February 28, 2021

Volume XI, Number 59

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February 26, 2021

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340B Administrative Dispute Resolution Goes Live Amid a Flurry of 340B Litigation

The U.S. Department of Health and Human’s Services (HHS) Health Resources and Services Administration’s (HRSA) long-awaited administrative dispute resolution (ADR) final rule went into effect last week, on January 13, 2021. The ADR regulations, which have lingered in HHS since 2010, arrive amid increasing tensions and a flood of 340B-related litigation between covered entities, manufacturers, and HHS.

Background

The ADR final rule originates from a 1996 notice published by HRSA that established a process for manufacturers and covered entities to voluntarily resolve disputes involving drug diversion, duplicate discounts, ceiling price violations, and a set of minor other issues.  In 2010, the Affordable Care Act directed the Secretary to promulgate ADR regulations. HRSA issued an advanced notice of proposed rulemaking on September 20, 2010, seeking comment on the original process established by the 1996 notice.  Six years later, on August 12, 2016, HHS issued the ADR proposed rule, which then vanished from the regulatory agenda in 2017 pursuant to the Trump administration’s regulatory freeze.

Increased tension between covered entities and pharmaceutical manufacturers revived the ADR regulations in 2020. Since July 2020, multiple pharmaceutical manufacturers announced or implemented plans to halt or restrict the use of 340B drugs at contract pharmacies. Through September 2020, covered entitiesstate attorneys generalsenators, and members of Congress, engaged in an unsuccessful letter-writing campaign urging HHS Secretary Alex Azar to intervene to stop manufacturers from limiting covered entity access to 340B drugs.

Then, on October 16, 2020, a coalition of HIV/AIDS clinics filed suit against HHS seeking a declaratory judgment that covered entities are entitled to purchase 340B drugs through contract pharmacies. The clinics also asked the court to direct the Secretary of HHS to promulgate the long-awaited 340B ADR final rule. On October 21, 2020 the National Associate of Community Health Centers filed suit requesting similar relief. These suits were filed against HHS, rather than manufacturers, because the U.S. Supreme Court held in 2011 that covered entities have no private right of action to bring claims against manufacturers for alleged violations of the 340B statute.

The lawsuits are ongoing but clearly prompted HRSA to publish the ADR final rule on December 14, 2020.

The ADR Final Rule

The ADR process permits covered entities and drug manufacturers to request a formal agency review of alleged violations of the 340B Program. The ADR process permits review of two types of disputes:

  1. Claims by covered entities that may have been overcharged for covered outpatient drugs purchased from manufacturers.

  2. Claims by manufacturers of 340B drugs, after a manufacturer has conducted an audit of a covered entity, that a covered entity may have violated the prohibitions against duplicate discounts or diversion.

Claims for relief, both equitable and monetary, must be submitted within three years of the alleged violation and must have a value of at least $25,000 over 12 months. Claims will be heard by a three-member panel, selected by the HRSA Administrator from a newly created 340B ADR Board. The 340B ADR Board will consist of at least six members appointed by HHS, with equal numbers from HRSA, CMS, and the Office of the General Counsel.

The ADR panel will have full jurisdiction to resolve all issues underlying any claim, including “those having to do with covered entity eligibility, patient eligibility, or manufacturer restrictions on 340B sales that the 340B ADR Panel deems relevant for resolving an overcharge, diversion, or duplicate discount claim ….” The final rule also permits certain consolidated claims. Covered entities may file joint claims against a single manufacturer, and associations may file claims on behalf of their covered entity members. Associations are not permitted to file joint claims on behalf of manufacturers.

ADR and the Future of 340B

Decisions made by the ADR panel will be binding on the parties and precedential for future ADR proceedings. ADR decisions may, therefore, shape the program over time.  As regular readers of our blog know, after multiple lawsuits and the invalidation of the 340B Orphan Drug Rule, HRSA believes that its authority to issue regulations, or even guidance, on 340B is strictly limited to a few items expressly stated in Section 340B of the Public Health Services Act. Guidance in key areas of the program where HRSA lacks sufficient authority, such as the patient definition, is sorely lacking. The flurry of litigation we see today is a direct result of this regulatory void. Looking ahead, ADR decisions may provide a new source of agency guidance in areas of the program HRSA has not sufficiently addressed in years.

Contract Pharmacies and HHS’s Recent Advisory Opinion

In parallel to the release of the ADR final rule, the HHS Office of the General Counsel released an Advisory Opinion (AO) on December 30, 2020. The AO clarifies that HHS believes 340B discounted pricing applies to drugs purchased through contract pharmacies. The AO states that the plain meaning of the 340B statute requires manufacturers to sell covered drugs to covered entities at or below the ceiling price, independent of whether the covered entity opts to use contract pharmacies to dispense those drugs. The AO also notes that manufacturers should proceed through the newly implemented ADR process if they have concerns about diversion or duplicate discounts regarding a particular covered entity’s contract pharmacy arrangements.

HHS concedes that the AO does not have the force of law. However, it seems clear that an ADR panel hearing a dispute related to the use of 340B drugs by contract pharmacies would rely on this AO when drafting its binding decision on the matter. The power of the AO, and all future 340B guidance for that matter, is strengthened by the existence of the ADR process.

In the last few days, multiple manufacturers have filed suit against HHS, asking courts the strike down the AO as outside the scope of HHS authority.

Conclusion

2020 was a tumultuous year for 340B. Thus far, 2021 looks to continue that trend. We will continue to keep you up to date on 340B developments both from HRSA and the courts.

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©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XI, Number 18
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About this Author

Daryl M. Berke Health Care Compliance Attorney Mintz
Associate

Daryl advises on compliance matters pertaining to federal and state health law statutes and represents clients in health law matters before state and federal courts.

He has counseled clients on transactional and regulatory issues relating to the Beneficiary Inducement Prohibition, federal and state anti-kickback statutes, the Stark Law, and Medicaid and managed care reimbursement. He conducts regulatory analyses on health care transactions and regularly reviews and drafts hospital affiliation agreements, provider group agreements, and managed care contracts. 

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Ellyn Sternfield, Mintz Levin, Law Firm, Washington DC, Health Care Law Attorney
Special Counsel

Ellyn has more than 30 years of legal experience, with an extensive background in the field of government health care enforcement.

Ellyn’s experience enables her to provide valuable insight to clients facing potential state or federal investigations, or who have general compliance concerns. Ellyn currently represents a variety of health care product and service providers in federal and state administrative, civil, and criminal matters around the country. She conducts internal reviews and investigations for clients concerned about potential compliance issues. Ellyn advises clients on...

202-434-7445
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