340B Hospitals Ponder Next Moves After U.S. Appeals Court Setback

A note from Publisher and CEO Ted Slafsky: I encourage you to read 340B Hudson Headwaters 340B President Jim Donnelly’s sponsored content article in today issue, on the challenges 340B stakeholders have faced over the last several months, and how Hudson 340B’s unique perspective can help providers develop a plan for addressing these challenges. 

I also encourage you to learn more about an Oct. 21 webinar hosted by 340B sponsor Trellis Rx and the Health Care Financial Management Association (HFMA) focused on accelerating results of an in-house specialty pharmacy service. More details can be found below.   

By the way, we are excited to report that we are putting the finishing touches on a new newsletter platform and web site with enhanced sponsorship benefits. If you would like to learn more about 2021 sponsorship/advertising packages, feel free to reach me at ted.slafsky@340Breport.com for a presentation.

340B Hospitals Ponder Next Moves After U.S. Appeals Court Setback

The American Hospital Association (AHA) is evaluating whether to ask the U.S. Supreme Court to decide whether a nearly 30 percent cut in 340B hospitals’ Medicare Part B drug reimbursement since 2018 is illegal and should be stopped, with affected hospitals made whole for about $4.8 billion in estimated total losses through the end of this year.

AHA General Counsel Melinda Hatton said yesterday the group is “deeply disappointed” about the full U.S. Court of Appeals for the District of Columbia Circuit’s decision last Friday not to reconsider a three-judge panel’s July 31 decision upholding the U.S. Centers for Medicare & Medicaid Services’ (CMS) deep cut in 340B hospitals’ Part B drug reimbursement under the hospital Outpatient Prospective Payment System (OPPS).

AHA, the Association of American Medical Colleges (AAMC), America’s Essential Hospitals, and three health systems with hospitals enrolled in 340B sued to have the cuts declared illegal and reversed. CMS said, “As a matter of policy, CMS does not comment on pending litigation.”

According to a U.S. Justice Department website, the groups and health systems have 90 days from the appeals court’s Oct. 16 denial of their rehearing request to petition the Supreme Court to hear the case. Convincing the Supreme Court to grant the petition is a major long shot (it grants only around 80 of the 7,000 to 8,000 petitions for review it gets each year). Even if the court accepted the case, arguments probably wouldn’t be heard until this time next year at the earliest, with a decision in the first half of 2022.

AHA General Counsel Hatton said the appeals court’s decision “conflicts with Congress’ clear intent and defers to the government’s inaccurate interpretation of the law.”

“For more than 25 years, the 340B program has helped hospitals stretch scarce federal resources to reach more patients and provide more comprehensive services,” she said. “Hospitals that rely on the savings from the 340B program are also on the front-lines of the COVID-19 pandemic, and these cuts will result in the continued loss of resources at the worst possible time. We are evaluating all of our remaining options to repeal these unlawful cuts, including petitioning the Supreme Court to hear the case.”

Hospital groups probably will wait until after the November election to decide on next steps. They are hoping for a Biden victory and a chance to convince the new administration to reverse the cuts. In the previous session of Congress, a bipartisan group of 200 members of the U.S. House co-sponsored a bill to overturn the cuts. Over half the U.S. Senate also called on its leadership to prevent the cuts. Hospital groups abandoned that strategy. It appears that approach may have backfired, at least for now.

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Filling a Unique Space in the 340B Market

Over the last several months the 340B program has faced several challenges from various stakeholders. No matter where the pressure comes from, it impacts the participating covered entity. With a pandemic already stretching resources thin, we at Hudson Headwaters 340B are seeing many health organizations struggling to meet the ever-changing environment within the 340B world.

For those of us who have been participating in the 340B program for years, we have seen many program challenges. For each challenge faced we have always immerged stronger and more prepared for the future with a keener focus on program integrity and continuous improvement of compliance efforts.

Hudson Headwaters 340B is a different kind of third-party administrator and consulting firm. As a wholly-owned subsidiary of a Federally Qualified Health Center (FQHC), we have grown from self-managing a 340B program to providing industry-leading services for clients across the country. Hudson Headwaters 340B fills a unique space in the 340B market with a perspective formed very carefully over the past 19 years. Our dual perspective, that of a covered entity and as a vendor, allows us to understand the struggles you face and help you develop a plan to take those struggles on.

Our team will work with your organization to customize a 340B arrangement that works best for you, all while keeping compliance at the top of our priorities. We understand that you want a partner and not just a vendor. For this reason, we provide each client with a dedicated representative that is available when you need them. When you call for assistance, you will not get an automated service but real people who know you and your program.

Vigilant compliance is vital to ensuring the longevity of the 340B program and limiting potential future attacks. This task can be quite difficult when you are working with several organizations in the management of your program. When selecting which vendors to partner with, it is imperative that you do your research. Hudson Headwaters 340B feels that an administrator should be a like-minded, proactive partner which treats your 340B program as if it were their own. We know very well that at the end of the day program compliance rests with the covered entity, however, having partners looking out for you is paramount to a successful and cohesive program.

Hudson Headwaters 340B truly understands the impact that the 340B program has on your organization, your patients, and the communities you serve.   Whether you are with a health system, hospital or HRSA grantee, we are here for you.

If you would like to learn more about the services Hudson Headwaters 340B provides, please click here.

Will Congress Pass 340B Legislation? Here’s What Experts Say.

There’s more talk today then there has been in years about possible federal 340B legislation. A few years ago, the conversation was led mainly by those who wanted to downsize 340B, with covered entities taking the hit. Now, it’s being led mainly by those who want to reverse 340B covered entities’ recent losses, and by those concerned about the U.S. Health Resources and Service Administration’s (HRSA) power to set and enforce 340B policy.

We asked lawyers and lobbyists with expertise in 340B matters for their thoughts about recent 340B policy developments and how they affect the odds for passage of 340B legislation. Read on to learn what they think.


In the summer of 2018 during the last session of Congress, Republicans controlled the White House, the House, and the Senate. Congressional Republicans had spent months building a case for scaling back the 340B program, mainly for hospitals. The Trump administration meanwhile deeply cut Medicare Part B reimbursement for hospitals’ 340B-purchased drugs, and signaled in its drug pricing blueprint that it favored other big 340B restrictions. 340B legislation seemed very possible. Then, in November, Democrats won control of the U.S. House. The legislative drive to curtail 340B eligibility and discounts and bind 340B covered entities in red tape ran out of gas.

A lot has changed in 340B since then. Although covered entities didn’t suffer legislative reverses, they took different big hits. The U.S. Court of Appeals for the District of Columbia Circuit—the second most-influential court in the country—upheld the administration’s 340B drug reimbursement cuts for hospitals, costing them about $1.6 billion a year, hospitals say. Last Friday, the full court declined to rehear the case. If President Trump wins re-election, the cuts could be even deeper starting next year. If Joe Biden wins, he could stop the cuts and restore hospitals’ lost reimbursement, but that’s not a given. Convincing the U.S. Supreme Court that the appeals court got it wrong is a significant long shot. Legislation might be hospitals’ best option.

Covered entities meanwhile are suing the federal government to force it to stop drug companies that, in a backlash against 340B contract pharmacy and 340B duplicate discounts, have been unilaterally withholding 340B pricing on drugs. Democrats and some Republicans in Congress want the U.S. Health and Human Services Department (HHS) to punish the companies to make them back down. The U.S. Health Resources and Services Administration (HRSA) has sent mixed messages, threatening to take action but so far taking none. HRSA keeps hammering home the message that it needs comprehensive regulatory authority over 340B.

There also are bills in Congress to protect hospitals from losing 340B eligibility due to changes in patient mix caused by the COVID-19 pandemic, and to let 340B hospitals buy covered outpatient drugs through group purchasing organizations during the emergency.

In July, President Trump signed an executive order requiring community health centers to dispense insulin and injectable epinephrine to low income, uninsured, or underinsured patients at 340B cost plus “a minimal administration fee.” Comments on the proposed rule to implement the order are due Oct. 28.

Two senior GOP congressional health care leaders, both retiring when their current terms end in January, invited 340B stakeholders to submit ideas by Oct. 30 about reforming 340B.

The path toward 340B legislation appears closed for this year. But legislation clearly looks like it is on the table for 2021.

Here are seven expert takes on what lies ahead:

Barbara Straub Williams, Partner, Powers Law (a 340B Report sponsor)

The Trump administration issued an order in October 2019 that states that agencies cannot take enforcement action against private entities that is not supported by statute or regulation. I believe that executive order has emboldened drug manufacturers to ignore HRSA’s 340B contract pharmacy guidelines. (The covered entity community takes the position that the 340B statute requires manufacturers to honor contract pharmacy agreements, but manufacturers take a different view,  and believe that contract pharmacy arrangements are not supported by the statute). If the administration changes following the election, the executive order might be rescinded. HRSA might then enforce the contract pharmacy guidelines.

But I think the controversies about the 340B program are going to continue. The recent actions by manufacturers indicates that they still have 340B in their crosshairs. Congress must be getting tired of hearing about the 340B program and may be more inclined to legislate a change.

Richard Church, Partner, K&L Gates

The bipartisan support for legislation protecting 340B eligibility during the pandemic and in response to the contract pharmacy manufacturer actions suggest that the 340B program continues to matter greatly to legislators, who seem willing and poised to act to address these issues. With that said, the Senate HELP committee has had a longstanding interest in more broad based 340B program legislation, so any legislation to address these two issues opens up a significant potential for Congress to address HRSA’s longstanding request for broader regulatory oversight and could likely also involve other changes to the program—such as enhanced transparency—that have been a feature of various legislative proposals over the years.

A lobbyist for a 340B covered entity service provider

I think we will have three lawsuits against HHS to enforce the contract pharmacy program when all is said and done.

U.S. House and Senate members are actively considering a legislative response to the manufacturer [denials of 340B pricing]. The scope and breadth is fluid, and I don’t think it will be nailed down until we know the results of the November elections. While bipartisanship on the need for 340B legislation is strong, it may be too high a hurdle to get legislation passed during the lame duck session. I think we will see renewed 340B efforts next year.

There would still be threats to 340B under a Biden administration (remember his ex-boss Obama’s 340B mega-guidance!), only the form of the threat will change.

Helen Pfister, Partner, Manatt, Phelps & Phillips

The flurry of recent activity on the 340B front, including litigation over manufacturer actions restricting the distribution of 340B drugs to contract pharmacies, and ongoing concerns about the perceived lack of HRSA oversight, may finally spur Congress to take action next session. But I wouldn’t necessarily expect Congress to go deep on any of those issues, not least because the more specific any legislation is, the more opposition it’s likely to engender from the various interest groups. Rather, I think it’s more likely that Congress would enact legislation that gives HRSA more rule-making authority than it currently has, but that gives HRSA considerable discretion on how to exercise that authority.

Andrew Ruskin, Partner, K&L Gates

All of this action underscores that a program the size of 340B cannot be run without a strong regulatory body. There is always a concern that giving a regulatory body more authority could result in abuses of power, but what we’re seeing in the 340B ecosystem is essentially a land grab resulting from a power vacuum. Until there is a process for setting rules of the road that are enforceable, there will likely be some degree of tension between the different stakeholders.  To assuage the concerns of vesting too much power in the hands of HRSA, Congress can put forward a process that has sometimes worked in Medicare, where even the rulemaking itself is part of a “negotiated rulemaking” process. Until such time as there is a viable process, we should expect additional points of contention to continue to arise.

Marsha Simon, President, Simon & Co, LLC

At base, there needs to be more than talk and no meaningful action to lower drug prices, and that starts by protecting the 340B program. The original U.S. Senate committee report (which Simon helped draft as staffer for Sen. Ted Kennedy, D-Mass.) clearly states that 340B’s purpose is to ensure that clinics receive a discount on drug prices comparable to the Medicaid rebate “with a minimum of administrative costs and burdens.” The health center insulin executive order and the administration’s tacit approval of multiple drug manufacturers unilaterally withholding 340B-priced drugs from contract pharmacies has resulted in completely unacceptable administrative burdens on the clinics.

I hope the next Congress affords the opportunity to reopen the 340B statute and address the lack of a legislative solution to duplicate discounts. If legislation to impose inflation penalties on Medicare Part B physician administered drugs and Medicare Part D drugs also moves—there should be even more impetus.

We need legislation to clearly state whether it is Medicaid or the covered entities that have first dibs on the drug savings. Secondly, we need the legislation to authorize and fund a conflict-of-interest-free contractor to collect the relevant discount and rebate data, vet it, reconcile it, and make both the clinics and the drug companies whole.

All 340B drug out-of-pocket costs should be set on a sliding scale for all patients of the participating safety-net providers as generally required of the Public Health Service Act grantee clinics—health centers and family planning clinics, for example. The issue of how the savings from the 340B program are invested completely misses this critical point.

On the regulatory side, both this and the former administration failed to implement the 340B dispute mechanism mandated in the ACA 10 years ago. Again, to ensure that the mechanism works in a timely manner, HRSA should contract out this function to a conflict-of-interest-free company with experience adjudicating disputes for the government.

Todd Nova, Shareholder, Hall Render

Two key factors will heavily inform 340B after the election. First, the presidential election winner may, or will, nominate a new U.S. Health and Human Services (HHS) secretary. The secretary has an outsized impact on Centers for Medicare & Medicaid Services (CMS) and Health Resources and Services Administration Office of Pharmacy Affairs (HRSA OPA) actions affecting 340B. Regarding CMS, the secretary influences how drug manufacturer Pharmaceutical Pricing Agreements (PPAs) that impose the obligation to offer 340B pricing are interpreted and implemented. The secretary also has influence over the manner in which 340B pricing is provided (e.g., via discount or rebate). Regarding HRSA OPA, the secretary is indirectly responsible for the imposition of civil monetary penalties for 340B overcharging, and the development of the long delayed 340B dispute resolution process.

Second, the U.S. Supreme Court’s forthcoming decision about the fate of the Affordable Care Act (ACA) will heavily impact any major 340B program legislative or agency actions. The decision will answer whether 340B-related provisions in the ACA can remain if the law’s individual mandate is found to be unconstitutional. The 340B provisions include:

  • new covered entities (critical access hospitals, sole community hospitals, and rural referral centers)
  • civil monetary penalties for manufacturer overcharging on 340B-eligible drugs
  • 340B dispute resolution processes
  • Office of Pharmacy Affairs Information System (OPAIS) reporting requirements
  • sanctions on covered entities for non-compliance with 340B program requirements.

All of these could be invalidated if the ACA is struck down and found to not be severable. Accordingly, the Nov. 10 oral arguments should be closely watched as a bellwether.

The future face of the 340B program also will be heavily informed by the results of the U.S. Senate and House elections. The chambers would be tasked with preparing any 340B legislation. Any such legislation will also need to react to the results of the Supreme Court’s ACA decision.

Until then, 340B covered entities should focus on what we know currently, which is that Medicare’s OPPS 340B payment reduction (ASP-22.5%) is likely to stand going forward as a result of the D.C. Circuit Court’s denial of a petition for en banc review. More, they should consider that the 2021 OPPS Final Rule could implement an ASP-28.7% payment rate. These payment cuts could be addressed in any 340B program legislation after the election, though again the likelihood of that occurring will be heavily informed by the results of the Nov. 3 election.

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Trellis Rx Webinar: Accelerate Results of a Health System Specialty Pharmacy Service

As the prevalence of specialty medications continues to grow, health systems are uniquely positioned to enhance care for patients who require these high-cost, hard-to-manage drugs.

On Oct. 21 at 1 p.m. ET, Trellis Rx, the leading health system specialty pharmacy services provider, is sponsoring an HFMA webinar with its partner Memorial Hospital at Gulfport to share best practices on how health systems can accelerate results of an in-house specialty pharmacy service.

The continuing education webinar will be co-presented by April LaFontaine, Chief Administrative Officer at Memorial Hospital at Gulfport, and Denali Cahoon, Chief Operating Officer at Trellis Rx.

The webinar is free for HFMA members, who can sign up here. Others interested in the event may contact Trellis Rx to receive the webinar recording.

Tenn. 340B Health System and Private Cancer Center Sued Under False Claims Act

A former high-ranking official and a former board member of a Memphis, Tenn., health system accuse it of making illegal payments to a private-practice group of oncologists to steer patients to the system to boost the system’s profits from billing federal and state healthcare payers for 340B-purchased drugs.

The allegations against Methodist Le Bonheur Healthcare (Methodist) and West Cancer Center are in a federal False Claims Act and Tennessee Medicaid False Claims Act whistleblower suit originally filed under seal in 2017 and recently made public. The Memphis Commercial Appeal broke the story Oct. 14 and Modern Healthcare wrote about the suit Oct. 16.

Whistleblower lawsuits usually collapse if the government decides not to intervene and take charge of the case. Modern Healthcare reported that the Tennessee state and U.S. governments both declined to intervene after receiving multiple extensions to deliberate. The U.S. Attorney’s Office for Middle Tennessee, however, told the Commercial Appeal last week it has made no decision about whether to intervene in the case “at this time” and “will continue to monitor the case.”

Methodist told the Commercial Appeal the suit lacks merit and West Cancer Center said it “vigorously” disagrees with the allegations made against it.

The plaintiff allege that Methodist and West Cancer Center’s actions, “including enormous 340B drug profits from expensive cancer drugs,” caused more than $800 million in damages to Medicare and Medicaid. Whistleblowers can be awarded up to 30 percent of the civil monetary penalties and damages assessed in such actions, or of settlement amounts, plus expenses.

The Commercial Appeal reported that the plaintiffs and West Cancer Center are discussing a settlement, and that Methodist anticipates discussing a settlement.

Last month, news of a 340B covered entity being the subject of a whistleblower’s lawsuit that arose, in part, out of the 340B program came up in correspondence between the U.S. Health and Human Services Department and Eli Lilly and Co. over the drug manufacturer’s decision to stop providing 340B pricing on its products shipped to contract pharmacies. It is not known whether Methodist is that covered entity.

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Burgess and McMorris Rodgers Vie to Replace Walden as Top Republican on Key House Committee

Republican U.S. Reps. Michael Burgess (Texas) and Cathy McMorris Rodgers (Wash.) are the frontrunners to replace Greg Walden (Ore.) as the House Energy and Commerce (E&C) Committee’s top GOP member during the next session of Congress, The Hill reports. The E&C Committee has direct jurisdiction over the 340B program while the Senate Health, Education, Labor, and Pensions (HELP) Committee plays a similar role.

Walden is retiring when his current term expires on Jan. 3, 2021. He and Senate HELP chairman Lamar Alexander (Tenn.), who also is retiring, recently invited 340B program stakeholders to submit ideas by Oct. 30 about reforming 340B, signaling there could be a GOP push for 340B legislation either during the lame duck or in 2021.

Burgess, a doctor of obstetrics and gynecology, is the ranking Republican on the Energy and Commerce Health Subcommittee. In 2018, as chairman, he held a hearing to consider more than a dozen 340B related bills and discussion drafts, most of them introduced by Republicans and designed to scale back the program. They included Burgess’ draft bill to prohibit 340B disproportionate share, children’s, and freestanding cancer hospitals from charging “low-income patients” more than the 340B ceiling price for 340B drugs. As chair and ranking Republican, he has co-requested several Government Accountability Office (GAO) investigations of 340B, including GAO’s forthcoming report on the U.S. Health Resources and Services Administration’s (HRSA) 340B program compliance audits and enforcement mechanisms.

McMorris Rodgers served as chair of the House Republican Conference, the third highest-ranking House GOP leadership post, until this session of Congress. McMorris Rodgers has been on the E&C Committee since 2010 and served twice on the health subcommittee. In 2011, she co-sponsored bipartisan legislation to extend 340B drug discounts to the inpatient setting and lift the prohibition on 340B rural hospitals getting 340B discounts on orphan drugs. A budget reconciliation bill passed a few days after the Affordable Care Act became law in 2010 eliminated the ACA’s extension of 340B to the inpatient setting. The budget bill also created the 340B orphan drug exclusion for rural hospitals. Since she took on her GOP leadership position in 2012, McMorris Rodgers has not been vocal or active on 340B matters.

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