It’s a joyous day in 340B!
Wrapping up an extraordinary weekend in which the federal government threatened the world’s largest drugmaker with expulsion from Medicare and Medicaid, Johnson & Johnson blinked. The company on Sept. 30 announced it would not move forward on its plans to convert 340B sales of two of its top-selling drugs to a rebate model.
To recap: On Friday, Sept. 27, HRSA notified J&J that it had until Monday, Sept. 30 to abandon its plan to convert 340B discounts for Stelara and Xarelto to a rebate model. The company, which reported revenue of $85.2 billion in 2023, announced in August that it would require covered entities, starting Oct. 15, to submit 340B claims data for evaluation on rebate eligibility, setting off a firestorm. Last weekend’s dramatic escalation by the Biden administration followed a series of exchanges between HRSA Administrator Carole Johnson and J&J over the company’s controversial plan.
J&J’s proposal alarmed the 340B world because of the financial ramifications of having to purchase the drugs upfront at wholesale acquisition pricing and hope to be approved for rebates at an indeterminate later date. The drugmaker also never sought permission from the Department of Health and Human Services to make the switch.
As we’ve previously noted, the 340B statute requires manufacturers to “offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price” and does not explicitly authorize rebates. The only 340B rebate exemption authorized by HHS was for the AIDS Drug Assistance Program in 1998.
No doubt it was not a relaxing weekend for certain communications, legal and executive leaders at J&J, who responded with a very defensive-sounding capitulation letter that leaves the door wide open to potentially filing a lawsuit.
“Due to HRSA’s unwarranted threats of excessive and unlawful penalties, J&J has no choice but to forgo implementation of the Rebate Model pending resolution of these issues,” the company said in its letter, signed by Scott White, Chief Operations Officer, North America Innovative Medicine. ”J&J nonetheless continues to believe that the Rebate Model is not only legally permissible but sorely needed to improve the integrity of the 340B Program and provide an effective mechanism for manufacturers to comply with their obligations under the Inflation Reduction Act’s de-duplication and 340B price effectuation requirements. J&J reserves all of its legal rights with respect to this matter.”
The denouement also followed a letter led by Rep. Abigail Spanberger (D-Va.) and four Republican and Democrat colleagues that urged HHS Secretary Xavier Bacerra to “use every enforcement tool at your disposal” to protect covered entities. It had nearly 190 bipartisan co-signers as of late last week, signaling broad support for 340B.
Johnson & Johnson had been quietly contacting certain 340B hospitals and requesting meetings “within the next three to five business days, if possible,” as one reads, to explain its rebate policy, according to emails shared with me. The company earlier this year had asked the hospitals about an increase in 340B purchases of its drugs.
J&J audits fallout
Meanwhile, a Washington D.C. children’s hospital has become the fourth covered entity to sue HRSA over its decision to approve 340B audits by J&J. Like the other suits, Children’s National Hospital claims HRSA did not require the company to provide advanced written notice explaining the reasons for the audit.
All four lawsuits are pending in the U.S. District Court for the District of Columbia.
Contract pharmacy news
News broke late on Sept. 30 that a federal judge upheld Louisiana’s law prohibiting 340B contract pharmacy restrictions against challenges from two drugmakers and the Pharmaceutical Research and Manufacturers of America (PhRMA) trade group — the latest setback to the drug industry in its attempts to stop these state laws. U.S. District Judge Robert R. Summerhays rejected the plaintiffs’ arguments in the consolidated case that Louisiana’s law conflicted with several federal statutes. An appeal is considered likely.
A federal district judge in Washington D.C. ruled in favor of four drugmakers — Amgen, Boehringer Ingelheim, Merck and UCB — over their contract pharmacy restrictions. HRSA had earlier filed a motion recommending settling the cases, citing the binding ruling from a higher court in May upholding the restrictions.
Meanwhile, more manufacturers tightened their contract pharmacy restrictions:
- AstraZeneca will start requiring contract pharmacy claims data, Bayer will no longer exempt grantees, and EMD Serono will expand its restrictions to all covered entities and add restrictive new terms, all starting Oct. 1.
- As of Sept. 23, Sanofi now requires certain hospitals in Arkansas to prove ownership of all 340B-purchased drugs until they are dispensed at a contract pharmacy after a legal agreement with the state, pending the outcome of a separate lawsuit against the state by AstraZeneca. Sanofi had previously exempted covered entities from its contract pharmacy restrictions in Arkansas, which was the first state to enact a law barring them. Affected hospitals are supposed to submit valid contracts or attestations for each of its contract pharmacies using 340B ESP. There is suspicion that this may be a bid to destroy the replenishment model, which could make the program unworkable for contract pharmacies.
On the bright side, there was also some good news about contract pharmacies in September, as a federal judge rejected four different motions from the drug industry to block Maryland’s state law prohibiting 340B contract pharmacy restrictions by manufacturers.
Separately, a prominent 340B law firm is urging 27 drugmakers to abandon new “unconscionable” terms and conditions for providers seeking 340B contract pharmacy discounts. Hall, Render, Killian, Heath & Lyman said the amended terms amount to a “constructive refusal to offer 340B pricing” and said if the companies don’t relent, the firm would escalate the matter to HHS for enforcement action, including possible termination of their pharmaceutical pricing agreements and fines.
PBM pile-on
The Federal Trade Commission in September announced it was suing the nation’s three largest pharmacy benefit managers — CVS Caremark, Optum Rx and Express Scripts — and their affiliated GPOs over an alleged anticompetitive rebate scheme to inflate insulin prices.
The FTC first began investigating PBMs in 2022. Express Scripts parent company Cigna has sued the FTC over its “defamatory” interim report, which found that PBMs inflate drug prices and squeeze out small retail pharmacies.
In Delaware, Gov. John Carney signed a bill prohibiting PBMs from discriminating against 340B entities.
340B in the Capitol
Noted 340B foe Sen. Bill Cassidy (R-La.) has asked Eli Lilly and Amgen for information on their 340B programs, including on their contract pharmacy restrictions and how alleged program fraud has affected them financially. Cassidy has been investigating the 340B program and has requested information from major health systems, community health centers and two chain pharmacies.
Meanwhile, Sen. Peter Welch (D-Vt.) has introduced the 340B PATIENTS Act in the Senate, a companion version of the bill from Rep. Doris Matsui (D-Calif.) in the House.
It was a whirlwind month in 340B-land. So, I encourage everyone to read this excellent essay in Medical Economics from two analysts at the American Hospital Association. It argues that manufacturers have their own unprecedented drug-price inflation to blame for fueling the growth in the 340B program.
“When pharmaceutical companies increase their drug prices faster than inflation, they are by law subject to an inflationary penalty that increases the 340B discount they have to offer on that drug,” they write. “As a result, the more pharmaceutical companies increase prices, the more 340B discounts they have to pay, which significantly contributes to growing the program.”
Couldn’t have said it better.
If you'd like to continue the conversation with me, please contact me at [email protected].