The Biden administration plans to replace its 340B administrative dispute resolution (ADR) regulation with an entirely new rule that “better aligns with the president’s priorities on drug pricing [and] better reflects the current state of the 340B program.”
The administration fleshed out its intentions for the 340B ADR system late yesterday in a semiannual governmentwide compendium of forthcoming regulatory actions. Last month, it disclosed only that the U.S. Health Resources and Services Administration (HRSA) was seeking White House approval to publish a notice of proposed rulemaking about the ADR process. That Nov. 18 public notice was silent about the proposed rule’s purpose and scope.
The new notice clarifies that HRSA plans to replace the existing rule completely—a far bigger change than many 340B program stakeholders expected. The notice says the administration plans to publish its proposed new ADR rule for notice and comment next month.
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 covered 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 drug makers Lilly, Astra Zeneca, and Sanofi over their denials of 340B pricing when covered entities use contract pharmacies. Four 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 340B contract pharmacy transactions were illegal. Pharmaceutical Research and Manufacturers of America (PhRMA) filed a similar ADR suit.
U.S. Senior District Judge Sarah Evans Barker of the Southern District of Indiana issued a preliminary injunction in March shielding Lilly from ADR proceedings, saying that it was very likely that she would ultimately strike down the rule on the grounds that the Trump administration should have required additional notice and comment on the ADR rule.
HRSA has put the petitions against Lilly on hold. But ADR panels have been appointed to hear the complaints against AstraZeneca and Sanofi. HRSA does not publicly disclose information about these proceedings.
The NACHC and RWC-340B cases have been stayed. The parties are due to file joint status reports on Jan. 3, 2022, to U.S. District Judge Florence Y. Pan of the District of Columbia, who is assigned to both cases.
A More Extensive Overhaul Than Expected
There had been speculation that HRSA would just tweak its existing ADR final rule to address the procedural problems that the judge in Lilly’s case referred to. Some—including former HHS General Counsel Robert Charrow—said also that the rule might need a slight change to clarify that the HHS secretary could review and override ADR panel decisions.
Yesterday’s public notice, however, indicates that the Biden administration will propose a much more extensive overhaul.
HHS and HRSA say the ADR proposed rule “would establish new requirements and procedures for the 340B program’s ADR process.”
“This administrative process would allow covered entities and manufacturers to file claims for specific compliance areas outlined in the statute after good faith efforts have been exhausted by the parties,” the notice says.
Under the heading “Statement of Need,” the notice says: “This NPRM 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.”
Provider Representatives’ First Takes
Attorneys for NACHC and RWC-340B reached late last night expressed cautious optimism about the description of the proposed rule.
Barbara Straub Williams, who represents RWC-340B, said she hopes the statement in the notice that the proposed rule better aligns with President Biden’s drug pricing priorities “means that the ADR process will be more supportive of covered entities, because the administration supports the 340B program and the contract pharmacy program.”
She added that she hopes “that our petitions will remain in place under the new procedures.”
Attorney Jason Reddish, who represents NACHC, said, “I can only speculate about the content of the new ADR rule, but I fully expect it will enable covered entities to obtain timely relief from manufacturers’ continued refusal to comply with their 340B program obligations.”
“Two federal courts have already ruled that the manufacturers’ refusal to ship drugs to covered entities’ pharmacy partners is unlawful. Covered entities—including those whose ADR claims have been pending for eleven months—would likely welcome any improvements that expedite resolution of their claims.”
Change in Make Up Of ADR Board?
The ADR board consists of six voting members with equal representation from the Centers for Medicare & Medicaid Services (CMS), HRSA, and the HHS Office of General Counsel. ADR hearing panels are composed of three such members, one from each category.
Some in the 340B provider community have argued that the current makeup of ADR panelists is not balanced since it includes CMS representatives. They say that CMS cannot act as a neutral arbiter on cases related to allegations of duplicate discounts. Duplicate discounts occur when drug manufacturers provide an upfront discount to 340B providers and then give a rebate to state Medicaid rebate programs at the back end for the same drug purchase. Manufacturers are supposed to be protected but drug companies have argued that the problem continues to persist. 340B providers are concerned that CMS would rule on behalf of the drug manufacturers in these cases and then require the covered entity to relinquish the discount on the disputed purchase rather than making the state Medicaid program issue a refund.
340B Report will reach out to Lilly, AstraZeneca, Sanofi, and PhRMA for their comment on the administration’s description of the ADR proposed rule.