Health Law Daily Wrap Up, FALSE CLAIMS ACT—9th Cir.: Adventist not barred from suing over Section 340B violations via FCA qui tam action, (Mar 18, 2026)

By Jeffrey H. Brochin, J.D.

Because Relator was not “in essence” suing to enforce Section 340B, and, barring their claims would undermine the FCA, Adventist’s FCA claims against Manufacturers were not barred by Section 340B or the Supreme Court’s ruling in Astra.

The United States Court of Appeals for the Ninth Circuit has reversed and remanded the decision of the District Court that dismissed an FCA lawsuit against four drug manufacturers who were Section 340B Program participants. The lawsuit was brought after Adventist Health Systems of West (Adventist or Relator) determined that the Manufacturers were violating the price ceilings mandated under the Public Health Service Act’s Section 340B Program for drugs sold to certain health-care facilities (Covered Entities). Although the Manufacturers had argued (and the District Court agreed) that price ceiling violations could only be brought by Adventist via the Section 340B Administrative Dispute Resolution (ADR) process, the Appeals Coutt found that the lawsuit was not one to recover losses sustained by Adventist, but rather those of the government, and therefore their FCA lawsuit was not barred (U.S. ex rel. Adventist Health System of West v. Abbvie, Inc., No. 24-2180 (9th Cir. Mar. 17, 2026)).

The 340B Drug Program. The Section 340B Drug Pricing Program was created by Congress in 1992 to improve access to care for low-income and uninsured patients at safety-net hospitals and clinics. Specifically, the Section 340B Program provides a “penny pricing” policy, which prohibits drug manufacturers from charging covered entities more than $0.01 when the statutory ceiling price of a drug falls to at or below zero. The Section 340B Program allows covered entities to purchase drugs at discounted or ceiling prices, and drug manufacturers may opt into the Section 340B Program by signing a pharmaceutical pricing agreement (PPA) with the Secretary of Health and Human Services. The Health Resources and Services Administration (HRSA), a unit of HHS, manages and oversees the Section 340B Program.

Like other covered entities, Adventist bought drugs from the Manufacturers for its patients, and Medicaid and Medicare reimbursed Adventist for the prices the Manufacturers charged Adventist for the drugs.

Alleged fraudulently inflated prices. Adventist claimed that the four Manufacturers engaged in a fraudulent scheme by knowingly charging “materially false, unlawfully inflated prices” for their drugs “that bore no relation to the statutory formula.” According to Adventist, the Manufacturers fraudulently inflated their drug prices for many years and only began to ‘change their ways’ when HRSA issued a 2019 final rule that imposed hefty civil penalties for non-compliance with the 340B Ceiling Price formula. Shortly after January 2019, Adventist discovered the scheme when the drug prices charged by the Manufacturers dropped precipitously to $0.01 per unit.

The lawsuit was brought pursuant to the qui tam provisions of the FCA whereby Adventist was the Relator asserting the interests of the United States, and those of various states. However, the District Court dismissed the lawsuit after determining that challenges to Section 340B price violations could only be brought pursuant to the statute’s ADR process. The District Court based its ruling on the Supreme Court’s holding in Astra USA, Inc. v. Santa Clara Cnty., (563 U.S. at 113) which held there was no private right of action to bring such claims. The District Court further found that Adventist had failed to prove falsity, an element of an FCA claim. Adventist then took the instant appeal.

Claims not barred by Section 340B or Astra. The Appeals Court began its analysis by noting that the FCA is enforced through a unique public-private scheme where private parties (relators) sue in qui tam actions that are brought in the name of the government against entities that have defrauded the government. It was under the FCA qui tam framework that Adventist filed the instant action to recover losses incurred by the government due to the Manufacturers’ allegedly fraudulent drug pricing scheme.

‘Repackaged’ 240B claims. The Manufacturers argued that Adventist’s FCA claims were barred by statute and Supreme Court precedent because Section 340B did not provide a private right of action but instead provided only an ADR process for overcharge claims. Moreover, they argued that Supreme Court precedent clearly foreclosed claims by covered entities arising under Section 340B to enforce PPAs, because a third-party suit to enforce a PPA is “in essence a suit to enforce Section 340B itself;” in other words, the Adventist’s claims were merely repackaged Section 340B claims precluded by statute and the Supreme Court’s holding in Astra.

Claims not barred by Section 340B or Astra. The Appeals Court disagreed with the Manufacturers on both arguments, finding that neither Section 340B nor Astra barred Adventist’s qui tam claims: first, Adventist brought its action under the FCA, which confers an express right of action for any qui tam plaintiff to remedy fraud resulting in financial loss to the government; and second, Adventist’s action was not “in essence” a suit to enforce Section 340B. Adventist was not seeking compensatory damages as a covered entity under Section 340B; rather, Adventist was suing as a relator standing in the shoes of the government—the real party in interest—and was seeking redress on behalf of the government.

Unlike in Astra, Adventist brought a prototypical FCA action that did not assert that the Manufacturers were liable merely because of a direct violation of Section 340B, but because the Manufacturers allegedly defrauded the government. Finally, barring Adventist’s claims would undermine the FCA, a statute that courts interpret broadly and which does not exempt qui tam actions.

Falsity plausibly pleaded. The Manufacturers alternatively contended that Adventist’s pre-January 1, 2019 claims were not viable because HRSA’s final rule only became effective on January 1, 2019. However, the Appeals Court found that argument is unpersuasive because Adventist plausibly alleged that the plain text of the statutory formula did not “authorize any pricing over $0.01 regardless of the existence of a regulation.”

Based on the foregoing, the Appeals Court reversed the District Court’s dismissal and remanded the matter for further proceedings.

The case is No. 24-2180.

Judge: Desai, R.

Attorneys: Kenneth Capesius (Baron & Budd, PC) for U.S. Martha Banner Banks (King & Spalding, LLP) for AbbVie Inc., Allergan USA, Inc. and Allergan Sales, LLC.

Companies: AbbVie Inc.; Allergan USA, Inc.; Allergan Sales, LLC

MainStory: TopStory CaseDecisions CMSNews DrugBiologicNews FCANews GCNNews PrescriptionDrugNews ProgramIntegrityNews ProviderNews QuiTamNews AlaskaNews ArizonaNews CaliforniaNews HawaiiNews IdahoNews MontanaNews NevadaNews OregonNews WashingtonNews