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December 30, 2021

Three 340B Predictions for the New Year

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

It is always risky to make predictions, particularly about federal policy, the courthouse, and politics. Nonetheless, in the spirit of the New Year, here are three predictions in the 340B drug pricing area for 2022:

  1. Supreme Court Case on Medicare Part B Reimbursement: 340B Hospitals Win Battle but Not War

Oral arguments in the U.S. Supreme Court case of American Hospital Association v. Becerra took place on Nov. 30. As Supreme Court watcher Nicholas Bagley recently observed, the justices  appeared receptive to the argument that the Centers for Medicare and Medicaid Services (CMS) overstepped its authority when it cut Medicare Part B reimbursement to 340B hospitals by close to 30 percent.

A wide range of justices from the most liberal to the most conservative expressed sympathy with the arguments made by the hospital attorney Donald Verrilli. “If CMS wants Medicare to stop subsidizing 340B hospitals, “it’s got two options,” Verrilli said. It can base Part B reimbursement on a cost study and use its statutory authority to vary reimbursement among hospital categories, he said. Or, he continued, “if you don’t want to do that, if you think it’s too burdensome, you think it’s bad policy, you go to Congress and say change the law. But they didn’t do either of those things. Instead, they took a shortcut that the statute doesn’t authorize.”

Assistant to the Solicitor General Christopher Michel, the attorney representing CMS, faced tough questioning. Justice Elena Kagan observed: “The provision says, if you have survey data, you do one thing” — pay acquisition costs — “and if you don’t have survey data, you do a different thing” — pay the average sales price plus 6 percent. Justice Clarence Thomas asked: “If Medicare could just ‘adjust’ what it paid hospitals whenever it didn’t have survey data, why would you ever collect survey data?” Justice Brett Kavanaugh took issue with the government’s description of the difference between 340B drug acquisition cost and Part B drug reimbursement at ASP +6 percent as an overpayment.

“The word ‘overpayment’ with respect to 340B hospitals is—is questionable, isn’t it?” Kavanaugh said. “They provide a huge amount of the uncompensated care in the hospital.” Many “are in rural areas.”

“And those hospitals say that—and Congress is well aware of this, and so, to say overpayment, I think, is part of the picture but doesn’t take account of the whole 340B picture, which is more complicated,” Kavanaugh said.

While the 340B hospital plaintiffs appeared to win the day and might win the case, it may be of limited value. University of Pennsylvania law professor Allison Hoffman argued in a blog post just before the hearing that “even if the Court decides against CMS and strikes down the rule, the most the 340B providers would get is retroactive payments for the two years at issue in the case. After the 2018 federal district court ruling against CMS, in this case, the agency began collecting survey data from 340B hospitals on what they pay for drugs. With this survey data, the statute unambiguously allows CMS to reimburse based on hospital acquisition costs, and to vary those reimbursements by hospital group, rather than on average prices.”

340B hospitals have made the case that the survey data that CMS has collected so far is flawed and that Congress intended for them to make a margin on Medicare payments to meet 340B’s purpose. CMS, under both the Trump and Biden administrations, has argued that 340B hospitals still benefit financially from the lower Medicare payments.

  1. Providers Turn to Congress to Address Contract Pharmacy Stalemate

So far, it has been a mixed bag when it comes to federal court rulings on whether drug manufacturers can restrict or even cut off the use of contract pharmacies to dispense 340B-discounted drugs. For now, drug companies have a reprieve from having to restore the discounts and provide refunds. Eli Lilly, Novo Nordisk, and Sanofi have all appealed decisions that were largely favorable to the government’s case that the companies violated the 340B statute.  

More recently, the federal government asked the federal appeals court in Washington, D.C., to review a decision by Judge Dabney Friedrich that determined Novartis and United Therapeutics could place some restrictions on the contract pharmacy program. Friedrich is also overseeing two other suits challenging HRSA’s enforcement actions against the drug industry. HHS also announced that they are appealing portions of the decisions in the Lilly, Novo Nordisk and Sanofi cases. Meanwhile, a decision is expected at any time in  AstraZeneca’s contract pharmacy lawsuit.

As we wait for these important developments, the government is poised to jump-start its Administrative Dispute Resolution (ADR) system, the Congressionally-mandated process to resolve disputes between covered entities and manufacturers. The Biden administration has announced plans, starting next month, to scrap the current ADR regulation and replace it with a new proposed rule. Since it will be open for notice and comment, we can anticipate the regulation will take a number of months before it is finalized. Meanwhile, the government is trying to figure out an enforcement strategy that addresses deficiencies identified by the courts while still holding manufacturers accountable for their actions. These efforts will likely also be challenged in Court. In addition, I anticipate the federal judges in the respective cases to continue to ask Congress to intervene in the dispute.

The bottom line? There will be no magic bullet from the courts or the administration to quickly resolve the contract pharmacy impasse. I expect 340B providers will turn to Congress in 2022 to clarify the rules. As more drug manufacturers decide to place conditions on the contract pharmacy program, patience will run out. 340B providers will push for a legislative solution prior to November 2022, when the midterm elections take place. The 340B provider community will want to get this resolved quickly since a Congress that is perceived to be less friendly is likely to be in power in January 2023. Whether 340B providers are successful in enacting legislation is an open question.

  1. More states enact laws to prevent discriminatory reimbursement, but federal legislation doesn’t make it to the finish line

Since 2019, we’ve seen a growing number of states enact laws to address what 340B providers perceive as discriminatory actions by health care payors. In October, North Carolina became the 17 th state to enact such legislation. The laws address a range of PBM and insurer actions, such as discriminating against 340B providers or their contract pharmacies regarding reimbursement, fees, pharmacy network access, the patient’s choice about where to have prescriptions filled, and use of claims modifiers.

This year, we saw the first bipartisan bill to tackle this matter on a national level. Reps. David McKinley (R-WV) and Abigail Spanberger (D-VA) introduced the PROTECT 340B Act (H.R. 4390), which would prevent PBMs and other third-party payers from paying 340B providers below-market rates or engaging in other perceived discriminatory contracting practices. Provider groups believe that federal legislation is needed to ensure consistency and give protection to 340B providers in the Medicare Advantage and Part D markets, which can’t be addressed at the state level.

As I wrote in my column detailing 340B legislation, not only does H.R. 4390 address discriminatory practices by the insurance industry, but provides a solution to the duplicate discount problem. HHS would be required to contract with a neutral third party to serve as a claims data clearinghouse that would protect drug manufacturers from giving Medicaid rebates and 340B discounts on the same drugs. The contractor would collect data on 340B drugs reimbursed by Medicaid to ensure that those claims are not included in the states’ Medicaid rebate requests.

While this impressive bill will continue to gain co-sponsors in the coming year, don’t expect it to become law. Congress rarely passes legislation that has not been thoroughly debated and, in an election year, there won’t be enough time on the Congressional calendar to get it across the finish line.   

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.