Providers, Drugmakers At Odds Over New 340B Dispute Resolution Process

Dive Brief:

• Providers and drugmakers are once again at odds over the 340B drug discount program: this time, over a rule finalized by the Biden administration on Thursday making changes to its dispute resolution process.
• The final rule, which will become effective in mid-June, is meant to make dispute resolution more accessible and efficient, according to the Health Resources and Services Administration, or HRSA, the agency that oversees 340B. Along with lowering barriers to enter the process, the rule requires parties to make a good faith effort to resolve disputes before bringing them to arbiters and creates an appeals process if either party doesn’t like the result.
• Provider groups the American Hospital Association and 340B Health said the rule should streamline the arbitration process and preserve the integrity of the controversial program. Meanwhile, pharmaceutical lobby PhRMA said the new process “panders to 340B hospitals” while ignoring drugmakers’ concerns.

Dive Insight: 

The 340B Drug Pricing Program was created more than three decades ago to support hospitals caring for a disproportionate number of low-income populations, by requiring drugmakers to give those providers discounts on outpatient drugs. 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 for cutting into their bottom lines, while safety-net hospitals say 340B is a financial lifeline for their cash-strapped facilities. Feuds between hospitals and drugmakers over 340B are nothing new, but have picked up in recent years as more drugmakers refuse to pay discounts hospitals say they are owed.

Now, the two industries have found themselves on opposite sides of the debate over 340B’s administrative dispute resolution process, which is designed to use panels of government officials to oversee disagreements between them.

Those include claims by drug companies that a hospital has diverted 340B drugs to ineligible patients or received duplicate discounts for the same medication, along with claims by hospitals that drug companies have overcharged them for covered outpatient drugs.

The HHS created the process in a 2020 final rule that quickly faced a lawsuit filed by PhRMA arguing it was biased against drug manufacturers, and would make it harder for them to initiate claims. A federal judge paused the suit early last year after HRSA said it planned to make changes to the process.

Those changes on Thursday pare back arbitration from “a lengthy, trial-like process” to a more flexible one, regulators wrote in the final rule. For example, HRSA removed a minimum dispute threshold of $25,000 for a petition to be filed, to make it easier for groups without legal expertise or significant resources to access dispute resolution.

340B Health, which represents 1,500 hospitals participating in the program, said it was “particularly encouraged” that the final rule allows hospitals to bring disputes to the panel over drug companies limiting their ability to purchase drugs at the 340B price, and that regulators nixed a proposal that would have prevented hospitals from bringing claims similar to those pending in federal court.

That’s because a number of court cases are pending after about 20 drugmakers halted 340B discounts to providers that use community and specialty pharmacies.

“This rule will help hold drug companies accountable,” said Chad Golder, AHA general counsel, in a statement Thursday.

But “frustratingly, the administration chose not to consider issues we raised in our comments, exacerbating ongoing program integrity issues,” PhRMA spokesperson Nicole Longo said, calling the rule “flawed.”

Drugmakers have accused hospitals of not being responsible stewards of the program’s funds, especially as 340B continues to grow.

Research is mixed, with some studies finding hospitals use revenue from the program to expand healthcare services for low-income people 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.

As a result, the pharmaceutical industry and some lawmakers have called for more guardrails in 340B requiring hospitals to account for their savings.