Hospitals, health centers, and clinics are losing a projected $3.2 billion a year in 340B program savings due to six drug manufacturers’ denials of 340B pricing on drugs shipped to contract pharmacies, the federal government said in a court filing last week.
340B covered entities’ total monthly drug discount program savings fell from $357 million in July 2020, just before drug companies began their pricing restrictions, to $92 million in January 2021, the U.S. Justice Department said in a June 16 brief in drug maker Sanofi’s suit challenging the U.S. Health and Human Services Department’s (HHS) 340B contract pharmacy requirements. Total prescription drug units sold at 340B price fell from 10.5 million per month prior to manufacturers’ restrictions to 2.9 million in January 2021, DOJ said.
Sanofi and two other companies—AstraZeneca and Novartis—began limiting 340B discounts on their products in October 2020. That month, total sales of 340B-priced drugs on a per-unit basis “took a nosedive” from 9.4 million units to 5.1 million units, the government said. Total sales of drugs priced at wholesale acquisition cost (WAC) on a per-unis basis “more than doubled at the same time,” it said.
Examining the effect of Sanofi’s 340B pricing restrictions in isolation, DOJ said sales of Sanofi products at 340B price fell from 2.04 million units per month before the company’s restrictions took effect, to only 280,000 units per month after. “That same month, WAC-priced units sold by Sanofi skyrocketed from negligible to .37 million units,” it said.
“Monthly savings to covered entities dropped from $54.2 million just before [Sanofi’s] ‘integrity initiative’ to only about $5 million within two months,” DOJ said. “By January 2021, Sanofi’s restrictions represented an average lost savings to covered entities of $43.4 million monthly.”
DOJ included the 340B market data in its brief responding to Sanofi’s late May amendments to its 340B contract pharmacy lawsuit against HHS. Sanofi originally challenged the legality of HHS’s December 2020 advisory opinion that the 340B statute requires drug manufacturers to offer 340B pricing when covered entities use contract pharmacies. The company also challenged the legality and constitutionality of HHS’s 340B administrative dispute resolution final rule, which took effect in January.
Sanofi amended its complaint to include claims against the U.S. Health Resources and Services Administration’s May 17 letter finding that the company’s restrictions on 340B pricing violate the 340B statute and have resulted in overcharges.
DOJ filed the brief in the Sanofi lawsuit on the same day that the judge in AstraZeneca’s lawsuit challenging HHS’s advisory opinion rejected HHS’s conclusion that the 340B statute requires drug makers to offer 340B pricing when covered entities use contract pharmacies. Congress was silent about the role that contract pharmacies may play in purchases of 340B drugs, the judge said.
Two days later, HHS withdrew the advisory opinion.
As a result, DOJ’s arguments about the advisory opinion in its brief in the Sanofi case are already out of date. On the other hand, its arguments in defense of HRSA’s May 17 violation letter are fresh.
With eight federal lawsuits in play involving drug manufacturers’ restrictions on 340B contract pharmacy, it’s tough to be able to say definitively that something argued in one of the cases has never before been argued in another. That being said, DOJ May 16 brief in the Sanofi case does seem to mark DOJ’s first stab at a comprehensive defense of the legality of HRSA’s May 17 letters to Sanofi, AstraZeneca, Lilly, Novartis, Novo Nordisk, and United Therapeutics. The arguments it made in this brief are likely to resurface in briefs to come in the AstraZeneca, Lilly, Novartis, and Novo Nordisk cases, which also involve claims against HRSA’s letters.
DOJ is arguing that HHS’s decision to withdraw the advisory opinion moots Sanofi, AstraZeneca, Lilly, Novartis, and Novo Nordisk’s legal challenges to the opinion. The government says each of the six May 17 letters “is a new agency action that must be challenged and considered independently from previous agency decisions.”
“HRSA’s violation letter [sent to Sanofi] is the culmination of a separate process begun months before the [advisory opinion] was issued and based directly on the statute itself—not the [HHS] General Counsel’s legal advice—along with copious evidence gathered through HRSA’s investigative process,” DOJ said.
The analysis of 340B market trends was one of the pieces of evidence HRSA collected, DOJ said.
“Over six thousand pages of complaints from covered entities”
HRSA also took into account “over six thousand pages of complaints from covered entities” about Sanofi’s alleged overcharges, DOJ said. Those complaints “demonstrate the firm foundation of HRSA’s violation letter,” the government said.
DOJ said a hospital told HRSA that Sanofi’s refusal to offer 340B pricing for contract pharmacy orders had forced it to pay WAC, “the highest commercial rate,” for such orders. The hospital’s orders on Sanofi’s drugs “from October 2020 alone totaled $126,508 in lost 340B savings,” the government said. DOJ gave examples of other hospitals, community health centers, and a county health service that it said were forced to pay WAC for Sanofi products shipped to contract pharmacies.
“HRSA also relied on evidence regarding the importance of outside, neighborhood pharmacies, even for covered entities that may also operate an in-house pharmacy,” DOJ said. It said a health center in rural Georgia told HRSA its in-house pharmacy can serve only 40 percent of its patients, and that it relies on 340B savings on drugs dispensed by contract pharmacies to be able to afford to give low-cost or free insulin and epinephrine to patients. “Despite the critical importance of its contract-pharmacy network to both the provider and its patients, the covered entity documented that it ‘currently has no access to … Sanofi medications at 340B pricing to be dispensed through its contract pharmacies,’” DOJ said.
A remote northern Michigan health center described “the impossibility of serving patients through just one pharmacy, along with the severe impacts on its services and budget that Sanofi and its peers’ restrictions have caused,” DOJ said.
“HRSA also gathered relevant evidence through meetings with stakeholders” affected by Sanofi’s and other manufacturers’ policies,” DOJ said. It said Avita Pharmacy, a national provider of pharmacy services primarily to HIV/AIDS clinics and community health centers, told HRSA that 98 percent of its 270 covered-entity clients do not have an in-house pharmacy. “All were being denied 340B pricing and stand to lose millions of dollars in lost revenue,” DOJ said.
“This court should grant summary judgment in favor of the agency on Sanofi’s challenge to the violation letter and allow HRSA’s enforcement action to proceed,” the government said.
DOJ’s May 16 filing in the case also includes a five-page declaration by Rear Adm. Krista Pedley, the director of HRSA’s Office of Pharmacy Affairs. Sanofi’s and other manufacturers’ assert that sales under 340B contract pharmacy arrangements are to the pharmacies, not to covered entities, and thus are not subject to 340B pricing under law. In the declaration, Pedley takes the opposite position.
“Of course, contract-pharmacy arrangements vary, and I cannot speak to the exact details of every existing relationship between a covered entity and contract pharmacy,” Pedley said. “But at its most basic level, under the replenishment model, to the extent that an individual is determined to have been a 340B patient of the covered entity, the contract pharmacy’s drug inventory is ‘replenished’ with a drug purchased directly by a covered entity at the 340B discount after a drug is dispensed.”
“While it is true that the logistics of placing the replenishment order can vary—for example, sometimes the covered entity places the order, sometimes the contract pharmacy orders it as a purchasing agent of the covered entity, sometimes the order is submitted by the [covered entity’s 340B third party administrator]—HRSA understands that the covered entity is the legal purchaser and authorizes the order,” Pedley said.
