Fresh off the Thanksgiving break, I had hoped to be able to draw from some positive developments in the 340B world in citing things for which we can all be thankful. Alas, things don’t always work out exactly as planned. This month brought a series of judicial rulings that seem to suggest the conflict over contract pharmacies will only drag on longer and become more challenging for covered entities.
Still, in the spirit of being thankful, things could have turned out much worse. So I hope you savored your turkey, mashed potatoes and cranberry and cherished your time off with loved ones. With batteries recharged, let’s charge forward!
Mixed rulings on contract pharmacy disputes
Most of the buzz in the 340B world has been on the legal system after three judges issued nuanced, decidedly mixed rulings in five of the cases manufacturers filed against HRSA over its contract pharmacy enforcement orders.
In the Eli Lilly case, U.S. District Judge Sarah Evans Barker vacated and set aside HRSA’s May 17 enforcement directives, which she said were a violation of the Administrative Procedure Act, and invalidated the HHS Office of Inspector General advisory opinion from last December. She did say, however, that HHS did not exceed its constitutional authority regarding the letter.
The problem, Barker noted, was HRSA’s sudden reversal from its previously held position that it had no authority to enforce its own contract pharmacy guidance. Then, last December, it issued its advisory opinion stating that contract pharmacy restrictions violate the law. Barker sent HRSA’s May 17 letter back to the agency for further consideration, meaning the order to pay civil monetary penalties was kaput. Fierce Healthcare called the ruling “a muted win” for pharma.
Then in a court in New Jersey the following week, the judge overseeing enjoined lawsuits by Sanofi and Novo Nordisk delivered a slightly more favorable ruling for 340B. Chief District Judge Freda Wolfson ruled that the manufacturers violated federal law and that HRSA’s enforcement letters were not contrary to the statute. But she also partially vacated the May 17 findings by HRSA to determine whether HHS can order manufacturers to extend 340B pricing at an unlimited number of contract pharmacies or whether there is, indeed, “a ceiling.”
Later that same day came the decision in the enjoined Novartis and United Therapeutics cases. There, the judge did not opine on whether the companies’ restrictions were lawful but wrote that any future enforcement against those restrictions “must rest on a new statutory provision, a new legislative rule, or a well-developed legal theory that Section 340B precludes the specific conditions at issues here.”
In none of the rulings did the judges allow orders subjecting the manufacturers to civil monetary penalties to stand.
Eli Lilly, Novo Nordisk and Sanofi have all said they will appeal the rulings, without specifying what parts of the rulings they are appealing. HRSA, meanwhile, has yet to take action against Merck for its contract pharmacy restrictions — and may not, given the spate of recent rulings — while AstraZeneca’s case is still pending in District Court in Delaware, where Judge Leonard P. Stark was recently nominated to a seat on the U.S. Court of Appeals.
Taken together, the rulings put the ball back in HRSA’s court. HRSA issued a statement prior to baking our turkey stating their pleasure and displeasure with the opinions and saying it continues to evaluate its options. The questions now revolve around how HRSA interprets the rulings and what it does next to claw back ground lost to pharma. In her opinion issued in the Lilly case, Judge Barker suggested that Congress could help by clarifying the role of contract pharmacies in the 340B statute, which currently is silent on the subject.
On paper, that’s the most logical (and probably most needed) way to inject clarity into the 340B statute around the role of contract pharmacies and HRSA’s power to enforce its own regulations. The 340B program now has a more receptive administration in the White House and slim Democratic control of Congress, at least until 2023, meaning there is a brief window of opportunity to enact 340B-friendly legislation.
Unfortunately, our sources tell us there is little appetite on Capitol Hill to wade into this fight, even among the staunchest supporters of 340B. Congress right now appears more focused on the much larger issue of drug pricing reform — more on that in a moment — and generally prefers to let HRSA exhaust its options first. So what might those options be?
One is for HRSA to issue new and more specific contract pharmacy guidance through a program update. These have become more sporadic over recent years — HRSA issued four program updates in 2019 and two each in 2020 and so far in 2021 — but they have been used to address contract pharmacy issues in the past.
Another option is to issue a Federal Register notice, in which HRSA would publish notice of a proposed new guidance to allow for public comment for a period of time before posting a final guidance. Going this route would theoretically nullify concerns about violating the Administrative Procedures Act, as indicated by one of the judges. It’s also the mechanism HRSA used in 2010 when it allowed the use of multiple contract pharmacies.
Until then, unfortunately, we can probably expect this fight to drag on, with more legal tussles and more manufacturers joining the contract pharmacy pile-on. And in fact, that’s just what has happened, as the Belgian drug maker UCB and Amgen made it 10 companies that have imposed restrictions on 340B contract pharmacies.
Build Back Better and 340B
The other big news from November was the House’s narrow passage of President Biden’s $1.75 trillion Build Back Better Act, which contains several healthcare provisions that could affect 340B.
- Covered entities have been most concerned about the push to allow HHS to negotiate with manufacturers over drug pricing for Medicare Parts B and D, fearing the knock-on effect of lower ceiling prices for outpatient drugs and narrower 340B benefits. The package that came out of the House would allow HHS to negotiate the prices of the top 10 most expensive drugs, plus insulin, starting in 2025, and then 20 in 2028. Our analysis suggests that this list of top 10 most expensive drugs is heavy on specialty drugs, many of which are already being excluded from the 340B program through the latest manufacturer exclusions in contract pharmacies, meaning this provision would likely have little negative affect on 340B benefits in the first decade or so.
- Another measure would cap out-of-pocket co-pays on insulin at $35 per month for Medicare beneficiaries. That would affect how covered entities are able to bill for insulin and lower their available 340B benefits.
- One component many covered entities will want to watch is closing the Medicaid coverage gap by extending Affordable Care Act premium subsidies in the 12 states that didn’t expand Medicaid. Those states would also see cuts to reimbursements to disproportionate share hospitals that help cover uncompensated care, on the thinking that they won’t be needed due to the expanded Medicaid coverage. This adds to the anxiety many DSH and rural hospitals are feeling over the possibility of losing their 340B status because the COVID-19 pandemic has changed their patient mix. We continue to monitor Sen. John Thune’s bill S773 to protect 340B eligibility.
Build Back Better now heads to the narrowly divided Senate, where everything is subject to change.
Kalderos’ 340B rebates
Drug-industry software company Kalderos is back in the news, having initially informed covered entities that its 340B rebate platform is ready to go live with a single manufacturer, Clovis Oncology, with plans to be operational Dec. 1.
Hold the cranberry sauce.
Suddenly, Clovis Oncology decided to pull back, so covered entities will continue to access 340B pricing as usual. As mentioned at the onset of this Buzz, there are reasons to be thankful on the manufacturer front.
Kalderos says they anticipate several additional manufacturers joining their platform in the future. As we said in a recent New and Noteworthy email update, Sentry stands ready to support our customers by carving out impacted drugs from eligibility. That way, customers can pull reports to identify eligible prescription claims it can send to a manufacturer who chooses to use the highly controversial rebate model, if desired.
SCOTUS hears Medicare Part B cuts
The U.S. Supreme Court heard oral arguments Tuesday, Nov. 30 over the nearly 30% cuts in reimbursement to 340B hospitals for Medicare Part B. Those cuts were implemented by the previous administration starting in 2018 and upheld by a U.S. Court of Appeals last year. The American Hospital Association is the lead plaintiff in the case.
The discussion amongst the justices focused on the so-called Chevron deference. We saw this in the 340B orphan drug rule in 2014: When there is ambiguity, the government agency has “Chevron deference” unless they lack regulatory authority, in which case the lesser “Skidmore deference” is used.
In this case, there’s no ambiguity so Chevron would not apply, the plaintiff argues. We’ll learn the outcome of the case in spring 2022.
The challenges before us are clear. I’m thankful for the commitments all of us have made to strengthening our communities by supporting 340B. We have a bright future ahead of us. Stay positive and remain thankful for all the good we’ve accomplished together!