Congress never intended for safety-net health care providers to make money by buying prescriptions drugs at a discount through the 340B program and billing payers at above the drugs’ acquisition cost, drug manufacturer AstraZeneca (AZN) told a federal district court last week.
When lawmakers created 340B in 1992, they did not want 340B covered entities “to fund themselves through unlimited drug-price arbitrage,” the multinational drug company said. “The idea was to enable grant recipients to acquire drugs cheaply for their poor and uninsured patients, not to generate profits.”
Covered entities and the federal government under both Republican and Democratic administrations say that 340B, by design, lets eligible providers make money on covered outpatient drugs so they can spend it to expand and improve patient care. 340B providers consider this the heart of the 340B program.
AZN, which is based in the United Kingdom, provided a different perspective in its April 13 motion in federal district court in Delaware.
AZN is one of four drug manufacturers contesting a U.S. Health and Human Services Department’s (HHS’s) December 2020 advisory opinion that said that drug companies that sign 340B pharmaceutical pricing agreements must offer 340B ceiling prices on drugs bought by covered entities when the entities dispense the drugs through contract pharmacies. AZN and the other companies say the 340B statute requires them to offer 340B pricing to covered entities only. If Congress wanted to extend that obligation to sales to entities’ contract pharmacies, it would have done so, they say.
Groups whose members include 340B hospitals want to be named third parties to the four lawsuits. They want HHS to punish manufacturers that keep withholding 340B pricing on drugs that patients get from contract pharmacies.
AZN last week asked the court to decide the case summarily in its favor, saying the facts aren’t in dispute and the law is on its side. The U.S. Justice Department, which represents HHS in the case, is expected to oppose AstraZeneca’s motion for summary judgement.
Many times over the years, HHS, other federal courts, and government watchdog agencies have said that Congress designed 340B to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” So do covered entities. They say this definition of 340B’s purpose lets them bill more for medicines than they paid for them under 340B.
If the court decides in AZN’s favor, the company’s perspective on 340B’s purpose—which many in the drug industry share—might gain more acceptance.
340B’s Legislative History in Dispute
AZN argues in its April 13 motion that the advisory opinion on 340B contract pharmacy is actually an unauthorized 340B program rule that demands manufacturer compliance. The company says the government’s interpretation of the 340B statute is unsupported by the law’s text and its history, and that the advisory opinion “preordains” that AstraZeneca will lose “any agency adjudication” over its 340B pricing obligations in connection with contract pharmacy.
The 340B statute’s “must offer” requirement “does not compel manufacturers to facilitate any contract pharmacy sales—much less unlimited contract pharmacy sales,” the company told the court. “Congress limited the must-offer provision to covered entities only.”
340B’s “legislative history reinforces this conclusion,” AZN continued.
Backers of the prevailing view of 340B’s purpose—that the program exists “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services”—say it is based on language in a U.S. House report that accompanied the veterans’ health care bill that created 340B.
AZN challenged this interpretation of 340B’s purpose. It said HHS, pointing in its advisory opinion to the House report’s stretch-scarce-federal-resources language, “hypothesizes that Congress wanted covered entities to fund themselves through unlimited drug-price arbitrage.”
AZN said HHS took the stretch-scarce-federal-resources language out of context. It says the House report “in fact” said the 340B law would give covered entities “access to price reductions…to enable these entities to stretch scarce Federal resources.”
“The idea was to enable grant recipients to acquire drugs cheaply for their poor and uninsured patients, not to generate profits,” the company told the court.
Covered entities say if they ever lost the ability to earn a profit on 340B-purchased drugs, enrolling in 340B would be pointless. All the savings from paying less for drugs would flow past them to government and commercial payers. Scarce federal resources wouldn’t be stretched, more eligible patients wouldn’t be reached, and more comprehensive services wouldn’t be provided—including free or cheaper drugs for low-income, uninsured, and underinsured patients, covered entities say.
340B ESP Founder Files Friend of the Court Brief
In another development last week in AZN’s lawsuit, a founder of a company that scans 340B contract pharmacy claims data on manufacturers’ behalf for duplicate 340B discounts and Medicaid, Medicare Part D, and commercial rebates on the same drugs filed a friend of the court brief in the case.
Aaron Vandervelde, business development lead for 340B ESP and Managing Director of consulting firm BRG, told the court that HHS’s 340B program guidance in 2010 clarifying that covered entities could contract with an unlimited number of outside pharmacies to dispense 340B-purchased drugs to patients has “led to high rates of diversion and duplicate discounts.”
“The lack of transparency in contract pharmacy operations has led to increased prescription drug costs to payers while generating enormous profits for contract pharmacies,” Vandervelde said. “Despite years of HRSA [Health Resources and Services Administration] audits that demonstrated high rates of duplicate discounts and diversion in contract pharmacy utilization, covered entities experienced little to no consequences for their failure to comply with the 340B statute. As a result, 340B stakeholders, including pharmaceutical manufacturers and payers, are taking action to address the challenges inherent to 340B utilization through contract pharmacies.”
Vandervelde’s brief pointed out that AZN is not among 340B ESP’s clients, and solutions to “challenges that arise from 340B contract pharmacy operations” that he has developed are not at issue in the case.
“However, the ruling in this case may impact how his clients utilize the various solutions he has developed to address challenges that arise from contract pharmacy utilization in the 340B program,” the brief said.
Vandervelde and his firm BRG are the authors of a number of studies funded by the pharmaceutical industry that allege that 340B has grown out of control. 340B provider groups have aggressively disputed the findings.
