J&J Threatened With Sanctions Over Plan To Rebate 340B Drugs

Dive Brief:

• The Biden administration is threatening Johnson & Johnson with fines if the drugmaker follows through with planned changes to how it offers hospitals savings on two widely prescribed drugs in the 340B drug discount program.
• On Tuesday, the Health Resources and Services Administration (HRSA) sent a letter to J&J stating that the drugmaker’s plan to offer hospitals after-the-fact rebates, instead of upfront discounts on drugs, is illegal and could lead to J&J receiving steep fines or losing access to Medicare and Medicaid.
• J&J, which did not respond to a request for comment, has until Sept. 30 to inform regulators that it has stopped implementing the rebate proposal, HRSA said. J&J planned to switch over to the new payment model on Oct. 15.

Dive Insight:

Late last month, J&J informed hospitals that it would stop giving them upfront discounts on two medications eligible for a discount under 340B — plaque psoriasis treatment Stelara and blood thinner Xarelto. Instead, the drugmaker will require hospitals to pay full price for the drugs and issue them a rebate later.

Hospitals immediately cried foul, arguing the policy shift violated statute. Currently, drugmakers are required to provide the 340B price at the time of purchase.

340B Health, a trade group representing hospitals participating in the drug discount program, also argued the rebate setup could give J&J an opportunity to deny rebates after the point of sale. In addition, it would mean hospitals are floating revenue to drugmakers until they approve rebates, instead of saving money when purchasing drugs.

The financial strain could force some safety-net facilities, many of which operate on thin margins, to close, according to 340B Health.

J&J cited the need to cut down on waste and abuse in 340B as the reason behind the rebate plan.

After the New Jersey-based drugmaker made the plan public, HRSA quickly said it was inconsistent with federal law, given J&J hadn’t received approval from the government. Now, HRSA is sharing more details about why the scheme is illegal — and outlining potential punishments for J&J if the company goes through with it.

Along with not being greenlit by the HHS, J&J’s plan is also unlawful because it would require hospitals to purchase Stelara and Xarelto at prices higher than the maximum 340B cost of the drugs, HRSA wrote in its letter to the drugmaker.

HRSA also rejected J&J arguments that the rebate plan is similar to replenishment models, in which hospitals buy drugs at a higher price initially before subsequent purchases are made at the lower 340B price, given the rebates would be mandatory and apply to every purchase of the drugs.

HRSA asked J&J to notify the agency by the end of this month that it has stopped implementation of the plan. If not, J&J could be subject to civil monetary penalties, which would total about $7,000 per violation, according to 340B Health.

In addition, J&J could face termination of its pharmaceutical pricing agreement with the HHS, which would mean J&J drugs would be cut out of Medicaid and Medicare coverage.

Threatening J&J’s participation in those programs is a big stick for regulators, given the drugmaker would lose access to a patient pool of almost 150 million individuals.

Drugmakers and providers have been increasingly at odds over 340B, which was enacted three decades ago to give hospitals serving a large number of low-income or otherwise needy patients access to affordable medications. The program requires drugmakers to cut the price of eligible outpatient drugs at qualifying hospitals and clinics.

Those discounts can be steep — generally 20% to 50% off the list price of a drug. As a result, pharmaceutical companies strongly oppose the program, and are increasingly looking for creative ways to curb the discounts, including refusing to discount drugs dispensed at contract pharmacies.

J&J is the first pharmaceutical manufacturer to actually try to implement rebates in 340B. However, in 2021 a drug discount manager, Kalderos, filed a lawsuit challenging HRSA’s assertion that drugmakers couldn’t impose rebates in the drug discount program. That lawsuit has been stayed pending final appeals in a D.C. district court.

Drugmakers argue that hospitals aren’t responsible stewards of 340B, especially as the program has grown to include more than one-third of U.S. hospitals. The volume of 340B drugs has also risen: Drugs purchased in the program grew by almost a fourth to about $54 billion between 2021 and 2022, according to HRSA.

Research is mixed on hospitals’ use of 340B funds, with some studies finding hospitals use revenue from the program to expand healthcare services and subsidize uncompensated care. Others have used it for purposes unrelated to patient care, like acquiring physician practices. Similarly, audits of covered entities have found many providers aren’t complying with 340B requirements like not reselling discounted drugs.

Congress is currently mulling over potential reforms to 340B. Proposals include forcing hospitals to account for what they do with revenue from the program.