Ninth Circuit Enables 340B False Claims Act Enforcement

On March 17, 2026, the Ninth Circuit issued a unanimous decision in United States ex rel. Adventist Health Sys. of W. v. AbbVie Inc. allowing a large health system to pursue a False Claims Act (FCA) lawsuit premised on alleged violations of the 340B Program by drug manufacturers that led to the submission of false claims to the government. The decision comes amid a period of heightened scrutiny of the 340B Program, as stakeholders raise concerns about fraud, abuse, and program overexpansion and manufacturers explore limitations on access to drugs subject to the 340B Program. In this latest ruling, the Ninth Circuit held that the health system had standing to proceed in its lawsuit, despite the fact that the 340B Program does not itself confer a private right of action, because the broad reach of the FCA includes the submission of false claims for payment to the government arising from 340B Program violations. This determination may open the door to increased litigation involving the 340B Program.

Background on the 340B Program

The 340B Program is a government program administered by the Health Resources and Services Administration (HRSA) that allows qualifying hospitals and clinics (Covered Entities) treating low-income and uninsured patients to buy certain prescription drugs at a steep discount from drug manufacturers. Among other requirements, the 340B statute precludes manufacturers from charging Covered Entities more than a “ceiling price” for a drug. Covered Entities are able to generate revenue under the 340B Program by purchasing drugs at discounted prices —sometimes as low as pennies when drug price increases exceed inflation — and then billing payers at higher reimbursement rates, retaining the difference.

Drug manufacturers are required to participate in the 340B Program as a condition of obtaining Medicaid coverage of their drugs. For drug manufacturers who want their products to reach the broadest patient population, participation in the 340B Program is therefore de facto mandatory.

The Ninth Circuit Ruling

On March 17, the Ninth Circuit held that Adventist Health System of West (Adventist), an operator of medical clinics and facilities and a Covered Entity under the 340B Program, could move forward with an FCA qui tam lawsuit alleging that several drug manufacturers caused federal and state governments to overpay hundreds of millions of dollars to Medicaid, Medicare, and government-funded clinics by fraudulently charging Covered Entities higher prices for medications using pricing tactics inconsistent with the 340B Program’s ceiling price requirement. The court concluded that Adventist had asserted a cognizable claim under the FCA because the FCA’s broad remedial purpose—which Congress intended to reach “all types of fraud, without qualification, that might result in financial loss to the government” — covers claims that 340B Program violations resulted in the submission of false claims. The decision reversed the United States District Court for the Central District of California’s dismissal of Adventist’s suit with prejudice based on the district court’s conclusion that the lawsuit functionally sought to enforce the 340B statute, which does not confer a private right of action.

Adventist’s Allegations

Adventist alleges that the drug manufacturer defendants caused violations of the FCA by charging Covered Entities inflated drug prices untethered to the 340B Program statutory ceiling price formula. Specifically, Adventist alleges that the defendants fraudulently raised drug prices to avoid being subject to HRSA’s penny pricing policy, which requires certain manufacturers to charge Covered Entities no more than $0.01 per unit if their price increases exceed general inflation. These actions resulted in Covered Entities significantly overpaying for drugs that should have cost mere cents.

Adventist asserts that the drug manufacturers’ conduct harmed the government because the inflated drug prices charged to Covered Entities were passed along to the government, either through Covered Entity claims for reimbursement from federal health care programs or through state government direct payments. In particular, Adventist alleges that: (1) the manufacturers caused Covered Entities to overcharge Medicaid because charges to Medicaid reflected inflated drug prices; (2) the manufacturers caused critical access hospital Covered Entities to overcharge Medicare, because those hospitals bill Medicare at 101% of their drug costs; and (3) the manufacturers directly overcharged government-funded 340B Covered Entities, such as state prisons and certain government-funded clinics.

Adventist, on behalf of the government as qui tam relator, seeks recovery for losses incurred by the government due to drug overpayments as well as qui tam relator damages. As the Ninth Circuit explained, if Adventist is successful in its lawsuit, the drug manufacturers would be liable to the government for significant per claim penalties plus treble damages. Adventist could receive up to 25-30% of the litigation proceeds as relator.

Because the Ninth Circuit’s ruling was limited to the sufficiency of Adventist’s pleadings, it did not opine on the merits of Adventist’s underlying claims.

Ninth Circuit Analysis of Lawsuit

The Ninth Circuit rejected the district court’s holding that Adventist’s lawsuit constituted a 340B Program lawsuit in essence by drawing a fundamental distinction between Adventist’s FCA claims—which it described as a “prototypical FCA action”— and 340B claims based on the interests Adventist sought to vindicate and the relief Adventist sought. Specifically, the court found that Adventist brought a “prototypical FCA action” because it seeks relief on behalf of the government for the submission of false claims rather than reimbursement for losses incurred by Adventist for overcharges or other 340B violations. The court explained that while alleged violations of 340B ceiling prices relate to the false claims at issue, Adventist’s theory of liability against defendants is not that they violated 340B but that they caused Covered Entities to make false claim submissions. The court emphasized that the damages Adventist pled confirmed this distinction. Rather than seeking forms of relief available under 340B, such as compensatory damages or the termination of a manufacturer’s involvement with the 340B Program, Adventist pled damages to the government for false claims.

The court concluded that because Adventist solely asserted FCA claims, it was immaterial that the 340B Program does not provide a private right of action. Thus, the district court was incorrect to find that Adventist’s lawsuit was precluded by the 340B Program’s remedial scheme.¹

Implications

The Ninth Circuit’s decision has broad implications for all 340B participants. At a critical time for the 340B Program where fraud and abuse risk is high, efforts to address and curtail those risks remain in flux, and legal guardrails for the Program are uncertain, FCA exposure now looms. FCA exposure brings risk of substantial civil penalties — as provided in the Ninth Circuit’s opinion, FCA violators can be held liable for three times the amount of damages the government sustains. And while FCA claims and 340B Program claims are distinct, the availability of FCA causes of action relating to 340B violations presents a potentially lucrative avenue for 340B stakeholders to recover for 340B fraud and abuse in the form of relator damages.

The Department of Justice submitted an amicus brief in support of allowing Adventist to pursue its lawsuit, suggesting that the government itself may be receptive to pursuing enforcement actions for FCA violations arising from non-compliance with the 340B Program in the future. Additionally, other Circuit Courts have allowed FCA lawsuits relating to violations of different statutes that provide administrative remedies to proceed, suggesting that FCA suits relating to 340B violations could find success in other jurisdictions.

It is unclear whether other jurisdictions will follow the Ninth Circuit’s lead, especially in light of the Supreme Court’s decision in Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 113 (2011) concluding that Covered Entities have no private right of action for 340B violations. As noted in previous Goodwin Client Alerts, the 340B program continues to be a subject that would benefit from further clarification by Congress to ensure that the program delivers on its intended goals.

The Goodwin Center for Market Access and Pricing (GMAP) will continue to monitor activity from the courts and administration related to the 340B Program and False Claims Act. Goodwin has previously issued Client Alerts on HRSA’s 340B Rebate Pilot Program, 340B Litigation Efforts, and 340B Contract Pharmacies, among other related topics.

Please reach out to the authors of this alert or the Goodwin lawyer with whom you typically consult if you have any questions.