March 03, 2022

Time for a Full Court Press on Legislation to Solve 340B Contract Pharmacy Impasse

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

With the recent decision in AstraZeneca's lawsuit against the federal government on the legality of the 340B contract pharmacy program, we have reached an inflection point. Federal judges have now ruled on the first six lawsuits filed by drug manufacturers over letters they received from the U.S. Health Resources and Services Administration (HRSA) informing them that their decision to place restrictions on the contract pharmacy program were in direct violation of the 340B statute. A seventh suit, filed by Boehringer Ingelheim under Judge Dabney Friedrich in Washington, D.C., is on hold.

Now that the federal district courts have weighed in, it is time to reflect on their decisions and to chart a path forward. 340B provider advocates will point out that two of the federal judges presiding over three cases ruled largely in their favor and two other judges presiding over the other three cases made decisions that were mostly favorable to the drug companies. All the cases will end up under review at the federal appeals court level. Nonetheless, the bottom line is that four judges—covering a total of six lawsuits—were asked to rule on the letters' legality and all found reasons to set aside and vacate the violation letters.

This means that all six companies, for the foreseeable future, will be able to continue restricting 340B pricing to covered entities that partner with specialty, retail, and independent pharmacies to dispense medicine. Since the time the original six manufacturers received their letters in May 2021, another eight companies have announced contract pharmacy restrictions. With the federal government unlikely to be able to enforce the contract pharmacy program for several months (and potentially for years), I anticipate that the number of manufacturers with contract pharmacy restrictions will grow. Moreover, there is no guarantee that the federal court system will end up ruling in favor of HRSA.

The feds and 340B provider organizations have been struggling to figure out how to address the growing crisis. They were hopeful that stern warnings and efforts to jumpstart the 340B Administrative Dispute Resolution process would do the trick. Next, they expressed confidence that the courts would rule in the government's favor, resulting in an end to the impasse, significant refunds to 340B providers, and potentially large civil monetary fines imposed on the drug industry.

340B provider advocates have understandably focused their strategy on a legal solution. However, the courts are clearly divided and even the judges that were most favorable to the government raised questions about the size and scope of the contract pharmacy program.

So, where do 340B providers go next? It is time for Congress to intervene and make it crystal clear that contract pharmacies are an integral component of the 340B program. It does not make sense to restrict patient access to an in-house pharmacy or to one designated pharmacy near the 340B facility. This restriction would undermine 340B's congressional intent to enable "covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services."

Potential Areas for Consensus

Pharmaceutical manufacturers are rightly concerned about exposure to two different discounts, an upfront discount to covered entities and then having to provide a rebate to the Medicaid program on the back end. Fortunately, there is a solution. Bipartisan legislation has been introduced in the House called The Protect 340B Act (H.R. 4390) that tackles duplicate discounts head-on. Under the legislation, the U.S. Health and Human Services Department will be required to contract with a neutral third party to serve as a claims data clearinghouse that will protect drug manufacturers from giving Medicaid rebates and 340B discounts on the same drugs. The contractor will collect data on 340B drugs reimbursed by Medicaid to ensure that those claims are not included in the states' Medicaid rebate requests.

The bill, which already has 74 co-sponsors, would also prohibit commercial insurers and PBMs from imposing contract terms that require covered entities to accept reimbursement rates that can be significantly below the rates offered to non-340B providers and pharmacies. This practice, which has become more common over the past decade, results in an indirect transfer of 340B savings from the covered entities to for-profit payers. When these payers ratchet down reimbursement, it also undercuts 340B's intent.

While the Protect 340B Act does not include language specifically addressing the contract pharmacy program, it could be amended, or a new stand-alone bill could be introduced. I am pleased to see that a number of 340B provider organizations are now considering or supporting a legislative fix to the standoff. While there are always risks to opening the 340B law, I am confident that the outcome will be largely positive for the 340B provider community. If the legislation becomes unpalatable with unacceptable amendments, 340B provider groups have enough power to pull the plug.

However, time is of the essence. Even though the November elections are not for another eight months, there are not a lot of days left in the legislative calendar. 340B providers need to begin a full-court press today.


      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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