On Tuesday, March 16, 2021, Judge Barker in the Southern District of Indiana issued a preliminary injunction halting the progress on a newly established 340B Administrative Dispute Resolution (ADR) Program. The new ADR Program is a tool that many hospitals, community health centers, and federally funded clinics have planned to use to challenge recent restrictions large drug manufacturers have placed on sales of 340B drugs to contracted pharmacies.
The 340B Program is a discount drug pricing program established in 1992 to arrange for large drug manufacturers to sell outpatient drugs at a heavily discounted price to certain public and non-profit hospitals, community centers, and other federally funded clinics serving low-income patients. Manufacturers are required to participate in the 340B program as a condition of participating in Medicaid and Medicare Part B. At the same time, covered entities are prohibited from requesting “duplicate discounts or rebates,” meaning that covered entities may not request both a 340B discount and a Medicaid rebate for the same drug.
The Current Controversy:
At the start of the 340B Program, covered entities purchased and dispensed 340B drugs exclusively through in-house pharmacies. In 1996, HHS issued guidance advising that covered entities may purchase 340B drugs through outside, contracted pharmacies.
In 2010, as part of the Affordable Care Act, Congress directed HHS to, within 180 days, establish a 340B Program administrative dispute resolution (ADR) process for covered entities and manufacturers. In September 2010, HHS released an advanced notice of proposed rulemaking on the ADR procedures, however HHS did not release a proposed rule until August 2016. Following comments, the proposed ADR rule was added to a semiannual compilation of federal regulations under development, and in 2017, was removed from this agenda entirely and without explanation.
Controversy around the 340B Program picked up in 2020 as several major drug manufacturers, including AstraZeneca and Eli Lilly, began refusing discounts for 340B drugs if they were to be dispensed through contract pharmacies. In addition, other large drug manufacturers began requesting that covered entities provide more detailed reports on their 340B drug distributions to patients.
In December 2020 and in the middle of this ongoing controversy, HHS released a final rule on 340B ADR procedures. About two weeks after the release of the ADR final rule, HHS also released an advisory opinion stating that “to the extent contract pharmacies are acting as agents of a covered entity, a drug manufacturer in the 340B Program is obligated to deliver its covered outpatient drugs to those contract pharmacies and to charge the covered entity no more than the 340B ceiling price for those drugs.”
On January 12, 2021, the HRSA launched a website announcing that stakeholders could begin submitting petitions. Covered entities immediately began filing petitions against several major drug manufacturers, including Eli Lilly, challenging the manufacturers’ recent restrictions on the sale of 340B drugs to covered entities using contracted pharmacies.
Eli Lilly’s Case:
On the same day the HRSA website launched, Eli Lilly filed a complaint challenging both HHS’ 2020 advisory opinion and the ADR final rule and sought a preliminary injunction to stop HHS from implementing or enforcing the ADR final rule. Specifically, Eli Lilly argued that HHS violated the notice-and-comment rulemaking requirements in promulgating the ADR final rule. In an opinion released on March 16, 2021, Judge Barker agreed with Eli Lilly’s arguments and issued a preliminary injunction, effectively halting the ADR program.
The attorneys at Chilivis Grubman assist businesses of all types and sizes, including covered entities that participate in the 340B Program, in connection with general corporate and healthcare regulatory matters. If you need assistance with such a matter, please contact us today.