Drug Discount Plan Lacks Level Playing Field, Manufacturers Say
The Biden administration’s attempt to resolve price fights in the 340B drug discount program will take some finessing, if the feedback from the pharmaceutical industry is considered.
Section 340B of the Public Health Service Act is a drug pricing program that requires drugmakers to discount drugs for qualifying hospitals, clinics, and providers that treat low-income and uninsured patients. The rule was controversial and manufacturers began limiting access of discounted drugs to contract pharmacies that providers use.
Congress instructed the Department of Health and Human Services to create an administrative dispute resolution rule for the program when it passed the Affordable Care Act in 2010, but the rule has been stalled for nearly a decade.
The HHS proposed a rule in 2016 and withdrew it in 2017. When the agency re-issued it in 2020, without a comment period, Eli Lilly filed a lawsuit and a federal judge blocked the rule as to Lilly.
But the HHS presented a significantly revamped proposed rule (RIN: 0906-AB28) in November 2022 and received over 100 comments.
The pharmaceutical industry didn’t mince words: the HHS, in its view, needed to demonstrate more objectivity and not favor providers over them.
“The ADR is the tip of the spear with regard to the imbalance perceived by manufacturers,” said John Shakow, a King & Spalding partner who represents drug companies.
Questions of Impartiality
In the 2022 rule, the HHS proposed 340B ADR panel members be 340B subject matter experts from the Office of Pharmacy Affairs, suggesting that the process required people with in-depth knowledge of the program.
But the panel, comprising employees solely from the Office of Pharmacy Affairs, concerned manufacturers.
“If you have the people who are writing the rules adjudicating the disputes, presumably, their decision will closely match the guidance that they have already released,” said Emily Cook, a partner at McDermott Will & Emery LLP who represents providers. “It does not provide the level of neutrality that one would hope or expect from ADR panels.”
Instead, the pharmaceutical industry wants an arbitration law judge who has the legal training and operates independently.
The other major concern for drugmakers was about the requirement that they conduct audits of providers before submitting an ADR claim. Providers weren’t required to conduct audits of manufacturers before submitting claims.
The complex process discouraged manufacturers from pursuing audits, according to several letters filed with the HHS and its Centers for Medicare & Medicaid Services. Lilly reiterated comments it made during a 2016 rulemaking: The audit process required them to complete 17 additional steps to the three taken by health providers to submit a claim.
Over the past two years, only two manufacturers have requested to conduct audits, according to the HHS’s proposed rule. But the agency came to the conclusion that the “historical infrequency” of audits indicated how rare manufacturer ADR claims were.
“I can tell you Lilly would do more audits if it wasn’t so complicated to do an audit,” said Derek Asay, senior vice president of government strategy at the pharmaceutical company.
Shakow compared the audit process to a nearly unbreachable wall that manufacturers must climb to have their grievances heard. “At the very least, make that wall easier to surmount,” he said.
Access to Drugs
Providers expressed far less criticism about the rule and offered fewer recommendations.
One priority was addressing the manufacturers restricting access to drugs at 340B pricing for third-party contract pharmacies, which providers use to distribute the drugs so they can meet patients where they are.
Nearly 20 manufacturers, including Lilly, implemented restrictions. The government then escalated the matter by sending letters to several companies and threatening them with fines. The manufacturers filed suit in response.
“Why don’t they want effective oversight of this program that Congress set forth in the ADR process?” asked Chad Golder, deputy counsel at the American Hospital Association. “It kind of seems like they don’t want any of this to work. They’d rather criticize it.”
Several providers accused drug companies of “taking the law into their own hands” and some suggested redefining overcharge to not just refer to charging more than the ceiling price of a 340B drug but also include the refusal to sell the drug altogether.
However, the US Court of Appeals for the Third Circuit in February issued an opinion in one of several cases that is in federal court about imposing restriction on 340B drugs: The government can’t take enforcement action against a manufacturer and to do so is overstepping its bounds.
It is unlikely the HHS will pick another fight with manufacturers over denying 340B pricing to contract pharmacies. “It would immediately be subject to litigation, and it is also such a significant change from what they have proposed that I don’t think that they would be able to finalize that in a final rule,” said Cook.
A Long Process
Providers also sought to eliminate the proposed “suspension” of the ADR process when similar claims are being litigated in federal court.
AHA said the judicial process can take years, and suspending claims would undermine the purpose of the ADR process as the only platform for 340B providers to seek relief.
However, a federal court’s decision could eventually overrule an ADR panel’s decision, making the panel’s decision moot.
Some of the decisions that the federal courts are making boiled down to the fact that there has been a painfully long wait for an ADR process, Cook said.
The agency wouldn’t comment on how much longer a final rule could take. “HRSA is in the process of reviewing the comments received and taking next steps in the rule making process,” the agency said in an email statement.
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