Biden Administration Throws Down Its First Gauntlet on 340B
On May 17, 2021, the Biden Administration took its first major action impacting the 340B Drug Discount Program. In a forceful statement, the Administration made plain its views on a major controversy that has pitted drug manufacturers against 340B covered entities for the past year - proclaiming that drug manufacturers are violating the 340B statute by restricting covered entity access to 340B discounts for drugs dispensed through 340B contract pharmacies.
As regular readers of our blog know, for a number of years the 340B Program has been at a crossroads. The 340B Program, overseen by the Health Resources and Services Administration (HRSA), was intended to provide a safety net pipeline for individuals in need of access to out-patient drugs. However, the 340B Program grew by leaps and bounds over the last fifteen years and, for many larger hospital systems, it transformed into a major source of revenue supporting a multitude of programs in those systems. At the same time 340B stakeholders faced an outdated structure in which the overarching 340B statutory framework failed to keep pace with the evolution of how health care is actually provided; court rulings restricted the ability of any entity other than the government to enforce statutory provisions; other court rulings resulted in affirmative withdrawal of HRSA administrative guidance or in HRSA openly questioning its ability to enforce guidance; and, it seemed like every day a new lawsuit challenging another aspect of 340B was filed.
At the heart of 340B is a statutory mandate that drug manufacturers sell outpatient drugs to covered entities at or below 340B ceiling prices, for use by eligible patients of the covered entity. Some 340B covered entities purchase and dispense 340B drugs through an in-house pharmacy but many more do so through a contract pharmacy arrangement, where the covered entity purchases the drugs for shipment to the contract pharmacy that oversees the dispensing of the drugs to qualified outpatients. In 2010, HRSA published its Guidance on the Use of Contract Pharmacies, formalizing processes for 340B contract pharmacy operations. Significantly, under contract pharmacy arrangements the 340B covered entities retain ownership of the drugs being purchased and remain responsible for 340B compliance.
Buoyed in part by HRSA’s stated reluctance to enforce 340B guidance, in the summer of 2020 multiple manufacturers announced and implemented plans to halt or restrict the sale of 340B drugs if the drugs were shipped to contract pharmacies for dispensing, theorizing that contract pharmacies were not statutorily authorized. Multiple lobbying and more litigation efforts followed. On December 30, 2020, HRSA released an Advisory Opinion, opining that manufacturers should allow covered entities to purchase eligible drugs using contract pharmacies while at the same time acknowledging that its opinion lacked the force of law. The Advisory Opinion did little to quell the torrent of litigation by stakeholders on all sides. Which brings us to the Biden Administration’s May 17, 2021 action.
In its May 17 statement, HRSA affirmatively stated that manufacturers who restrict covered entity access to medications because of the use of contract pharmacies “are in direct violation of the 340B statute.” Moreover, in individual letters to six individual pharmaceutical manufacturers issued on the same day, acting HRSA Administrator Diana Espinosa informed each manufacturer that the statutory requirement to provide 340B covered entities with access to 340B priced drug products “is not qualified, restricted, or dependent on how the covered entity chooses to distribute the covered outpatient drugs.” Per HRSA, “nothing in the 340B statute grants a manufacturer the right to place conditions on its fulfillment of its statutory obligation to offer 340B pricing” to the covered entities (emphasis added by us).
Thus, according to HRSA, the manufacturers must immediately begin offering 340B discounted covered outpatient drugs to covered entities, regardless of whether the covered entity uses an in-house pharmacy or contract pharmacy to dispense those drugs to qualified patients. Manufacturers are also responsible for crediting and refunding covered entities for any resulting overcharges dating back to implementation of the manufacturer’s restrictions. Each of the six manufacturers was instructed to provide HRSA an update on its plans to lift restrictions on covered entity access to drugs by June 1, 2021. And, furthermore, HRSA warned that any continued failure by manufacturers to restrict access to 340B pricing based on covered entities’ use of contract pharmacies may well result in HRSA’s assessment of Civil Monetary Penalties against those manufacturers.
The HRSA statement will likely have limited impact on the multitude of pending litigation efforts, including declaratory judgments over the contract pharmacy limitations; litigation questioning HRSA’s authority to author the December 2020 Advisory Opinion on 340B contract pharmacies; and lawsuits over the validity of the HRSA Administrative Dispute Resolution Rule that went into effect in January 2021. We would also expect the May 17 letters to generate another new round of litigation efforts.
But the fact HRSA actually took a position may be the most significant thing about this recent administrative action. Were the May 17 statement and the six manufacturer letters the first salvo in a more aggressive government attempt to regain control and oversight of the 340B Program? Stay tuned.