A federal court has rejected a lawsuit by several drugmakers that sought to change the 340B Drug Pricing Program from an upfront payment model to a backend rebate structure.
Thursday's decision in U.S. District Court for the District of Columbia is a win for hospitals, for now. The court found in favor of intervening providers and 340B Health because the Health Resources and Services Administration (HRSA) has yet to make a decision on the rebate program.
The drug manufacturers brought the lawsuit to challenge HRSA's failure to approve their proposed rebate model.
"To date, HRSA has not finally rejected Lilly, BMS, or Novartis's proposals – rather, it has informed those manufacturers that it cannot approve or disapprove their rebate models 'to date,'" the court said.
The court ruled that HRSA did not act contrary to law by requiring the plaintiffs to obtain approval before implementing their proposed rebate models.
For instance, Johnson & Johnson had already implemented such a model but was told to desist by HRSA.
A rebate lawsuit from Johnson & Johnson is pending before a different judge in the same D.C. court.
WHY THIS MATTERS
The court decision rejects the ability of four drug companies – Eli Lilly, Bristol Myers Squibb, Sanofi-Aventis and Novartis – and drug industry tech consultant Kalderos to unilaterally replace upfront discounts with backend rebates.
Healthcare providers, 340B Health UMass Memorial Medical Center and Genesis Health intervened.
The manufacturers sued the Department of Health and Human Services and the Health Resources and Services Administration claiming HRSA unlawfully rejected their proposed rebate model for discounts under the 340B Drug Pricing Program.
For three decades, 340B operated as an upfront discount program. When buying from contract pharmacies, 340B organizations buy at the discounted 340B price.
But the number of participating providers has expanded in recent years as has abuse in the system, manufacturers claim.
In 2010, as part of the Affordable Care Act, Congress expanded the 340B program to include Medicaid managed care organizations.
Also, HRSA allowed for providers to contract with an unlimited number of Contract Pharmacy Services. Both changes "prompted a significant expansion" in the 340B program, from about 9,700 to 13,000 providers between 2010 and 2019, according to court documents.
Drug manufacturers contend that the product replenishment model facilitated by for-profit pharmacies and administrators "is rife with abuse."
Between 2012 and 2019, HRSA audits found more than 1,500 instances of ineligibility and drug duplications and diversions, court documents said. Noncompliance amounts to billions of dollars of losses for drug manufacturers each year, it said. Manufacturers claim that up to 5% of 340B transactions are duplications and diversions.
"The plaintiffs attribute these abuses to for-profit entities' financial incentives and to the opaqueness of inventory-tracking software," court documents said.
By changing to a rebate method, providers would be required to input nonproprietary data about the quantity and dispensation of covered drugs, manufacturers said.
The most compelling benefit of a cash (or credit) rebate model is greater transparency as manufacturers would be able to openly track which units are sold at 340B discounts and use that data to dispute unlawful duplicate rebates through HRSA, according to the lawsuit.
For providers, the greatest drawback would be the financial burden of providing upfront payments at commercial prices.
A report recently released by Sen. Bill Cassidy, R-La., chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, said Congress needs to act to bring needed reforms into the 340B to make revenue from the drug pricing program more transparent and to ensure patients are benefiting from the discounts.
THE LARGER TREND
Congress enacted 340B to incentivize manufacturers to offer reduced drug prices to hospitals and clinics that serve low-income and uninsured populations.
Drug manufacturers sign a Pharmaceutical Pricing Agreement to give price reductions for outpatient drugs.
The Centers for Medicare and Medicaid Services reimburses 340B providers the full amount for the drugs. Providers use the spread between the amount of money they collect and the amount they pay to make up for operating losses sustained from serving vulnerable populations.
340B Health contends that the safety-net hospitals provide 77% of Medicaid hospital care and 67% of uncompensated care in the United States. Without these upfront savings, many would be forced to scale back or eliminate programs, 340B Health said.
ON THE RECORD
340B Health President and CEO Maureen Testoni said: "On behalf of our more than 1,600 hospital members, we are pleased this opinion recognizes the immense harm unilateral drugmaker rebate schemes would cause safety-net hospitals and the patients in need whom they serve. Allowing these rebate schemes to proceed without government approval would have enabled drugmakers, not the government, to control how providers use 340B and upend the way it has operated for more than 30 years."
Email the writer: SMorse@himss.org