The Department of Health and Human Services (“HHS”) has proposed to accelerate the implementation of regulatory changes designed to protect hospitals from being overcharged for drugs purchased under the 340B Drug Pricing Program. The new rules will impose civil monetary penalties (“CMPs”) on drug manufacturers that knowingly charge hospitals more than the statutory ceiling price for covered drugs. These rules were originally slated to take effect on March 6, 2017, but the Trump administration delayed their effective date to July 1, 2019. Last week, in an abrupt reversal, HHS proposed to move up the effective date of the 340B CMP rules to January 1, 2019. The proposed rule is available here.
The 340B Drug Pricing Program requires private drug manufacturers, as a condition of having their outpatient drugs covered by Medicaid, to sell outpatient drugs to certain covered hospitals and clinics at or below statutorily determined ceiling prices. Prompted by a slew of reports from the Office of the Inspector General (“OIG”) that drug manufacturers often do not provide the mandated 340B discounts, Congress added certain oversight and enforcement provisions to the 340B statute in the Affordable Care Act (“ACA”). The ACA changes require HHS to verify and make public the applicable ceiling prices for outpatient drugs, and to adopt standards for imposing civil monetary penalties against drug companies that “knowingly and intentionally” overcharge covered hospitals.
The ACA changes were finally implemented in a rule issued in the waning days of the Obama administration. But on January 24, 2017, before the 340B CMP rules were scheduled to take effect, the Trump administration froze all pending regulations. Since that initial freeze, HHS has repeatedly extended the delay of the effective date of the 340B CMP rules, most recently to July 1, 2019. HHS has proffered various explanations for these delays, including the need “to align with the Administration priorities of analyzing final, but not yet effective, regulations and removing or minimizing unwarranted economic and regulatory burdens related to the [ACA].” See 82 Fed. Reg. 45511, 45512 (Sept. 29, 2017). Most recently, when the delay was extended to July 1, 2019, HHS explained that further delay was necessary because the agency is developing new comprehensive policies to address the rising cost of prescription drugs. See 83 Fed. Reg. 25943, 25944 (June 5, 2018).
On September 11, 2018, the American Hospital Association and several 340B hospitals sued HHS in the United States District Court for the District of Columbia. See American Hospital Association v. Azar, No. 18-cv-02112-JDB, (D.D.C. Sept. 11, 2018). That same day, the plaintiffs filed a motion for summary judgment asking the court to declare that HHS’ repeated delays of the 340B CMP rules violate the Administrative Procedure Act, and to order HHS to make the 340B CMP rules effective within 30 days after judgment.
On November 2, 2018, HHS issued a rulemaking in which it proposed “to cease any further delay of the [340B CMP rules] and to change the effective date from July 1, 2019 to January 1, 2019.” 83 Fed. Reg. 55135 (Nov. 2, 2018). HHS explained that further delays are not necessary because it has determined that the 340B CMP rules will not interfere with the development of comprehensive policies to address the rising cost of prescription drugs. Id. Stakeholders have 21 days to comment on the proposed rule.
On October 15, 2018, HHS filed a motion to stay American Hospital Association v. Azar pending the outcome of the forthcoming proposed rulemaking, which HHS believed would give the plaintiffs all of the relief they requested, thereby mooting the case. The plaintiffs opposed this motion because there is no guarantee that HHS will finalize the proposed rulemaking. The court agreed with the plaintiffs, and issued a ruling on Friday, November 2, 2018 denying HHS’ request for a stay. The court opinion is available here.
