Novartis and AbbVie Sue Washington State Over New 340B Drug Pricing Transparency Law
Key Insights
Novartis and AbbVie (search) filed federal lawsuits against Washington State challenging Senate Bill 5981, which adds transparency requirements to the 340B drug pricing program and prohibits manufacturers from restricting contract pharmacy use.
The companies claim the law will cost them millions annually in additional discounts, with AbbVie (search) stating it faces "tens of millions of dollars in unrecoverable discounts" and current 340B discounts running around 60% of market value.
The 340B program has grown substantially, with hospitals and clinics purchasing $81.4 billion in outpatient drugs under the federal program in 2024, up from $44 billion three years earlier.
Pharmaceutical giants Novartis and AbbVie (search) filed federal lawsuits against Washington State on Wednesday, challenging a new law designed to increase transparency in the federal 340B drug pricing program. The legal action came on the same day Governor Bob Ferguson signed Senate Bill 5981, which takes effect in June and represents one of the most contested pieces of legislation from the 2026 session.
The law seeks to prevent drug manufacturers from restricting which pharmacies can dispense their medications under the 340B program and adds new transparency requirements. Both companies argue the legislation will result in significant financial losses and conflicts with federal law.
Financial Impact on Manufacturers
AbbVie (search) claims the law will cost it "tens of millions of dollars in unrecoverable discounts." According to the company's lawsuit, its 340B discounts run around 60% of market value and bring some drug costs down to just pennies. Novartis similarly projects "unrecoverable financial harms," stating it will lose millions of dollars annually by providing additional 340B discounts not required by federal law, plus administrative compliance costs.
"If Novartis is forced to comply with the law, it will lose millions of dollars annually by providing additional 340B discounts not required by federal law, as well as the administrative costs of compliance," the company's lawsuit states.
340B Program Growth and Scope
The federal 340B program, established in 1992, requires drug manufacturers to provide substantial discounts on outpatient drugs to certain safety-net providers, including those in rural areas or serving disproportionately low-income patients. These providers can then bill insurers at higher market rates, generating revenue to expand care for low-income and uninsured patients.
The program has experienced dramatic growth, particularly following the Affordable Care Act's passage in 2010. In 2024, hospitals and clinics purchased $81.4 billion in outpatient drugs under the federal program, representing an 85% increase from $44 billion just three years earlier.
At the Moses Lake Community Health Center, for example, the program helps cover care costs for patients with chronic diseases and supports mental health services, according to a letter the center's CEO sent to Governor Ferguson urging him to sign the bill.
Legal and Regulatory Landscape
The Washington law prohibits manufacturers from limiting the use of contract pharmacies in the 340B program and prevents them from requiring providers or pharmacies to provide data as a condition for acquiring medication. The attorney general can enforce violations, and hospitals and clinics can bring litigation themselves.
AbbVie (search) argues the law has "cascading constitutional infirmities," while Novartis contends it "cannot coexist with federal law" as it goes against Congress's goals in establishing the program. However, federal appellate courts have upheld similar laws in Arkansas and Mississippi.
The federal government has also told manufacturers that policies restricting pharmacies violate federal law. In the cases of AbbVie (search) and Novartis, those policies limited providers to using third-party pharmacies within 40 miles of their locations.
Industry Dispute Over Program Use
Manufacturers have long argued that hospitals and pharmacies use 340B revenue to pad profits rather than pass savings to patients, stretching the program's bounds to maximize profits. They view contract pharmacies as key to program abuse and have attempted to restrict their use.
Healthcare providers counter that the program is essential, particularly as hospitals and clinics prepare for deep Medicaid cuts included in recent congressional legislation. Many providers contract with outside pharmacies to distribute medicine since they lack in-house pharmacies.
State's Defense Strategy
Governor Ferguson expressed confidence in the state's ability to defend the legislation. "We do a careful job of reviewing everything about bills before I sign them, the policy side, but also the legal side," he told reporters. "We have conversations with legal folks to make sure that what we're signing, that we feel comfortable and confident we can defend it."
Both companies are seeking initial court orders to temporarily block the law while litigation proceeds. Neither case has been scheduled for a court hearing, and the state has not formally responded to the lawsuits.
AbbVie (search) manufactures Humira and Skyrizi for autoimmune diseases (search), while Novartis produces Entresto for heart failure (search) and Cosentyx for psoriasis (search). The law passed the Senate along party lines with Democratic support and received some Republican votes in the House.