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June 23, 2021

Four Burning Questions in Contract Pharmacy Standoff

Ted Slafsky
Founder and Principal, Wexford Solutions, and Publisher and CEO, 340B Report

As we get closer to the one-year mark since a group of drug manufacturers stopped offering 340B discounts or placed restrictions on these discounts in the contract pharmacy setting, several unanswered questions remain. Here are four burning ones:

1. If the drug manufacturers prevail, will the 340B law need to be opened up?

While there has been broad support from Congress and the Biden Administration for 340B providers in their battle to restore 340B discounts in the contract pharmacy setting, covered entities have faced setbacks in the judicial arena. Most recently, Judge Leonard Stark in the U.S. District of Delaware denied the U.S. Health and Human Services (HHS) motion to dismiss AstraZeneca’s lawsuit challenging the government’s finding that the company has clearly violated the law and must offer 340B pricing through contract pharmacy arrangements. Stark’s opinion, which will likely be challenged by the government, said that HHS’s determination “is not the sole reasonable interpretation of the statute” and said it is up to Congress to clarify the law. He concurred with the drug industry’s view that the statute is silent when it comes to the contract pharmacy program.

2. If the government prevails, what is the refund mechanism?

Assuming the courts eventually rule that the Health Resources and Services Administration (HRSA) can require the six drug manufacturers to credit or refund 340B providers for overcharges that have resulted from the manufacturers’ restrictive contract pharmacy policies, the mechanism for making covered entities whole remains unclear. The process is not spelled out in HRSA’s May 17 demand letters. All the agency says is that each company must “work with all of its distribution/wholesale partners to ensure all impacted covered entities are contacted and efforts are made to pursue mutually agreed upon refund arrangements.” HRSA simply asks the companies to provide an update on their plans to resell, without restriction, covered outpatient drugs at the 340B price to covered entities that dispense medications through contract pharmacy arrangements.

The challenge that the government will have is determining an equitable resolution. In response to the manufacturers’ restrictions, some covered entities may have changed their purchasing decisions and, as a result, may not have bought as many products from a particular manufacturer as in the past. In addition, is it realistic to think that 340B providers would have the ability to adequately track what they would have purchased during this time period, had the restrictions not been in place? It will be critical for the government to incorporate these scenarios and ensure covered entities are made whole for the financial losses incurred during the duration of the manufacturers’ non-compliance.

3. What’s next for the long-awaited administrative dispute resolution (ADR) process?

In December 2020, HRSA finalized the long-anticipated ADR rule. The ADR, which was established as part of the Affordable Care Act (ACA) but not finalized for more than a decade, is intended to resolve disputes between covered entities and manufacturers over matters such as allegations of price overcharges, duplicate discounts or drug diversion. On the last day of the Trump Administration, then-HHS Secretary, Alex Azar, appointed panelists to serve on the board – however, the Biden Administration promptly withdrew the notice as part of a broad freeze of so called “midnight” regulations and other last-minute Trump Administration pronouncements.

Three months ago, HHS said in court documents that the ADR was back on track and that HRSA had sent the HHS Secretary’s office “recommended new appointments to the ADR Board to correct for shortcomings in the prior slate of appointments.” However, it was not until June 17th that Secretary Becerra officially approved the panel. Interestingly, HHS is moving forward with the ADR even though a federal district judge in Indianapolis has barred the government from implementing or enforcing 340B ADR regulations against Eli Lilly. In issuing her temporary injunction, U.S. District Judge Sarah Evans Barker said Lilly would likely prevail in court on its claim that HHS violated administrative procedures in finalizing the ADR rule. The Judge ruled that HRSA had not given parties a fair opportunity for notice and comment on the regulation. The government says that the public did get the chance to weigh in.

4. Is there still a possibility for changes to the ADR rule?

With the Lilly ruling, and other challenges to the ADR being litigated, what should we expect moving forward? Some leading 340B thought leaders have speculated that perhaps it would be a positive development for the ADR regulation to be re-opened to address what is perceived as an inherent bias among some of the panelists. Under the final rule, the ADR board will consist of at least six voting members with equal representation from the Centers for Medicare & Medicaid Services (CMS), HRSA and the HHS Office of General Counsel.

Some 340B advocates are worried that the CMS panelists will have difficulty serving in a neutral role since their agency oversees the Medicaid drug rebate program. Many of the cases that will go before the panel will seek to resolve situations where a drug company believes it was subject to both an upfront 340B discount as well as a back-end rebate to Medicaid. These claims will be submitted by manufacturers after the company has conducted an audit of a covered entity and has determined that the entity has violated the prohibition on duplicate discounts, which suggests that the evidence of a duplicate discount could be strong. The remaining question will be to determine whether the covered entity or Medicaid is responsible for refunding the manufacturer. Since the Medicaid program is a federal-state partnership with an average of 64% of its funding coming from CMS, the concern is that the agency will naturally be inclined to side in favor of the state Medicaid program.

It will be very interesting to see how this all plays out in the coming months.


The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of any other agency, organization, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author(s). These views are always subject to change, revision, and rethinking at any time and may not be held in perpetuity.

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