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September 28, 2022

Recent Developments Underscore Why 340B Providers Should Quickly Turn to Congress to Break Contract Pharmacy Impasse

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

October will be critical in the ongoing dispute over the scope of the 340B contract pharmacy program. The U.S. Court of Appeals for the District of Columbia Circuit has scheduled oral arguments on Oct. 24 in Novartis and United Therapeutics’ consolidated cases against the federal government. One week later, a federal appeals court in Chicago will hear arguments in Eli Lilly’s lawsuit against the Department of Health and Human Services and the Health Resources Services and Administration (HRSA).

Meanwhile, the federal appeals court in Philadelphia is coordinating with lawyers for Novo Nordisk, Sanofi, AstraZeneca, and the federal government about possible dates for oral arguments in those manufacturers’ 340B contract pharmacy cases, according to the dockets in those lawsuits.

In all six cases, manufacturers are challenging the legality of HRSA’s May 2021 determinations that the companies’ restrictions on 340B pricing to covered entities that dispense drugs through contract pharmacy arrangements resulted in overcharges that violate federal law and must stop. In September 2021, HRSA referred all six manufacturers involved in the lawsuits to the Office of the HHS Inspector General (OIG) for possible imposition of civil monetary penalties. Federal district courts issued divided rulings on HRSA’s actions, and now we await these crucial appeals court hearings.

These developments mark an important chapter in an endless battle between drug manufacturers, the federal government, and 340B providers over the use of contract pharmacies. We should not expect a quick resolution to the matter, however. 340B provider advocates are disappointed in HHS Secretary Xavier Becerra’s Sept. 1 response to the six Congressional leaders of a letter from 181 bipartisan House members urging HHS to take more aggressive action against all 18 manufacturers that restrict access to 340B pricing when 340B providers use contract pharmacies.

The lawmakers are frustrated with HHS’s slowness to fine drug makers up to $6,323 for each instance of 340B program overcharging. They also want all 18 manufacturers to receive demand letters telling the companies to stop their actions. So far, only nine of the manufacturers have received the demand letters, and only seven of the companies have been referred to the OIG. Becerra told the six leaders that his department is doing all it could do to enforce the law and called up Congress to enact legislation giving the agency more regulatory power and funding to oversee the program.

HHS OIG Response to Congress

More concerning to the 340B provider community, I have learned that the OIG recently informed the lawmakers that the agency does not plan to impose civil monetary penalties against the drug makers at this time. The OIG, which would have to show that drug manufacturers are knowingly and intentionally overcharging 340B providers, told the lawmakers that it wants to see how the appeals court cases play out before it decides whether to act. The OIG apparently does not feel it has a strong enough case to start fining the manufacturers or is worried that the agency will upset the judges reviewing the legality of the drug manufacturer restrictions.

Becerra seemed to echo that message in his September response to the lawmakers. “Legislative action is needed to strengthen the tools that the agency has to ensure the accountability and oversight that we all believe is necessary here.” With the Biden administration signaling a renewed interest in a legislative solution to the impasse, it will be interesting to see if 340B provider groups step up efforts to convince Congress that its needs to intervene.

While a number of the leading 340B provider groups and some of their Congressional allies have been reluctant to take the next step and clarify the contract pharmacy rules, there now seems to be more impetus to go this route. My sense is that the provider organizations will stay the course, a decision that could come back to haunt them if the Republicans take over one or both of the chambers of Congress in November. As I have explained in previous columns, the GOP, with some exceptions, is much more sympathetic to the drug industry. 340B providers would be wise to push hard during the upcoming lame duck session of Congress to finally resolve the matter, even if it requires making some compromises.

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