HHS warns drugmakers that won’t give 340B discounts to contract pharmacies

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HHS’ Health Resources and Services Administration on Monday sent letters to six drugmakers, warning them that they could face steep fines if they don’t discount drug prices for pharmacies that contract with 340B providers.

Pharmaceutical companies started aggressively cracking down on 340B drug discounts through contract pharmacies and demanding more data from healthcare providers last summer. They have been seemingly testing how far they could challenge HRSA guidance that allows 340B providers to receive discounts while working with multiple contract pharmacies. That led to several lawsuits from community health centers and hospital groups.

HRSA issued an advisory opinion in December, saying that drugmakers couldn’t charge a covered entity more than the ceiling price for 340B drugs.

Now the agency is threatening to slap drugmakers with fines of up to $5,000 per overcharge if they don’t start following the rules and refund covered entities for past overcharges, the agency said in an announcement.

The agency sent letters to AstraZeneca, Lilly USA, Novartis, Novo Nordisk, Sanofi and United Therapeutics.

A drugmaker “must immediately begin offering its covered outpatient drugs at the 340B ceiling price to covered entities through their contract pharmacy arrangements, regardless of whether they purchase through an in-house pharmacy,” HRSA Acting Administrator Diana Espinosa wrote.

Hospitals felt vindicated by the announcement.

“Today’s action by the Health Resources & Services Administration is an emphatic defense of the 340B drug pricing program and the thousands of safety-net hospitals, health centers, and clinics serving millions of Americans with low incomes and those in rural communities,” 340B Health, an association of more than 1,400 hospitals, said in a statement. “As we have been saying for nearly a year, the 340B statute requires drug manufacturers participating in the program to provide discounted prices to support the care of patients. The denial of these discounts has damaged providers and patients and must stop. It is vital that these companies immediately begin to repay the millions of dollars owed to these providers.”

Drugmakers have been upset with the rapid growth of contract pharmacy usage and sought to restrict the discounts they provided to on-site pharmacies run by covered entities or a limited number of contract pharmacies if providers didn’t have an on-site option. But HHS General Counsel Robert Charrow wrote in December’s advisory opinion that drugmakers couldn’t restrict their discounts, as less than 5% of covered entities had on-site pharmacies.

“The (site) of delivery, be it the lunar surface, low-earth orbit, or a neighborhood pharmacy, is irrelevant,” Charrow wrote.

Pharmaceutical companies have argued that such actions were necessary to prevent diversion and duplicate discounts. But Espinosa said drugmakers could only address their concerns by going through the process outlined by the 340B law, which requires drugmakers to carry out an audit and file a claim with the government.

“The 340B statute does not permit a manufacturer to impose industry-wide, universal restrictions,” she wrote.

The Pharmaceutical Research and Manufacturers of America defended drugmakers’ actions.

“The fact is that contract pharmacies were never authorized by Congress in statute, nor does the 340B statute require manufacturers to ship 340B medicines to contract pharmacies. Contract pharmacies only appear in sub-regulatory guidance, which cannot impose any binding requirements on the public and lack the force and effect of law,” Nicole Longo, a PhRMA spokesperson, said in an email.

PhRMA is concerned that contract pharmacies have too little oversight and that there’s a lack of evidence that their participation in the 340B program has improved patients’ access to medicines.

“That’s why we are advocating for meaningful improvements to the program that ensure patients directly benefit from the tens of billions of dollars in discounts that manufacturers provide each year,” Longo said in a statement.

But HRSA’s warning letters show that the agency will continue to enforce the rules as it sees fit, even if drugmakers disagree with its interpretation of the law.

Eli Lilly, AstraZeneca and Sanofi each sued HHS in February, arguing that HRSA’s December advisory opinion was inconsistent with the law passed by Congress and that drugmakers might not get a fair hearing if they file a complaint.

Sanofi said in its complaint that it’s worried HRSA’s alternative dispute resolution board would consider the advisory opinion binding since HHS officials make up the board. That could lead to “crippling sanctions,” the complaint said.

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