Latest 340B Ruling Delivers Blow To Providers

Dive Brief:

• Drugmakers are allowed to limit and impose conditions on pharmacies they send discounted drugs to under the 340B program, an appeals court ruled Tuesday.
• The ruling is a win for drug manufacturers, who were previously threatened with fines from the federal government for violating guidance regarding which pharmacies they would send discounted drugs to.
• The Court of Appeals upholds a prior District Court ruling, which sided with drugmakers Novartis Pharmaceuticals and United Therapeutics after they sued the HHS in 2021. It’s the latest ruling regarding the controversial 340B drug program — a separate appellate court also ruled with drugmakers early last year.

Dive Insight:

Providers and drugmakers have been at odds for years over the 340B Drug Pricing Program, which requires drugmakers to give discounts to providers that care for a disproportionate number of low-income populations.

Pharmaceutical companies have argued providers abuse the discounts — which can be 25% to 50% off the list price of a drug — especially when providers partner with outside pharmacies to dispense medications.

Providers can contract with an unlimited number of pharmacies to dispense 340B drugs, due to guidance from the federal government released in 2010 that aimed to broaden access to the program.

As a result, drugmakers began imposing restrictions on the pharmacies they would dispense drugs to, accusing providers of intermingling discounted and non-discounted drugs to create duplicate discounts.

Novartis, for example, said it would only work with contracted pharmacies within 40 miles of a covered hospital. United Therapeutics said it would only contract with pharmacies previously used by a provider to distribute 340B drugs during the first three quarters of 2020.

The HHS pushed back on the restrictions proposed by drugmakers, arguing that pharmaceutical companies must distribute 340B drugs to any pharmacies providers chose to contract with. It also sent enforcement letters to multiple pharmaceutical companies, including Novartis and United Therapeutics, threatening fines if they did not comply.

Novartis and United Therapeutics sued the HHS in 2021, arguing that 340B does not prohibit manufacturers from imposing conditions on how it can distribute the drugs. A district court agreed, and the appellate court upheld the decision.

In his opinion, U.S. Circuit Judge Gregory Katsas cited concerns from drugmakers that allege 340B providers contract with pharmacies and third-party administrators to manipulate discounts and spread the savings among themselves.

“Each of these actors thus has a financial incentive to catalogue as many prescriptions as possible as eligible for a discount,” Katsas wrote.

He pointed toward a 2020 report from the Government Accountability Office, which found the potential for duplicative discounts had increased due to the 2010 expansion of 340B pharmacies — between 2010 and 2019, the number of contracted pharmacies in 340B exploded from about 1,300 to 23,000.

The opinion also cited a 2014 report from the Office of Inspector General that found most 340B providers did not conduct all oversight activities recommended by the government, although almost all entities conducted some oversight.

Although the appellate court said pharmaceutical companies were allowed to create requirements for the pharmacies they dispense to, the court also said drugmakers could not create conditions that violate the 340B program.

“We do not foreclose the possibility that other, more onerous conditions might violate the statute,” the opinion said. “Likewise, we do not foreclose the possibility that these conditions may violate section 340B as applied in particular circumstances.”

Provider groups pushed back on the ruling.

“The Court regrettably handed drug companies a permission slip to block patients from easily accessing 340B drugs at their local pharmacies or from specialty pharmacies,” said Chad Golder, general counsel and secretary for the American Hospital Association, in a statement.

“Today’s decision by the U.S. Court of Appeals for the District of Columbia allows drug companies to continue their egregious restrictions on 340B discounts for drugs dispensed by contract pharmacies and puts care for disadvantaged patients at risk,” Beth Feldpush, senior vice president of policy and advocacy for America’s Essential Hospitals, said in a statement.

Drugmakers have sued the federal government before over 340B pharmacies. Last year, an appeals court ruled that pharmaceutical companies are not compelled to distribute 340B drugs to an unlimited amount of contract pharmacies.