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September 08, 2021

Time for Congress to Break the Contract Pharmacy Logjam

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

As of publication time, eight pharmaceutical manufacturers either have stopped offering or placed significant restrictions on 340B discounts when a provider contracts with a retail or community pharmacy to dispense medicines. After the Health Resources and Services Administration (HRSA) sent letters to six of the drug manufacturers on May 17 informing them that they were violating the 340B statute and must restore 340B pricing, there was hope that the year-long contract pharmacy standoff would be coming to an end. The federal government not only demanded that full access to 340B pricing be reinstated and 340B providers be made whole, but HRSA also threatened the manufacturers with civil monetary penalties for each instance of an overcharge. 

Even after the drug companies chose to sue the government in an effort to block the demand letters, there was hope that others in the industry would have second thoughts about jumping into the fray. However, this turned out to be just a temporary reprieve. On Aug. 1, Boehringer Ingelheim (BI) began to deny 340B pricing on most of its products when hospitals utilize contract pharmacies to dispense medicines. BI allows hospitals without an in-house pharmacy to designate a single contract pharmacy location to receive and dispense its products. Hospitals must register with drug manufacturer vendor 340B ESP to make their contract pharmacy designation. Health centers and other grantees are exempt from the restrictions. 

Most recently, drug-industry giant Merck announced that effective Sept. 1, it too will stop providing 340B compliance pricing to hospitals that partner with 340B contract pharmacies unless the hospital shares 340B claims data with 340B ESP. Hospitals lacking an outpatient, on-site dispensing pharmacy may designate a single contract pharmacy, the company says. In its notice, Merck says “at this time” its new policy “does not apply to federal grantee covered entities.” While many of the manufacturers that have recently announced contract pharmacy restrictions have exempted HRSA grantees, this policy could change, and the restrictions set a dangerous precedent for all 340B stakeholders. 

The Long Winding Road of the Judicial System

The drug industry has been buoyed by a series of federal court decisions favoring the manufacturers in the contract pharmacy dispute. First, in March, U.S. District Judge Sarah Evans Barker of the Southern District of Indiana granted Eli Lilly’s temporary motion to prevent HRSA from enforcing its 340B administrative dispute resolution (ADR) regulations against the company. In June, U.S. Chief District Judge Leonard Stark of the District of Delaware issued a series of rulings casting doubt about the government’s contention that AstraZeneca violated the 340B statute when the company cut off 340B pricing in the contract pharmacy setting. Judge Stark said that Congress was silent about the role that contract pharmacies may play in purchases of 340B drugs. Therefore, “there is more than one permissible interpretation of the statute,” he added.

Both cases are still being debated. Hearings in the Eli Lilly case occurred on July 30 and Judge Barker is likely to make a final rule on the legality of the contract pharmacy program any time now. Arguments in the AstraZeneca case recently were postponed until October 18. Regardless of the outcome, each case will be appealed, and we can expect them to drag on for years. We can anticipate a similar scenario to play out in the several other cases involving the legality of the contract pharmacy program which are winding their way through the courts.

The Key Role of Congress 

In the meantime, Judge Stark clearly hinted in a June 16 preliminary decision where he is headed. “Congress may very well want pharmaceutical manufacturers to deliver 340B drugs to an unlimited number of contract pharmacies as a condition for manufacturers participation in the Medicare Part B and Medicaid programs,” he said. “But that kind of policymaking is for Congress, not the court. The only issue before the court is whether Congress has spoken clearly and unambiguously on this arrangement. It has not.” 

Groups representing 340B providers are calling on the government to take more aggressive action against the drug manufacturers, including enlisting the U.S. Health and Human Services Office of Inspector General to penalize the companies. While this is a necessary step, it will not stop the actions of the drug companies. The manufacturers will challenge the move in court and the debate will continue. 

There is only one clear path for a timely resolution to the impasse. The 340B law should be amended to remove any ambiguity about the contract pharmacy program’s legality. 

Some trade groups that represent 340B providers have been reluctant to push this strategy since they are arguing in court that the drug manufacturers have clearly violated the statute by overcharging them. But safety net providers, which are losing hundreds of millions of dollars each year in needed savings, don’t have the luxury of time. Neither do the patients that rely on 340B providers for affordable medicine and healthcare services. 

Time is particularly of the essence since the composition of Congress is likely to change next November.  The 340B program continues to enjoy strong support not only from Democratic stalwarts like Reps. Doris Matsui (D-CA) and Abigail Spanberger (D-VA) but also Republican champions like Senator Thune (R-SD) and Rep. David McKinley (R-WV).  However, not all members of the GOP (particularly lawmakers on key Congressional committees) are as sympathetic to the 340B cause.  With the House expected to flip red next November, it is time to strike while the iron is hot.


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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