340B Contract Pharmacy Pricing Battle – It’s Plain For All To See!

If you are in the 340B space, then it is likely you are well aware of the 340B contract pharmacy pricing battle occurring between 6 manufacturers and Health and Human Services (HHS). Let’s do a quick update of how we got here and the recent monumental shift from HHS that is giving covered entities much needed hope.

It all started when Eli Lilly (Lilly) announced it would no longer be providing 340B pricing for Cialis at contract pharmacies starting July 1st, 2020. At the time, HHS did not respond to this deviation and Lilly eventually decided to remove pricing for the rest of its drugs in the contract pharmacy space. Following Lilly’s lead, within a few months, was Astra Zeneca, Sanofi, Novartis, United Therapeutics, and by January 1st, 2021 we also lost pricing from Novo Nordisk. There are various differences between how the manufacturers rolled out their 340B pricing removal, as some allowed pricing if the covered entity (CE) signed up for the ESP program and Novartis has an interesting 40-mile rule. Many of these manufacturers also allow for a single contract pharmacy if no in-house retail pharmacies exist for the CE. In the end, the loss of pricing by these manufacturers has caused a significant 340B savings loss for many covered entities. In the case of some of our smaller CEs (e.g., FQHCs, CAHs), the savings loss has impacted much needed savings to continue their mission to serve patients in a most critical time with COVID-19. I think HHS’s lead attorney, Robert Charrow, said it best when he told Lilly “. . . the timing of your pricing changes is, at the very least, insensitive to the recent state of the economy.”

I won’t rehash all of the history but want to catch up to where we are today. On May 17th, 2021, HHS sent all 6 manufacturers letters that essentially stated they have until June 1st, 2021 to “. . .provide an update on its plan to restart selling, without restriction, covered outpatient drugs at the 340B price to covered entities . . .” The letters from HHS Acting Administrator, Diana Espinosa, lay out the 340B statute sections being violated and indicate that HHS has determined the manufacturer actions to have resulted in overcharges in direct violation of the 340B statute. Another interesting point is that HHS is no longer stating that CEs need to use the administrative dispute resolution (ADR) process. Instead, HHS plans to utilize civil monetary penalties (CMPs) to enforce 340B statute overcharge violations. The CMPs could be up to $5,883 for each instance of overcharging, which is in addition to repayment to the CE. This is a critical shift for CEs as HHS had previously stated CEs had a mechanism to report and deal with overcharges through the ADR process. You can find copies of each letter on HRSA’s website.

So, yay! But not so fast, we knew it would not be that easy. Although we do give HHS credit for the attempt. We are aware of 3 lawsuits from Eli Lilly, Astra Zeneca, and Novartis. Sanofi has also sent a 30-page defense to HRSA stating the previous lawsuit’s judicial process should be allowed to playout. Eli Lilly received an extension to June 10th to reply to HHS, and has a hearing scheduled for June 17th, 2021, and HRSA granted an extension to Astra Zeneca to June 10th as well. Novartis is challenging the accuracy of the HHS letter as they claim the 40-mile rule does not limit the number of pharmacies. Astra Zeneca’s response from the US District Court judge in Delaware is the most concerning. As he has already stated he is deciding on whether to rule that HHS’ conclusion on 340B pricing in contract pharmacies may be one of various interpretations that can be made, and therefore not the only possible conclusion. This seems to have kept the door open (albeit just a crack).

Where do we think this will go? Well, the crystal ball is broken right now, but we have hope. This hope comes in the form of the “plain language of the statute.” As we learned when HHS attempted to publish a rule regarding orphan drug 340B use for impacted covered entities, they initially lost a legal challenge due to not having rule making authority regarding this part of the 340B program. HHS then published a Rule Clarification, which it can do, but they lost this legal challenge as well. The reason being that the plain language of the 340B statute does not agree with the HHS Rule Clarification that the impacted CEs could buy orphans at 340B if they were for a non-orphan indication. You see, the plain language does not mention anything about an exclusion for non-orphan indications. Let’s now look at the contract pharmacy clarification HHS put out in 2010 regarding the ability for a CE to not be limited to a single contract pharmacy. The clarification came because nothing in the 340B statute limits CEs to 1 contract pharmacy. We now have manufacturers wanting to interpret the 340B statute to mean the single contract pharmacy scenario that HHS had in place prior to the 2010 clarification. However, the 340B statute simply states that manufacturers “shall. . .offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price.” It is plain for all to see (you see what I did there), that the manufacturers are now on the wrong side of the plain language of the 340B statute, and this is what gives us hope.