A group of 340B stakeholders brought a lawsuit on September 11, 2018, against the Department of Health and Human Services (HHS) over the delay in implementing the final rule for drug pricing transparency published in the Federal Register on January 5, 2017 (the 340B Final Rule). Specifically, the lawsuit accuses HHS of delaying the implementation of the 340B Final Rule, that in part would allow HHS to penalize drug makers that intentionally overcharge for 340B drugs. Plaintiffs contend that HHS’s delay in implementation has harmed hospitals and by extension harmed those hospitals’ patients, as well as other 340B covered entities.
The American Hospital Association (AHA), the Association of American Medical Colleges, America’s Essential Hospitals, Genesis Healthcare System, Kearny County Hospital, Rutland Regional Medical Center and 340B Health, a 340B trade group (collectively, Plaintiffs), filed their lawsuit in the U.S. District Court for the District of Columbia. The lawsuit challenges HHS’s delay under the Administrative Procedure Act and contends that HHS’s actions are “arbitrary and capricious” and the delay is unreasonable. The Plaintiffs have asked the court to declare the delay unlawful and to mandate that HHS enact the 340B Final Rule.
As part of the passage of the Affordable Care Act in 2010, Congress required HHS to improve drug manufactures’ compliance with the 340B program and in particular to prevent drug manufactures from overcharging or otherwise violating 340B discounts offered to 340B eligible entities. Specifically, Congress mandated that HHS look into the accuracy and transparency of 340B drug discounts, provide hospitals and other covered entities with access to ceiling prices, and adopt regulations imposing civil monetary penalties on drug manufacturers for knowing and intentional violations.
HHS announced a notice of proposed rulemaking regarding Congress’s mandate in September 2010, but did not issue the 340B Final Rule until January 2017. The 340B Final Rule was to go in effect on March 6, 2017. The lawsuit notes that “[i]n the twenty months since the Final 340B Rule was promulgated, Defendants have delayed implementation of the Rule on five separate occasions” culminating with a new effective date of July 2019, some 30 months after the Final 340B Rule was issued. HHS contends that the delay is to assure a smooth implementation of the Final 340B Rule, but the Plaintiffs characterize HHS’s justifications for the delay as shifting and inconsistent, with no rational basis. The Plaintiffs argue that it has been nine years since Congress authorized HHS to act, which is unreasonable in light of the statutory mandate for HHS to do so.
The Plaintiffs contend that, due to the delay, hospitals and other covered entities have been overcharged by one or more drug companies and that 340B prices are being “calculated under inaccurate methodologies.” Further, the Plaintiffs allege that “[t]he discounts that Plaintiffs believe have been lost due to Defendants’ delays could have been used to support or expand services for the vulnerable communities Plaintiffs serve, as Congress intended when it passed the 340B statute as well as the 2010 amendments.”
The present case is American Hospital Association et al. v. HHS et al., case number 1:18-cv-02112. A copy of Plaintiffs’ complaint can be found here.
This is not the first case that AHA or other hospital trade associations have brought against HHS. AHA joined with other organizations and individual hospitals in November 2017 alleging that CMS had improperly cut reimbursement rates for certain 340B drugs. The district court found in that case that the district court did not have subject matter jurisdiction because plaintiffs did not present their claims for reimbursement to the Secretary of HHS first, as required under Medicare to obtain judicial review. AHA appealed and the appellate court upheld the district court’s ruling, finding that AHA’s lawsuit was brought prematurely since the change in reimbursement had not gone into effect when the case was filed. AHA and its allies in that case refiled their complaint on September 5, 2018. For more information about the complaint filed September 5, 2018, challenging CMS’s payment reduction to 340B participating hospitals, click here.
