Lilly’s 340B Policy Tweak Pushes Contract Pharmacy Farther Out of Reach

Email correspondence between Eli Lilly and Co. and a health system, and a Lilly application form, indicate the company is interpreting its ban on 340B pricing for drugs dispensed by contract pharmacies in a way that could make it harder for 340B hospitals to buy and use Lilly products at reduced 340B prices. | Source: Shutterstock

Lilly’s 340B Policy Tweak Pushes Contract Pharmacy Farther Out of Reach

Drug manufacturer Eli Lilly and Co. is interpreting its ban on 340B pricing for drugs dispensed by contract pharmacies in a way that could make it harder for 340B hospitals to buy and use Lilly products at reduced 340B prices.

On Sept. 1, Lilly stopped selling its products at 340B ceiling prices for shipment to contract pharmacies. It says federal 340B contract pharmacy guidance is unlawful and leads to duplicate discounts and drug diversion. Federal health officials are looking into whether Lilly has broken federal law, but so far, they haven’t stopped the company. Hundreds of members of Congress across the political divide are pressing the U.S. Health and Human Services Department (HHS) to stop Lilly and two other manufacturers, AstraZeneca and Sanofi, that have taken similar action. HIV/AIDS clinics and community health centers have sued HHS to force it to address the manufacturers’ 340B contract pharmacy cutoff.

When Lilly announced its new policy in September, it said, “Covered entities that do not have an in-house pharmacy may contact 340B@lilly.com regarding the exception process to designate a contract pharmacy location.”

Email correspondence between Lilly and a health system, and the application form Lilly sends to affected covered entities, show that Lilly is interpreting the meaning of “in-house” pharmacy broadly. If a covered entity lacks an in-house outpatient or retail pharmacy, that’s not enough to qualify for the exception and designate a contract pharmacy. To qualify, an entity cannot have any pharmacies registered as ship-to sites in 340B OPAIS, the federal 340B program database. If a hospital has an institutional, non-retail pharmacy that can buy, dispense, or administer 340B-purchased drugs—in an emergency department or an infusion clinic, for example—it’s out of luck.

A health system with a 340B hospital that doesn’t have an in-house outpatient retail pharmacy told 340B Report last week that, on Oct. 9, it sent Lilly by email a completed application form designating a contract pharmacy for the hospital. On Oct. 14, Lilly replied that it denied the request “because based on sales, it appears the 340B entity submitted on the form has an in-house pharmacy.”

“Lilly does not make any distinctions related to the dispensing practices of the in-house pharmacies,” Lilly said. “If the pharmacy is eligible as a shipping location to receive 340B price product and is not a contract pharmacy, it is considered an in-house pharmacy. Your selected Contract Pharmacy will not be eligible as the ‘ship to’ location for 340B priced product.”

The health system wrote back the same day, and again two weeks later when it had not yet received a response, asking Lilly to reconsider. It explained that the hospital “does not operate an in-house outpatient or retail pharmacy. The only pharmacy services provided by [the hospital] is for administration of pharmaceuticals within the hospital or hospital offsite departments.” It asked Lilly to schedule a phone call.

The health system told 340B Report that the hospital’s in-house pharmacy prepares and dispenses 340B-purchased medicines at two infusion centers, one located within the hospital and the other at a registered 340B child site. The system also said the hospital uses 340B drugs in its emergency department, same-day surgery, a walk-in clinic, and for patients under observation status.

Lilly got back to the health system by email last week. (The system said this morning it is still trying to schedule a call with Lilly.) This time, the manufacturer told the system, “Lilly does not make any distinctions related to the dispensing practices of the in-house pharmacies. 340B purchases for hospital mixed use settings considered an in-house pharmacy, and therefore [the hospital] does not meet the qualification to designate a contract pharmacy.”

The health system estimates the hospital has lost about $50,000 in 340B program savings since Lilly implemented its new 340B policy in September. Systemwide, the loss is close to $2 million. A staff member said “it is just a matter of time” until patient care is affected.

Yesterday, 340B Report separately obtained a before/after comparison of Lilly’s original application form for 340B hospitals lacking an in-house pharmacy to designate a contract pharmacy, and a recently revised version of the form. (Language removed from the original form is denoted in red; language added to the form is denoted in blue.)

Both the original and revised versions state that a covered entity “that does not have any in-house pharmacy location set up as a shipping address” in 340B OPAIS may “designate one contract pharmacy location that may be used as a ‘ship to’ location for 340B priced product.” The selection applies to the parent entity and all of its child sites. The form also requires the applicant to acknowledge that its designated contract pharmacy “is the only shipping destination for product purchased under this agreement.”

A footnote Lilly added to the form is identical to the language it used in its Oct. 14 email denying the health system’s request to designate a contract pharmacy for its hospital lacking an in-house outpatient or retail pharmacy: “Lilly does not make any distinctions related to the dispensing practices of the in-house pharmacies. If the pharmacy is eligible as a shipping location to receive 340B price product and is not a contract pharmacy, it is considered an in-house pharmacy.”

We asked Lilly to clarify its one-contract-pharmacy policy for entities that don’t have an in-house pharmacy.

“Lilly continues to provide 340B discounts to all eligible covered entities, and is committed to compliance with the 340B statute and the responsible distribution of our medicines,” the company told us yesterday. “The details of our limited distribution program were communicated on September 1. If a covered entity has questions regarding the program, or needs to provide additional information about their in-house pharmacy, they should contact Lilly at 340B@lilly.com.”

According to a U.S. Health Resources and Services Administration (HRSA) 340B program FAQ:

A hospital may use 340B drugs for patients treated in mixed-use settings that appear as reimbursable cost centers on the hospital’s most recently filed Medicare cost report and meet patient definition guidelines. The hospital must develop appropriate tracking systems to ensure that covered outpatient drugs purchased through the 340B Program are not used for hospital inpatients. It is the responsibility of the hospital to ensure appropriate safeguards are in place to protect against diversion. If a hospital is unable to implement an effective tracking system, it should not use the 340B Program in that setting.

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Administration Queues Up Rules to Implement Drug Pricing Executive Orders

The U.S. Health and Human Services Department (HHS) has asked the White House to approve a final rule to ban drug company rebates to Medicare Part D plans sponsors, Medicare managed care organizations (MCOs), or their pharmacy benefit managers (PBMs), and replace them with drug company price reductions for Part D and Medicaid managed care beneficiaries.

HHS’ Office of the Inspector General (OIG) sent the final rule to abolish Part D and Medicaid MCO rebates to the Office of Management and Budget (OMB) on Friday for review before being posted in the Federal Register. The Wall Street Journal said publication “could be imminent.”

It’s customary for incoming presidential administrations to put a hold on the last regulations and sub-regulatory guidance the preceding administration issued. This one likely is no exception.

The Trump administration originally published a proposed rule in February 2019 to, in HHS Secretary Alex Azar’s words, “replace today’s opaque system of rebates, which drives drug prices higher and higher, with a system of transparent and upfront discounts, delivered directly to patients, that will finally drive prices down.”

The administration, however, withdrew the rule in July 2019, not long after the Congressional Budget Office (CBO) predicted that implementing it would increase federal Medicare spending by about $170 billion and federal Medicaid spending by about $7 billion over 10 years. CBO also said it expected that manufacturers would keep about 15 percent of the amounts they currently rebate to Part D plans and about 75 percent of the amounts they currently rebate to MCOs. (These MCO rebates are not the ones that manufacturers pay to the federal and state governments. They are additional rebates that manufacturers pay to MCOs or their PBMs to determine placement on MCOs’ preferred drug lists.)

President Trump resurrected the rebate-to-discount idea in July as one of his four executive orders to reduce drug prices. One of his other orders directed HHS to publish regulations requiring federally qualified health centers, as a condition of their federal grant funding, to pass their 340B savings on insulin and injectable epinephrine to “low-income individuals who have a high cost sharing requirement for those products, have a high unmet deductible, or have no health care insurance.” The U.S. Health Resources and Services Administration (HRSA) published a proposed rule to implement that order on Sept. 28; comments were due a month later. Health centers overwhelmingly oppose the rule, and more than 100 U.S. House Democrats have asked Azar “to rescind or not implement” the president’s order. HRSA has not yet sent a final version of the 340B insulin and EpiPen rule to OMB for approval.

The Trump administration’s push to turn Medicaid Part D and Medicaid MCO rebates into lower drug prices for beneficiaries is happening at the same time as some drug manufacturers have revolted against paying overlapping 340B drug discounts and Medicare Part D, Medicaid managed care, and commercial rebates on the same drugs. They are denying 340B pricing on drugs dispensed by contract pharmacies, or squeezing covered entities to hand over their contract pharmacy claims so they can look for and act on duplicate discounts and rebates.

In a related development, some health care news organizations report that the administration this week might publish and immediately implement a regulation carrying out another of Trump’s four drug pricing executive orders, this one setting up a demonstration program under which the federal government would pay no more for drugs covered under Medicare Part B than the lowest price paid in other developed countries. If the administration publishes the regulation as an interim final rule, without notice and comment, drug manufacturers likely would sue to block its implementation, or wait until the Biden administration, which would likely pull the regulation as its lays out its own drug pricing plan.

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Update: Mary Wakefield

Mary Wakefield, the former head of the U.S. Health Resources and Services Administration (HRSA) now serving on President-elect Joe Biden’s transition team for the U.S. Health and Human Services Department (HHS), got back to us yesterday. Unfortunately, she couldn’t share much about the new assignment.

“Regarding questions about the transition, I’m unable to speak on behalf of the transition and related activity,” the ex-HRSA administrator said in an email. Wakefield referred us to the transition team’s communications department. We reached out to it last week but have not heard back. Wakefield served as the long-time HRSA administrator for President Obama before being elevated to acting HHS deputy secretary.

We asked Wakefield and the Biden transition’s press operation if HRSA was within Wakefield’s purview on the HHS transition team, and what the incoming administration needed to be prepared for on day one regarding the 340B program. We also asked Wakefield if she would consider returning as HRSA administrator if she were asked, or assume a different role in the Biden administration.

The Trump administration continues to deny Biden’s transition team access to government resources, claiming the presidential election outcome still has not been determined.

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340B Report Publisher/CEO Slafsky: RWC-340B Punches Above its Weight

While Ryan White Clinics for Pharmaceutical Access (RWC-340B) is a relatively young and small organization (just six years old and fewer than 50 members), “it plays an outsized role in the 340B community and with federal and state policymakers,” 340B Report Publisher and CEO Ted Slafsky writes in his monthly column for Omnicell 340B (a 340B Report sponsor).

Slafsky notes that RWC-340B was first among 340B provider groups to sue the U.S. Health and Human Services Department (HHS) to compel it to protect covered entities’ right to contract with pharmacies to dispense 340B purchased drugs. “Not only was the organization the first to sue the government, but it has also provided a great public service by developing a helpful tracking tool that you can download  and other resources on the ongoing contract pharmacy battle,” Slafsky writes. “They also recently released an important white paper on the adverse impact of policies reducing resources to Ryan White clinics, including any reductions in 340B savings.”

Slafsky also observes that RWC-340B has been in the vanguard of battles in states against pharmacy benefit managers and other payers that have reduced reimbursement rates to pharmacies due to their 340B status.

“The organization has given formal testimony, developed legislative language, and shared resources directly with state lobbyists in a dozen states,” Slafsky wrote. “Seven states have adopted laws preventing discriminatory reimbursement, and more were set to do so before COVID-19 took over the legislative agenda. RWC-340B has also worked closely with Rep. Doris Matsui and other 340B champions to build momentum to address the matter on a national level. RWC-340B is also a leader in New York and other states in trying to combat harmful Medicaid pharmacy reimbursement cuts to 340B providers.”

“At a time when the 340B community faces unprecedented challenges, we should all be grateful for groups like RWC-340B,” Slafsky said.

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