargain.

Congress has ousted states from this field. Section 340B did not merely set a floor to which states may add additional obligations. Instead, Congress struck a careful bargain. Recall that Congress incentivized drug manufacturers to offer their products at discounted prices in exchange for access to the massive Medicaid market.

These manufacturers determined that the upside of Medicaid market access outweighed the downside of selling drugs for a lower price than they otherwise would, and they accepted that bargain. Courts have already made clear that Congress did not require manufacturers to distribute drugs to an unlimited number of contract pharmacies as part of the 340B program. Yet, unsatisfied with that bargain, West Virginia now seeks to add its own downsides, without offering any additional upside to compensate. S.B. 325 singles out 340B manufacturers and explicitly adds requirements to compel the very result HHS could not mandate.

To summarize: Because S.B. 325 attaches obligations solely to entities that accept a spending-power bargain, it must be scrutinized without the usual deference given to traditional state regulations. The substantive provisions interfere at a high level with Congress’s exercise of its spending power and at an operational level with HHS’s enforcement authority and specific enforcement activities. No possible construction of S.B. 325 avoids this result. As such, it is likely preempted and unenforceable.

The district court also concluded that the pharmaceutical manufacturers met the remaining requirements: They are likely to suffer irreparable harm if preliminary relief is not granted; the balance of equities favors granting an injunction and an injunction is in the public interest. Reviewing these requirements for an abuse of discretion, this court finds none.

The district court found that—absent an injunction—the manufacturers would suffer unrecoverable financial loss rising to the level of irreparable harm. Regarding balancing of equities, a state is not seriously harmed by a preliminary injunction that prevents the state from enforcing laws that are likely unconstitutional. Finally, patients—who do not directly enjoy the benefits of the 340B program—should not find their access to the underlying drugs impeded.

Affirmed.

Dissenting opinion

Benjamin, J., dissenting:

Because there is no binding or persuasive authority requiring a different preemption analysis for laws passed under the Spending Clause, I would have reversed the district court because it abused its discretion by enjoining S.B. 325.

Pharmaceutical Research and Manufacturers of America v. McCuskey, Case Nos. 25-1054, 25-1055, 25-1056, March 31, 2026. 4th Cir. (Richardson), from SDWV at Charleston (Johnston). Caleb B. David for Appellants. Philip J. Perry, Jessica Lynn Ellsworth and Matthew Scott Owen for Appellees. VLW 026-2-111. 70 pp.

Full-Text Opinion

VLW 026-2-111
Virginia Lawyers Weekly