HHS Guidance Clarifies Use of Contract Pharmacies in 340B Program

New guidance from HHS has clarified that hospitals and other covered entities in the 340B Drug Pricing Program are entitled to discounts for covered outpatient drugs even if they use contract pharmacies to distribute the drugs to patients.

Drug manufacturers are “obligated to deliver its covered outpatient drugs to” contract pharmacies acting as agents of a covered entity, and the manufacturers cannot charge more than the 340B ceiling price for the drugs, according to the guidance released on Dec. 30.

The guidance comes after five national hospital organizations, including the American Hospital Association, and the leading hospital pharmacist organization filed a lawsuit against HHS after the department failed to address the refusal of several major drug manufacturers to discount the prices of covered outpatient drugs because hospitals used contract pharmacies.

Later, attorneys general from 28 states and the District of Columbia also urged HHS to force the manufacturers to comply with 340B Drug Pricing Program rules.

The groups alleged that Eli Lilly, AstraZeneca, Sanofi, Novartis, Merck & Co., United Therapeutics, and other drug manufacturers unlawfully refused to provide discounts to hospitals and other providers that serve vulnerable patients through the program.

The drug manufacturers refused to provide the discounted prices for covered drugs distributed through contract pharmacies to ensure they are not offering duplicate discounts on the drugs.

HHS’ Office of General Counsel states in the new guidance document that drug manufacturers must not charge more than the 340B ceiling price – or the maximum amount a manufacturer can charge a covered entity for the purchase of a covered outpatient drug – regardless of how the hospital or any other purchaser in the program distributes the drug.

“[T]he core requirement of the 340B statute … is that manufacturers must ‘offer’ covered outpatient drugs at or below the ceiling price for ‘purchase by’ covered entities. This fundamental requirement is not qualified, restricted, or dependent on how the covered entity chooses to distribute the covered outpatient drugs,” the guidance says.

Additionally, the Office of the General Counsel found no ambiguity around the phrase “purchased by” since drug manufacturers and covered entities engage in a “straightforward” sale that consists of the drug manufacturer passing the title of the covered drug to the covered entity for a price.

“The situs of delivery, be it the lunar surface, low-earth orbit, or a neighborhood pharmacy, is irrelevant,” according to the guidance.

The guidance is a win for hospitals, which have seen their resources dwindle in the fight against COVID-19.

“The 340B program plays a critical role in helping eligible hospitals provide a wide range of comprehensive services and low-cost drugs to vulnerable patients and communities, many of which have been the hardest hit by the COVID-19 pandemic,” Rick Pollack, president and CEO of the AHA, said in a statement.

“We are pleased that HHS listened to our deep concerns about drug companies disregarding the law by limiting the distribution of certain 340B drugs to eligible hospitals,” Pollack added.

The AHA, along with 340B Health, a trade association representing safety-net hospitals, are now calling on the government to make hospitals “whole” after being denied the discounts by drug manufacturers earlier this year.

“The actions of these drug makers have deprived safety net providers of vitally needed resources as they battle the COVID-19 pandemic. As always, our hospitals have put patients first while we sought justice. We look forward to making sure they are all made whole so that they can continue their critically important role on the front lines of our health care safety net,” Maureen Testoni, president and CEO of 340B Health, in a statement.

Testoni also said the association will work with HHS to “identify overcharges and facilitate refunds” to hospitals impacted by the actions.

Over 95 percent of hospitals and other covered entities in the 340B Drug Pricing Program use contract pharmacies, according to data obtained by HHS Office of the General Counsel.

Most covered entities rely on contract pharmacies to distribute drugs to patients since covered entities are more likely to be “small, remote, resource-limited, receiving federal assistance, or serving disadvantaged populations,” the guidance states.

The 340B Drug Pricing Program was designed to help organizations serving a disproportionate number of disadvantaged and low-income patient populations to stretch federal resources as far as possible to provide more comprehensive services.

The Trump administration and several pharmaceutical organizations, however, have recently called for greater oversight of the drug to address concerns that the program is expanding beyond its original scope.