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April 13, 2021

Why 340B Covered Entities Need Swift Action on Contract Pharmacies

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

These days, it seems like we need the help of a professional juggler to keep up with the developments in the various legal cases surrounding the 340B compliance & legislation.

340B providers were first up to bat, filing three separate suits against the U.S. Health and Services (HHS) Department in an effort to force the government to take action against drug manufacturers that are refusing to provide 340B discounts at contract pharmacies dispensing medicationson behalf of covered entities.

Since then, drug manufacturers and their trade groupPhRMAhave filed five different suits that either challenge the Health Resources and Services Administration’s (HRSA) Administrative Dispute Resolution (ADR) processthe advisory opinion published by the HHS General Counsel in December, or both.

Procedural rulings delay meaningful action

To date, there have already been numerous actions in the various court cases, including motions to dismiss, requests to intervene, requests for a stay, granting of a stay, joint status reports, friend of the court filings and requests for additional briefings, to name a few. The pharmaceutical industry has been the winner so far on procedural issues.

In February, a federal district judge in Oakland, Calif.dismissed a lawsuit by hospital groupsto require HHS to sanction six drug manufacturers that have either stopped providing 340B discounts or placed restrictions on 340B pricing in the contract pharmacy setting. The judge issued her decision on procedural grounds, declaring that it would be premature to move forward until HHS has adjudicated the matter through the ADR process.

340B providers experienced another setback on March 16 when a federal district judge in Indianapolis granted Eli Lilly a preliminary injunction preventing HRSA from implementing the ADR process with the Indianapolis-based companyThis injunction put a hold on petitions filed through the ADR system in January by a group of community health centers that hoped to leverage the ADR process to resolve disputes with Lilly overrestrictions on 340B pricing at contract pharmacies. It’s important to note, however, that this ruling does not impact claims against other manufacturers and does not invalidate the process or the ADR construct.

In the March 16 case, the judge found that HHS likely had disregarded statutory procedural requirements when it published a final rule creating the ADR board in December. HRSA was mandated by Congress to finalize the ADR rule over 10 years ago but did not publish a proposed regulation for notice and comment until August 2016, during the last year of the Obama administration. The Trump administration first froze the proposed regulation in January 2017 and then withdrew it in August 2017.

The final rule was only published in January 2021 after HHS was sued by provider groups. HHS is currently evaluating the requirements to reissue the ADR to meet the procedural requirements, but there is hopethe rule can be issued quickly by invoking the “good cause” exception of the Administrative Procedure Act (APA), based on the ongoing harm manufacturers are causing covered entities.

Even when the ADR is cleared to move forward, we can expect a protracted legal battle. The ADR panel isn’t even named or functioning right now, and it will likely take months before the panel takes concrete steps. Even then, ADR board rulings will likely lead to even more litigation, because they can be appealed to the federal courts.

Providers don’t have the luxury of time to resolve lost discounts

Meanwhile, 340B providers have now gone more than six months without being able to access much needed drug discounts, leading to disruption in patient care, service reductions and job losses. According to a recent 340B Health survey, 70 percent of rural hospitals say that drug costsavings from the 340B contract pharmacy program helps keep their doors open.

The 340B contract pharmacy program has been well established for 25 years now, and 340B provider groups feel strongly that HHS has the authority to immediately sanction the six drug manufacturers who have flouted the 340B law.

With the recent confirmation of HHS secretary, Xavier Becerra, we are hopeful he will take speedy and decisive action to block this ongoing assault on the safety net mission.


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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