Drug Discount Fights in Limbo Until Biden Restores Review Board

May 13, 2021, 9:30 AM

A long-awaited venue for resolving drug price fights that jump-started in the Trump administration’s waning days is back on hold as low-income health providers wait for a green light from team Biden.

Until the Department of Health and Human Services appoints new panelists to its drug pricing alternative dispute resolution board, swaths of at-need patients remain unable to afford medications while the hospitals that serve them face steep revenue hits, health centers and the attorneys that represent them say.

“Our plaintiffs need help,” said Barbara Williams, a Powers Pyles Sutter & Verville PC attorney who represented HIV/AIDS clinics in their lawsuit against the HHS over drugmaker discounts. “They need relief.”

But some drugmakers accuse pharmacy middlemen of abusing the discounts they receive on behalf of providers under the federal 340B drug pricing program.

“Instead of passing on to low-income patients the deep discounts they get from companies like Lilly, the contract pharmacies largely keep the profits for themselves,” an Eli Lilly spokesperson said, claiming contract pharmacies are obtaining highly discounted drugs but selling the drugs to patients “at egregious mark-ups, sometimes as high as 18,000,000%.”

Drug companies like AstraZeneca have allegedly reduced the number of pharmacies allowed access to drug discounts to narrow a program they call overgrown and fraught with abuse. The Biden administration effectively halted the HHS board earlier this year when it nixed Trump-era panel appointees. And it has declined to say when it will reconstitute the board, despite repeated queries from Bloomberg Law.

“The ADR process exists as a theoretical process on paper and an email address to which you can submit your disputes, but there is no practical path forward right now,” said Emily Cook, a McDermott Will & Emery LLP partner. “The question becomes, when is the next step going to be available?”

‘Patients at Risk’

Pharmaceutical companies announced last year they’d stop shipping discounted products to certain pharmacies in contract with low-income health centers. The providers then sued HHS to create a long-overdue ADR panel. The Trump administration set up the forum in its final days, but team Biden quickly withdrew former HHS Secretary Alex Azar’s picks to staff it.

That has stopped at least several ADR petitions in their tracks, and opened the door to another round of litigation against the government to launch the dispute resolution panel that Congress required over a decade ago.

The HHS is considering “recommended new appointments,” according to an April 19 court document filed by the National Association and Community Health Centers (NACHC) and the government. The agency wouldn’t comment on further plans for staffing the ADR board or the number of drug disputes lodged with the agency waiting to be heard.

The 340B program requires drugmakers to give discounts to hospitals, community centers, and other federally funded clinics serving low-income patients. Health centers claim that off-site, “contract” pharmacies for dispensing the discounted products are integral to operations, and that drug companies’ actions threaten patient well being and providers’ bottom lines.

South Carolina-based Carolina Health Centers relies on two community pharmacies to fill around 300,000 prescriptions a year for patients within an area of more than 4,000 square miles, president and CEO Sue Veer said.

“There are patients who have failed on everything but a particularly manufactured drug,” Veer said. “It puts those patients at risk if they can’t afford that drug or access it through a contract pharmacy.”

Carolina Health Centers is a member of the NACHC, which sued the HHS last year to force the agency to launch an ADR panel to hear 340B drug discount disputes. A group of HIV/AIDS clinics separately sued HHS to implement the ADR process or take action against the manufacturers.

Both suits were stayed in early 2021 after the Trump administration established the HHS review boards through a final rule.

“We hope we don’t have to revive our lawsuit,” said Williams, who represented the HIV/AIDS clinics in their lawsuit.

Ground to a Halt

In 2011, the Supreme Court established in Astra USA, Inc. v. Santa Clara County that there’s no private right of action under the 340B statute, meaning health providers can’t sue drug companies directly over program discounts. That leaves providers to either sue the HHS to take action, or file a petition with the ADR panel.

Williams said clients hurt by the 340B discount cuts include small community health centers that “get by on a shoestring budget.”

“We thought they were going to get this relief,” Williams said. “We can’t just leave this to languish. There are a lot of covered entities that this is hitting very hard.”

NACHC submitted an ADR petition in January, but only in recent weeks got word that its petition was ready to be referred to a panel, according to Jason Reddish, counsel for the group and an attorney at Feldesman Tucker Leifer Fidell LLP.

‘That’s not happening yet,” Reddish said. “Because there’s no panelists that we know of.”

Pharmacy Expansion

Some drug companies say the 340B program is being abused as contract pharmacies “have expanded exponentially over the past decade without meaningful controls or oversight in place,” according to Novartis.

“The overwhelming majority of 340B discounts from medicines dispensed at these contract pharmacies are not shared with patients,” Novartis said in an emailed statement, adding that it still honors “contract pharmacy arrangements within a 40-mile radius of the covered entity hospital.”

The Government Accountability Office last year found more than 1,500 cases of noncompliance with 340B program requirements since fiscal 2012, including oversight of contract pharmacies.

And in a 2018 report, the government watchdog had found that around half of 55 covered entities said they gave patient discounts via contract pharmacies. Contracting with pharmacies makes it harder to ensure compliance because those entities may also dispense discounted drugs to patients who aren’t eligible for 340B, the GAO said.

The Trump administration in December 2020 came out strong against drugmakers for limiting discounts. Former HHS general counsel Robert Charrow said in an advisory opinion that “to the extent contract pharmacies are acting as agents of a covered entity, a drug manufacturer in the 340B Program is obligated to deliver its covered outpatient drugs to those contract pharmacies and to charge the covered entity no more than the 340B ceiling price for those drugs.”

In January, Sanofi, AstraZeneca, and Eli Lilly separately sued the HHS over the Charrow opinion.

A federal court in March blocked the agency from using the ADR process against Eli Lilly after finding that the HHS may not have complied with procedural standards when it adopted the dispute resolution rule. Both of those cases are ongoing.

Not Just About Drugs

But the 340B program is about more than cutting drug costs, said Maureen Testoni, CEO of the nonprofit 340B Health group.

“It’s a way that care for low income people is being subsidized,” she said. Pharmaceutical companies are trying to portray the 340B program as solely focusing on drug discounts while ignoring how savings are applied to “a lot of different services,” she said.

Member hospitals have reported that 340B savings from purchasing low-cost drugs under the program go to specific patient services, like diabetes and HIV/AIDS care, as well as inpatient medical services, Testoni said. Another chunk allows for services in areas like transportation and translation.

Yet disputes around 340B’s reach remain gridlocked until the Biden adminstration staffs the panelists to hear them.

“Nothing significant can happen until that’s done,” Cook said.

To contact the reporter on this story: Ian Lopez in Washington at ilopez@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Alexis Kramer at akramer@bloomberglaw.com; Gregory Henderson at ghenderson@bloombergindustry.com

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