Big Pharma Giant Sues Rhode Island Over New Drug Pricing Law

Big Pharma Giant Sues Rhode Island Over New Drug Pricing Law

Novartis Pharmaceuticals filed a lawsuit against the State of Rhode Island seeking to block the enforcement of a new state law regulating the little-known, but big impact federal 340B Drug Pricing Program.

The lawsuit was filed this week in federal District Court in Rhode Island. 

The case is Novartis Pharmaceuticals Corporation v. Neronha.

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Novartis AG is Big Pharma; it reported annual sales of approximately $55.18 billion for the trailing twelve months ending June 30, 2025. This reflects a year-over-year increase of nearly 13% compared to 2024. In contrast, Rhode Island's budget is about $14 billion.

The suit is being brought by Novartis Pharmaceuticals Corporation (NPC), an "indirect, wholly-owned subsidiary of Novartis AG."

The 340B Drug Pricing Program is about big money pitting big pharma versus hospitals, especially small, vulnerable hospitals. Presently, two of Rhode Island’s hospitals, Roger Williams and Fatima, are in bankruptcy.

The General Assembly approved legislation sponsored by Sen. Bridget Valverde and Rep. Jon D. Brien this session, claiming the new law is designed “to protect a critical discount pharmaceutical program that enables safety-net hospitals, clinics, and other health care agencies to provide care to the most vulnerable Rhode Islanders."

Former Democratic Presidential candidate Howard Dean weighed in this past legislative session in a guest MINDSETTER™ in GoLocal.

The legislation "prohibits insurers, pharmacy benefits managers, and other payors from engaging in discriminatory practices against community hospitals, clinics, and other health care provider agencies that purchase prescriptions through the federal 340B discount program."

Novartis is seeking an injunction to prevent enforcement of the law and a judicial declaration that the state cannot regulate contract pharmacy relationships or otherwise impose additional conditions beyond those set forth in the federal 340B statute.

The law is scheduled to go into effect on October 1, 2025.

 

Novartis Pharmaceuticals' Claims

Novartis states in its lawsuit, "The 340B Program has recently ballooned from a niche safety-net program affecting a small minority of healthcare providers into the largest healthcare program most people have never heard of. Almost two-thirds of U.S. hospitals now derive revenue from the program, and 340B sales have increased tenfold since 2010. Much of that growth has been fueled by the birth of a cottage industry of middlemen that help healthcare providers exploit the 340B Program and maximize revenue from it—in exchange for their share of the profits."

Novartis blames contract pharmacy arrangements.

The company adds, "Contract pharmacy arrangements therefore have nothing to do with patient access to drugs, or how much patients pay for their drugs. Patients can fill their prescriptions for these same drugs at the same pharmacies at the same price, whether or not covered entities engage in the accounting fiction espoused by retroactive pricing models."

"Covered entities have no obligation to pass on 340B savings to their patients, and they generally do not. Instead, they bill insurers and government payors for the full price of the drug and pocket the difference. The purported “patients” often do not know they have 'participated' in the program at all. In short: The only beneficiaries of contract pharmacy arrangements are covered entities, contract pharmacies, and the third-party administrators who service them. Patients already get the same drugs at the same prices at the same locations—and will continue to do so regardless of Rhode Island’s statute—whether or not their pharmacy is deemed a contract pharmacy or their transaction is at some point deemed a 340B-eligible sale," claims Novartis. 

Proponents of the new law claim that in recent years, some pharmaceutical companies and pharmacy benefit managers (PBMs) have undermined the intent of the program by reimbursing 340B-participating agencies less, thereby reducing or eliminating the funding that the program is supposed to generate for patient services.

 

“Discriminatory Tactics”

Legislators had harsh words for Big Pharma when they passed the legislation.

“These discriminatory tactics are an assault on the health care system, and in particular on the programs that provide lifesaving services to people who can least afford health care,” said Brien (I-Dist. 49, Woonsocket, North Smithfield), who said that his city’s Thundermist Health Center and Landmark Medical Center are both 340B entities that serve thousands every year. “We must close the loopholes that allow this abuse to prevent our safety-net programs from being bled dry, leaving Rhode Islanders without the care they need.”

“Rhode Island’s eight community health centers applaud Senator Valverde and Representative Brien for their leadership in sponsoring this very important bill and thank the General Assembly for its passage. The 340B program is a vital funding source for community health centers. This legislation protects the 340B program, ensuring community health centers can continue to provide all Rhode Islanders access to affordable medications and comprehensive health care services,” said Elena Nicolella, president and CEO of the Rhode Island Health Center Association in June.

The complaint, brought by Partridge Snow & Hahn and Hogan Lovells, challenges Chapter 288 of Rhode Island's 2025 Public Laws, which would require drug manufacturers to recognize unlimited contract pharmacy arrangements and prohibit them from requesting claims data. The pharmaceutical company argues the law, set to take effect Oct. 1, violates federal authority over the 340B Program and the Commerce Clause by attempting to regulate beyond state borders, requesting a preliminary injunction to prevent its implementation.

Valverde (D-Dist. 35, North Kingstown, East Greenwich, South Kingstown) said at the time of the bills passage, “The drug manufacturers and PBMs that have started reimbursing 340B entities at lower rates are undermining the program’s purpose and significantly harming those agencies’ ability to provide health services to those who can least afford them. We’re seeing the damage in Rhode Island; last month, Providence Community Health Centers announced it will have to lay off 70 employees in part because of lower reimbursement rates for 340B drugs. The integrity of this program is vital for protecting our community health centers and safety-net hospitals so they can continue to help the most vulnerable Rhode Islanders.”

Providence Community Health Centers, the state’s largest community health center, announced in May that it would lay off 70 staff members due, in part, to low Medicaid reimbursements and a $9 million loss in 340B funding over the last three years.

 

Violation of the Commerce Clause

Novartis is asking the court to declare the new Rhode Island law null and void and claim it is a violation of the Commerce Clause. 

In addition, Novartis seeks, "Preliminary and permanent injunctive relief enjoining Defendants from seeking civil penalties, equitable relief, or any other remedy arising from an alleged violation of Chapter 288 by Novartis or any of its affiliates, officers, agents, representatives, or contractors; An order awarding Novartis its costs, expenses, and attorney’s fees incurred in these proceedings; and such other and further relief as the Court deems proper."