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Our Take: Appellate court sides with drugmakers in battle over 340B drug discounts to contract pharmacies

Feb 06, 2023

A panel of three judges serving on the U.S. Court of Appeals for the Third Circuit ruled in favor of AstraZeneca, Novo Nordisk, and Sanofi last Monday, finding that the companies’ policies restricting delivery to contract pharmacies do not violate Section 340B of the Public Health Service Act.

The Department of Health and Human Services has tried to make pharmaceutical companies comply with guidance issued in 2010, which says covered entities in the 340B drug discount program — typically hospitals and clinics serving large numbers of uninsured and low-income patients — can use an unlimited number of contract (i.e., community) pharmacies to dispense covered outpatient drugs.

But some drugmakers say the increased use of contracted pharmacies has resulted in drugs being diverted illegally and, in some cases, duplicate discounts (through both the 340B program and Medicaid).

Another criticism some companies make is that hospitals don’t have to show that the money they save through the 340B program is allocated for patient care.

Sanofi and AstraZeneca were among the first to start implementing policies in mid-2020 that limited 340B discounts on drugs dispensed by contract pharmacies. By this time last year, a dozen drugmakers had announced such policies.

The Health Resources and Services Administration began issuing violation letters  in 2021, advising drug companies that they could be subject to monetary penalties as a result of the restrictions and instructing them to credit or refund all covered entities for overcharges associated with the new policies.

Multiple lawsuits ensued, with mixed outcomes. Last week’s ruling reversed an earlier order handed down in a federal court in New Jersey against Sanofi and Novo Nordisk and upheld an order by a federal court in Delaware that favored AstraZeneca.

On behalf of the appellate court panel, Judge Stephanos Bibas wrote:

“The Department of Health and Human Services claims that drug makers must deliver certain discounted drugs wherever and to whomever a buyer demands. But the relevant law says nothing about such duties. So HHS’s efforts to enforce its interpretation against the drug makers here are unlawful.”

In the conclusion of the court’s opinion, Judge Bibas stated:

“Congress never said that drug makers must deliver discounted Section 340B drugs to an unlimited number of contract pharmacies. So by trying to enforce that supposed requirement, the government overstepped the statute’s bounds.”

On Wednesday, two days after the court’s decision, Bayer and EMD Serono said that starting March 1, with some exceptions, they would no longer provide certain products to contract pharmacies at 340B prices, bringing the total number of drug companies that have narrowed their 340B discounts to 21.

As of late Friday, HHS had not issued a statement on the court’s ruling.

The District of Columbia Court of Appeals and the U.S. Court of Appeals for the Seventh Circuit are considering similar cases.

Our Take:  The 340B program costs drug companies, collectively, billions of dollars in sales each year, as they commonly discount the products sold to covered entities by 25% to 50%. We’re not going to suggest that any company would purposely restrict patients’ access to treatment, but it’s not hard to see why they would want to curtail abuse of the program.

On the flip side, individual hospitals participating in the program have lost millions of dollars in revenue the last couple of years from missed savings on prescription drugs because of the new policies regarding contract pharmacies — money that could make a tremendous difference, especially in underserved communities.

With so much at stake, fighting over the 340B program is likely to continue.

We’re eager to see how HHS responds to the most recent ruling, and how the other appeals will play out. If at least one of the other courts decides in HHS’ favor, what then? Will any of the cases end up with SCOTUS? Will any members of Congress propose legislation to amend the 340B program? (We’re not holding our breath.) 

What else you need to know
CMS is cracking down on Medicare Advantage (MA) overpayments to health insurers. The agency published a final rule on Jan. 30 outlining revisions to its audit methodology for the MA Risk Adjustment Data Validation (RADV) program. Previously, when an audit determined that beneficiaries’ medical records did not support diagnoses reported by an insurer, payment adjustments were made only for claims included in the audit sample. Now, however, CMS will extrapolate audit findings to make payment adjustments for a broader set of claims, starting with audits for payment year 2018. Moreover, CMS finalized a policy in the rule that it will not apply a fee-for-service adjuster in RADV audits. Health and Human Services Secretary Xavier Becerra said on a call with reporters, “Thanks to this final rule, CMS will now be able to provide appropriate oversight and ensure the integrity of the entire Medicare program by taking specific steps to collect payments made to the MA plans to which they were never entitled under our laws and regulations.” CMS expects to recoup an estimated $4.7 billion by 2032. Additional details of the final rule are available in a fact sheet.

GoodRx agreed to pay a $1.5 million civil penalty imposed by the Federal Trade Commission for sharing users’ personal health information with Facebook, Google, Criteo, and other advertising platforms without authorization. The FTC’s proposed order prohibits GoodRx, a telehealth and prescription drug discount provider, from sharing users’ health data with third parties for advertising purposes; it is the federal agency’s first enforcement of the Health Breach Notification Rule enacted in 2009. In a blog post, GoodRx admitted no wrongdoing and said the settlement pertains to “an old issue that was proactively addressed almost three years ago, before the FTC inquiry began.” The order, filed by the Department of Justice on the FTC’s behalf, must be approved by a federal court before taking effect.

After 20 years, AbbVie’s Humira (adalimumab) has lost exclusivity. With a list price of approximately $83,000 per year, the drug has earned roughly $20 billion annually for AbbVie since 2018. Used for treating rheumatoid arthritis and other autoimmune diseases, Humira has repeatedly topped the list of best-selling prescription medications in the U.S. and globally, but more than half a dozen biosimilars are expected to hit the market this year. Amgen is the first competitor to launch a copycat version: Amjevita (adalimumab-atto), approved by the FDA in 2016, became available Tuesday. Amgen is offering Amjevita at two prices — one that is 55% less than Humira’s list price, and one that is only 5% lower but most likely offers higher rebates to pharmacy benefit managers and payers. Some PBMs plan to include one or more of the Humira biosimilars in their formularies, though at least one, CVS Caremark, will keep Humira as a preferred product and place Amjevita on a non-preferred brand tier, according to Reuters.

Lawmakers are resurrecting efforts to reform PBM practices through legislation. Last week Sens. Maria Cantwell, D-Wash., and Chuck Grassley, R-Iowa, reintroduced the Pharmacy Benefit Manager Transparency Act and the Prescription Pricing for the People Act. Along with increased pricing transparency, the bills address common but highly criticized PBM practices such as spread pricing and pharmacy payment clawbacks. Further, the Pharmacy Benefit Manager Transparency Act would require PBMs to file a detailed annual report with the Federal Trade Commission reflecting how much money they have made through pharmacy fees and spread pricing. The Prescription Pricing for the People Act would require the FTC to investigate the effects that PBM consolidation and potentially abusive practices have had on consumers and provide recommendations for curbing such practices.

City of Hope is rebranding all Cancer Treatment Centers of America (CTCA) clinical locations under the City of Hope name. The Duarte, Calif.-based cancer research and treatment organization acquired CTCA a year ago. Since then, City of Hope has transitioned CTCA locations to nonprofit status, implemented City of Hope clinical and quality policies at all CTCA locations, and established joint quality reviews and tumor boards to ensure the best care is provided across all locations, the organization said in a press release.

What we’re reading
340B: Good Intentions In Need Of Reform. Health Affairs Forefront, 2.1.23
Aligning Quality Measures across CMS — The Universal Foundation. NEJM, 2.1.23
Fauci Q&A: On Masking, Vaccines, and What Keeps Him Up at Night. Medscape, 1.30.23

What else we’re reading
Happy-Go-Lucky, by David Sedaris. Because I needed a good laugh, and Sedaris never disappoints.


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