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HRSA told Merck today the company's conditions on 340B pricing when hospitals and health centers use contract pharmacies are illegal and must stop or Merck could face civil monetary penalties.

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HRSA Sends Merck 340B Contract Pharmacy Cease and Desist Letter, Agency’s First in Seven Months

The federal government told drug manufacturer Merck today its conditions on 340B pricing when hospitals and health centers use contract pharmacies are illegal and must stop, or the company could face penalties of up to $6,323 per each instance of overcharging.

It is the first 340B program violation letter that the U.S. Health Resources and Services Administration (HRSA) has sent to a drug manufacturer regarding contract pharmacy restrictions since October 2021. It also is the first such letter under the signature of HRSA Administrator Carole Johnson, who was appointed by U.S. Health and Human Services (HHS) Secretary Xavier Becerra in January.

Johnson told Merck in a May 6 letter it expects the company “to provide an update on its plan to restart selling, without restriction, 340B covered outpatient drugs at the 340B price to covered entities with contract pharmacy arrangements by May 20, 2022.”

Merck has not responded to a request for comment on HRSA’s finding that the company’s policy violates the 340B statute.

“Nothing in the 340B statute grants a manufacturer the right to place conditions on its fulfillment of its statutory obligation to offer 340B pricing on covered outpatient drugs purchased by covered entities,” the letter said. “Furthermore, the 340B statute does not permit manufacturers to impose conditions on covered entities’ access to 340B pricing, including the production of claims data.” 

Sixteen drug manufacturers since July 2020 have imposed conditions on 340B pricing when covered entities use contract pharmacies. HRSA so far has sent letters only to eight telling them their policies are illegal and must stop—AstraZeneca, Boehringer Ingelheim, Lilly, Novartis, Novo Nordisk, Sanofi, United Therapeutics, and now Merck.

HRSA has referred AstraZeneca, BI, Lilly, Novartis, Novo Nordisk, Sanofi, and UT to the HHS Office of Inspector General (IOG) for possible imposition of civil monetary penalties over their refusals to end their policies. U.S. Senate Finance ranking Republican Chuck Grassley (Iowa) this week sent OIG a letter asking if it planned to punish the seven companies. All seven have sued HHS and HRSA over HRSA’s program violation findings. Six of the seven cases are before federal appeals courts and the seventh, BI’s, has been stayed.

Merck last week extended it contract pharmacy-related conditions on 340B pricing to health centers. It applied the conditions initially to hospitals only, beginning last September.

Under Merck’s policy, if hospitals and health centers wish to contract with more than one external pharmacy to dispense Merck products, they must provide 340B claims data for all claims originating from their contract pharmacies. Otherwise, if the entities lack an in-house pharmacy, they may designate just one contract pharmacy.

For now, the restrictions do not apply to any of the other 14 types of covered entities but that could change, Merck has said.

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