Hospitals File Lawsuit to Settle 340B Issues with Pharma

The American Hospital Association (AHA) and four other hospital organizations are suing HHS after the department failed to enforce 340B Drug Pricing Program requirements when major pharmaceutical groups stopped providing drug discounts earlier this year.

Alongside the AHA, 340B Health, America’s Essential Hospitals (AEH), the Association of American Medical Colleges (AAMC), and the Children’s Hospital Association (CHA) filed the lawsuit in the US District Court for the Northern District of California on December 11.

Hospital pharmacist organization the American Society of Health-System Pharmacists (ASHP) also joined the lawsuit, which names Avera St. Mary’s Hospital in South Dakota, Riverside Regional Medical Center in Virginia, and St. Mary’s Medical Center in California as individual hospital plaintiffs.

“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, AHA’s president and CEO, said in a statement. 

“This lawsuit will require the department to take actions that we’ve long called for against drug companies that are disregarding the law by limiting the distribution of certain 340B drugs to eligible hospitals. It’s time to stop these illegal actions from drug companies and protect vulnerable patients and communities,” Pollack continued.

Hospital organizations have been calling on HHS to act for months after major pharmaceutical companies, including Eli Lilly, Merck, Sanofi, Novartis, and AstraZeneca, halted discounts on outpatient drugs covered by the 340B program.

The pharmaceutical companies largely took issue with covered drugs being sent to contract pharmacies, which are used by hospitals to dispense drugs to patients.

Some companies ceased distribution of 340B-covered drugs to contract pharmacies if hospitals already had their own in-house pharmacies, while other companies required detailed reporting from hospitals on 340B drug distribution at contract pharmacies.

The actions would ensure companies are not paying duplicate discounts on 340B drugs, according to letters pharmaceutical companies sent to hospitals.

However, AHA and other hospital organizations have told HHS that the pharmaceutical companies are violating 340B program rules, which require as a condition of participating in Medicaid and Medicare Part B that pharmaceutical manufacturers sell outpatient drugs at a discount to providers who serve large numbers of patients with low income and are part of the program.

The statute dictating 340B program rules also requires the manufacturers to offer 340B pricing to providers in the program irrespective of how the drugs are dispensed to patients, the organizations contend.

But according to the lawsuit, HHS has “refused to take action against the Drug companies or to even inform them that their conduct violates the 340B statute.”

In fact, HHS determined in July 2020 that it lacked the authority to require pharmaceutical companies to sell 340B drugs at or below 340B ceiling prices, which are the maximum prices the companies can charge providers in the program for covered drugs.

Now, hospital organizations are asking the court to force HHS to require a handful of pharmaceutical companies – Eli Lilly, Sanofi, AstraZeneca, Novartis, United Therapeutics Corporation, and Novo Nordisk – to provide 340B-acquired drugs at the discounted prices even when the drugs are sold through contract pharmacies.

The organizations are also seeking HHS to require the pharmaceutical companies to refund hospital plaintiffs and members of the associations who are in the 340B program the difference between what they paid for covered outpatient drugs and the 340B ceiling price for each company’s drugs dispersed under their new policies.

“The federal government has the responsibility to enforce the law by requiring that drug manufacturers offer discounts on covered drugs to eligible 340B hospitals,” said Maureen Testoni, 340B Health’s president and CEO. “These hospitals provide 60% of all uncompensated care in the U.S. and 75% of all hospital care to Medicaid patients. Our joint lawsuit demonstrates the immense harm this issue has caused the nation’s 340B hospitals and the low-income and rural patients who rely on them for care, and it makes a strong case for the court to intervene now before the damage to the health care system becomes permanent.”

The Pharmaceutical Research and Manufacturers of America (PhRMA) has maintained that the use of contract pharmacies is stretching the 340B program beyond its original purpose, which is to "stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services."

Instead, hospitals are using contract pharmacies to maximize profits, the organization claims.

“The exponential growth in the number of contract pharmacies participating in 340B, including the largest for-profit chain pharmacies in the country, is just one example of how the program has evolved away from what Congress originally envisioned. There is also little to no evidence that contract pharmacy participation in 340B has improved patients’ access to medicines,” a PhRMA spokesperson told RevCycleIntelligence.

A recent report funded by the organization found that the average profit margin on 340B-acquired drugs commonly dispensed through contract pharmacies is 72 percent. The margin is 22 percent for non-340B drugs dispensed through independent pharmacies.

At the same time, the report found that contract pharmacy participation increased by 4,228 percent following government expansion of the contract pharmacy program in March 2010.

“Contract pharmacy arrangements were born out of guidance issued by the Health Resources and Services Administration, despite contract pharmacies not being mentioned in the 340B law or in any regulations. Unlike laws and regulations, agency guidance cannot impose any binding requirements on the public and lack the force and effect of law. In fact, HHS recently posted its Guidance Repository database, which includes the 2010 340B Contract Pharmacy Guidance, where they state: ‘The contents of this database lack the force and effect of law,’” the spokesperson added.

Just recently, the Health Resources & Services Administration (HRSA) released a final rule implementing an administrative dispute resolution process in the 340B program, which was mandated by Congress in 2010.

The process would establish a government panel to resolve disputes between pharmaceutical companies and covered entities, the term used to describe hospitals and other facilities that are eligible for and enroll in the 340B program.

While supportive of an administrative dispute resolution process, hospital organizations have said the final rule is not a solution for the recent actions undertaken by pharmaceutical companies.