Safety-net providers play a critical role in delivering healthcare services in this country. Recognizing their importance and to help them face escalating drug prices, Congress created the 340B Drug Pricing Program back in 1992. The program, however, is currently undergoing significant changes and facing serious challenges.
On one hand, the program is challenged by drug manufacturers, who argue that the program is being abused by 340B covered entities. On another, Medicare Part B recently challenged payments to 340B providers. In addition, we have multiple pending legal actions and legislation that seek to clarify and challenge the program. No wonder the attention of the healthcare community is glued to the latest developments in the 340B arena.
Medicare reimbursement cut
In 2018, CMS implemented a 28.5% reduction to payments for most drugs purchased through the 340B Program and paid under the Outpatient Prospective Payment System (“OPPS”).
Hospitals subject to the reductions sued the Department of Health and Human Services (“HHS”) in federal district court, alleging that HHS did not have the authority to reduce 340B reimbursement rates. Ultimately, the hospitals prevailed in the Supreme Court. Further litigation related to the remedies for the past payment cuts is continuing in the US District Court for the District of Columbia.
Manufacturers’ restricting use of contract pharmacies
In 2010, the HHS’s issued guidance that covered entities could use unlimited number of contract pharmacies (See 75 Fed. Reg. 10,272 (Mar. 5, 2010). As a result, the use of contract pharmacies increased twentyfold. (Sanofi Aventis U.S. LLC v. United States HHS (3d Cir. 2023) 58 F.4th 696, 700.)
Such growth of the 340B program concerned drug manufacturers who argued that it increased duplicate discounts and diversion. Starting with 2020, certain drug makers commenced implementing restrictions on the use of contract pharmacies. For example, some manufacturers refused to ship to contract pharmacies, some limited distribution to only one 340B pharmacy per covered entity, some placed geographical restriction on where such contract pharmacy could be located; some agreed to ship to contract pharmacies if covered entity provide claims data.
Due to these restrictions, in December 2020, HHS released an Advisory Opinion declaring that such restrictions violate the 340B program requirements. It also sent letters to specific manufacturers stating that their policies were unlawful and ordering the manufacturers to rescind them and reimburse covered entities for any overcharges.
As a result, several manufacturers sued HHS to invalidate its guidance and interpretation of the 340B program. District courts, however, issued inconsistent decisions. For example, the District of Delaware held that the HHS Advisory Opinion was arbitrary and capricious because it wrongly called Section 340B unambiguous. (Sanofi Aventis U.S. LLC v. United States HHS (3d Cir. 2023) 58 F.4th 696, 702.)
HHS, however, prevailed in the District of New Jersey. The court, relying on the 340B statute’s purpose and legislative history, held that Section 340B requires delivery to at least one contract pharmacy.
(Sanofi Aventis U.S. LLC v. United States HHS (3d Cir. 2023) 58 F.4th 696, 702.)
The parties appealed to Circuit courts and as of the day of this writing, only the Third Circuit court issued decision. It held for the drug manufacturers explaining that HHS’s efforts to enforce its interpretation of Section 340B are unlawful because the statute is silent on the issue of drug delivery.
(Sanofi Aventis U.S. LLC v. United States HHS (3d Cir. 2023) 58 F.4th 696, 699.)
Two other cases on the same issue are currently pending in the Seventh and D.C. Circuits. While unlikely that these courts interpret requirements of Section 340B differently from the Third Circuit, if they do, the case is likely to head to the U.S. Supreme Court.
New 340B ADR Rule
Under the 2010 amendment to Section 340B, HHS was required to set up the administrative dispute resolution process for drug makers and covered entities to resolve disputes pertaining to 340B program. HHS, however, did not issue a notice or proposed rule-making until 2016. Moreover, after the comment period, it seemed to abandon it. (Sanofi Aventis U.S. LLC v. United States HHS (3d Cir. 2023) 58 F.4th 696, 702.) But in 2020, HHS revived it by responding to the four-year old comments and issuing the final ADR rule. At the end of 2022, HHS introduced a new proposed rule.
In addition to the above mentioned developments, there are state and federal legislation pending impacting the 340B program. For example, on the federal level, we have the Inflation Reduction Act of 2022 that impacts the program by providing for Medicare Part B and Part D rebates.
On the state level, several states have introduces 340B non-discrimination laws prohibiting drug makers/PBM/certain payors from discriminating against 340B entities and treating them differently (such as reducing their reimbursements or refusing to deliver products to such entities).
With such an eventful 2022 and early 2023, we expect to see more developments and changes continuing into 2023 and 2024 (namely: new proposed rules, Circuit court decisions, interpretation of HRSA’s enforcement authority, and new state 340B laws). This will be an interesting topic to monitor and analyze how the new developments impact the 340B clients.