Key Takeaways:

• In late September, an Administrative Dispute Resolution (ADR) panel for the Health Resources and Services Administration (HRSA), within the Department of Health and Human Services (HHS), issued its first decision.
• The panel dismissed a claim from the National Association of Community Health Centers (NACHC) against two pharmaceutical manufacturers, Sanofi-Aventis and AstraZeneca, regarding the manufacturers’ decision to restrict sales of 340B drugs to contract pharmacies.
• While the ADR panel dismissed NACHC’s claim, the decision by the ADR panel is notable, in part, because of a number of ongoing legal challenges to the panel’s authority, as well as anticipated rulemaking that could alter the ADR process going forward.
• Given the number of ongoing disputes between manufacturers and covered entities, we may see similar ADR proceedings in the future.

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Background

The 340B program requires drug manufacturers to offer outpatient pharmaceuticals to statutorily defined covered entities (including certain hospitals and certain federal grantees, such as federally qualified health centers) at the deeply discounted 340B ceiling price. While drug manufacturers were originally required to offer 340B discounts only to covered entities’ in-house pharmacies, HRSA has since authorized covered entities to contract with retail pharmacies to fill prescriptions for 340B-acquired drugs on their behalf. The use of contract pharmacies was initially limited, 61 Fed. Reg. at 43,549, but in 2010, HRSA issued guidance allowing covered entities to work with an unlimited number of contract pharmacies. 75 Fed. Reg. 10,272-79.

Use of contract pharmacies has been a major driver for the growth of the 340B program. As a result, throughout 2020, several drug manufacturers announced policies to limit distribution of 340B-acquired drugs to contract pharmacies.[1] A number of disputes ensued, some of which remain ongoing.

ADR Rulemaking

Section 7102 of the Patient Protection and Affordable Care Act (ACA) required HHS to implement an ADR process to address certain disputes arising under the 340B drug-discount program. While HRSA issued a notice of proposed rulemaking (NPRM) on this topic on August 12, 2016, 81 Fed. Reg. 53381-88, as of 2020, that rule had not been finalized.[2] On October 21, 2020, NACHC filed suit against HHS to compel the agency to promulgate rulemaking to implement the ADR program (NACHC v. Azar, No. 1:20-cv-03032 (D.D.C. filed Oct. 21, 2020) (stayed)). In the complaint, NACHC alleged that HHS had been in violation of this statutory requirement since 2010, when the ADR process was first added to the 340B statute. More than four years after the proposed rule, on December 14, 2020, HHS released a Final Rule to establish an ADR Panel with authority to settle disputes between manufacturers and covered entities and make final agency decisions, as required under (85 Fed. Reg. 80632-46) (effective January 13, 2021).

On November 18, 2021, HHS submitted a proposed rule titled 340B Drug Pricing Program; Administrative Dispute Resolution to the Office of Management and Budget (OMB). As of October 2022, this proposed rule is still pending review at OMB.

Manufacturer Litigation

In 2021, six pharmaceutical manufacturers filed separate litigations in federal court challenging HRSA’s policy requiring manufacturers to provide drugs at the 340B ceiling price to contract pharmacies. In their claims, the manufacturers asserted that HRSA exceeded its authority by permitting unlimited use of contract pharmacies in the 340B program, and, furthermore, that HRSA’s ADR Rule is unconstitutional and conflicts with the Administrative Procedure Act (APA). Some of the manufacturers that challenged the ADR Final Rule saw favorable legal results: for example, in the Southern District of Indiana, Eli Lilly won a preliminary injunction against HHS, thereby preventing the agency from enforcing the ADR rule against the manufacturer. But, overall, legal outcomes have been mixed, as some of the district courts have allowed HRSA’s contract pharmacy policy to stand. Furthermore, several of the manufacturers’ wins rested on procedural grounds, i.e., that HRSA improperly promulgated rulemaking related to contract pharmacies, rather than claiming HRSA is prohibited from doing so.

Additionally, AstraZeneca sued HHS in response to a December 30, 2020 Advisory Opinion, AO 20-06, in which HHS declared that manufacturers were statutorily required to provide discounted drugs “at no more than the 340B ceiling price” to contract pharmacies.[3] The District Court for the District of Delaware found HHS’ Advisory Opinion to be “legally flawed,” and noted that the 340B statutory language “is silent as to the role that contract pharmacies may play in connection with covered entities’ purchases of 340B drugs.” AstraZeneca Pharm. LP v. Becerra, 543 F. Supp. 3d 47, 59 (D. Del. 2021).[4] Importantly, the court noted that both HHS’ and AstraZeneca’s interpretations of the 340B statute “add requirements to it … [u]nder [HHS’] interpretation, pharmaceutical manufacturers are required to deliver 340B drugs to an unlimited number of contract pharmacies. Under AstraZeneca's interpretation, covered entities are required to purchase their 340B drugs through in-house pharmacies. Neither requirement is contained in the statute, nor (therefore) compelled by it. Thus…the Court is not permitted to read either of these requirements into the statute.” AstraZeneca, 543 F. Supp. 3d, at 61. The court acknowledged the ambiguity of the statute, and noted that HHS “could reasonably choose to opine” on certain interpretations, such as whether (or not) manufacturers must provide unlimited discounted drugs to contract pharmacies, but added that the statutory language “does not compel” this interpretation, and “Congress simply has not spoken on the issue.” Id.

HHS retracted AO 20-06 on June 18, 2021. In its Notice of Withdrawal, HHS stated that its withdrawal “does not impact the ongoing efforts of…[HRSA] to enforce the obligations that 42 U.S.C. § 256b places on drug manufacturers, including HRSA’s May 17, 2021 violation letters concerning restrictions placed on contract pharmacy arrangements.”[5]

ADR Decision

On January 13, 2021, the day the ADR Final Rule went into effect, NACHC filed its complaint to the ADR Panel against Sanofi-Aventis and AstraZeneca. In late September 2022—twenty months after NACHC presented its dispute—the panel dismissed NACHC’s claim against the manufacturers.[6] According to the panel, the court in AstraZeneca v. Becerra 543 F. Supp. 3d 47, 62 (D. Del. 2021) determined that Congress did not clearly and unambiguously indicate that manufacturers must provide discounted drugs to an unlimited number of contract pharmacies, therefore the court already addressed NACHC’s issue before the panel.[7]

It is possible that there will be future ADR filings related to the contract pharmacy issue, although pending ADR rulemaking could create additional delays. Additionally, the manufacturers’ legal challenges (noted above) are currently on appeal; if the federal courts of appeal coalesce around a particular position regarding the legality of the policy, this could resolve the issue. Alternatively, if there is a circuit split, the matter could appear before the Supreme Court. Ultimately, absent a Supreme Court decision or a statutory change addressing the role of contract pharmacies in the 340B Program, the legal challenges in this area are likely to continue.