Refreshed Drug Discount Dispute Process to Face Wave of Claims

A revamped dispute resolution process for price fights between drugmakers and health-care providers is likely to spur an influx of claims after a final rule revised the procedure to be more accessible.

The HHS’s Health Resources and Services Administration’s new swing at an administrative dispute resolution (ADR) process for the federal 340B drug discount program seeks to lay out an administratively feasible and timely process for manufacturers and health-care providers. The revised action comes after the Biden administration pulled the plug on a previous resolution process put forth by the Trump administration.

The 340B program requires manufacturers participating in Medicaid to discount their products to covered medical providers such as hospitals, community health centers, and others supporting low-income populations. It has grown contentious over allegations of overcharges, diversion, and health providers in the program abusing the discount process.

In 2020, drugmakers began limiting shipments of 340B discounted drugs, spurring legal battles. In separate legal actions, health-care providers sued the government, alleging failure to provide a venue for them to challenge drugmaker actions, and the Trump rule followed.

Now, with the long-awaited Biden rule, the Department of Health and Human Services says the dispute process will be more accessible for 340B program participants. That’s because the prior process was governed via federal evidence and procedural rules, which would slow things and prove burdensome to potential ADR users that were lacking the resources to “navigate the complex” requirements and “engage in a lengthy, trial-like process,” the HHS said.

Some legal experts predict the revised dispute process could now open the door to a wave of claims as the program debates continue.

“Since there have never before been ADR proceedings, by definition this rule will open the door for more,” said John Shakow, a partner in the FDA and life sciences practice partner at King & Spalding. “Covered entities will likely ramp up ADR complaints, particularly with regard to manufacturer contract pharmacy policies,” he said.

Shakow also said HRSA falsely assumed that 340B health-care providers are lacking resources. “‘We can ditch the lawyers’ is not a recipe for a thoughtful regime,” he said.

“I predict that the number of ADR claims brought by poor rural clinics, unshackled from the obligation to hire a lawyer, will be very small. Rather, any claims that proceed to a decision will be sophisticated, complex, and consequential, and both sides will employ counsel,” Shakow said.

Disputes will be reviewed by members of a 340B ADR panel who are “subject matter experts” from HRSA’s Office of Pharmacy Affairs, according to the final rule. The HHS secretary will appoint a roster of no fewer than 10 individuals to serve on the panels. There are at least three members for each panel.

HRSA said in a statement to Bloomberg Law it’s committed to resolving claims “fairly and efficiently.”

As to whether the rule achieves its goal of making the ADR process more accessible, McDermott Will & Emery partner Emily Cook said it’s difficult to say.

“We don’t actually have any information about how the current process works, because it has been so ineffectual to date and has never actually had a claim go the entire way through the existing process,” Cook said, referring to the prior ADR process. “Our baseline is zero.”

Less Formal, More Claims

HRSA clarified in the rule that the 340B ADR process is not intended to replace good faith efforts and the process should be considered only when those efforts to resolve disputes independently have been exhausted and failed.

If parties consider the ADR process, the panel is likely to see disputes on how discounts are distributed to certain pharmacies that contract with a covered provider.

Manufacturers and covered entities in recent years have been divided over contract pharmacy arrangements. Some drugmakers have placed restrictions on discounted drugs to certain contract pharmacies alleging they received duplicate discounts or distributed drugs to patients outside of the 340B program.

Pharmaceutical giants including AbbVie Inc., AstraZeneca PLC, Bristol Myers Squibb Co., and Eli Lilly & Co. since 2020 have imposed unilateral cuts on 340B discounts to some safety-net hospitals when drugs are dispensed at community or specialty pharmacies, according to 340B Health, a trade group representing hospitals participating in the program.

Some state legislatures have responded by introducing bills and enacting laws that would prohibit the restrictions, but disputes still linger in states without the laws.

Other provisions of the final rule that could invite more claims or make the dispute process more promising include: the ability of an ADR panel to review a dispute even if the subject issue is pending federal court review; the requirement that a decision be reached within one year; and a reconsideration process available for parties dissatisfied with the panel decision.

HRSA also didn’t finalize a minimum threshold or an equitable relief value to be met before a petition could be filed, which opens the ADR process to more stakeholders regardless of their volume of purchases or sales. The previous threshold was a $25,000 minimum.

“It allows lots of people to pursue a dispute resolution process,” said Todd Nova, a 340B attorney at Hall Render. “This will be much simpler. It’s more informal by far.”

Unanswered Concerns

Some attorneys also say there are questions on how the agency’s plan will roll out.

“They didn’t really go to the bones of the final rule,” said Janice Suchyta, a 340B health-care attorney at Baker Donelson.

“For the overcharge claims, HRSA followed comments submitted by clarifying that ADR claims can include claims that a manufacturer limited a covered entity’s ability to purchase outpatient drugs at or below the 340B ceiling price,” Suchyta said. “But it appears HRSA did not clarify when the three-year limitation period begins on the date of sale or payment at issue.”

An overcharge claim generally includes claims that a manufacturer has limited the covered entity’s ability to purchase covered outpatient drugs at or below the 340B ceiling price, according to the final rule.

Shakow also said there’s a lack of clarity on whether the ADR panel rulings would be precedential.

HRSA said in the final rule that the “340B statute does not expressly state that the 340B ADR Panel decision or a subsequent reconsideration decision be precedential.”

“So what is HRSA’s opinion on whether its panel decisions will be precedential?” Shakow said. “Sure seems like they will be, but who can tell?”