March 20, 2026 | Posted By: Sean Estes

On March 17, 2026, the U.S. Court of Appeals for the Ninth Circuit issued a unanimous decision that could reshape how whistleblowers fight pharmaceutical fraud. In U.S. ex rel. Adventist Health System of West v. AbbVie Inc., the court reversed a district court dismissal and cleared the way for a hospital system to pursue False Claims Act (“FCA”) claims against several major drugmakers, including AbbVie, AstraZeneca, Novartis, and Sanofi, over alleged overcharges in a prominent federal drug discount program.

The ruling marks the first time a federal appellate court has addressed whether the FCA can be used to challenge pricing violations in the 340B Drug Pricing Program, and the answer has significant implications for healthcare fraud whistleblowers, drug manufacturers, and the future of government program integrity.

What Is the 340B Drug Pricing Program?

The 340B program was created by Congress in 1992 to help safety-net hospitals and clinics serving low-income patients access prescription drugs at reduced prices. Under the program, drug manufacturers that want their products covered by Medicaid and Medicare Part B must agree to sell certain outpatient drugs to eligible healthcare facilities, called “covered entities,” at or below a statutory ceiling price.

When the ceiling price formula produces a result at or below zero (which can happen when a manufacturer raises prices faster than inflation), the longstanding policy has been that the manufacturer should charge no more than one penny per unit. This is known as the “penny pricing” policy.

The program facilitated more than $80 billion in drug purchases in 2024, according to federal data, making it a major component of the nation’s healthcare landscape.

The Lawsuit: What Happened?

Adventist Health System, a nonprofit hospital network operating clinics and facilities across several states, is a covered entity under the 340B program. Adventist filed a qui tam lawsuit, acting as a whistleblower on behalf of the federal and state governments, alleging that the defendant drug manufacturers had engaged in a years-long scheme to charge inflated prices that did not comply with the statutory ceiling price formula.

According to the complaint, the overcharges were passed through to government programs in three ways. First, when covered entities purchased drugs at inflated prices, federal and state Medicaid programs reimbursed those higher costs. Second, “critical access hospitals” billed Medicare at 101% of their drug costs, meaning the government absorbed the overcharges through Medicare payments. Third, government-funded prisons and health clinics paid the fraudulently inflated prices directly.

Adventist alleged that the manufacturers began correcting their pricing only after the Department of Health and Human Services finalized a 2019 regulation imposing civil penalties for noncompliance with the penny pricing policy. After that rule took effect, Adventist noticed drug prices suddenly dropping to $0.01 per unit, a shift it argued could only be explained by manufacturers’ prior and systematic failure to comply with the law.

The District Court’s Dismissal

The district court dismissed the case, relying on the Supreme Court’s 2011 decision in Astra USA, Inc. v. Santa Clara County. In Astra, the Supreme Court held that covered entities could not sue drug manufacturers for overcharges as third-party beneficiaries of their pricing agreements with the government, because Congress had not created a private right of action under the 340B statute.

The district court extended that reasoning to the FCA context, concluding that allowing a covered entity to bring FCA claims based on 340B pricing violations would effectively circumvent Congress’s decision to limit enforcement of the program to government channels.

The Ninth Circuit’s Reversal

The Ninth Circuit disagreed on all counts, reversed the dismissal, and remanded the case for further proceedings. The panel’s reasoning rested on three key conclusions.

The FCA provides its own cause of action. The court emphasized that Adventist was not suing to enforce the 340B statute directly. Instead, it was bringing claims under the FCA, which gives any private whistleblower the right to sue on behalf of the government to recover losses caused by fraud. The absence of a private right of action under the 340B statute was, in the court’s words, “immaterial,” because the FCA itself supplied the legal basis for the lawsuit. The court drew on its own precedent in United States ex rel. Sutton v. Double Day Office Services, Inc., where it held that a whistleblower could bring FCA claims based on violations of the Service Contract Act even though that statute also lacked a private enforcement mechanism.
Adventists’ claims are not disguised 340B enforcement. The court distinguished the case from Astra by focusing on what Adventist was actually seeking. In Astra, the plaintiffs were covered entities trying to recover their own losses from drug overcharges, essentially attempting to enforce 340B through a breach-of-contract theory. Here, Adventist was standing in the government’s shoes, seeking statutory FCA damages (treble damages and per-claim penalties) for false claims submitted to Medicare and Medicaid. The court noted that the damages Adventist sought were fundamentally different from what a covered entity would receive through the 340B administrative dispute resolution process.
Barring the claims would undermine the FCA. The panel emphasized that the FCA was designed to reach “all types of fraud, without qualification, that might result in financial loss to the government.” Congress has carved out specific exceptions to the FCA for areas such as the Internal Revenue Code and certain military claims, but it has created no exception for the 340B program. Reading one into the statute, the court concluded, would require finding that the 340B statute impliedly preempts the FCA, a conclusion that no statutory text supports.

The DOJ Agreed

The U.S. Department of Justice filed an amicus brief in the case supporting Adventist’s position and urging reversal of the district court’s ruling. While the DOJ declined to intervene in the underlying lawsuit, it argued forcefully that the district court’s reasoning, if left in place, could have “significant adverse consequences” for FCA enforcement well beyond the 340B context.

The DOJ pointed out that FCA suits routinely rest on allegations of fraud against Medicare, Medicaid, and government contracts, even though those programs have their own administrative mechanisms for resolving disputes. Allowing one program’s enforcement structure to implicitly bar FCA claims would threaten the government’s primary tool for combating fraud across virtually all of its programs.

The Pharmaceutical Industry Pushed Back

The drug manufacturers were not without allies. The Pharmaceutical Research and Manufacturers of America (PhRMA) filed its own amicus brief arguing that the 340B program requires uniform oversight by a single federal arbiter, not a patchwork of whistleblower lawsuits filed across the country. PhRMA warned that allowing FCA suits based on 340B pricing disputes would destabilize the centralized pricing system HRSA administers and lead to conflicting outcomes across jurisdictions.

PhRMA also highlighted broader concerns about the 340B program itself, noting that the program has grown dramatically since its creation, with spending reaching a record $66.3 billion in 2023. The trade group argued that this growth, driven largely by nongovernmental hospitals and contract pharmacies, has moved the program far from its original mission of serving low-income patients, and that adding FCA litigation to the mix would only compound the complexity.

The Ninth Circuit was not persuaded. The panel noted that Congress gave the government multiple tools to maintain control over qui tam cases, including the authority to intervene, settle, or even dismiss FCA suits over a whistleblower’s objection. Those safeguards, the court reasoned, adequately address concerns about fragmented enforcement.

Why This Case Matters for Whistleblowers

This decision is significant for several reasons.

It confirms that the False Claims Act remains a powerful and broadly available tool for fighting fraud in government healthcare programs. The Ninth Circuit’s opinion reinforces that whistleblowers can bring FCA claims even when the underlying regulatory program does not provide a private right of action, as long as the fraud caused financial harm to the government.

It opens a new front in pharmaceutical fraud enforcement. Drug pricing disputes in the 340B program have historically been confined to administrative channels. This ruling creates a pathway for whistleblowers with knowledge of systematic overcharging to pursue FCA claims, potentially involving hundreds of millions of dollars in government losses.

It also sends a message to regulated industries more broadly. Companies that participate in government programs cannot assume that the absence of a private enforcement mechanism in a particular statute shields them from FCA liability. If fraudulent conduct causes the government to overpay, the FCA’s broad reach may apply.

What Comes Next?

The case has been remanded to the district court for further proceedings, where the defendants will have the opportunity to raise additional defenses. But the Ninth Circuit’s decision clears a critical legal hurdle and puts the pharmaceutical industry on notice that 340B pricing compliance is now squarely within the FCA’s reach.

Whether or not this specific case ultimately results in a recovery, the precedent it sets will likely encourage additional whistleblower filings in the 340B space and in other government programs where pricing fraud has historically been addressed only through regulatory enforcement.

Contact a Whistleblower Attorney

If you have knowledge of fraud involving the 340B Drug Pricing Program, Medicare, Medicaid, or any other government healthcare program, the attorneys at Hoyer Law Group can help you evaluate your options. Our firm has extensive experience representing healthcare whistleblowers in False Claims Act cases nationwide, and our attorneys have helped recover millions of dollars for the government.

This blog is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified attorney.

Ninth Circuit Revives Major False Claims Act Lawsuit Over Drug Pricing in the 340B Program