340B entities face increased challenges in a shifting regulatory and enforcement landscape

On June 15, 2022, the Supreme Court docket issued an opinion in favor of 340B hospitals rejecting steep reductions in reimbursements for coated 340B medication that the Facilities for Medicare and Medicaid Providers (“CMS”) had tried to implement in 2018. However even following this choice, all entities concerned within the 340B Drug Pricing Program (“340B Program”) nonetheless face a major quantity of uncertainty in complying with its necessities. Along with the reimbursement quantity challenge, the U.S. Division of Well being and Human Providers (“HHS”) and its sub-agencies have lately taken shifting and inconsistent positions that threaten to create a authorized and sensible quagmire for the 340B Program designed to offer healthcare to underserved and weak affected person populations. On this article, we have a look at three key areas of uncertainty for the 340B Program.


In 1992, Congress established the 340B Program, which requires drug producers, as a situation of participation in Medicare and Medicaid, to promote their medication to 340B coated entities, similar to public and non-profit hospitals and different federally funded clinics serving rural or low‑revenue sufferers at closely discounted costs. 42 U.S.C. § 256b (1992).  Whereas coated entities buy 340B medication at steeply discounted charges, they typically nonetheless invoice insurers at these insurers’ commonplace charges, leading to a major “revenue” for the coated entity, which many coated entities depend on to assist fund their general operations. As one courtroom lately characterised it, “[t]he 340B Program is taken into account important to the nation’s security web system for medically weak populations, many extra sufferers depend on it immediately than in 1992, and it’s rising yearly.” Sanofi-Aventis U.S., LLC v. U.S. Dep’t of Well being & Hum. Servs., 570 F. Supp. 3d 129 (D.N.J. 2021).“By 2018, the variety of hospitals and related websites had elevated by 3,000 % in comparison with 2005, to 2,541 hospitals and 26,641 websites,” with “743 producers and 12,722 coated entities participat[ing] in all.”  Id. (citing Home Power and Commerce Committee, Overview of the 340B Drug Pricing Program, at 11-13).

Three Key Areas of Uncertainty within the 340B Program

The 340B Program will not be simple to implement and requires the participation of drug producers, pharmacy profit managers, wholesalers, and pharmacies, along with the 340B coated entities themselves. Making this system work requires coordination amongst these numerous stakeholders, together with change of detailed affected person and gross sales info, affected person and product monitoring, correct worth reporting, and audits.

HHS and CMS have lately taken positions that create important, lingering uncertainty for the 340B program in at the least three key respects: (1) who qualifies as a affected person underneath the 340B Program; (2) what pharmacies might present 340B medication to qualifying sufferers; and (3) what quantities will likely be reimbursed for the 340B medication.

Qualifying Sufferers

The primary supply of steering as to which people qualify as “sufferers” of coated entities for the 340B Program comes from steering that the Well being Assets and Providers Administration (“HRSA”)—part of HHS—issued in 1996, which specifies three circumstances:

  • the coated entity “has established a relationship with the person, such that the coated entity maintains data of the person’s well being care”;
  • the person receives healthcare companies from an worker of the coated entity or by way of an association the place the coated entity stays liable for the person’s care; and
  • the person receives healthcare companies which are according to the scope of the federal grant.

In a case earlier than the Fourth Circuit, Genesis Healthcare v. Becerra (No. 20-1701), HRSA audited and eliminated a hospital from the 340B Program on the premise that it had allotted 340B medication to non‑qualifying sufferers. HRSA’s audit letter didn’t restrict “qualifying sufferers” to these falling throughout the 1996 steering, however reasonably imposed a further requirement that the coated entity “should have initiated the healthcare service ensuing within the prescription” to the affected person. Such a further requirement would in lots of instances slender the set of people who qualify as sufferers, and certainly HRSA decided that a lot of Genesis’s sufferers didn’t qualify. When Genesis Healthcare challenged the audit letter’s definition, HRSA voided the audit findings and the events reached an settlement to provisionally readmit Genesis Healthcare to the 340B Program. The Fourth Circuit lately reversed the District Court docket and remanded the case, concluding that the case was not moot as a result of the HRSA letter voiding the audit findings “mentioned nothing about how Genesis Healthcare was to proceed to conduct itself underneath the 340B Program, nor did it vacate and even handle its 1996 Tips definition of ‘affected person’ that shaped the premise for its enforcement motion and Genesis Healthcare’s lawsuit.” The Fourth Circuit famous that HRSA had taken motion towards Genesis Healthcare primarily based on its definition of “affected person” and will “simply accomplish that once more in reference to its ongoing obligation to audit” 340B compliance.

HRSA’s try and implement a extra onerous definition of a qualifying “affected person” adopted by its sudden withdrawal of the audit letter upon problem leaves a number of questions. It’s unclear whether or not HRSA is making an attempt to systematically chip away on the definition of “affected person” by way of enforcement actions, whether or not HRSA’s actions foreshadow new steering or coverage positions, or just whether or not the Genesis Healthcare audit letter was the results of inconsistent interpretation.

The rise of telemedicine throughout and following the pandemic has additional muddied the waters relating to whether or not the entities are literally serving the medically weak populations who’re the last word supposed beneficiaries of the 340B Program. The aim of the 340B Program is to offer low-cost medication to allow public and non-profit healthcare amenities to deal with medically weak populations. Telemedicine companies, whose use has burgeoned throughout and following the pandemic, permit people to obtain remedy from a coated hospital or clinic regardless that the affected person will not be historically among the many weak affected person inhabitants that the power is meant to serve, and may very well be situated a whole lot if not 1000’s of miles away.  Whereas this will seem to technically fulfill the 340B “qualifying affected person” requirement within the 1996 pointers, the rise of telemedicine threatens to shift the affected person inhabitants served by 340B coated entities away from the supposed medically weak inhabitants—a shift that may be inconsistent with the 340B Program’s objective. As well as, pharmaceutical corporations are legitimately involved about having the ability to audit 340B gross sales to be sure that medication aren’t being diverted to people who aren’t the supposed beneficiaries of the 340B Program.  When sufferers aren’t among the many goal inhabitants of the 340B facility and may very well be situated removed from the treating hospital, it’s troublesome if not not possible to make sure that the 340B medication are getting used for the medically weak populations that justify the coated entity’s participation within the 340B Program.

In any occasion, none of those eventualities are reassuring for 340B entities as they adjust to the “qualifying affected person” necessities of the 340B Program.  Inconsistent enforcement and rising telemedicine developments make compliance troublesome and will increase the chance of a violation however stakeholder’s diligent efforts.

Qualifying Pharmacy Preparations

340B Program contributors additionally face uncertainty in figuring out find out how to present 340B medication to certified sufferers.  When Congress created the 340B Program in 1992, solely 500 of 11,000 coated entities maintained their very own in-house pharmacy, Sanofi-Aventis (citing 61 Fed Reg. at 43,550), and lots of 340B entities have come to contract with outdoors pharmacies (“contract pharmacies”). In 1996, HHS issued steering allowing coated entities to contract with a single contract pharmacy. Nonetheless, in a 2010 steering doc, HHS modified course and allowed coated entities to make use of a vast variety of contract pharmacies to dispense 340B medication. Partly on account of the 2010 steering, the variety of contract pharmacies collaborating within the 340B Program grew from 1,300 to about 20,000 in 2017. Id. (citing GAO, Report No. 18-480, Drug Low cost Program: Federal Oversight of Compliance at 340B Contract Pharmacies Wants Enchancment, at 10).

As a result of the costs of 340B medication are so low, there’s a authentic concern about “drug diversion,” or promoting a coated drug to somebody who will not be eligible to obtain the drug on the lowered 340B worth. As well as, drug producers search to keep away from “double dipping.” Drug producers are required to pay Medicaid a rebate for all Medicaid drug gross sales aside from 340B gross sales. Drug producers legitimately wish to be sure that they don’t present the steeply discounted costs to 340B entities, and still have to pay Medicaid rebates on those self same gross sales as properly.  To handle the drug diversion and double dipping issues, many drug producers search to audit 340B gross sales. Drug corporations have additionally put in place insurance policies that prohibit offering 340B medication to hospitals or amenities with out an in-house pharmacy, until the hospital or facility designates only a single contract pharmacy location, which might usually be situated close to the coated facility and serve the identical weak affected person inhabitants. In late 2020, the HHS Common Counsel issued an advisory opinion stating that limiting this system to a single contract pharmacy per coated entity violated federal regulation. Following litigation, HHS withdrew the advisory opinion, however HHS has continued to threaten drug makers with civil financial penalties in the event that they proceed to limit 340B allotting to a single contract pharmacy. In a July 15, 2022 letter, 181 members of Congress signed a letter urging HHS to finish its seven pending enforcement critiques and impose penalties for any violations, in addition to provoke new enforcement actions towards eleven different drug corporations.

There has additionally been litigation relating to the executive dispute decision (“ADR”) course of that Congress directed HHS to create to referee conflicts between coated entities and drug makers over points like contract pharmacies.  Though the statute required HHS to create that ADR course of inside 6 months of the Reasonably priced Care Act’s passage in 2010, HHS didn’t even suggest an ADR Rule till 2016. Following a common regulatory freeze in 2017, the ADR Rule was withdrawn from the unified agenda of pending regulatory actions with out clarification. In October 2020, a variety of coated entities filed lawsuits demanding that HHS implement an ADR Rule, and HHS carried out a last rule shortly thereafter as if the rule initially proposed in 2016 had not been withdrawn. Whereas a number of ADR petitions have since been filed difficult drug maker’s restrictions on the distribution of 340B medication to contract pharmacies, the ADR Rule itself has additionally been challenged as illegal.

As well as, on July 28, 2022, the State of New York sued CVS over its requirement that 340B entities used a wholly-owned CVS subsidiary, Wellpartner, as its 340B third-party administrator (“TPA”), alleging that it constitutes an unlawful tie in violation of the Donnelly Act, New York’s state antitrust regulation. Based on New York, the alleged tie forces 340B entities to decide on between 340B program advantages and selection amongst various TPAs who might supply higher pricing or companies and thereby undermine the objectives of the 340B program. Use of state regulation to not directly implement the 340B program, similar to New York’s enforcement motion, represents yet one more wave of potential challenges and uncertainty within the 340B house.

These conflicts amongst numerous 340B stakeholders make future use of contract pharmacies by coated entities unsure. Even when permitted by federal regulation, all events concerned within the 340B Program ought to rigorously assess their strategy to using contract pharmacies because the ADR petitions and HHS enforcement actions proceed.

Reimbursement Quantity         

Lastly, even assuming the existence of a certified affected person and a certified pharmacy, coated entities face questions relating to the quantity of reimbursement for 340B medication. As famous above, in American Hospital Affiliation v. Becerra, the Supreme Court docket lately rejected HHS’s efforts to offer completely different reimbursement for 340B entities than for different Medicare and Medicaid suppliers. Particularly, the Supreme Court docket decided that as a way to set a reimbursement price for a specified class of hospitals, the statute required HHS to conduct a survey of hospitals’ drug acquisition prices—which HHS had not performed.

In 2020, nevertheless, after the litigation started, HHS tried for the primary time to conduct a survey of hospital acquisition prices. The proposed rule HHS introduced for 2023 doesn’t seem to depend on these survey outcomes, however HHS might nonetheless search to make use of these survey outcomes to decrease future reimbursement charges for 340B medication. Whether or not HHS will accomplish that, which hospitals could also be affected, and the way reimbursements would change will stay unknown till HHS pronounces its supposed coverage for future protection years, and relying on the content material of the rule, litigation over the survey could also be prone to comply with.


Predicting the place any of those points will finally settle is troublesome if not not possible. Regardless, it’s clear that drug producers, 340B coated entities, and different stakeholders will face rising uncertainty on find out how to implement the 340B Program according to federal regulation and laws. Considerations about who qualifies underneath the 340B Program, how medication will be allotted to sufferers, and the way a lot entities will likely be reimbursed might considerably affect the operation of the 340B Program as Congress supposed. This evolving panorama poses challenges to all stakeholders concerned within the 340B Program as they assess their compliance obligations, danger calculus, and enterprise plans. No matter one’s opinion on any of those points, the related stakeholders could be higher served with clear and constant insurance policies and steering relating to their tasks and rights underneath these core points of the 340B Program going ahead.

Image: Ligorko, Getty Photos

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