On March 17, 2026, in United States ex rel. Adventist Health System of West v. AbbVie Inc., the United States Court of Appeals for the Ninth Circuit ruled that a 340B covered entity could pursue a False Claims Act qui tam case against drug companies that charged covered entities more than the 340B ceiling price for their drugs. The Supreme Court previously held that a 340B covered entity could not bring a compensatory damages claim on its own behalf or as a third-party beneficiary under the 340B program. See Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110 (2011). The Ninth Circuit distinguished Astra and ruled that a 340B covered entity could bring a qui tam case on behalf of government entities that overpaid 340B covered entities as a result of drug companies overcharging the covered entities for drugs covered by the 340B program. Should this decision withstand further appeals, it promises to open up a whole new world of significant qui tam cases.
The 340B program requires participating drug manufacturers to charge 340B covered entities no more than the “340B ceiling price” for their drugs. 340B covered entities include six types of hospitals (disproportionate share hospitals, children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals) and ten types of non-hospital providers (e.g., federally qualified health centers). The 340B ceiling price for a drug is its average manufacturer price (AMP) minus the unit rebate amount (URA), with those terms having the meanings set forth in the Medicaid Drug Rebate Program. See 42 U.S.C. § 256b. The URA has two components: (1) a rebate percentage that is the greater of the minimum rebate percentage (23.1 percent for most brand-name prescription drugs) or the difference between the AMP and the best price at which the manufacturer sold the drug to a commercial purchaser, and (2) an inflationary penalty if the price of the drug has increased at a rate greater than the general rate of inflation. See 42 U.S.C. § 1396r-8(c).
In cases where a manufacturer has raised the price of its drug at a rate substantially higher than the general rate of inflation, a drug’s URA can exceed its AMP, theoretically bringing the 340B ceiling price to zero. The Health Resources and Services Administration (HRSA), which administers the 340B program, has published a final rule to address such situations and to ensure that manufacturers are not required to give their drugs away for free to 340B covered entities. The rule, which has been effective since January 1, 2019, imposes a “requirement that a manufacturer charge [340B covered entities] a $.01 (penny pricing policy) for drugs when the ceiling price calculation equals zero.” HRSA, 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation, 83 Fed. Reg. 61563, 61564 (Nov. 30, 2018). In other words, one penny becomes the 340B ceiling price when a drug’s URA exceeds its AMP because of the inflationary penalty.
Meanwhile, Medicaid and certain other federal health care programs require participating providers (including 340B covered entities) to charge those programs for drugs based on actual costs incurred. See, e.g., Calif. Welf. & Inst. Code § 14105.46(d) (“A covered entity shall bill [Medi-Cal] an amount not to exceed the entity’s actual acquisition cost for the drug, as charged by the manufacturer at a price consistent with Section 256b of Title 42 of the United States Code. . . .”); 42 U.S.C. § 1395f(l)(1) (requiring critical access hospitals to charge Medicare for inpatient services at 101 percent of the hospitals’ “reasonable costs”).
In the Adventist Health case, the relator alleged that the defendant drug manufacturers had charged covered entities more than the 340B ceiling price for certain of the manufacturers’ drugs that were subject to penny pricing. To elude the holding in Astra, the relator did not allege that this overcharging harmed the relator. Instead, the relator alleged that the manufacturers’ overcharging caused the relator and other 340B covered entities to overcharge Medicaid and other federal health care programs that reimbursed the covered entities based on actual costs incurred. Because of the defendants’ alleged overcharging, the relator alleged that it and other 340B covered entities submitted inflated, and false, claims to federal health care programs.
The district court found that Astra precluded this sort of claim: “the Court finds that Astra bars FCA claims by a qui tam plaintiff where the allegation of falsity is that the defendants failed to comply with the statutory requirements of the 340B Program.”
In reversing, the Ninth Circuit reasoned that the relator could proceed because it “does not seek compensatory damages as a covered entity under Section 340B. Rather, Adventist sues as a relator standing in the shoes of the government, the real party in interest, and seeks redress on behalf of the government.” The court explained that “Adventist alleges that defendants are liable for submitting false claims, causing the government to overpay millions of dollars through Medicaid, Medicare, and government-funded clinics,” and that “Adventist seeks redress for the alleged false claims, not for the alleged violations of Section 340B’s ceiling price formula.” The court further observed that “[i]t would contravene Congress’s intent to bar private relators like Adventist from bringing suit under the FCA simply because another statute, Section 340B, lacks a private right of action.”
By allowing a relator to proceed based on alleged underlying violations of the 340B ceiling price rules, the Adventist Health decision creates the potential for all types of 340B covered entities, as well their employees and others with knowledge of the prices the covered entities were charged, to bring False Claims Act qui tam actions against drug manufacturers that charge covered entities more than the 340B ceiling price. Cases involving 340B ceiling prices are likely to involve large amounts of money and will be attractive to potential qui tam relators.