February 01, 2019

Administrative and Congressional Activity Related to the 340B Drug Pricing Program Likely To Continue in 2019

Jeff Davis and Tracy Weir, Baker Donelson, Washington, DC

Over the last several years, the 340B drug pricing program has been the subject of intense political scrutiny. Perhaps in no other year has the program and its participants seen more administrative and Congressional activity than in 2018, with policymakers in both Congress and the Administration considering, and in some cases implementing, changes to the 340B program with significant financial and operational implications for covered entity participants. Recent developments suggest that the program will continue to be a lightning rod in 2019 as the political debate around the size, scope, and intent of the program is all but certain to continue.

The 340B program, enacted by Congress in 1992 under Section 340B of the Public Health Service Act,1 requires drug manufacturers to sell covered outpatient drugs at discounted rates to certain public and nonprofit hospitals2 — those that treat high volumes of low-income patients or are located in rural areas — and other safety net providers that receive federal grant funding, known as “covered entities.” In designing the 340B program, Congress intended to enable covered entities to "stretch scarce resources as far as possible, reaching more eligible patients and providing more comprehensive services."3 Much of the debate surrounding the 340B program has centered on whether covered entity use of savings available through the program is consistent with the program's intent and whether the original intent of the program continues to be applicable today.4 Other issues have arisen as the Medicare program and other payors have sought to reduce reimbursement for 340B drugs.

In 2019 Congress is likely to continue its evaluation of 340B covered entities, particularly hospitals, and how they use program savings to support care for low-income patients. As discussed below, Congressional activity related to 340B may focus more on program transparency and less on a major overhaul. However, recent actions suggest that the Administration may be interested in changing the program in ways that could limit its scope and reduce covered entity access to savings. Covered entities should monitor administrative and Congressional activity in 2019 and seek out opportunities to provide feedback to policymakers on proposals that could weaken the program.

Congressional Activity

Last  year saw no fewer than 17 proposed bills or draft bills, referred to as "discussion drafts," put forward in the House and Senate seeking to change the 340B program in various ways. Congress did not enact any 340B legislation, although both the House and Senate conducted significant oversight of the program.

The House Energy and Commerce (E&C) Committee continued its investigation of the 340B program in 2018, with Committee Republicans issuing a report in January 2018 recommending a series of legislative and administrative changes to the program.5 Of note, the report called for a reevaluation of the program's purpose and consideration of changes to hospital eligibility criteria. The E&C Committee's Health Subcommittee held a hearing in July 2018 to hear feedback on 15 legislative proposals related to the 340B program, several of which included provisions that would significantly limit the number of hospitals in the program and their ability to access 340B savings.

Republicans  no longer control the House of Representatives.  The E&C Committee may be less focused on enacting major program changes under Democratic control, given that House Democrats were generally supportive of 340B covered entities in the last Congress. Nevertheless, some Democrats have joined their Republican colleagues in support of actions to improve 340B transparency, and 340B legislation is likely to be re-introduced in the new Congress. In addition, there is significant bipartisan interest in addressing the issue of high drug prices, with both President Trump and House Democrats publicly stating their interest in bringing down the price of prescription drugs. The 340B program is often raised in drug pricing conversations, making it likely that debate surrounding the 340B program will continue in the House this year. 

Last year was also an active one for 340B debate in the Senate Health, Education, Labor, and Pensions (HELP) Committee. The HELP Committee held three hearings on 340B in 2018, focusing on how covered entities use program savings to support care for low-income patients. Senator Lamar Alexander (R-TN) will continue to chair the Committee this year, and under his leadership the Committee is likely to continue its evaluation of the 340B program and consideration of whether legislative changes to the program are needed.

Bicameral, bipartisan actions taken in Congress in 2018 also suggest the likelihood of administrative activity on the 340B program in 2019. The chairmen and ranking members of the HELP and E&C Committees sent a letter to the Health Resources and Services Administration (HRSA) on August 27, 2018, calling on the agency to issue regulations in the areas where the Department of Health and Human Services (HHS) has authority.6 The letter also noted that HHS has the authority to issue sub-regulatory guidance to inform program stakeholders of the agency's interpretation of the 340B statute. 

Administrative Actions to Curtail the 340B Program

Possible HRSA Actions

Recent statements made by the Administration suggest that HHS may take actions in 2019 that could restrict the 340B program. In December 2018, HHS Secretary Alex Azar spoke at a meeting of hospitals and noted concerns about the 340B program that are "driven by the rapid expansion of the program, beyond the populations it was intended to help."7 Secretary Azar referenced the possibility of "340B reforms" and "vigorous enforcement of the program's rules." These comments followed remarks from July 2018, when the Secretary outlined “two kinds of reforms [that] are necessary: greater transparency surrounding how these discounts are being used, and reforms to reduce the gap between discounted prices and the reimbursement provided, particularly by government programs.”8

Additional statements made by the Administration suggest that the 340B "reforms" HHS may pursue could go beyond minor reforms to the program and could instead lead to a shrinking of the 340B program that would limit covered entity access to program savings. In May 2018, HHS issued a blueprint to address high drug prices and an accompanying request for information soliciting feedback on future policies. The blueprint questioned whether growth in the 340B program has contributed to higher drug prices, stating that "the additional billions of dollars in discounted sales and the cross-subsidization necessary may have created additional pressure on manufacturers to increase list price[s]."9 HHS requested feedback on several possible changes to the 340B program that could reduce drug prices, including changes to the definition of a 340B-eligible patient, the rules regarding which outpatient locations may use 340B drugs, and the rules governing 340B contract pharmacy arrangements. Each of these changes could narrow the instances when covered entities can use 340B drugs, thereby shrinking the program and restricting access to 340B savings.

Medicare Actions

HHS has also taken actions to restrict the benefit of the 340B program through reductions in Medicare reimbursement. Beginning January 1, 2018, Medicare reduced Part B drug payments to certain 340B hospitals under the Hospital Outpatient Prospective Payment System (OPPS) by nearly 30 percent.10 HHS continued the payment reduction in 2019 and extended it to additional hospital locations, further reducing the 340B benefit.11 Under the 2019 OPPS Final Rule, the 340B payment reduction applies to non-excepted hospital outpatient departments subject to reduced site-neutral payments. HHS had previously exempted these locations from the payment reduction in 2018.   

Hospital groups have challenged the legality of the payment reduction in federal court, arguing that the payment reduction included in the 2018 OPPS Final Rule exceeded HHS's authority under the Medicare statute. The United States District Court for the District of Columbia issued an opinion on December 27, 2018, granting the plaintiffs' motion for a permanent injunction, finding that the 2018 payment cuts exceeded HHS's authority.12 The Court ruled that the plaintiffs are entitled to relief but held off on deciding what relief to grant, ordering supplemental briefing on what remedy to provide. In their brief, the plaintiffs asked the Court to order that HHS make 340B hospitals whole for the reduction in reimbursement they faced in 2018, paying them the difference between what they were paid for Part B drugs and what they would have been paid absent the cuts.13 The government asked the Court not to vacate the 2018 payment policy and to remand the matter to HHS, allowing the agency to determine the appropriate remedy.14 The Court also declined to impose injunctive relief regarding 2019 payment rates. As such, the payment policy under the 2019 OPPS Final Rule continues to be in place. HHS has asked that, if the Court vacates the 2018 payment policy or grants the relief requested by the plaintiffs, the Court stay the order so the government may decide whether to appeal.

Meanwhile, HHS intends to consider additional changes to Medicare drug reimbursement in 2019 that could further restrict the benefit and even applicability of the 340B program. The Centers for Medicare & Medicaid Services (CMS) issued an Advanced Notice of Proposed Rulemaking (ANPR) in October 2018 soliciting feedback on a payment model the Administration is interested in testing to reduce Medicare Part B drug costs.15 CMS plans to issue a proposed rule in early 2019 to formally propose the International Pricing Index (IPI) Model, under which selected hospitals would no longer purchase drugs for Part B patients. Instead, vendors would purchase drugs directly from manufacturers at negotiated prices intended to be more closely aligned with international drug prices, and hospitals would contract with the vendors to receive drugs to be used for Part B patients. Hospitals submitted comments to CMS in response to the ANPR expressing concern that including 340B hospitals in the IPI model, as it is currently described, would remove hospital access to 340B discounts, as hospitals would no longer purchase drugs themselves for Part B patients.     

Administrative Actions to Increase Manufacturer Oversight

Although the Administration's actions in 2018 suggest interest in curtailing the 340B program, two recent announcements by HRSA highlight the agency's plans for increased oversight this year of drug manufacturers and transparency into 340B ceiling prices for covered entities.

Drug Manufacturer Civil Monetary Penalties

HRSA published a final rule on November 30, 2018, moving up the effective date of a long-awaited regulation that will assess civil monetary penalties (CMPs) against drug manufacturers that knowingly and intentionally overcharge covered entities for drugs purchased under the 340B program.16 The rule also addresses how manufacturers should calculate 340B prices for new drugs and codifies in regulation HRSA's longstanding "penny price" policy, under which manufacturers must charge $0.01 when a drug's price increases faster than the rate of inflation, causing the 340B ceiling price to otherwise be zero. HRSA began enforcement of the regulation January 1, 2019. 

The regulation, first published by the last Administration on January 5, 2017, was originally scheduled to go into effect April 1, 2018. The current Administration delayed enforcement of the rule five times, most recently to July 1, 2019. Congress directed HHS to implement CMPs in cases of overcharges in 2010, as part of the Patient Protection and Affordable Care Act (PPACA),17 and providers have repeatedly called on HHS to move forward with implementation.

HHS's decision to move up enforcement of the rule follows a hospital lawsuit challenging the legality of the delays. On September 11, 2018, hospital associations and hospital co-plaintiffs filed a lawsuit in the U.S. District Court for the District of Columbia against HHS.18 The plaintiffs argued that the delays were unlawful under the Administrative Procedure Act, as the Administration had not put forward a plausible explanation for the delay, making it both arbitrary and capricious and an unreasonable delay of an agency action. During a status conference on December 17, 2018, the parties agreed that the principal claims in the lawsuit are now moot, given that the agency will enforce the rule as of January 1, 2019.19 However, the lawsuit remains active, and the plaintiffs continue to seek action related to publication of a 340B ceiling price website, discussed below.  

340B Ceiling Price Website

On November 30, 2018, HRSA announced on its website that, beginning April 1, 2019, the agency plans to publish HRSA-verified 340B ceiling prices for covered entities to access and determine whether manufacturers are charging the correct prices.20 Congress directed HHS to verify 340B prices and develop a ceiling price website for covered entities in 2010, as part of  PPACA.21 In its announcement, HRSA said it will be implementing a "secure pricing component" of the 340B Office of Pharmacy Affairs Information System (OPAIS) in the first quarter of 2019.22 Under the secure pricing system, manufacturers will submit pricing data for HRSA to use to calculate and verify 340B ceiling prices. The announcement states that covered entities will be able to access the ceiling prices beginning April 1, 2019.

The hospital lawsuit challenging HHS's lack of enforcement of the manufacturer oversight rule also addresses implementation of the ceiling price website. Although the principal claims in the lawsuit are now moot, the plaintiffs have amended their complaint, requesting that the Court order HHS to make 340B ceiling prices available no later than April 1, 2019.23 The Court has ordered HHS to file status reports no later than February 28 and March 14, 2019 on the agency's progress implementing the ceiling price website.24  

Covered Entity Implications and Next Steps

Covered entities should be vigilant in 2019, since it is likely there will be ongoing administrative and legislative efforts to implement 340B program changes that could have a negative financial and/or operational impact on 340B providers and their patients. Congressional activity is likely to focus on program transparency. However, as Congress reminded the Administration, HHS has the authority to issue sub-regulatory guidance to explain the agency's interpretation of the 340B statute and to clarify expectations for program stakeholders. As part of its blueprint to address high drug prices, HHS explored possible changes to 340B guidance regarding the definition of a 340B-eligible patient, use of 340B drugs in outpatient facilities (i.e., "child sites"), and 340B contract pharmacy arrangements. Covered entities should be prepared to provide feedback to HRSA in response to proposed guidance that could address these or other areas. HRSA is also likely to issue informal guidance on its website regarding program compliance expectations.

 Covered entities should also monitor HRSA oversight of manufacturers and the release of updates, perhaps in the second quarter of 2019, regarding access to 340B ceiling price data. Access to HRSA-verified 340B ceiling prices, which HRSA intends to make available April 1, 2019, should help covered entities determine whether they are being overcharged for 340B drugs. 

  1.  42 U.S.C. § 256b.
  2.  Hospitals in the 340B program include large academic medical centers, community hospitals, children’s hospitals, free-standing cancer hospitals and small facilities in rural areas.
  3.  H.R. Rep. 102-384, Pt. 2 (1992).
  4.  Covered entities generally view the purpose of the program as to provide resources to safety net providers that allow them to meet the needs of their vulnerable patients in broad, diverse ways. There have been suggestions that the nation's healthcare system has changed since the program was first enacted more than 25 years ago and that the program's purpose should be reevaluated.
  5.  E&C Committee, Review of the 340B Drug Pricing Program, https://energycommerce.house.gov/wp-content/uploads/2018/01/20180110Review_of_the_340B_Drug_Pricing_Program.pdf.
  6.  Letter to Krista Pedley, Director, HRSA Office of Pharmacy Affairs, from Chairman Greg Walden, Chairman Lamar Alexander, Ranking Member Frank Pallone, and Ranking Member Patty Murray (Aug. 27, 2018), https://energycommerce.house.gov/wp-content/uploads/2018/08/20180827HRSA.pdf. HRSA is the agency within HHS that administers the 340B program. The 340B statute provides HHS with explicit authority to issue regulations to administer the 340B program in three specific areas. As discussed further below, HRSA published a final regulation related to the 340B program in 2017 and began enforcing the regulation January 1, 2019. Like all federal agencies, HHS has the authority to interpret the 340B statute through sub-regulatory guidance. Prior to the 2017 regulation, all of HRSA's administration of the 340B program had been through sub-regulatory guidance. 
  7.  Remarks to America's Essential Hospitals, Sec. Alex Azar (Dec. 11, 2018), https://www.hhs.gov/about/leadership/secretary/speeches/2018-speeches/remarks-to-americas-essential-hospitals.html.
  8.  Remarks to 340B Coalition Summer Meeting, Sec. Alex Azar (July 9, 2018), https://www.hhs.gov/about/leadership/secretary/speeches/2018-speeches/remarks-to-340b-coalition-summer-meeting.html.
  9.  American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (May 2018), https://www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf.
  10.  Final Rule, Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 82 Fed. Reg. 59216 (Dec. 14, 2017).
  11.  Final Rule, Medicare Program: Changes to Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 83 Fed. Reg. 58818 (Nov. 21, 2018).
  12.  The American Hospital Association, et. al., v. Azar, Civ. Act. No. 18-2084 (RC) (D.D.C. 2018) (memorandum opinion), https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv2084-25.
  13.  The American Hospital Association, et. al., v. Azar, Civ. Act. No. 18-2084 (RC) (D.D.C. 2018) (Plaintiffs' Supplemental Brief on Remedies, Jan. 31, 2019).
  14.  The American Hospital Association, et. al., v. Azar, Civ. Act. No. 18-2084 (RC) (D.D.C. 2018) (HHS Brief on Remedy, Jan. 31, 2019).
  15.  Advanced Notice of Proposed Rulemaking, International Pricing Index Model for Medicare Part B Drugs, 83 Fed. Reg. 54546 (Oct. 30, 2018), https://www.govinfo.gov/content/pkg/FR-2018-10-30/pdf/2018-23688.pdf.
  16.  Final Rule, 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation, 83 Fed. Reg. 61563 (Nov. 30, 2018), https://www.govinfo.gov/content/pkg/FR-2018-11-30/pdf/2018-26223.pdf
  17.  Patient Protection and Affordable Care Act, Pub. L. No. 111–148 § 7102(a).
  18.  American Hospital Association et. al., v. Dept. of Health and Human Services, et. al., Civ. Act. No. 18-02112-JDB (D.D.C. 2018).
  19.  Docket, American Hospital Association et. al., v. Dept. of Health and Human Services, et. al., Civ. Act. No. 18-02112-JDB (D.D.C. 2018) (Minute Order, Dec. 18, 2018, summarizing status conference on Dec. 17, 2018).
  20.  HRSA, Office of Pharmacy Affairs (OPA), https://www.hrsa.gov/opa/.
  21.  Patient Protection and Affordable Care Act, Pub. L. No. 111–148 § 7102(a).
  22.  The OPAIS is the online database OPA maintains of all covered entities and drug manufacturers in the 340B program. The secure pricing component will be a new feature in the OPAIS. The OPAIS is available at https://340bopais.hrsa.gov/.
  23.  Plaintiffs filed the amended complaint on December 20, 2018.
  24.  The Court ordered the defendants to file status reports in a status conference held on December 17, 2018. 

Jeff Davis

Baker Donelson, Washington, DC

Jeff Davis is Of Counsel in Baker Donelson's Washington, DC office and a Senior Advisor in the firm's government relations and public policy practice. He provides clients with counsel on issues relating to the federal 340B drug pricing program, including enrollment; contracting; audits; compliance with 340B, Medicare, and Medicaid requirements; and self-disclosures, as well as other healthcare matters. He also provides advocacy and policy services to health care providers.  He may be reached at jeffdavis@bakerdonelson.com.

Tracy Weir

Baker Donelson, Washington, DC

Tracy Weir is a shareholder in Baker Donelson's Washington, DC office. She provides healthcare regulatory counseling to clients regarding issues pertaining to Medicare reimbursement and compliance, the 340B Drug Pricing Program, telehealth, and fraud and abuse. She also assists clients with payor audits, and routinely represents clients before the Office of Medicare Hearings and Appeals in administrative litigation involving denials of Medicare reimbursement.  She may be reached at tweir@bakerdonelson.com