Six drug companies have shown no sign so far of acquiescing to the federal government’s order on Monday to immediately resume 340B pricing on their products dispensed by contract pharmacies.
340B covered entities yesterday reported seeing no evidence that Eli Lilly, Astra Zeneca, Sanofi, Novartis, Novo Nordisk, or United Therapeutics have restored or are making plans to restore 340B prices on medicines that entities buy and have shipped to outside pharmacies for dispensing. A consultant learned via a major wholesaler that manufacturers’ blocks on 340B pricing for drugs shipped to contract pharmacies are intact. The wholesaler has asked manufacturers how they intend to proceed in light of the government’s orders.
The U.S. Health Resources and Services Administration (HRSA) sent letters to the drug companies on May 17 informing them that their restrictions on 340B pricing to covered entities that dispense medicines through contract pharmacies violate federal law. HRSA said the companies must resume 340B pricing to entities through their contract pharmacy arrangements, issue credits or refunds to entities for all overcharges due to their pricing restrictions, and work with wholesalers and distributors to contact affected entities and “pursue mutually agreed upon refund arrangements.”
HRSA warned that continued failure to provide statutorily required 340B pricing may result in inflation-adjusted civil monetary penalties of up to $5,883.00 for each instance of overcharging.
HRSA asked the drug companies to provide, by June 1, their plans “to restart selling, without restriction, covered outpatient drugs at the 340B price to covered entities that dispense medications through contract pharmacy arrangements.” It said the U.S. Health and Human Services Department (HHS) would decide whether civil fines were warranted based on a company’s “willingness to comply with its obligations” under the 340B statute.
During the second half of 2020, the six companies either stopped offering 340B pricing on their products dispensed by entities’ contract pharmacies, or said entities could get 340B pricing at contract pharmacies only if they began uploading their contract pharmacy claims data to a vendor, so it could be checked for duplicate discounts. They say federal law does not authorize 340B contract pharmacy, that HRSA’s 340B contract pharmacy guidance is unenforceable, and that the government has done little or nothing to protect them from paying duplicate 340B discounts and Medicaid, Medicare Part D, and commercial rebates on the same drugs.
340B Advisers’ Takes
Health care attorneys contacted yesterday agreed that the six manufacturers are unlikely to obey HRSA’s commands in Monday’s letters. Two said that HRSA’s letters are not self-effectuating—that is, that the letters set forth HRSA’s policy, but are incapable of implementing those policies. However, a consultant to 340B entities on compliance matters thinks one or more of the manufacturers may capitulate.
“Given how much the manufacturers have invested in this issue, I would be surprised if they agreed to comply with HRSA’s instructions at this point,” said Helen Pfister, partner at Manatt Health. “If they don’t, HRSA will presumably move ahead with imposing civil monetary penalties. And if HRSA imposes civil monetary penalties, the manufacturers will presumably challenge that action in court. As a result, while the HRSA letters have been viewed as a positive development by covered entities, the issuance of those letters doesn’t necessarily move 340B stakeholders any closer to a resolution of the dispute.”
Todd Nova, shareholder at Hall Render, said he expects the manufacturers will argue, as they have in court, that HRSA’s “contract pharmacy guidance echoed in the letters is contrary to applicable law.”
“I think the manufacturers want a court to decide whether they have to provide 340B pricing at contract pharmacies,” an attorney for 340B entities said. “They didn’t capitulate when the HHS issued the advisory opinion last December and I don’t expect them to do so now,” the lawyer said, referring to the U.S. Health and Human Services General Counsel’s legal opinion that the 340B statute requires manufacturers to offer their products for purchase by covered entities at or below the 340B ceiling price, “be it the lunar surface, low-earth orbit, or a neighborhood pharmacy.”
Andrew Ruskin and Richard Church, partners at K&L Gates, predict that if HRSA imposes civil monetary penalties against non-compliant manufacturers, “those will almost certainly be challenged by some (but perhaps not all) of the manufacturers, and HRSA’s authority to implement its contract pharmacy policy will be front and center in that litigation.”
“The question will be how much of a record will HRSA be able to create at the administrative level as part of the imposition of CMPs,” Ruskin and Church said. “If that record is lacking, then there is a principle in [federal Administrative Procedure Act] litigation that post hoc rationalizations in court are not given any weight, meaning that the insufficiency of the record below could result in both the lifting of the CMPs, and tangentially the repeal of the contract pharmacy policy.”
Ellyn Sternfield, special counsel at Mintz Levin, said, “the fact HRSA actually took a position may be the most significant thing about this recent administrative action.”
“Were the May 17 statement and the six manufacturer letters the first salvo in a more aggressive government attempt to regain control and oversight of the 340B program? Stay tuned,” she wrote.
Pfister observed that, “when manufacturers initially imposed restrictions on the provision of 340B drugs to contract pharmacies, HRSA declined to act, because it said that its 2010 contract pharmacy guidance was not legally enforceable.”
“But now HRSA is threatening to impose civil monetary penalties on manufacturers who fail to accept that guidance,” she said. “That’s a major about-face, and raises the question of whether HRSA will take a similar position in other disputes that may arise in the future.”
Nova said “we can probably reasonably presume now” that both HRSA and HHS take the position that the six manufacturers’ denials of 340B pricing are in direct violation of the 340B statute. “If that is the case, then the manufacturers are at risk of having their pharmaceutical pricing agreements terminated, among other remedies, which would be significant.”
A consultant to 340B entities on program compliance thinks the potentially high financial cost of civil monetary penalties, and concerns about negative publicity, could cause one or more of the six manufacturers to resume offering 340B pricing on drugs shipped to contract pharmacies. The consultant said they could see one or more companies announcing a resumption of 340B pricing starting July 1, the first day of the third quarter of 2021.
“It’s definitely going to be a lot of money,” the consultant. “Manufacturers are going to have to weigh that along with the optics.”
In March, hospital group 340B Health said nearly two-thirds of its members surveyed said they expect to lose more than 15% of their 340B contract pharmacy savings through the companies’ actions.
The consultant said, “in preparation for this day,” most 340B third party administrators implemented tracking and reporting for drugs shipped to contract pharmacies upon which manufacturers refused to offer 340B pricing. Covered entities will have auditable records showing the financial impact of the pricing denials, the consultant said.