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BREAKING: HHS’s Top Lawyer Says Pharma’s 340B Contract Pharmacy Actions Are at Odds with the Law

“Certain manufacturers’ newfound and unilateral refusal to sell [340B] drugs through contract pharmacies is at odds with the structure and intended operation of the [340B] statute,” HHS General Counsel Robert Charrow said in an advisory opinion late today. | Source: C-SPAN

HHS’s Top Lawyer Says Pharma’s 340B Contract Pharmacy Actions Are at Odds with the Law

The U.S. Health and Human Services Department’s (HHS) top lawyer today rejected drug manufacturers’ legal arguments for either ending or imposing conditions on 340B pricing on covered outpatient drugs shipped to contract pharmacies.

In a Dec. 30 advisory opinion, HHS General Counsel Robert Charrow concluded, often in strong and colorful language, that the 340B statute requires manufacturers to offer their products for purchase by covered entities at or below the 340B ceiling price, “not qualified, restricted, or dependent on how the covered entity chooses to distribute the covered outpatient drugs.”

“The situs of delivery, be it the lunar surface, low-earth orbit, or a neighborhood pharmacy, is irrelevant,” Charrow wrote.

“Certain manufacturers’ newfound and unilateral refusal to sell drugs through contract pharmacies is at odds with the structure and intended operation of the statute,” he said.

Spokespersons for 340B covered entities early this evening thanked Charrow for his legal opinion, describing it as a relief and a breakthrough. They asked manufacturers to resume 340B pricing for contract pharmacy drugs and make covered entities whole for the discounts they were denied. They asked HHS and its Health Resources and Services Administration (HRSA) to fine or take other action against companies that keep withholding 340B pricing for contract pharmacy drugs.

We asked Pharmaceutical Research and Manufacturers of America (PhRMA) and the six drug companies clamping down on 340B contract pharmacy—Eli Lilly and Co., AstraZeneca, Sanofi, Novartis, United Therapeutics, and Novo Nordisk—for comment on Charrow’s opinion. Only Sanofi responded in time for this article. It said is “still assessing the effect of the advisory opinion,” and restated points it has made before about the prevalence of duplicate 340B discounts and Medicaid rebates on the same drugs, and about patients often not benefitting from 340B discounts.

We asked HRSA for comment on Charrow’s opinion. It referred us to the HHS public affairs office.

Charrow’s Opinion

Charrow said numerous manufacturers and covered entities asked him to address whether it was proper for a drug company that participates in 340B to refuse to provide its products at the 340B price when distributed at a covered entity’s contract pharmacies.

“We conclude that to the extent contract pharmacies are acting as agents of a covered entity, a drug manufacturer in the 340B Program is obligated to deliver its covered outpatient drugs to those contract pharmacies and to charge the covered entity no more than the 340B ceiling price for those drugs.”

Charrow said the 340B statute’s “core requirement” is that “manufacturers must ‘offer’ covered outpatient drugs at or below the ceiling price for ‘purchase by’ covered entities.”

“This fundamental requirement is not qualified, restricted, or dependent on how the covered entity chooses to distribute the covered outpatient drugs,” he wrote. “All that is required is that the discounted drug be ‘purchased by’ a covered entity. In this setting, neither the agency nor a private actor is authorized by section 340B to add requirements to the statute.”

Charrow said the 340B phrase “purchased by” unambiguously means “the medications at issue are sold by the manufacturer to the covered entity; the covered entity takes title and the covered entity pays the manufacturer either directly or through the manufacturer’s distributor.”

“No amount of linguistic gymnastics can ordain otherwise,” Charrow said, and where the drugs are delivered “is irrelevant.”

Charrow, citing HRSA 340B program guidance, said many covered entities “are practically constrained to rely on contract pharmacies to access the 340B Program; if manufacturers can simply shut off this means of access, the Program’s effectiveness will be greatly diminished.”

He observed that, at the outset of the 340B program, only 500 out of 11,500 covered entities used in-house pharmacies. “To champion a policy, ungrounded in the language of the statute, that would foreclose 340B discounts to 95 percent of covered entities and foreclose discounts to the neediest of this cohort is inconsistent with purpose of the Program and common sense,” he said. “Had Congress intended to reach such a bizarre result, it would have used language affirmatively precluding the use of contract pharmacies as arms in the distribution channel, but it did not.”

Charrow said HHS’s “consistent position over the past 24-plus years” that “manufacturers are required to offer ceiling prices even where contract pharmacies are used” would factor into a court’s interpretation of the 340B statute. So too would the fact that “contract-pharmacy arrangements have been utilized, and honored by manufacturers, since 1996 and earlier,” he said.

Charrow said, “The primary rationale offered for cutting off contract pharmacies—that such arrangements lead to a heightened risk of diversion and duplicate discounts—makes clear that manufacturers are attempting to circumvent section 340B’s procedures for resolving disputes between manufacturers and covered entities.” Manufacturers, he said, should audit covered entities first, and if dissatisfied with entities’ responses, turn next to the 340B program’s new binding administrative dispute resolution process.

Charrow also rejected manufacturers’ related argument “that the use of contract pharmacies is inconsistent with the 340B statute’s prohibition on diversion of discount drugs.”

“The argument that use of contract pharmacies constitutes an illicit ‘transfer’ leads to absurd results,” he wrote. “For instance, if a covered entity uses a courier service to send discount drugs to its patient, this, too, would be appear to be an illegal ‘transfer’ to the shipper.”

Likewise, he said, “If it were correct that distribution to any entity other than a covered entity freed the manufacturer from the obligation to charge no more than the ceiling price, then there would be no firm basis for the wholesalers to charge-back discounts to the manufacturer. Large portions of the current 340B Program would seem to turn on solely manufacturers’ voluntary choice to offer the ceiling price, not a statutory mandate.”

“Thus, manufacturers may not refuse to offer the ceiling price to covered entities, even where the latter use distribution systems involving contract pharmacies,” Charrow said.

Covered Entity Reactions

American Hospital Association President and CEO Rick Pollack called Charrow’s opinion “welcome news.”

“We are pleased that HHS listened to our deep concerns about drug companies disregarding the law by limiting the distribution of certain 340B drugs to eligible hospitals,” Pollack said. “We now expect HHS’s Health Resources and Services Administration (HRSA) 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. HRSA also needs to ensure that hospitals are made whole as a result of being denied appropriate discounts since these illegal practices began earlier this year.”

America’s Essential Hospitals Senior Vice President of Policy and Advocacy Beth Feldpush thanked Charrow “for today’s strong statement rejecting the intolerable actions by drug companies to deny 340B Drug Pricing Program discounts to contract pharmacies.”

Charrow, she said, “states unequivocally what has been plainly evident to essential hospitals and other covered entities in the 340B program: The pharmaceutical industry has run afoul of the law that created 340B discounts and undermined the program’s benefits to the safety net.”

“We call on manufacturers to immediately restore 340B discounts to contract pharmacies and halt practices that have jeopardized access to lifesaving medications for millions of low-income people,” Feldpush said.

Colleen Meiman, formerly of the National Association of Community Health Centers (NACHC) and now representing several state primary care associations, said those associations “are relieved that HHS has finally stated that the plain language and purpose of the 340B statute—as well as common sense—clearly require drug manufacturers to ship 340B-priced drugs to contract pharmacies. However, it is unfortunate that it took HHS over six months to issue this opinion, as millions of patients and covered entities were harmed by manufacturers’ actions during this period. We look forward to working with HHS to rectify the harms done and ensure that the 340B contract pharmacy model remains viable in the long-term.”

Shannon Stephenson, President of Ryan White Clinics for 340B Access (RWC-340B), called the opinion “the breakthrough that 340B safety net providers and their patients have been waiting for.”

“Our hope is that the advisory opinion is a prelude to HRSA doing what it should have done months ago, levying fines against the manufacturers for overcharging covered entities,” Stephenson said. “The advisory opinion specifically says that the opinion does not carry the force of law,” but Stephenson said, “hundreds of members of Congress and dozens of 340B safety net providers made their voices heard loud and clear—and Secretary Azar agreed—drug companies must offer the discounts they’re legally required to give to providers that serve the vulnerable.”

“We thank HHS for really listening to safety net providers, the attorneys general and others in recognizing—and checking—the unbridled greed of the pharmaceutical industry as well as recognizing the crucial need the 340B program—and the many contract pharmacies that provide services to 340B covered entities—fulfills, particularly in more rural areas of the country,” said Michael Weinstein, president of AIDS Healthcare Foundation. “The 340B program represents at most just six percent of the industry’s billions and billions in annual revenue, yet they are still not satisfied. Instead, they chose to break their contractual obligations underlining their participation in 340B and have now been taken to task by HHS. Thank you, HHS for this important and very definitive opinion.”

“We are enormously pleased that the Department of Health & Human Services has issued this opinion,” 340B Health President and CEO Maureen Testoni said. “The important work of repairing the damage done to these hospitals must begin as quickly as possible. We stand ready to work with the department to identify overcharges and facilitate refunds.”

Sanofi’s Reaction

Nicolas Kressmann, spokesperson for drug manufacturer Sanofi, said the company “supports the 340B Program and its core objective of increasing access to outpatient drugs for uninsured and vulnerable populations and we remain committed to strengthening this mission.”

Kressmann added, though that “waste and abuse in the form of duplicate discounts…has become increasingly prevalent in recent years.” He added, “Sadly, and contrary to recent public statements by other program stakeholders, patients do not always benefit from contract pharmacy arrangements. Often patients receive no discount at all on contract pharmacy-dispensed drugs, and 340B covered entities’ own in-house pharmacies are much more likely to provide discounts to patients than pharmacy chains.”