HRSA Implements Administrative Dispute Resolution Process for 340B Program

King & Spalding

On December 10, 2020, HRSA issued a final rule (the Final Rule) implementing the 340B Drug Pricing Program administrative dispute resolution (ADR) process–an overdue mandate from the Affordable Care Act. Under the Final Rule, disputes will be resolved by three-person ADR Panels, consisting of individuals from HRSA, CMS, and HHS Office of the General Counsel (HHS OGC). The process will be governed by the Federal Rules of Civil Procedure (FRCP), to the extent possible, and the outcome will constitute a final agency decision that is precedential and binding. Claims may be brought by manufacturers, covered entities, and associations or organizations representing covered entities. Claims may also be consolidated. Given HRSA’s lack of general authority to interpret the 340B Program statute, the new ADR process will serve as an administrative tool for the government to provide interpretive guidance through publication of ADR decisions. Although the Final Rule will become effective on January 13, 2021, an ADR Board and ADR Panels will need to be appointed before the ADR process becomes available for use by petitioners.

The Final Rule (published at 85 Fed. Reg. 80632) completes a ten-year rulemaking process to implement 42 U.S.C. § 256b(d)(3)(A), directing the HHS Secretary to create an ADR process for the 340B Program. HRSA began the process with a 2010 advanced notice of proposed rulemaking (75 Fed. Reg. 57233) and proceeded with a notice of proposed rulemaking (81 Fed. Reg. 53381), before publishing the Final Rule, which codified an ADR process that is substantially similar to the process proposed in the 2016 proposed rule.

The new ADR process (summarized below) will allow for the review and resolution of disputes and the creation of binding precedent. One of the likely first uses for the process may be the resolution of the recent wave of disputes pertaining to the use of contract pharmacies by covered entities, as detailed by King & Spalding in the September 8 issue of Health Headlines.

The new ADR process, codified at 42 C.F.R. §§ 10.20-10.24, is summarized below.

ADR Panels Consisting of HRSA, CMS, and HHS OGC Representatives

ADR Board and Panel Composition. The Secretary will establish a 340B ADR Board consisting of at least six members appointed by the Secretary, with equal numbers of members appointed from HRSA, CMS, and HHS OGC, from which ADR Panels of three members (one from each of HRSA, CMS, and HHS OGC) will be selected by HRSA. Each ADR Panel will have the authority to review claims and make ADR decisions. There will also be one ex-officio non-voting member chosen from the staff of the HRSA Office of Pharmacy Affairs (OPA) to facilitate the resolution of claims within a “reasonable timeframe.” The Final Rule does not set a deadline for the assembling of the ADR Board or the ADR Panels.

ADR Panel Authority and Responsibilities. The ADR Panels will review and evaluate information submitted by the parties, request additional information or clarifications, if necessary, evaluate a claim in a separate session from the parties, consult with OPA and the parties, and issue a final agency decision.

Filing of Claims

Parties that May Initiate an Action. Any covered entity or manufacturer may initiate an action for monetary damages or equitable relief against a covered entity or a manufacturer by filing a petition with HRSA, with a copy to opposing party.

Minimum Threshold. Any action must be for at least $25,000 in damages or seek equitable relief that will likely have a value of more than $25,000 during the year after the final decision.

Types of Claims Eligible. The following two types of claims are eligible for the ADR process: (i) claims by a covered entity that it has been overcharged by a manufacturer, including claims that a manufacturer has limited the covered entity's ability to purchase covered outpatient drugs at or below the 340B ceiling price; and (ii) claims by a manufacturer, after it has conducted an audit of a covered entity, that the covered entity violated the duplicate discount prohibition, the diversion prohibition, or else is not eligible for the 340B Program.

Required Documentation. A petitioner party must provide documents sufficient to demonstrate its claim along with any other documentation requested by the ADR Panel. A respondent party must respond within the deadlines set by the ADR Panel. If respondent fails to respond, an ADR Panel may enter a default decision in favor of the petitioner. In a proceeding for damages, the petitioner must still introduce evidence to support the claim for damages.

Deadline to File a Claim. Any action must be filed within three years of the date of the alleged violation, which is consistent with the record retention requirements for the 340B Program.

Consolidation of Claims and Filing by a Trade Organization. Covered entities may file claims of overcharges jointly against the same manufacturer for the same drug or drugs if each covered entity agrees to such filing and submits the required documentation. An association or organization may file claims of overcharges by the same manufacturer for the same drug or drugs on behalf of multiple covered entities if each covered entity has documentation to support the allegations. Similarly, manufacturers may request to consolidate claims brought by more than one manufacturer against the same covered entity if each manufacturer consents to consolidation, could individually file a claim against the covered entity, and possesses the required documentation. Manufacturer claims may not be filed by associations or organizations representing manufacturers’ interests.

Information Requests

Discovery by Covered Entity. The ADR Panel may permit a covered entity a limited discovery (governed by FRCP) to obtain relevant information.

Information Requests by Panel. The 340B Panel may request additional information from either party. If a party fails to respond to a request, the ADR Panel, among other actions, may hold facts to have been established in the proceeding, preclude a party from presenting or contesting an issue, exclude evidence, or enter judgment or dismiss a proceeding.

Conduct of the ADR Proceeding

Conduct of ADR Proceeding. The ADR Panel will determine the most efficient and practical form of the ADR proceeding and may issue instructions or guidance to govern the conduct of ADR proceedings. The ADR process will be governed, to the extent applicable, by the FRCP and Federal Rules of Evidence, unless the parties agree otherwise and the 340B ADR Panel concurs. When there are material facts in dispute, the ADR Panel will conduct an evidentiary hearing.

Final Agency Decision

Arriving at a Decision. The ADR Panel will determine whether the preponderance of the evidence supports the conclusion that a violation has occurred. The agency decision will represent the decision of a majority of the ADR Panel’s findings regarding the claim.

Decision is Binding and Precedential. The agency decision will constitute a final agency decision that is precedential and binding on the parties involved unless invalidated by a court. The decisions will be published on HRSA’s website. The ADR Panel’s decision will be submitted to the parties and HRSA for appropriate action.

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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