Executive Order on 340B Program Is Limited, Unlikely to Take Effect but Could Signal Future Changes

Morgan Lewis - As Prescribed
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Morgan Lewis - As Prescribed

US President Donald Trump signed four executive orders implementing policies on drug pricing on July 24. One of the orders directs the secretary of the US Department of Health and Human Services (HHS) to condition future grants under Section 330(e) of the Public Health Service Act on Federally Qualified Health Centers (FQHCs) establishing practices that ensure the 340B discount they receive on insulin and injectable epinephrine is passed through to low-income patients who lack insurance or have high co-pays or deductibles. The HHS secretary has discretion to set the standard for eligible patients.

This policy is limited in scope to one category of covered entities—it does not extend to hospitals—and two categories of drugs, but is consistent with the legislative intent of the 340B program to make outpatient drugs accessible to poor and uninsured or underinsured patients of federal grantees.

The action contemplated in this executive order could help prevent prescription rejections of these products where the patient cost is high, and, additionally, could resolve problems with the contract pharmacy program identified in a 2011 US Government Accountability Office report, Manufacturer Discounts in the 340 Program Offer Benefits, but Federal Oversight Needs Improvement, GAO-11-836 (Sept. 2011).

In general, the contract pharmacy program involves a replenishment system in which 340B eligible prescriptions are recognized by a covered entity’s contract retail pharmacy after the point of sale. Because patients of covered entities are not identified as such when payment to the retail pharmacy is adjudicated, they can be charged the regular pharmacy price for uninsured customers or, if insured, the amount negotiated by their plans. The executive order would require a center utilizing a contract pharmacy to establish procedures to ensure eligible patients pay the 340B price plus a minimal administrative fee.

As with the other drug pricing executive orders, there could be problems with carrying out the 340B directive. Congress created the 340B program, which is implemented through the terms of the statute, including specified pricing agreements between HHS and drug manufacturers. Authority to regulate is limited, and a previous attempt by the agency to alter the substantive requirements of the program was invalidated by a federal court.

Although the statute places limitations on eligibility of certain categories of covered entities to participate in the program, it does not condition eligibility of FQHCs on an agreement to ensure pass-through pricing to low-income patients. Thus, it is possible an agency effort to condition future grants on FQHC compliance with this requirement could face a legal challenge.

Nevertheless, Congress could amend the 340B statute to condition healthcare providers’ participation in the 340B program on an agreement to pass through the statutory discount to certain patients on all or select covered drugs.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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