Two of the world’s largest pharmaceutical companies sued Washington state, alleging a new law to tamp down prescription drug prices for hospitals won’t result in discounts for patients.

The lawsuits came the same day Gov. Bob Ferguson signed Senate Bill 5981. The law passed the Senate along party lines with Democrats in support, and with some Republican votes in the House. It takes effect in June. 

Hospitals and pharmaceutical companies are at odds over the legislation, making it one of the most hotly contested bills of the 2026 legislative session. The law seeks to add transparency to the federal 340B drug pricing program and to stop drug manufacturers from restricting who can dispense their medication.

Two of those manufacturers, Novartis and AbbVie, are now suing the state over the new law in federal court in western Washington. Similar laws in other states have been upheld.

While obscure to many outside of the health care arena, billions of dollars worth of pharmaceutical drugs flow to patients under the federal 340B program each year, and the way it is set up helps to bolster the finances of some hospitals.

Established in 1992, the program requires drug manufacturers to give certain safety-net providers, like those in rural areas or those that disproportionately serve low-income patients, hefty discounts on outpatient drugs. Those providers can then bill insurers for the prescriptions at higher market rates. 

The idea is to help these hospitals and clinics to generate revenue so they can expand their care for low-income and uninsured patients. 

At the Moses Lake Community Health Center, for example, the program helps cover the cost of care for patients with chronic diseases and supports mental health services, the center’s CEO wrote in a letter to the governor last week, urging him to sign the bill.

Ferguson also received multiple requests to veto the legislation, including from AbbVie, Pfizer, AstraZeneca, the Building Industry Association of Washington, and the National Federation of Independent Business.

Sparring over the program dates back years

Advocates say preserving the 340B program is now more important as hospitals and clinics prepare for deep cuts to Medicaid included in the “big, beautiful bill” Republicans in Congress passed last year. 

Many providers contract with outside pharmacies to distribute medicine to patients, since they don’t have in-house pharmacies. 

This aspect of the 340B program has grown rapidly in recent years. And after the passage of the Affordable Care Act in 2010, many more providers qualified to participate in 340B. In 2024, these hospitals and clinics bought $81.4 billion in outpatient drugs under the federal program, up from $44 billion just three years earlier.

Manufacturers have long argued that hospitals and pharmacies are using 340B revenue to pad their profits instead of passing on savings to patients, and that they’re stretching the bounds of the program to maximize those profits. They’ve tried to restrict the practice of using pharmacies under contract to distribute their drugs, as they see pharmacies as key to abusing the program.

In recent years, numerous states have passed laws to prohibit drug manufacturers from limiting the use of contract pharmacies in the 340B program. 

This is what Washington’s new law aims to do. The attorney general could enforce violations of the law, and hospitals and clinics could bring litigation themselves, as well. 

It also wouldn’t allow manufacturers to require providers or pharmacies to provide data as a condition for acquiring their medication. 

Companies could use that data to see if pharmacies are diverting drugs away from the patients they were meant for, or if entities are getting duplicate discounts through 340B and Medicaid.

Both the companies and providers need to submit data to the state, though.

“This will allow the state to have more insight into improving the program to ensure it supports providers while, most importantly, protecting consumers,” Ferguson said as he signed the legislation.

Drug companies say they’ll lose millions

AbbVie claims the law will cost it “tens of millions of dollars in unrecoverable discounts.” The company’s lawsuit says its 340B discounts run around 60% of market value and bring some drug costs down to just pennies. 

Novartis similarly says the law will result in “unrecoverable financial harms.”

“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 reads. 

“If Novartis does not comply — or even if the State ever takes the position that Novartis has not fully complied — Novartis must expend significant resources defending itself or its employees, on top of financial penalties that may be imposed,” it adds.

AbbVie argues the law has “cascading constitutional infirmities.” Novartis says it “cannot coexist with federal law” as it goes against the goals of Congress in establishing the program. 

Federal appellate courts have upheld similar laws in Arkansas and Mississippi. 

The federal government has also told manufacturers that policies they’ve implemented to restrict pharmacies violate federal law. In the cases of AbbVie and Novartis, those policies were to only allow providers to use third-party pharmacies within 40 miles of them. Several pharmaceutical companies, including Novartis, responded with lawsuits. Federal appellate courts have sided with the manufacturers in those cases.

After signing the legislation this week, Ferguson, a Democrat, said he understood pharmaceutical companies may want to explore litigation against Washington.

“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. And this is no different.”

A spokesperson for Attorney General Nick Brown said March 26 his office was reviewing the filings. The state hasn’t formally responded in court to the lawsuits. 

Both companies are seeking an initial court order temporarily blocking the law while the litigation is pending. Neither has been set for a court hearing. 

AbbVie is perhaps best known for manufacturing Humira and Skyrizi to treat autoimmune diseases. Novartis makes Entresto to treat heart failure and Cosentyx for psoriasis.

This story is republished from the Washington State Standard, a nonprofit, nonpartisan news outlet that provides original reporting, analysis and commentary on Washington state government and politics.