These pharma lawsuits could transform 340B

A trio of pharmaceutical company lawsuits has the potential to transform the 340B Drug Pricing Program and instigate major changes that could raise costs for safety-providers and weaken federal oversight.

Johnson & Johnson, Lilly, Bristol Myers Squibb and Sanofi have each implemented, or attempted to implement, radical modifications to how 340B operates by withholding discounts for certain medicines until after sales, rather than reducing prices upfront. The Health Resources and Services Administration rejected J&J's, Lilly's and Bristol Myers Squibb's plans, prompting lawsuits. Sanofi simply proceeded without an OK.

Related: How lawsuits may shape 340B reimbursement

The hospital industry warns if the drug companies prevail, that would hamper HRSA's authority and may reduce safety-net providers’ access to lower-priced prescription drugs.

For starters, more drugmakers would insist on rebates over discounts, said Barbara Straub Williams, a principal at the law firm Powers Pyles Sutter & Verville who specializes in 340B. “They like the idea of a rebate model because it puts them in control of determining whether they owe a 340B discount,” she said.

Rulings against HRSA would also trigger a flood of litigation contesting the agency's management of the 340B program, said Greg Fliszar, shareholder at the law firm Baker Donelson.

“It may open the door for other challenges with HRSA, with the 340B program itself, with definitions of 'patients,'” Fliszar said. “There’s a lot of other definitions in 340B that aren't in the statute that they've developed through rulemaking, and I think those could be up for grabs, too.”

Drugmakers tout 340B 'reform'

The 340B program is vital to safety-net providers, which save up to 50% on eligible medicines. All but 3% of safety-net hospitals participate in 340B, according to America’s Essential Hospitals, a trade group for such facilities.

Historically, drugmakers applied discounts at the time providers purchase drugs. Pharmaceutical companies must consent to 340B pricing agreements with the Health and Human Services Department to qualify for reimbursement under Medicare and Medicaid.

But J&J, Lilly, Bristol Myers Squibb and Sanofi want providers to pay full price for some medications, then submit claims data for their review. The pharma companies would then decide whether discounts were appropriate. The drugmakers contend this would cut down on duplicate discounts and reduce fraud and waste.

“Sanofi has long advocated for changes to the 340B program, which has been subject to well-documented and excessive abuse and misuse,” a spokesperson wrote in an email. "By implementing our new credit model, Sanofi will help reform a program that urgently needs to return to its original intent of delivering quality and affordable care to the most vulnerable people in our communities.”

HRSA strenuously maintains that these arrangements are unlawful.

“HRSA has recently received inquiries from manufacturers related to different proposed rebate models for the 340B Program,” the agency said in a statement. “HRSA continues to be in the process of reviewing these varied inquiries, which would significantly and unilaterally alter the administration of the program.”

The agency refused J&J, Lilly and Bristol Myers Squibb. “HRSA has not substantively objected” to Sanofi's rebate initiative, a company spokesperson wrote in an email.

The actions against J&J, Lilly and Bristol Myers Squibb almost immediately triggered separate lawsuits in the U.S. District Court for the District of Columbia last month. The plaintiffs argue HRSA overstepped its authority and incorrectly interpreted 340B statute.

“Lilly brought this lawsuit because HRSA does not have the authority to arbitrarily reject this model, which serves the original goals of the 340B program and improves transparency, efficiency and program integrity,” a spokesperson wrote in an email. J&J and Bristol Myers Squibb did not respond to requests for comment.

Balance of power

In effect, legal decisions that permit drugmakers to replace discounts with rebates would shift the power to determine who gets lower-price drugs from HRSA to drug companies, Williams said.

In part, pharmaceutical companies are responding to the Inflation Reduction Act of 2022, which established a rebate model for Medicare drug price negotiations, Williams said. Now that Medicare Part D has one, the argument that drugmakers can't, too, is weaker, she said.

Lilly's rebate system was designed to ensure compliance with the Inflation Reduction Act and prior laws, the spokesperson said. Bristol Myers Squibb asserts in its lawsuit that those Inflation Reduction Act provisions could lead to duplicate discounts without a rebate system in place.

“Ultimately, HHS has charged manufacturers to come up with a mechanism to identify 340B units, and thereby enforce [maximum fair price] nonduplication, on their own,” the Bristol Myers Squibb complaint says.

Lilly argues in its lawsuit that the statute governing 340B allows prices to be adjusted by “rebate or discount.”

That's true but open to interpretation, said William von Oehsen, a principal at Powers Pyles Sutter & Verville. "The 340B statute permits the use of a rebate arrangement, but that’s a decision reserved for HHS, not manufacturers,” he said. "Manufacturers’ ultimate goal is to sell fewer drugs through the 340B program."

Safety-net hospitals on edge

Converting discounts to rebates would undermine access to critical drugs for low-income patients, said Dr. Bruce Siegel, president and CEO of America’s Essential Hospitals. Safety-net providers should also be concerned about court rulings that diminish HRSA's power to oversee how 340B discounts are applied, he said.

“Sanofi’s proposal attempts to modify existing federal requirements for defining 340B patients and undermines the administrative dispute resolution process manufacturers must follow if they have concerns about whether purchases by covered entities are eligible for 340B discounts,” Siegel wrote to HRSA Dec. 2.

The American Hospital Association declined to comment. When J&J announced its initiative in August, the AHA called on HRSA to take “immediate enforcement action” against pharmaceutical companies “intentionally overcharging 340B hospitals."