April 6, 2026

Ninth Circuit Ruling in FCA Case Predicated on 340B Pricing Violations Has Significant Implications for Pharma Manufacturers

Craig Bleifer, Michael Podberesky, Jessica Vaughn, Ph.D. McGuireWoods LLP + Follow Contact LinkedIn Facebook X Send Embed On March 17, 2026, the United States Court of Appeals for the Ninth Circuit issued a significant opinion in United States ex rel. Adventist Health System of West v. AbbVie Inc., [1] reversing the district court’s dismissal of a qui tam complaint brought under the False Claims Act (“FCA”) against four major drug manufacturers. The Ninth Circuit held that the FCA provides an independent mechanism for relators to bring claims alleging fraudulent drug pricing in violation of the Public Health Service Act’s Section 340B Program (“the 340B Program”), [2] even though Section 340B does not provide a private right of action. The ruling has important implications for pharmaceutical manufacturers participating in the Section 340B Program.

Background

The 340B Program requires participating drug manufacturers to sign a pharmaceutical pricing agreement (“PPA”) with the Secretary of Health and Human Services and sell drugs to qualified health-care facilities (“covered entities”) at or below statutory ceiling prices in order for their products to be reimbursed by Medicare and Medicaid. The formula for setting the ceiling price of the drug is defined in the statute; the ceiling price is determined by taking the Average Manufacturer Price (AMP) and subtracting the Unit Rebate Amount (“URA”). Under this formula, though rare, drug prices could fall to zero or below zero when the drug price had increased far beyond the rate of inflation. Health Resources and Services Administration (“HRSA”), the agency which operates 340B, finalized a rule effective January 1, 2019, that these drugs would be priced at $0.01, hence the term “penny pricing. Even outside of “penny pricing”, 340B prices generally are roughly 55% of the list price for drugs in the aggregate. [3]

A critical aspect of the 340B Program that is fundamental to the current decision is that there is no private right of action under the 340B Program for covered entities to pursue claims of overcharging of drugs by manufacturers; as the Supreme Court held in Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011), covered entities alleging pricing violations must instead pursue relief through Section 340B’s Administrative Dispute Resolution (“ADR”) process.

The Alleged Fraudulent Scheme in Adventist

Adventist Health System of West (“Adventist”), a provider whose medical clinics and facilities are eligible for 340B pricing as a “Covered Entity” under the statute, brought a qui tam action alleging that the defendant drug manufacturers knowingly charged “materially false, unlawfully inflated prices” for their drugs, which had “no relation to the statutory formula” for years preceding the issuance of a HRSA final rule in 2019 that promised “hefty civil penalties for non-compliance with the 340B Ceiling Price formula”.

Adventist alleged that the manufacturers’ fraudulent 340B pricing therefore caused the government to overpay through Medicaid reimbursements, Medicare cost-based payments to critical access hospitals, and direct purchases by government-funded prisons and clinics. Importantly, Adventist did not seek to recover its own losses as a covered entity but instead sought to recover on behalf of the government, claiming the fraud “caused the federal and state governments to wrongly pay hundreds of millions of dollars.”

The District Court Dismissal

The manufacturers moved to dismiss on several grounds including arguments that the complaint failed to adequately allege falsity and scienter, that the qui tam action was inappropriate because Adventist was not “an original source” as the allegations had been publicly disclosed prior to the action, and finally that Astra barred the action because it was an attempt by a private party to enforce the requirements of the 340B Program.

The district court did not address the first two grounds, instead focusing its grant of dismissal on the third prong, that the FCA action brought by Adventist was “in essence claims to enforce Section 340B” and that allowing Adventist to proceed would disrupt Congress’s chosen enforcement scheme. Citing the language in Astra, the district court reasoned that even when faced with reports of insufficient enforcement of the 340B Program, Congress created the ADR rather than a private right of action. Further, the alleged falsity that is critical to the FCA action is directly a result of a failure to comply with the statutory requirements of the 340B Program, and the current action was just an attempt to enforce those requirements. The district court dismissed the complaint with prejudice, essentially finding that the FCA claims were an inappropriate attempt at an “end-run” around the Supreme Court’s clear holding in Astra.

The Ninth Circuit’s Decision

The Ninth Circuit reversed, holding that Adventist stated cognizable claims under the FCA and satisfied the necessary pleading requirements. The court’s analysis rested on the following principal grounds:

The FCA Provides an Independent Right of Action Not Barred by the 340B Program

The court held that the FCA provides an independent mechanism through which Adventist, as a relator standing in the shoes of the government, can assert its claims, regardless of the absence of a private right of action under Section 340B. Relying on its prior decision in United States ex rel. Sutton v. Double Day Office Services, Inc., 121 F.3d 531 (9th Cir. 1997), the court explained that FCA plaintiffs bring their actions “in the name of the United States,” making it “irrelevant” that the relator happens to also be a covered entity that lacks a private right of action arising from its own alleged damages under the underlying statute. The government is the real party in interest, and Adventist seeks redress on the government’s behalf, and does not seek to personally recover from the alleged overcharging.

Adventist is Not Suing to Enforce the 340B Drug Program, it is Bringing a False Claims Action

The court made a clear distinction between Adventist’s FCA claims and the breach-of-contract claims at issue in Astra. In Astra, the Supreme Court held that a plaintiff’s suit to enforce PPAs was “in essence a suit to enforce [Section 340B] itself” and was therefore barred. In contrast, the Ninth Circuit held that Adventist brings a “prototypical FCA action” that does not allege defendants are liable only because they violated Section 340B, it alleges the defendant’s actions caused the submission of false claims which resulted in distinct financial losses to the government through the overpayment of millions of dollars through Medicaid, Medicare, and government-funded clinics.

Notably, the court emphasized the difference in relief sought. In a 340B Program ADR proceeding, a covered entity may obtain reimbursement of overcharges or termination of a manufacturer’s pricing agreement, similar to the breach of contract damages that were the subject of the Astra case the district court relied on for its holding. By contrast, Adventist sought FCA damages for the government, including civil penalties of $5,000 to $10,000 per false claim plus treble damages. However, even though Adventist could receive compensation as relator in a non-intervened case (25 to 30 percent of any recovery), the court held that this difference in relief is yet another example of how the Adventist action differed from a repackaged private claim to directly enforce the requirements of the 340B Program.

Barring Adventist’s Claims Would Undermine the FCA

The court observed, citing the Government’s amicus brief, that the FCA is “the federal government’s primary tool to combat fraud and recover losses due to fraud in federal programs,” and that Congress intended it “to reach all types of fraud, without qualification, that might result in financial loss to the government.” The court noted that Congress uses specific statutory exceptions to preclude FCA actions, such as it has when barring claims under the Internal Revenue Code, claims by armed forces members against fellow service members, and claims against members of Congress or the judiciary. There is no similar exception for 340B and the court lacks authority to create such an exception. Finally, the court held that reading such an exception into the FCA would require a disfavored finding of implied preemption.

Falsity Was Plausibly Pled

The court also rejected the defendants’ alternative argument that Adventist failed to plausibly plead the falsity element of its FCA claims. The defendants argued that pre-January 1, 2019 claims should not be permitted because there were no civil penalties for such actions prior to the effective date. The court found this argument unpersuasive, noting that Adventist “plausibly alleges that the plain text of the statutory formula did not ‘authorize any pricing over $0.01 regardless of the existence of a regulation,’” and that the government had “formally adopted a written guidance in 2011 which expressly directed manufacturers to charge $0.01 if the statutory formula resulted in a negative Ceiling Price.”

What it All Means: Potential New Exposures for Pharmaceutical Manufacturers, and an Affirmation of the Expanse of the FCA

This case has broad implications, for both health care systems and pharmaceutical manufacturers. It is important to note that this case is at an early stage. The court reversed the dismissal and remanded for further proceedings; it did not reach the merits of Adventist’s claims. The case will now return to the district court, where discovery and additional motion practice will determine whether Adventist can substantiate its allegations. Further, the Adventist decision is currently limited to the Ninth Circuit, and there is little insight into how a similar case would play out in another Circuit Court.

A clear takeaway from this case is the potentially expanded FCA exposure for pharmaceutical manufacturers. The decision confirms that drug manufacturers participating in the 340B Program face potential FCA liability for allegedly overcharging covered entities, even though Section 340B itself does not provide a private right of action. The FCA’s qui tam mechanism affords putative relators an independent avenue to bring claims on behalf of the government, with the prospect of civil penalties and treble damages. Indeed, one whistleblower law firm commenting on Adventist has claimed that the case “Opens Up [a] Whole New World of Potential Qui Tam Cases.” Of note, though, where the hospital bills the government a flat rate (such as DRG code) for an inpatient stay or a provider bills for a bundled payment for a procedure and that flat global reimbursement includes any drugs administered to the beneficiary, the alleged violation of 340B will not have caused the submission of a false claim or inflated reimbursement and, so, in that case the alleged violation of 340B cannot serve as predicate for an FCA violation.

The Adventist decision is another confirmation that the courts may continue to assert an expansive reading of the FCA and that may have significant implications for pharmaceutical manufacturers who participate in the 340B program. We will continue to monitor developments in this case and related litigation. Companies participating in the 340B Program should carefully evaluate their compliance with statutory pricing requirements in light of the potential FCA risk and exposure.

[1] United States ex rel. Adventist Health System of West v. AbbVie Inc., No. 24-2180 (9th Cir. Mar. 17, 2026)

[2] 42 U.S.C. § 256b

[3] Drug Channels reports that using 2024 data the wholesale acquisition cost (WAC), also known as the “list price” of 340B purchases was $147.8 Billion, while the actual 340B price was $81.4 Billion, implying a 55% discount. Fein, Adam, Drug Channels: 340B Hit $81 Billion in 2024 (+23%): Why CMS and the IRA Are Poised to Cool the Program’s Runaway Growth, December 15, 2025.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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