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MintzRx — The 340B Drama Continues

It is no secret that the 340B program is fraught with controversy and is facing many challenges. The saga continued this summer with a unanimous Supreme Court decision finding that the Centers for Medicare & Medicaid Services’ (CMS) payment cuts to 340B hospitals under the 2018 Outpatient Prospective Payment System (OPPS) were illegal. Simultaneously, the fight between manufacturers, contract pharmacies, and the Health Resources and Services Administration (HRSA) continued. Currently, 18 pharmaceutical manufacturers now either refuse or restrict contract pharmacies’ access to 340B drugs and multiple cases on this issue are working through the courts.

Supreme Court weighs in on 340B Hospital Payment Cuts - American Hospital Association et al. v. Becerra

The American Hospital Association and others brought suit against HHS for its 2018 outpatient drugs reimbursement policy for 340B hospitals. Prior to 2018, CMS paid all hospitals (i.e., 340B hospitals and non-340B hospitals) Average Sale Price (ASP) + 6% for outpatient drugs. In 2018, the Trump administration reduced the reimbursement rate to 340B hospitals to ASP – 22.5% to account for the average minimum 340B discount these hospitals receive from manufacturers. The Supreme Court found these cuts to be illegal because, under the statute’s plain language, CMS must conduct a survey of acquisition costs prior to establishing varying payment amounts among hospitals. There is, however, still an open question as to remedy, which the Supreme Court did not address. A complicating issue is that the OPPS is budget-neutral, so conceivably, savings in drug payments were offset by increases in payment for non-drug services. CMS released a proposed rule for the OPPS for calendar year 2023 that formally included the same ASP – 22.5% rate for 340B-acquired drugs, although this was a function of the fact that Becerra was decided the same day that the proposed rule was released. CMS indicated that in light of the Becerra decision, it planned to apply a rate of ASP + 6% in the final OPPS rule. In its comments to the proposed rule, the American Hospital Association welcomed the restoration of the ASP + 6% rate but urged CMS to apply a budget neutrality adjustment when restoring payments and requested that CMS promptly reimburse hospitals affected by the cuts from 2018-2022.

Manufacturers Limiting Contract Pharmacies’ Access to 340B Pricing

This drama began in the summer of 2020, when several manufacturers announced policies limiting 340B drug pricing for use by contract pharmacies. In May 2021, HRSA sent enforcement letters to manufacturers (an example letter is available here), and in September 2021 referred manufacturers to the OIG for the imposition of civil monetary penalties. Five of these manufacturers brought lawsuits against HRSA in response to the enforcement letters. Several district courts have issued decisions, with mixed results, all of which have been appealed. For example, U.S. District Court for the District of Columbia found that manufacturer’s policies of restricting access to contract pharmacies did not violate the 340B statute and therefore vacated HRSA’s enforcement letters. Alternatively, the U.S. District Court for the District of New Jersey found that the 340B statute permits contract pharmacy arrangements and that the manufacturers’ policies violated the statute. As we wait for the results of these cases, additional manufacturers have restricted contract pharmacies’ access to 340B pricing bringing the current count to 18. In July 2022, 181 members of Congress wrote a letter to HHS Secretary Xavier Becerra urging him to penalize manufacturers restricting access to 340B pricing.

With hospitals and other covered entities spending $44 billion on outpatient drugs under the 340B program in 2021, stakeholders from hospitals, pharma and policy makers have a major stake in the future of the program and the outcome of the issues discussed above. As a result, we anticipate many covered entities trying to bring purchasing and dispensing of 340B back to in-house pharmacies or limit the use of contract pharmacies.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XII, Number 271
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