After a 10-Year Odyssey, HRSA Finally Releases 340B Dispute Resolution Rule (Updated)

Today, more than a decade after Congress ordered that it be done, HRSA released a final rule establishing a binding 340B administrative dispute resolution process. The rule takes effect Jan. 14. | Source: Shutterstock

After a 10-Year Odyssey, HRSA Finally Releases 340B Dispute Resolution Rule

CORRECTION, Dec. 11, 2020—We reported incorrectly yesterday that the U.S. Health Resources and Services Administration (HRSA), in the preamble to its 340B program administrative dispute resolution final rule, “rejected recommendations that manufacturers be required to first to audit covered entities before bringing claims against entities.” The opposite is true. HHS rejected recommendations that manufacturers not be required to first audit covered entities before bringing claims against entities.

UPDATED, Dec. 11, 2020, 2:00 p.m. EST—Pharmaceutical Research and Manufacturers of America (PhRMA) this afternoon provided 340B Report with the following statement about HRSA’s 340B program administrative dispute resolution final rule:

We are disappointed the administration issued a final Administrative Dispute Resolution (ADR) rule more than 4 years after it was proposed. They failed to take into account changes that have occurred in the 340B program over this time and completely ignored significant concerns raised by stakeholders in 2016. Rather than making real progress toward ensuring this safety-net program works in the best interest of patients, the administration has rushed through a rule without pausing to fully consider the consequences. 

The 340B program is plagued with abuses that must be addressed to ensure sustainability and integrity of the program. Over the last 4 years, evidence has shown there are serious problems in the 340B program, including violations of diversion of medicines and duplicate discounts by covered entities exploiting the lack of clear program guidance. The administration should not have finalized an ADR process without first finalizing a precise definition of ‘patient’ and implementing improved manufacturer audit procedures, two essential elements to a well-functioning ADR process. PhRMA has serious concerns with this failed regulation. 

The U.S. Health Resources and Services Administration (HRSA) late this morning released for public inspection a final rule creating a panel to resolve health care providers’ claims they were overcharged for 340B covered outpatient drugs by drug manufacturers, and manufacturers’ claims, after an audit, that providers violated the statutory prohibition on diversion or duplicate discounts.

Congress told the U.S. Health and Human Services (HHS) secretary to issue the rule in March 2010, and lawmakers wanted it done by that September. The 340B Drug Pricing Program Administrative Dispute Resolution (ADR) Regulation released today marks just the third time in 340B program history that HRSA has released a final rule.

HRSA published a combined 340B ceiling price calculation and manufacturer civil monetary penalty final rule in January 2017.

In July 2013, HRSA published a final rule to clarify Affordable Care Act language stating that, for hospitals made eligible for 340B under the ACA, the definition of “covered outpatient drug” would exclude drugs designated for orphan diseases or conditions. HRSA wanted to provide 340B savings for commonly prescribed uses of orphan drugs, and to exclude savings on orphan drug when prescribed for a rare disease or condition. A federal district court struck the rule down in 2015, saying Congress gave HRSA authority to issue rules only related to manufacturer civil monetary penalties, ceiling price calculations, and the ADR.

In finalizing the ADR rule, HRSA disagreed with commenters who said that, before developing the ADR process, HRSA needed first to “establish foundational guidance on key issues,” including finalizing HRSA’s 340B omnibus program guidelines withdrawn in 2017 shortly after the Trump administration took office. “The 340B statute empowers the 340B ADR Panel reviewing a claim, as set forth in this final rule, to determine when there have been statutory violations concerning overcharges, diversion, and duplicate discounts,” HRSA said.

Among other matters, HRSA in the rule set a $25,000 de minimis threshold for monetary claims; set standards for the composition and size of dispute resolution panels; declined recommendations to create a permanent board; decided Office of Pharmacy Affairs (OPA) staff would serve on panels as non-voting ex officio members; declined to designate HHS administrative law judges to settle disputes; set standards for screening panelists for conflicts of interest; established procedural rules and deadlines; rejected recommendations that manufacturers be required to first to audit covered entities before bringing claims against entities; and held that challenging a manufacturers’ average manufacturer price or best price calculations was beyond the scope of an ADR panel’s jurisdiction.

HIV/AIDS clinics and community health centers suing HHS over drug manufacturers’ denials of 340B pricing on drugs dispensed by contract pharmacies wanted HRSA to finalize the ADR rule. But they do not want HRSA to force them to use the ADR process as a prelude to a lawsuit. The clinics and centers say it could be months before the ADR process is functional. In the meantime, the providers say, they will have been denied discounts that are required by statute.

The American Hospital Association (AHA), in the same spirit, issued a statement about the rule this afternoon:

The AHA has long believed that an administrative dispute resolution (ADR) process for the 340B drug pricing program is an important step forward in protecting 340B hospitals and clinics that have been overcharged by drug manufacturers through the program. This process should have been finalized a full decade ago, as the law and Congress called for.

However, on its own, this ADR process is not sufficient to address drug companies’ repeated illegal attempts to attack 340B hospitals, and the patients and communities they serve. This includes their most recent efforts to undermine the program by limiting the distribution of certain 340B drugs to eligible hospitals, despite no statutory provisions allowing for such actions. These illegal acts require immediate relief rather than an ADR process.

We continue to urge the Department of Health and Human Services’ Health Resources and Services Administration to take swift and decisive action to halt these pernicious tactics from drug companies and ensure that 340B drugs remain available and accessible to vulnerable communities across the country.

The Biden administration will take office a week after the ADR rule’s effective date. It is unknown whether the new administration will suspend its implementation to give it a closer look, or leave it alone.

We are reviewing the 57-page rule now and plan to seek comment from 340B stakeholders and experts for a forthcoming, in-depth article about the ADR regulation.

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340B Children’s Hospitals Dodged Amgen Bullet. Rural Hospital Weren’t so Lucky.

Biopharmaceutical manufacturer Amgen late yesterday said it erroneously sent children’s hospitals a letter about its decision to end voluntary discounts on orphan drugs for certain 340B hospitals.

The Affordable Care Act in 2010 made three types of rural hospitals and free-standing cancer hospitals eligible for 340B drug discounts, except not on drugs designated to treat orphan diseases or conditions. Due to what Congress called a drafting error, the exclusion briefly applied to children’s hospitals. Congress passed a law in late 2010 restoring their access to 340B pricing on orphan drugs.

In 2016, Amgen began offering 340B pricing on its orphan drugs voluntarily to 340B rural and free-standing cancer hospitals. On Dec. 1, it began telling them the voluntary discount would end effective Jan. 1. The distribution list also included children’s hospitals. 340B Report broke the news yesterday.

Soon after our article ran, Amgen sent us a clarification:

Amgen is clarifying and confirming that children’s hospitals will not be impacted by the change in policy regarding voluntary discounts to certain ACA-expansion entities. Any children’s hospitals that erroneously received a letter will be receiving a clarifying communication from Amgen.

Impact on Rural Hospitals

According to a 2018 U.S. Government Accountability Office (GAO) report, as of 2016, there were 47 children’s hospitals enrolled in 340B and just three free-standing cancer hospitals. Meanwhile, there were 995 critical access hospitals (CAHs), 129 sole community hospitals (SCHs), and 41 rural referral centers (RRCs) enrolled—more than half (53 percent) of all hospitals in the 340B program.

Roughly 175 U.S. rural hospitals have closed since 2005, very often due to financial distress. Losing Amgen’s voluntary 340B discounts on orphan drugs—which the insurance industry says are 25 times more expensive than traditional drugs—could impose a new financial burden on rural hospitals, on top of the burden being imposed by COVID-19. The financial toll of higher orphan drug costs would grow if other drug manufacturers follow Amgen’s lead.

“We have not heard of other pharmaceutical manufacturers following Amgen’s lead, but should others follow down this path, or attack the solvency of the program through other means, this critical program could be in jeopardy,” said Josh Jorgensen, Government Affairs and Policy Manager at the National Rural Health Association (NRHA).

Amgen’s discontinuation of voluntary discounts on orphan drugs for 340B rural hospitals is occurring at the same time as drug manufacturers’ Eli Lilly and Co., AstraZeneca, Sanofi, Novartis, United Therapeutics, and Novo Nordisk are denying 340B pricing on their products shipped to contract pharmacies. Amgen told 340B Report it “is not adopting a policy regarding contract pharmacies at this time.”

Jorgensen said “it is imperative” that the U.S. Health and Human Services Department (HHS) “stop these attacks and protect this program for rural providers.”

U.S. Reps. Peter Welch (D-Vt.) and David McKinley (R-W.Va.) have sponsored bipartisan legislation that would let rural and free-standing cancer hospitals buy orphan drugs at 340B prices when they are used to treat common conditions. The exclusion would remain when an orphan drug is used for the rare condition or disease for which such drug is designated (the same as under HRSA’s invalidated 340B orphan drug final rule in 2013, see story above).

“On the issue of orphan drugs, the McKinley-Welch bill will go a long ways toward protecting the solvency of the program,” Jorgensen said. Prospects for passage seem dim, however. Welch co-sponsored identical bipartisan bills that died in the two prior sessions of Congress, and in the post-election environment, even “must pass” bills to fund the government and provide COVID-19 relief face strong headwinds.

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SCOTUS Ruling Lifts Cloud Over State Laws to Stop 340B “Pickpocketing”

The U.S. Supreme Court, by an 8-0 vote, ruled today that an Arkansas law requiring pharmacy benefit managers (PBMs) to reimburse pharmacies for generic drugs at or above the pharmacies’ wholesale acquisition cost, and baring PBMs from paying affiliated pharmacies more than others for the same drugs, is not preempted by the federal Employee Retirement Income Security Act (ERISA).

The unanimous decision lifts a cloud over state laws barring PBMs and the payers they represent from reimbursing drugs bought through the 340B program at lower rates than other drugs, or imposing fees on 340B providers not imposed on others. The Ohio legislature is on the verge of passing such legislation and sending it to Gov. Mike DeWine (R) for his signature. Nine states have passed similar legislation during the past two years, including Utah, Oregon, West Virginia, Minnesota, South Dakota, Montana, Massachusetts, and Rhode Island. Georgia was the latest to do so in late June.

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OPA Chief Responds to Providers’ Concerns About 340B Pricing Denials

The head of the  340B drug pricing program, on behalf of U.S. Health and Human Services Secretary (HHS) Alex Azar, yesterday wrote back to an ad hoc group composed mainly of rural health care providers in response to their September letter to Azar expressing “dire concerns” about drug manufacturers’ recent actions to limit 340B discounts.

The providers were upset in particular about manufacturer demands for their 340B contract pharmacy claims, as a condition for continued 340B pricing on drugs shipped to contract pharmacies. They said the demands are based on “a broad assumption that duplicate discount payments are widespread,” not on evidence of actual duplication of 340B discounts and Medicaid, Medicare, and commercial rebates on the same drugs.

“Manufacturers are essentially requiring Entities to participate in an unsubstantiated, non-HRSA regulated, Entity funded perpetual manufacturer audit,” at a time when provider resources are stretched thin by the COVID-19 pandemic, the providers said. They asked the U.S. Health Resources and Services Administration (HRSA) to “resume guidance and full enforcement of current rules and regulations within the program,” and requested a meeting with HRSA and manufacturers “to discuss how we could, within the existing regulatory guidance of HRSA and the 340B program, strengthen 340B program integrity.”

Adm. Krista Pedley, Director of HRSA’s Office of Pharmacy Affairs (OPA), thanked the providers for their letter on Azar’s behalf. Pedley, however, broke no new ground in the letter about the government’s response to manufacturers’ denials of 340B pricing for contract pharmacy drugs and/or conditions on such pricing.

Pedley repeated that HRSA is continuing to review “whether these actions by manufacturers violate the 340B statute and whether sanctions may apply,” including civil monetary penalties. She referred to the HHS general counsel’s Sept. 21 letter to Eli Lilly and Co. reiterating HHS’s “concern with actions such as those Lilly is taking.”

“The 340B statute does not specify the mode by which 340B drugs may be dispensed,” Pedley wrote. “HRSA believes contract pharmacies serve a vital function in covered entities’ ability to serve underserved and vulnerable populations, particularly as many covered entities do not operate in- house pharmacies.”

“HRSA believes that manufacturers that refuse to honor contract pharmacy orders could limit access to 340B-discounted drugs for many underserved and vulnerable populations who may be located in geographically isolated areas and rely on contract pharmacies as a critical point of access for obtaining their prescriptions,” she continued. “To this end, HRSA continues to strongly encourage all manufacturers to sell 340B priced drugs to covered entities directly and through contract pharmacy arrangements.”

“Some covered entities have reached out to HRSA expressing concern that they are unable to receive the 340B ceiling price on certain drug products due to these recent actions,” Pedley concluded. “HRSA is working closely with each impacted covered entity and is actively investigating the matter in order to make a final determination as to any potential action.”

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Lilly CEO Is the New Chair of PhRMA’s Board of Directors

The chairman and CEO of Eli Lilly and Co., the first in a wave of drug manufacturers denying 340B pricing on their products, is the new chairman of the board of Pharmaceutical Research and Manufacturers of America.

Lilly executive David Ricks’ year-long leadership of PhRMA’s governing board, announced yesterday, might portend an even tougher PhRMA line against perceived covered entity abuses of the 340B program. Lilly has a long history of raising concerns over the 340B program and helped found the drug-industry funded advocacy group AIR 340B. Also, with the change in presidential administrations, Ricks will be presiding over the board at a critical time for the industry. 

PhRMA yesterday also announced that CSL Behring, a leading producer of intravenous immunoglobulin (IVIG) and other plasma-derived therapies, has joined the association. In the fall of 2013, then-Senate Judiciary Committee Chair Chuck Grassley (R-Iowa), acting on a constituent complaint about unavailability of 340B pricing on CSL Behring product Kcentra, launched an investigation of the company’s 340B pricing practices.

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Slafsky to Providers: You Have a Two-Year Window to Amend 340B Statute

340B Report Publisher and CEO Ted Slafsky boldly suggests in his latest column for Omnicell (a 340B Report sponsor) that it’s time for 340B health care providers to overcome their trepidation about opening up the 340B statute for amendment.

“Providers worry that if the 340B law is opened up, drug industry lobbyists with deep pockets and vast influence will swoop in and add harmful provisions to the law,” Slafsky writes. However, “recent actions by certain drug manufacturers to cut off 340B pricing at contract pharmacies have renewed debate in the 340B provider community about whether it is time to open up the 340B law.” Health centers, Slafsky observes, say the law should be amended to clarify that 340B contract pharmacy is legal, and to end pharmacy benefit manager “pickpocketing” of 340B covered entities. “However, hospital groups have opposed opening up the statute, believing that it is too risky and that their members would be susceptible to significant new restrictions and requirements.”

The first two years of the Biden administration will be crucial for 340B health care providers, for two big reasons, Slafsky says. First, with the balance of power in the Senate so small, no matter which party is in the majority, “very little legislation will pass the Senate without bipartisan support.” Second, he said “the political landscape could be very different in two years.” The president’s party almost always loses ground during midterm elections, Slafsky points out. “Republicans will need a net gain of between five and seven seats to take back control of the House. Under House Republican rule, we can once again expect a coordinated and sustained effort to curtail the program and add onerous requirements that would be opposed by 340B provider stakeholders.”

Slafsky’s takeaway:  “If 340B advocates decide to address shortcomings in the law, they will want to do it in the first two years of the new administration.”

He concludes:

340B advocates face an important decision. Should they work aggressively to improve the program and be prepared for compromises, including new reporting requirements for hospitals and potentially for other 340B stakeholders? Can they accept additional oversight and rules, particularly to ensure that all covered entities are good stewards of the program? Can we all agree there should be a better system for preventing duplicate discounts that does not place a heavy burden on overstretched providers and manufacturers? These are some examples of where compromise will be needed.

At the end of the day, it is very possible that no 340B legislation will actually make it to the President’s desk. Nonetheless, it is better to have a forward-looking agenda than to be left behind.

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