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Pharma Chips Away at Discount Drugs While Battling HHS in Court

Jan. 25, 2022, 10:35 AM

Major pharmaceutical companies continue cutting off for-profit pharmacies from drug discounts aimed at helping low-income patients even as they fight the HHS in courts across the country—a trend with no end in sight.

AbbVie Inc., Amgen Inc., and Bristol Myers Squibb are among the latest companies to limit the price cuts they offer through the government’s 340B program, which requires drugmakers to give discounts to providers serving vulnerable populations in exchange for their drugs participating in Medicaid and Medicare Part B.

Courts have handed down conflicting rulings over the government’s authority to force drugmakers to fork over these discounts, and both the Biden administration and Big Pharma have pending appeals. Program experts say the drugmakers are still imposing limits because there’s nothing stopping them.

“They’re basically taking the bet they can get away with saving money during this undetermined period,” said Colleen Meiman, national policy advisor for state and regional associations of Community Health Centers, a group whose members are involved in 340B litigation.

Drugmakers “see the lawsuits are going to drag on for a long time,” and don’t foresee “any significant repercussions” for the period they limit discounts to contract pharmacies, or outside pharmacies that dispense drugs on behalf of health providers participating in the 340B program, she said.

“The longer the issue remains unresolved, the more manufacturers are likely to join in,” said Helen Pfister, a partner at Manatt, Phelps & Phillips LLP who advises on 340B. “There’s a critical mass of manufacturers that have taken this approach.”

Courtroom Conflicts

Section 340B, created by Congress in 1992, was intended to stretch federal resources. Providers entitled to discounts through the program include half a dozen types of hospitals, AIDS programs, and family planning clinics, among others.

But in 2020, drugmakers, weary of giving discounts to a burgeoning number of for-profit pharmacies amid criticism of program mismanagement, began pushing back. Around a dozen companies have restricted discounts to date.

In July 2020, Eli Lilly and Company posted a notice with the Health and Human Services Department that it was limiting distribution of drug discounts to pharmacies that offer medications on behalf of providers participating in the program. Shortly after, AstraZeneca PLC, Novartis AG, Merck Sharpe & Dohme Corp., Sanofi, and United Therapeutics made their own moves to curb discounts through contract pharmacies.

The restrictions spurred a bevy of litigation, with groups like the American Hospital Association and Ryan White Clinics for 340B Access suing the HHS to take action over the drugmaker moves, which they argue hampers people’s ability to access needed medications.

The Trump administration’s HHS in December 2020, issued an advisory opinion stating drugmakers had to honor contract pharmacy agreements, setting off more litigation. The Biden administration later jumped into the fray, though courts have handed down conflicting opinions on whether HHS can force drugmakers to resume discounts.

Drugmakers and health providers “are litigating pretty much every angle,” Meiman said. And in the interim, drugmakers are still limiting discounts.

“Nothing has happened to make them stop,” said Maureen Testoni, president of the nonprofit 340B Health, which represents hospitals in the program. But the outcome of three cases on appeal could make a difference, she said.

In one case, the U.S. District Court for the District of Columbia ruled in favor of Novartis and United Therapeutics Corp. and found that the HHS doesn’t have the authority to force drugmakers to resume discounts without “a new statutory provision, a new legislative rule, or a well-developed legal theory.”

The government fared better in a separate case involving Sanofi and Novo Nordisk, in which a federal district court in New Jersey said the drugmakers can’t create their own policies on how many contract pharmacies can receive discounted drugs. In a third case, the a district court in Indiana blocked the HHS from going after Eli Lilly for limiting its discounts.

As the litigation plays out, pharmaceutical companies are emboldened to continue cutting discounts.

“I wouldn’t be surprised if other manufacturers followed suit,” Pfister said.

‘Reached Their Limit’

Critics of the 340B program say it is rife with abuse that leaves drugmakers to foot hefty bills, and that it was only a matter of time before companies pushed back.

One alleged abuse is “drug diversion,” which involves distributing 340B-priced drugs to people who aren’t patients of a 340B hospital. Pharmacies like CVS and Walmart may be unaware as to whether a patient is 340B eligible when dispensing a drug, which could lead to illegal diversion and duplicate discounting.

Others say the size of 340B, which has grown into one of the largest mandated U.S. drug programs, warrants drugmaker caution. In 2010, the HHS updated its program guidance to allow covered entities to use an unlimited number of contract pharmacies.

Over the next decade, their use exploded, and some drugmakers “reached their limit,” said Jon Shakow, a King & Spalding LLP attorney who represents pharmaceutical companies.

In 2018, the Government Accountability Office reported that the number of pharmacies 340B health providers contracted with skyrocketed from roughly 1,300 in 2010 to almost 20,000 in 2017. The GAO also uncovered flaws in HHS oversight of the program that hobbled the agency’s ability to ensure compliance, such as audits not fully assessing for duplicate discounts.

“More companies will impose limits on voluntary contract pharmacy distribution,” Shakow said. “The question really isn’t, `Why are companies suddenly coming to it?’ but `How is it they managed to wait as long as they did?’”

Next Steps

The GAO in 2020 found more than 1,500 instances of noncompliance of the 340B program since fiscal 2012. The report notes that in 2019, the HHS in several instances didn’t find a party’s failure to comply “in part because the 340B statute does not address contract pharmacy use and, therefore, there may not have been a clear statutory violation.”

As for drugmakers discount limits, “what we’re seeing happen is a result of decades of program failure,” said Nicole Longo, senior director of public affairs at Pharmaceutical Research and Manufacturers of America (PhRMA), a drugmaker trade group. “This program has been going more and more off course.”

But while some hospitals “haven’t always made it easy,” a court opinion further limiting discounts could prove “a major shock” for 340B entities, said Joey Mattingly, an associate professor at the University of Maryland School of Pharmacy.

Until the cases make their way through the courts, more drug companies limiting discounts means less savings for providers who, in turn, may struggle to keep up with their programs.

Such savings “are underpinning” programs for things like substance use and Covid-19 vaccine clinics, Meiman said. “If you take away those funds for us, it’s got to come from somewhere else.”

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

To contact the editors responsible for this story: Alexis Kramer at akramer@bloomberglaw.com, Melissa B. Robinson at mrobinson@bloomberglaw.com