In May, the gears of justice continued to slowly turn on the various 340B contract pharmacy court appeals. Covered entities are feeling the financial pain of being shut of out from 340B pricing, with patients ultimately suffering from decreased services and access to affordable medications. But there is little evidence that hospitals are racing to submit claims data as the manufacturers have demanded — at least, not yet.

The big news this month centered on the cease-and-desist letter HRSA sent to Merck regarding its contract pharmacy exclusions. It’s the eighth enforcement letter HRSA has sent to drug manufacturers to date regarding the issue, and the first since October 2021. It’s also the first to emerge from HRSA after several mixed court rulings left the agency unable to enforce any of its previous directives ordering the manufacturers to immediately restore unrestricted 340B contract pharmacy pricing.

HRSA has referred the previous seven drug makers to the Health and Human Services Office of Inspector General for possible enforcement and civil monetary penalties. Assuming Merck maintains its position of non-compliance — in May, the company doubled down by extending its contract pharmacy exclusions to health centers and adding a 45-day look-back limit on replenishment orders — this new letter presumably sets it up on the same course with OIG.

It’s also an encouraging statement of intention from Emeka Egwim, the new director of HRSA’s Office of Pharmacy Affairs, and Carole Johnson, who became HRSA administrator in January and whose signature adorns the letter. It suggests that HRSA remains focused on enlisting OIG’s litigators for help and that enforcement letters against the other eight manufacturers may be forthcoming — along with more lawsuits by the drug makers that will ensure the dispute drags on even longer.

Legal machinations

Speaking of the legal system, a federal appeals court has consolidated the AstraZeneca, Novo Nordisk and Sanofi cases appealing the lower-court rulings. Meanwhile, a bipartisan group of 25 state attorneys general have filed briefs in support of HHS and HRSA in the case and another consolidated case involving the appeals of Novartis and United Therapeutics. As was the case in December 2020, the effort was led by Connecticut Attorney General William Tong.

Also filing briefs, in support of the federal government, are big hospital, health center and other provider groups including the American Hospital Association, 340B Health, the National Association of Community Health Centers and Ryan White Clinics for 340B Access. The U.S. Department of Justice added its own mic drop in filings that said letting drug companies place conditions on 340B drug discounts “would be akin to letting the fox guard the henhouse.”

Meanwhile, manufacturers continue to act unilaterally. In addition to Merck’s expansion of its contract pharmacy exclusions to health centers, AstraZeneca stopped offering voluntary 340B pricing in May on orphan drugs to rural and cancer hospitals.

Entities remain largely on the fence

A new member survey from 340B Health shows the contract pharmacy standoff continues to hurt covered entities financially. According to responses from more than 500 hospitals, the estimated annual losses have more than doubled since the end of 2021, tracing the growth in. drug manufacturers enacting exclusions from eight to 14 by the time of the latest survey (the current number is 16).

Large, mostly urban hospitals estimated their median annualized loss due to the restrictions at $2.2 million, up from $1 million when the last survey was conducted in December. Smaller and mostly rural hospitals projected losses of $448,000 this year, compared with $220,000. One-third of critical access hospital respondents said they might have to close if the restrictions become permanent.

With financial hardships mounting, it’s natural to wonder whether covered entities are starting to submit contract pharmacy claims data. In a webinar earlier this month by 340B Report, Aaron Vandervelde, business development lead of 340B ESP, the platform many manufacturers are using for claims submission, divulged new data on platform usage.

According to Vandervelde:

• More than 1,300 covered entities are registered on and/or use the platform
• More than 30,000 distinct pharmacy locations have retained 340B pricing eligibility by using the platform
• More than 500 CEs are regularly submitting claims data on 340B ESP

Some perspective is helpful. Let’s take that last figure of 500 covered entities actively using the platform to submit data, since the 1,300 figure includes many entities that have either used 340B ESP to designate a single contract pharmacy, claim an exception for a wholly owned pharmacy, or may simply have registered but are not yet using it.

According to HRSA, there were 13,214 covered entities as of April 1, 2021, the most recent figure available — meaning less than 4 percent of covered entities are regularly submitting data to 340B ESP. This tracks with anecdotal evidence we’ve gathered, including polling results during our recent “Manufacturer Mayhem Marches On” webinar, that suggests most entities remain in wait-and-see mode or are still exploring the possibility. Many 340B hospitals continue to see enormous risk in handing over claims data to a third party.

One other thing from the 340B Report webinar that caught my attention was when Vandervelde let slip a new term: “ineligible rebate.” This implies something far different than preventing Medicaid duplicate discounts, the issue purportedly at the center of the contract pharmacy exclusions.

I’m hearing more use of that phrase by manufacturers, which suggests they may be worried about issuing 340B discounts on the same drug for which they have given commercial or Medicare Part D rebates. Neither have anything to do with 340B compliance, of course. Rather, it may be a sign that drug makers are using 340B claims data to solve the lack of transparency from pharmacy benefit managers — and their own declining share of revenues — in non-Medicaid plans.

Is this a sign that the pharmaceutical industry is becoming more truthful about its intentions?

The legislative outlook

States continue to lead the way in protecting 340B covered entities from predatory pharmacy benefit managers:

• The governors of Illinois and Maryland both signed anti-discrimination laws.
• The California State Senate passed a measure that would add a prohibition on drug manufacturers placing conditions on 340B drug purchases, sending it to the State Assembly for consideration. It’s similar to a law in Arkansas that is being challenged in federal court.
• Speaking of the Arkansas law, the state’s Insurance Department announced a public hearing on Aug. 8 on whether to adopt the proposed rule drafted to enable the law.
• In Connecticut, similar legislation prohibiting manufacturer conditions and PBM discrimination died in May at the end of the legislative session.
• The drug industry is reportedly lobbying to strip language from an otherwise standard new anti-discrimination law in Michigan that is interpreted to apply to manufacturers.

Meanwhile, at the webinar I co-hosted last week, Deborah Outlaw, a 340B lobbyist in Washington D.C., told attendees that while she does not believe there is enough support for the PROTECT 340B Act, she believes Congress will take up more narrow contract pharmacy legislation in 2023.

In the meantime, Sentry is working hard to make it easier for covered entities grappling with the challenging new reality of contract pharmacy and data submission, with loads of new reporting and automation capabilities. Like I told attendees, while we’re just as unhappy as you are about the manufacturer mayhem, we’re excited to do everything we can to help our customers succeed and continue to sustain our healthcare safety net.

Keep the faith and carry on.