State legislation aiming to block discriminatory practices used against pharmacies in a federal drug discount program is ramping up this year despite legal challenges from the drug industry.
The legislation is designed for the 340B Drug Pricing Program, a federal plan allowing covered entities such as qualifying safety-net hospitals, clinics, and other providers to purchase outpatient drugs at discounted prices from manufacturers participating in Medicaid.
The program has faced challenges in recent years regarding the program’s integrity, how discounts are used, or where they’re provided. Drug distribution has become a pain point as some manufacturers have restricted discounts to pharmacies contracting with entities covered by the 340B program, also known as contract pharmacies.
At least a dozen states have introduced 340B contract pharmacy arrangement protection laws to combat manufacturer restrictions, but those who have passed legislation are currently defending their provisions in court.
As some states are battling out their role in the 340B program, several other states are still taking their chances introducing laws to protect the federal scheme.
“These state 340B drug distribution laws have real enforcement teeth and impact,” said Mark Ogunsusi, an associate in the Drug Pricing and 340B Program practice group at Powers Pyles Sutter & Verville PC.
“Safety-net health-care provider groups are pushing laws to defend the public health infrastructure in their states by protecting shipment of 340B drugs to contract pharmacies,” Ogunsusi said.
State-Level Protection
Arkansas and Louisiana are the only states that have enacted laws that protect contract pharmacy arrangements. Those laws target manufacturer conditions on the delivery of 340B drugs to contract pharmacies and prohibit them from refusing to supply the discounted drugs.
Currently, 18 other states have introduced similar bills. Massachusetts’s S. 2520 and Virginia’s S.B. 119 are closest to becoming laws.
Opposition to the state legislation comes from the pharmaceutical industry. The major drugmaker lobbying group, the Pharmaceutical Research and Manufacturers of America, challenged Arkansas and Louisiana’s laws, and
The industry group and drugmakers argue the state laws interfere with federal law and impose additional requirements that encroach on the federal government’s authority over the program.
“We appreciate that there is a growing recognition of the need for accountability and transparency in the 340B program to rein in hospital abuses,” Nicole Longo, a spokesperson for PhRMA, said in an email. “However, the 340B contract pharmacy provisions some states are considering not only miss the mark but also represent an overstep by state governments.”
When asked if PhRMA plans to challenge the next states passing contract pharmacy arrangement laws, Longo said it’s premature for the group to answer and can’t speculate at this time.
But states defending the legislation argue their laws aren’t preempted and that it’s within the state’s police powers to regulate the health and safety of their residents. States and manufacturers also disagree on whether the 340B statute is silent on drug distribution and if that’s where states should step in.
“These bills relate to 340B drug distribution, which is not covered under the federal 340B statute and is well within a state’s police power to protect under fundamental principles of federalism,” Ogunsusi said.
As a result of Arkansas and Louisiana’s laws, manufacturers including
More Legislation
In addition to 340B contract pharmacy bills, at least 29 states have passed laws that would prohibit pharmacy benefit managers from discriminating against 340B covered entities.
The provisions restrict the pharmaceutical middlemen from imposing certain conditions on 340B covered entities or contract pharmacies such as reimbursing them less or preventing them from receiving discounted prices.
But PBMs can’t always determine when a claim is related to a 340B transaction when they process them, according to Greg Lopes, vice president of public affairs and communications for the Pharmaceutical Care Management Association.
The leading PBM trade group encourages state legislators interested in examining the 340B program to use claim modifiers to avoid duplicate discounts, which “ensure fairness and transparency in the prescription drug marketplace,” Lopes said in an email.
Other state laws target program transparency, requiring 340B providers to report on savings, payments, and acquisition costs. Maine, Minnesota, and Washington so far have passed such legislation, and Connecticut and Indiana introduced bills this year.
Covered entities reevaluating their 340B policies should “remain aware of other federal and state laws that govern 340B Program operations,” Emily Cook, partner at McDermott Will & Emery LLP, said in an email.
This includes fraud and abuse laws, state pharmacy laws, and Medicare and Medicaid billing and coverage rules, Cook said.
A Federal Fix?
A measure to amend some of the program’s challenges is already in the works at the federal level. A bipartisan group of six senators on Feb. 2 introduced a discussion draft of legislation that would modify the program, and for the first time, codify contract pharmacy and child site arrangements in the statute.
The draft comes after the Senate working group in August 2023 requested information on the program and ways to strengthen its operations, savings, and spending. Major elements of the bill target transparency practices, program integrity efforts, and duplicate discount prevention. The senators are requesting information on the discussion draft by April 1.
Legislation being explored in states, and now at the federal level, show how huge the program has become, said Ted Okon, executive director of Community Oncology Alliance.
“It’s hard to ignore that this is a program that has been controversial, which is very opaque, not transparent, and questionable as to where the dollars are going,” Okon said.
“It’s caught everybody’s attention from the state up to the federal level,” he added.
Despite the various action targeting the 340B program, participants “still need Congress to speak,” said Vacheria Keys, associate vice president of policy and regulatory affairs for the National Association of Community Health Centers, a group pushing for program reform through federal legislation.
“They are the final voice and say on that and that is one thing that has been clear in all the litigation,” Keys said.
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