Federal Judge Blocks Implementation of 340B ADR Final Rule

King & Spalding

On March 16, 2021, a federal judge issued a preliminary injunction blocking HHS from implementing the 340B administrative dispute resolution final rule (the Final Rule) released in December 2020. The blocked Final Rule would have created a panel to settle disputes between hospitals and drug manufacturers on issues related to the 340B drug discount program. Judge Sarah Evans Barker of the U.S. District Court for the Southern District of Indiana held that because HHS issued the Final Rule without an additional notice and comment period, HHS failed to follow proper protocols and violated drug manufacturers’ rights.

As previously reported, HRSA issued the Final Rule in December 2020, completing a ten-year rulemaking process and setting forth the administrative dispute resolution (ADR) process for certain disputes regarding the 340B Drug Pricing Program. In 2010, as part of the Affordable Care Act (ACA), Congress directed HHS to issue regulations establishing an ADR process within 180 days of the ACA’s enactment. After an extended delay, in 2016, HHS issued a Notice of Proposed Rulemaking (the Proposed Rule) and invited comment. In January 2017, HHS removed the Proposed Rule from its regulatory agenda and, no action took place until HHS issued the Final Rule (published at 85 Fed. Reg. 80,632 and codified at 42 CFR §§ 10.20-24) in December 2020 with no opportunity for additional public comment. The Final Rule is in many respects identical to the proposed rule that was published by HHS in 2016 and withdrawn in 2017.

In January 2021, a drug manufacturer challenged the Final Rule, arguing that HHS violated the manufacturer’s rights and interests by publishing the rule without providing an opportunity for public comment. HHS argued that no more comment was needed because the agency had never withdrawn the rule. Judge Barker granted plaintiff’s motion for a preliminary injunction, concluding HHS did not follow the proper protocol in finalizing the Final Rule, and that HHS’s messaging around the ongoing rulemaking was “ambiguous, confusing, duplicitous, and misleading—the antithesis of fair notice under the APA.”

The injunction prevents HHS from implementing or enforcing the Final Rule. Of note, in January, the Biden administration withdrew appointments to the ADR panel made by the previous HHS Secretary, Alex Azar. The preliminary injunction prevents President Biden’s HHS from filling the panel with its own picks.

The opinion is available here.

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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