Screenshot of U.S. Dept. of Health and Human Services dispute resolutions document
After the government’s Administrative Dispute Resolution panel dismissed its complaint against drug manufacturers, NACHC is calling for Congress to take urgent action to address the contract pharmacy impasse.

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National Association of Community Health Centers Calls On Congress “To Move Urgently” To Tackle 340B Contract Pharmacy Impasse “Before It’s Too Late”

Sparked by the dismissal of its complaint against Astra Zeneca and Sanofi by the government’s Administrative Dispute Resolution Panel (ADR), the National Association of Community Health Centers say “they cannot wait any longer for a solution,” to the two-year standoff with manufacturers over access to 340B pricing in the contract pharmacy setting.

“It is clear manufacturers are focused on protecting profit margins at the expense of the most vulnerable and underserved patients,” the National Association of Community Health Centers (NACHC) told 340B Report in the wake of a U.S. Department of Health and Human Services’ ADR panel dismissal which 340B Report obtained this week. “Health centers cannot wait any longer for a solution, NACHC said. “Health centers need Congress to move urgently to protect and strengthen the 340B program before it’s too late.”

In its complaint, NACHC had alleged that the drug manufacturers were overcharging its members due to the companies’ denied or restricted 340B sales when health centers use contract pharmacies.

Background on Administrative Dispute Resolution Process

As part of the Affordable Care Act, Congress told the U.S. Secretary of Health and Human Services (HHS) in 2010 to publish a regulation creating an ADR system for 340B. The Obama administration published a notice of proposed rulemaking in 2016 but never published a final rule. The Trump administration withdrew the proposed rule in 2017. Ryan White clinics and health centers sued in October 2020 to force HHS to issue a final rule. It did so in December 2020 and the rule took effect in January 2021

The rule lets covered entities file complaints that manufacturers have overcharged them for outpatient drugs. Manufacturers can file complaints that a covered entity has violated the prohibition on diversion or duplicate discounts, but only after auditing the entity. ADR proceedings are mandatory, and decisions are binding, but aggrieved parties can appeal ADR rulings to courts.

The National Association of Community Health Centers (NACHC) filed ADR petitions in January 2021 on behalf of its members against Eli Lilly, Astra Zeneca, and Sanofi over their denials of 340B pricing when covered entities use contract pharmacies. Three health centers allied with Ryan White Clinics for 340B Access (RWC-340B) simultaneously filed petitions against AstraZeneca only.

Lilly and Sanofi challenged the legality and constitutionality of the December 2020 ADR final rule in their lawsuits over HRSA’s findings that the companies’ denials of 340B pricing involving contract pharmacy transactions were illegal. Pharmaceutical Research and Manufacturers of America (PhRMA) has filed a similar ADR suit that is pending in federal court in Maryland.

U.S. Senior District Judge Sarah Evans Barker of the Southern District of Indiana blocked the government from utilizing the ADR panel to sanction Lilly but the other ADR cases were allowed to continue.  The panels consist of three federal government officials with experience in drug pricing and litigation matters.

In November 2021, HRSA proposed changes to the ADR process that “better aligns with the President’s priorities on drug pricing, better reflects the current state of the 340B program, and seeks to correct procedural deficiencies in the 340B ADR process.” At that time, it said it expected to publish the proposed rule in January 2022 but the proposal remains stuck at the White House Office of Management and Budget.

Health Centers Are Angry and Demanding Action

While the ADR panel’s dismissal was on technical grounds, the action has infuriated NACHC and highlighted the increasingly acrimonious dispute between drug manufacturers and 340B providers over the use of contract pharmacies to dispense 340B-priced medications.

In a statement shared with 340B Report, the health center organization slammed the ADR panel for “erroneously” dismissing its complaint and bemoaned the slow process.  “The mandated ADR process is intended to expeditiously resolve disputes, but it completely failed to do so here. Time and time again, health centers have been told to be patient and utilize the existing mechanisms for a resolution,” the group said.

It noted that, while it has previously tried to use the ADR process to stop alleged abuses, “There has been significant delay and roadblocks at every turn. It took a NACHC lawsuit against the Department of Health and Human Services after a decade of inaction for the department to finalize the ADR mechanism.” NACHC also noted that it took the panel a year and a half to act on its claim against the two drug makers.  

The group said that over 86% of health centers use contract pharmacies to expand access to 340B drug discounts, yet drug makers’ contract pharmacy restrictions have continued to grow since September 2020, pointing out that eight drug manufacturers currently refuse to ship 340B-priced drugs to health center contract pharmacies.  A total of 18 drug manufacturers have stopped or placed restrictions on hospital access to 340B pricing at contract pharmacies.

Legal Basis for ADR Panel Decison

In its August 10 dismissal order made public this week, the ADR panel ruled that NACHC’s claim was barred by the doctrine of collateral estoppel, an affirmative defense designed to discourage re-litigation of an issue of law or fact that was previously decided in another tribunal involving a party in the previous litigation.

The panel noted that the doctrine can be asserted before courts as well as administrative agencies. In the NACHC case, the panel said the same issue before the ADR panel was also part of a final ruling of a federal district court in Delaware, in the case of AstraZeneca v. Becerra. The issue in both disputes was whether the “unambiguous text of the 340B statute” compelled HHS’s position that drug manufacturers are required to offer discounted drugs to covered entities without any limit on the number of contract pharmacies per covered entity, the ADR panelists said, and noted that the Delaware court ruled that the 340B statute did not compel that position.

“While the facts of Petitioners’ claims against AstraZeneca and Sanofi vary, the court’s judgment on the ambiguity of the statute is broad enough to cover both situations, so the doctrine of collateral estoppel applies equally to both Respondents,” it said.

The panel dismissed the NACHC complaint without prejudice, meaning the group can refile the suit on the merits at a later time.  The separate complaint by RWC-340B and three health centers against Astra Zeneca remains under review by the ADR panel.

NACHC blasted the panel’s decision, calling the ruling, a “flawed conclusion that federal court litigation in which health centers cannot legally participate prevents the ADR panel from issuing its own decision. [The Health Resources and Services Administration] has ample regulatory authority to resolve this dispute but has instead found an excuse, and a strained legally incorrect one at that, to avoid exercising that authority.”

HRSA Reaction

In response to a request from 340B Report, HRSA, the agency that oversees the 340B program, had this reaction to the dismissal. “The ADR Panel has issued a decision and the determination is a finding on a technical issue, not the merits of the claims.  HRSA’s position remains that certain manufacturers have unlawfully restricted access to 340B discounted drugs purchased by covered entities that dispense the medications through contract pharmacy arrangements,” the agency said. “As these matters continue to be litigated in federal courts, HRSA will continue to exercise its statutory authority to hold manufacturers accountable for compliance with the requirements for participating in this vital program for safety net health care providers.”

The agency reiterated its support for Congressional action to strengthen its enforcement powers. “HRSA also strongly supports the legislative proposals included in the President’s Budget to strengthen the 340B program’s accountability and oversight tools”, said an agency spokesperson.

Spokespersons for both AstraZeneca and Sanofi declined to comment on the ADR panel decision.

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