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HHS Sends Enforcement Letters to Drug Manufacturers Regarding 340B Contract Pharmacies While Litigation Against HHS Continues

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On May 17, 2021, the Health Resources and Services Administration (HRSA) sent letters to six drug manufacturers notifying them that their actions placing restrictions on access to 340B-discounted drug prices by health care providers have resulted in overcharges in violation of the 340B statute. The letters were in response to policies implemented by the manufacturers to not offer 340B pricing for certain drugs dispensed through pharmacies under contract with 340B providers.

Meanwhile, drug manufacturers have filed lawsuits against the Department of Health and Human Services (HHS) related to the agency's position on 340B contract pharmacies and the threat of potential enforcement actions against manufacturers. While the litigation continues, 340B pricing for drugs sold by the six manufacturers continues to be unavailable to providers for drugs dispensed by contract pharmacies.

Background on 340B Contract Pharmacies

340B providers include public and non-profit hospitals that serve high volumes of low-income patients or are located in rural areas, as well as providers that receive federal grant funding, such as Federally Qualified Health Centers (FQHCs), Ryan White HIV/AIDS clinics, and recipients of funding to treat and prevent sexually transmitted diseases, among others. 340B providers can access program savings through the use of 340B-discounted drugs in several settings, depending on the provider type: 1) hospital outpatient clinic areas, 2) provider-owned retail pharmacies, and 3) external pharmacies under contract with the provider to dispense 340B drugs purchased by the provider to the provider's patients (340B contract pharmacies).

Providers have dispensed 340B drugs through the contract pharmacy model since the program's early years in the 1990s. HRSA has issued guidance recognizing that the 340B statute requires drug manufacturers to offer 340B pricing to program participants, including when the drugs are to be dispensed through contract pharmacies.

HHS Review of Drug Company Actions

Beginning in July 2020, several drug manufacturers announced they would no longer provide 340B pricing for certain drugs dispensed through contract pharmacies. Others indicated they would require providers to submit contract pharmacy claims data to be reviewed by manufacturers and would deny 340B pricing for use in contract pharmacies or take other actions impacting access to 340B pricing if providers do not share the data. The drug companies took the position that the 340B statute does not require manufacturers to offer 340B pricing to providers for drugs dispensed through contract pharmacies, so long as manufacturers make 340B prices available directly to providers for use in their in-house pharmacies.

340B providers filed lawsuits against HHS, asking federal courts to require that HHS take enforcement action against manufacturers that deny 340B pricing for drugs dispensed through contract pharmacies. Members of Congress also wrote to HHS, urging the agency to act against drug manufacturers that deny 340B pricing for use in contract pharmacies.

Providers argued that the obligation for drug manufacturers to offer 340B pricing under the 340B statute extends to drugs dispensed through contract pharmacies, and the statute does not allow manufacturers to pick and choose when to offer 340B prices. Providers pointed to HHS's authority under the 340B statute to impose civil monetary penalties (CMPs) against manufacturers that knowingly and intentionally overcharge 340B providers. Providers argued that denials of 340B pricing for drugs dispensed through contract pharmacies constitute overcharges warranting the imposition of CMPs.

On December 30, 2020, HHS issued an advisory opinion (AO) indicating that the 340B statute requires manufacturers to offer covered outpatient drugs to 340B covered entities at no more than the 340B ceiling price, even if those covered entities use contract pharmacies to aid in distributing those drugs to their patients. After issuing the AO, HHS continued to review manufacturer policies restricting access to 340B pricing and complaints from 340B providers, culminating in the letters sent to the six manufacturers on May 17, 2021.

HRSA ordered each manufacturer to immediately begin offering 340B pricing to covered entities for drugs dispensed through contract pharmacies, indicating that continuing to deny 340B pricing may result in the imposition of CMPs. The agency instructed the manufacturers to issue credits or refunds for overcharges that have resulted from the manufacturers' policies. Lastly, HRSA requested that each manufacturer provide an update to HRSA on its plan to restart selling 340B drugs by June 1, 2021.

Litigation Challenging HHS

Five of the six manufacturers that received enforcement letters from HRSA have filed lawsuits against HHS challenging the agency's position related to 340B pricing for drugs dispensed through contract pharmacies. The manufacturers argue that the 340B statute does not obligate manufacturers to offer 340B pricing for drugs dispensed through contract pharmacies. Several of the manufacturers have requested court intervention to stop HRSA from taking enforcement actions against manufacturers. To date, no federal court has ruled on the legality of HRSA's interpretation of the 340B statute, although several of the manufacturers have received extensions to the June 1 deadline to submit updates to HRSA.

Implications for 340B Providers

For some providers, the 340B benefit generated through contract pharmacies amounts to a significant share of their overall 340B benefit. This can be especially true for rural hospitals and community health centers, which often do not have in-house pharmacies. For many providers, ensuring access to 340B pricing for use in contract pharmacies may be critical to maintaining the benefit of the 340B program moving forward.

Questions remain as to whether HHS will impose CMPs against manufacturers that continue to deny 340B pricing and, if so, whether federal courts will intervene to stop such enforcement action. Federal courts could also address the legality of HHS's position regarding manufacturer obligations and the underlying question as to whether the 340B statute requires drug manufacturers to offer 340B pricing for drugs dispensed through contract pharmacies. In the meantime, 340B pricing for certain drugs sold by the six manufacturers continues to be unavailable to providers for drugs dispensed through contract pharmacies.

We will continue to monitor developments regarding the 340B program and share new information as we learn of it. For further information, please contact Jeff Davis, or any member of Baker Donelson's Reimbursement Team.

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