The 340B Drug Pricing Program: Top Five Things to Know

The 340B Drug Pricing Program continues to provide critical support for covered entities, although the program is subject to ongoing scrutiny and congressional, judicial, and industry pressures. Certain key guidance documents issued by the Health Resources and Services Administration (HRSA) were recently rejected by the courts, and additional cases are pending. Congress may ultimately decide the direction of the program. With the 340B program remaining a key economic driver for many in the oncology space – as highlighted at the September 2024 Cancer Care Business Exchange meeting in Boston, here are the key things to know in September 2024:

Big Pharma Restricts Use of Contract Pharmacy, Introduces Rebate System for Accessing 340B

On August 23, Johnson & Johnson (J&J) introduced a new system, to be effective October 15, 2024, under which J&J will no longer process wholesaler chargebacks for the 340B ceiling price on purchases of STELARA or XARELTO by 340B DSH hospitals. Instead, Covered Entities will need to purchase these drugs through wholesalers at commercial price, and apply for rebates through a new claim platform to be provided by J&J. This is only the latest way drug manufacturers are trying to modify the 340B program. Previously, more than 20 drug manufacturers established policies that restricted the use of contracted retail pharmacies to distribute 340B drugs – which restrictions were challenged in court and recently upheld by both the Third Circuit and the DC Circuit[1]. The manufacturers effectively argued that prior guidance issued by HRSA was not authoritative and was not grounded in the 340B statute, which is silent on methods of distribution of 340B drugs. One other circuit decision remains pending as well as multiple cases still in district courts.

Expansion of Patient Eligibility

HRSA’s efforts to rein in 340B patient eligibility determinations by limiting program access to situations where “the health care service resulting in the prescription was initiated by the ‘covered entity’” were undermined by the 2023 ruling Genesis Healthcare, Inc. v. Becerra.[2] The Genesis court ruled that HRSA’s interpretation of the term “patient” included requirements that were inconsistent with the common (dictionary) meaning of the term “patient” and therefore with the 340B statute. Although technically only binding on the Genesis plaintiffs, Genesis indicates that covered entities have more flexibility to establish policies defining who their patients are and the circumstances in which they can receive 340B drugs. The government is currently considering how to modify its procedures for auditing patient eligibility issues for other covered entities.

Refund of $1.96 billion in Past Payment Cuts Began, but Medicare Advantage is Excluded

Wrapping up years of litigation focusing on Medicare OPPS payment reductions on 340B covered drugs from 2018-2022, the Centers for Medicare & Medicaid Services (CMS) will make lump sum payments of $9 billion to affected 340B hospitals to remedy the unlawful payment cuts.[3] To maintain budget neutrality, CMS will also apply a 0.5% reduction of payments to all OPPS hospitals beginning in 2026. The solution does not address payments to 340B hospitals through Medicare Advantage plans. A resulting suit alleges that CMS breached its obligations by unlawfully reducing payments owed to them for nearly five years, resulting in a windfall for the plans.[4]

Delays On Adding New 340B Eligible Hospital Sites Have Been Re-introduced

HRSA instructed hospital covered entities that they once again need to wait to register new hospital outpatient location until after the location is identified on a filed Medicare cost report. This policy can result in delays of accessing 340B of up to 21 months after the location is opened. The policy had been waived during the COVID-19 public health emergency and recently reinstated; the reintroduction of the policy is being challenged in court by a group of 44 health systems.[5]

Increasing Litigation Likely

Covered entities that have been working to comply with HRSA guidance should be tracking these cases, which represent a significant shift in the 340B landscape. With the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo[6] making it easier to challenge agency guidance, it is expected that courts will continue to play a significant role in determining the future of the 340B program. 340B entities should also keep a close eye on HRSA’s new Administrative Dispute Resolution (ADR) process for hearing disputes related to the 340B Program, which may begin issuing opinions on key areas.[7]

Legislative Activity is Increasing

Congress and state legislatures are also examining the 340B program. The U.S. Congress has held multiple hearings and is evaluating a variety of bills that would impact 340B. Many states have also passed laws aimed at protecting 340B covered entities.

Foley is here to help you address the short and long-term impacts in the wake of regulatory and legislative changes in the area of 340B. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to the authors, your Foley relationship partner, or to our Health Care Practice Group and Health Care & Life Sciences Sector with any questions.

[1] Sanofi Aventis U.S. LLC v. United States HHS, 58 F.4th 696 (3d Cir. 2024); Novartis Pharmaceuticals Corporation v. Johnson and Becerra, 102 F.4th 452  (DC Cir. 2024).

[2] Genesis Health Care, Inc. v. Becerra, 701 F. Supp 3d 312 (D.S.C 2023).

[3] See 88 Fed. Reg. 77150 (Nov. 2023)

[4] Baptist Health v. Health Value Management, Inc., et. al., Case No. 2:24-cv-00077-SMD (Feb. 2024).

[5] Albany Med System v. Becerra, Case No. 1:2024cv01258.

[6] Loper Bright Enterprises v. Raimondo, No. 22-451 (June 28, 2024), together with Relentless, Inc. v. Department of Commerce, No. 22-1219, 603 U.S. _____ (2024),144 S. Ct. 2244 (2024).

[7] Dept. Of H. & Hum. Svcs, 340B Drug Pricing Program; Administrative Dispute Resolution Regulation, RIN 0906-AB28, 89 Fed. Reg. 28643 (Apr. 19, 2024).