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August 30, 2021

340B Update 2021: Another Tumultuous Year for the 340B Program

By Richard B. Davis, Esq., Quarles & Brady, LLP, Milwaukee, WI


As discussed in a prior article, the year 2020 brought a deluge of controversy to the traditionally "under the radar" 340B Program. The year 2021 is proving to be no different, with a ton of twists and turns in the ongoing battle between the Health Resources and Services Administration's Office of Pharmacy Affairs (HRSA OPA), drug manufacturers, and 340B covered entities (e.g., hospitals and clinics that qualify for 340B Program benefits).

By way of a very brief recap, a Trump Administration Executive Order declared that “[g]uidance documents may not be used to impose new standards of conduct on persons outside the executive branch.” While this generally aligned with existing case law regarding agency guidance documents, several drug manufacturers seized on this language to attempt to limit their obligations under the 340B Program. Specifically, the manufacturers claimed that they did not need to provide 340B discounts to drugs dispensed via contract pharmacies, as the concept of a "contract pharmacy" arose solely through agency guidance. HRSA OPA pushed back on this position via an Advisory Opinion and the manufacturers promptly sued, claiming generally that HRSA OPA's position in the Advisory Opinion was both incorrect and exceeded HRSA OPA's statutory authority.

The HRSA Letters

During the ongoing litigation, on May 17, 2021, HRSA sent letters to six manufacturers informing them that HRSA completed the review of their policies that place restrictions on 340B pricing to covered entities that dispense medications through pharmacies under contract, unless the covered entity lacks an in-house pharmacy. HRSA determined the manufacturers' actions resulted in overcharges and are in direct violation of the 340B statute.

In the letters, HRSA explained that nothing in the 340B statute grants a manufacturer the right to place conditions on the fulfillment of its statutory obligation to offer 340B pricing on covered outpatient drugs purchased by covered entities. HRSA also reminded the manufacturers that they are bound by the Pharmaceutical Pricing Agreement (PPA) that they entered into pursuant to Section 340B(a)(1) of the Public Health Service (PHS) Act, which required that the 340B ceiling price is available to all covered entities. HRSA further noted that manufacturers are expected to provide the same opportunity for 340B covered entities and non-340B purchasers to purchase covered outpatient drugs, and it extends to the manner in which 340B drugs are made available to covered entities. HRSA stated it has made plain, consistently since the issuance of its 1996 contract pharmacy guidance, that the 340B statute requires manufacturers to honor such purchases regardless of the dispensing mechanism.

HRSA addressed the manufacturers' rationale for its restrictive action, which included preventing diversion and duplicate discounts. HRSA noted that the 340B statute provides ways to address these concerns, specifically by conducting audits and submitting a claim through the administrative dispute resolution process as described in Section 340B(d)(3)(A) of the PHS Act. HRSA concluded that the 340B statute does not permit a manufacturer to impose industry-wide, universal restrictions.

HRSA demanded that the manufacturers must immediately begin offering their covered outpatient drugs at the 340B ceiling price to covered entities through their contracted pharmacy arrangements, regardless of whether they purchase through an in-house pharmacy. They must comply with their 340B statutory obligations and the 340B Program's Ceiling Price and Civil Monetary Penalties Final Rule, which imposes civil monetary penalties on manufacturers that violate certain statutory obligations, and credit or refund all covered entities for overcharges that have resulted from their policies. The manufacturers must work with all of their distribution/wholesale partners to ensure that all impacted covered entities are contacted and efforts are made to pursue mutually agreed upon refund arrangements.

HRSA concluded by requesting that the manufacturers provide an update on their plan to restart selling, without restriction, covered outpatient drugs at the 340B price to covered entities that dispense medications through contract pharmacy arrangements by June 1, 2021.

The Manufacturers Strike Back

On May 20, 2021, Eli Lilly Company and Lilly USA, LLC (Lilly) fired back, and filed a Motion for Preliminary Injunction and Temporary Restraining Order in the United States District Court for the Southern District of Indiana, requesting that the court enter a preliminary injunction enjoining HRSA from taking any adverse action against Lilly until the court enters judgment on the issues presented to the court in Lilly's Motion for Summary Judgment in its lawsuit against HRSA related to the requirements contained in the HRSA letters. Lilly asserts that HRSA is attempting to circumvent the litigation, the letter provided no legal explanation or justification for the arbitrary June 1 deadline, and that the driving force behind the May 17, 2021 letter was political pressure from members of Congress to come down on drug manufacturers that disagreed with the interpretation of the 340B statute. Lilly also requested that the deadline to respond to the May 17, 2021 letter be extended beyond June 1, 2021.

Other manufacturers, including AstraZeneca, filed similar lawsuits against both the HRSA letters and the Advisory Opinion. On June 16, 2021, a Memorandum Opinion from the United States District Court for the District of Delaware ruled in favor of AstraZeneca and denied HRSA's Motion to Dismiss in the lawsuit filed by AstraZeneca challenging HRSA's Advisory Opinion. AstraZeneca's lawsuit remains alive and the court will review and rule on both AstraZeneca’s and HRSA's motions for summary judgment.

HRSA's Response

On June 18, 2021, HRSA issued a Notice of Withdrawal which stated that the Office of the General Counsel withdrew its Advisory Opinion in light of ongoing confusion about the scope and impact of the Advisory Opinion. HRSA did note, however, that its withdrawal did not impact the ongoing efforts to enforce HRSA’s May 17, 2021 violation letters concerning restrictions placed on contract pharmacy arrangements. HRSA stated that its enforcement process operated independently from the issuance of the Advisory Opinion, and operates independently from the Advisory Opinion’s withdrawal.

Uncertainty Ahead

While the stages of litigation in the manufacturers' lawsuits against HRSA have advanced since March, what remains is the uncertainty of whether the manufacturers need to immediately comply with the demands made in HRSA's May 17, 2021 letters, especially in light of the most recent concession of HRSA by its June 18, 2021 Notice of Withdrawal. If HRSA is not enjoined from taking adverse action pursuant to the May 17, 2021 letters, it could force manufacturers to begin complying and also serve as a strong basis for the court to rule in HRSA's favor in the lawsuit launched by Lilly. HRSA could then use that ruling and seek to apply it to the other lawsuits it faces.

Further complicating all of this is the fact that on March 16, 2021, a federal judge issued a preliminary injunction blocking HHS from implementing its 340B administrative dispute resolution final rule (ADR Final Rule). As this ADR Final Rule effectively gives HRSA OPA a meaningful ability to penalize non-compliant manufacturers, its validity will have a substantial impact on HRSA OPA's options in enforcing the position outlined in its letters to manufacturers.

Industry stakeholders will no doubt continue to closely monitor this rapidly unfolding situation to identify best practices for current and future 340B Program compliance.

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    Richard Davis


    Richard Davis has extensive experience with the 340B Drug Pricing Program, and has worked with both contract pharmacies and covered entities to develop and optimize their participation. His practice also focuses on a wide range of pharmacy regulatory issues such as controlled substances and state licensure compliance, including those arising from the COVID-19 pandemic. Mr. Davis also assists healthcare entities, including hospitals, nursing homes, and physician practices, with a diverse range of regulatory issues, transactional matters, and reimbursement appeals. He may be reached at [email protected].