AHA, Hospital Groups Continue Fight Over 340B Drug Discounts

Leading industry groups representing hospitals and pharmacists have written a letter to new HHS Secretary Xavier Becerra asking him to take action against six major pharmaceutical companies that are denying qualifying providers 340B drug discounts.

Eli Lilly and Company, Sanofi-Aventis U.S. LLC, AstraZeneca PLC, Novartis Pharmaceuticals Corporation, United Therapeutics Corporation, and Novo Nordisk, Inc./Novo Nordisk Pharma have largely denied the discounts for certain covered outpatient drugs when dispensed through a hospital’s contact pharmacy.

The actions have been going on since as early as May 2020.

The letter—signed by the American Hospital Association (AHA), 340B Health, the American Society for Health-System Pharmacists (ASHP), America’s Essential Hospitals (AEH), the Association of American Medical Colleges (AAMC), and the Children’s Hospital Association (CHA)—asks the Secretary “to halt this detrimental and illegal conduct.”

“HHS has the tools to address this illegal behavior. To that end, we are respectfully requesting that HHS immediately and definitively state that these refusals to provide discounts are illegal and take the action Congress specifically prescribed to address this type of situation — impose civil money penalties,” the groups wrote to Becerra.

The 340B Drug Pricing Program requires pharmaceutical companies to offer discounts on outpatient drugs to children’s hospitals, safety-net providers, and other organizations serving large shares of uninsured and Medicaid patients. The drug discounts are designed to help these organizations “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services,” according to the program’s website.

Hospital groups have supported the program, citing cost-savings benefits that have enabled organizations to invest in more comprehensive services for their vulnerable patient populations.

However, major pharmaceutical organizations, including PhRMA, have recently argued that the program no longer serves its mission of helping patients. Rather, they claim large hospital systems, for-profit pharmacies, and other stakeholders have “co-opted” the program for their financial benefit.

A point of contention in this debate between hospital and pharmaceutical groups is the use of contract pharmacies.

Hospitals oftentimes contract with pharmacies outside of their organization to dispense outpatient drugs to patients. The pharmacies have been “particularly important in communities where patients face transportation barriers, whether in rural areas where patients often do not live near the hospital, or in urban areas with poor public transit systems,” AHA and others wrote in the letter.

HHS has also provided guidance affirming that hospitals in the 340B Drug Pricing Program can still receive discounted outpatient drugs even when using a contract pharmacy to dispense them to patients.

Eli Lilly and Company challenged this policy last year when, despite HHS warnings, it decided to deny discounts for Cialis when it was dispensed via a contract pharmacy. Later, other major pharmaceutical companies decided to adopt similar policies and expand the lists of drugs that would no longer qualify for a 340B discount.

The companies also sought more detailed reporting from hospitals on 340B-covered drugs being dispensed through contract pharmacies to verify they were not paying duplicate discounts.

HHS General Counsel released an Advisory Opinion in December 2020 stating that pharmaceutical manufacturers must provide the 340B discount for covered outpatient drugs through a participating hospital’s contract pharmacies. It also indicated that HHS plans to use a new administrative dispute resolution (ADR) process to adjudicate the claims.

PhRMA has already challenged the ADR process rule in court, arguing that it is “arbitrary and capricious, not the product of reasoned decision-making and unconstitutional.”

But AHA and other hospital groups are calling for more action from HHS to stop pharmaceutical companies from denying 340B discounts, especially considering that the ADR rule has never been implemented and it is now facing two more lawsuits filed by Eli Lilly and Company and Sanofi.

“In any case, it is not likely that this avenue of redress will be available anytime in the foreseeable future, thus exacerbating the harm being caused by these drug companies’ refusal to obey the law and making it imperative the HHS take action to halt their conduct,” the groups stated in the letter.

The groups pointed to a 2010 law that allows HHS to penalize any instance of a pharmaceutical company denying a required discount. The penalty is up to $5,000 per violation.