December 7, 2022

HRSA Proposes to Overhaul 340B Dispute Process

Haider David Andazola, Patrick Brennan, Erin Estey Hertzog, Andrew London, Ross Margulies

Foley Hoag LLP

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Key Takeaways:

The Health Resources and Services Administration released a Proposed Rule on November 29, 2022 that aims to simplify and accelerate the Administrative Dispute Resolution (ADR) process for the 340B Drug Pricing Program.
The existing ADR process has been the subject of litigation and a venue for disputes between manufacturers and covered entities about the use of contract pharmacies in the program.
The Proposed Rule potentially narrows the applicability of the ADR process to contract pharmacy disputes and bars resolution of claims related to issues pending in Federal court.
Comments on the Proposed Rule are due January 30, 2023.

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OVERVIEW

On November 29, 2022, the Health Resources and Services Administration (“HRSA”) published a notice of proposed rulemaking (“Proposed Rule”)[1] to implement an Administrative Dispute Resolution (“ADR”) process for resolving certain disputes related to the 340B Drug Pricing Program between manufacturers and covered entities. The Proposed Rule makes a number of changes to the ADR process first adopted in a final rule issued in 2020 (“2020 Final Rule”).[2]

The 2020 Final Rule is the subject of ongoing litigation and was itself the result of a long regulatory process beginning with the passage of the Affordable Care Act (ACA) in 2010. As drafted, the Proposed Rule appears designed to cure the procedural defects of the 2020 Final Rule, as well as exclude from the ADR process matters that are pending in Federal courts. Citing “policy and operational challenges” in the process established by the 2020 final rule, the Proposed Rule also proposes to simplify and expedite the ADR process, including through more specific deadlines, narrower opportunities for information requests and discovery, and elimination of both the minimum claim amount and specific evidentiary requirements. Comments on the Proposed Rule are due January 30, 2023.

Perhaps most notably, while the Proposed Rule does not directly address whether the ADR process can be used to resolve disputes regarding manufacturers’ limitations on 340B sales to contract pharmacies—currently the subject of Federal litigation[3] —it would suspend any ADR claims that involve an issue that is the same or similar to an issue pending in Federal court, shifting more responsibility toward the courts for resolving this issue, at least in the near term. The Proposed Rule may also narrow the applicability of the ADR process to contract pharmacy disputes even after their resolution in court, because it proposes to eliminate regulatory text from the 2020 Final Rule that expanded the process’ jurisdiction to include claims similar to those made in the contract pharmacy disputes.

COMPARISON OF 2020 FINAL RULE VS. 2022 PROPOSED RULE

The Proposed Rule proposes a number of procedural changes as compared with the 2020 Final Rule, many aimed at simplifying and expediting the process, while a number of provisions remain substantially the same. Below is a comparison of notable proposed changes:

Provision	2020 Final Rule	2022 Proposed Rule
Composition of Panel	Board of 6 members (2 from HRSA, 2 from CMS, 2 from HHS OGC), with 3 members selected for a given panel.	Roster of at least 10 staff from OPA, with 3 selected for a panel (noting that OPA staff have “subject matter expertise” regarding the program).
Minimum Claim Amount	$25,000.	No minimum claim amount.
Time Limitation on Claims	Within 3 years of the alleged violation.	No change.
Audit Requirement	Manufacturer must conduct audit of covered entity before bringing claim.	No change.
Reconsideration/ Appeals	No explicit reconsideration process, although the panel’s draft decision is sent to the parties for comment.	Either parties or the HRSA Administrator may initiate reconsideration of the decision by the HRSA Administrator.
Procedural Rules	Process uses FRCP and FRE, unless otherwise agreed to by the parties.	Less formal procedural rules prescribed.
Information Requests	Covered entities are allowed “limited discovery,” governed by FRCP, against manufacturers.	Covered entities may make requests for information through the panel, which then sets a 20-business-days deadline, with one extension permitted, for manufacturer to respond (similar to 2016 proposed rule).
Good-Faith Requirement	Parties are encouraged to resolve disputes in good faith; panel may request written summary of such attempts.	Claimants would be required to provide written summary of good-faith attempts.
Combining Claims	Manufacturers and covered entities can file combined claims in certain circumstances, and covered entities can be represented by an association or organization in certain circumstances.	Manufacturers and covered entities can file combined claims in certain circumstances, and covered entities can be represented by an association or organization in certain circumstances (circumstances largely unchanged from 2020 final rule).
Meeting Requirement	An evidentiary hearing (e.g., in-person or videoconference) is required if disputes of fact require it.	Panel will make decisions based on documentary evidence and no meeting between the parties is required unless the panel decides the nature of the claim necessitates it.
Timeline	Timeline generally governed by FRCP rather than specific deadlines.	Specific deadlines are provided for various steps (e.g., 30 business days for party to respond to claim once informed of the claim).
Claims Permitted	Claims related to overcharging, duplicate discounts, and diversion. Overcharging claims may include “claims that a manufacturer has limited the covered entity’s ability to purchase covered outpatient drugs at or below the 340B ceiling price.” Diversion claims may include “claims that an individual does not qualify as a patient for 340B Program purposes and claims that a covered entity is not eligible for the 340B Program.”	Claims related to overcharging, duplicate discounts, and diversion. No regulatory text on other related claims.
Relation to Issues Pending in Federal Court	No limits on issues pending in Federal court.	Review of claims suspended if “the specific issue that would be brought forth in a claim is the same as or similar to an issue that is pending in Federal court.”
Breadth of Decision	Final decisions are “precedential and binding on the parties involved unless invalidated by an order of a court of competent jurisdiction.”	Final decisions are binding unless invalidated by a Federal court, but no explicit mention of “precedential.”

CONCLUSION

In the coming year, litigation around contract pharmacy issues will continue, with Federal Appeals Court decisions expected this spring and a potential Supreme Court showdown in the Court’s 2023–2024 term. Litigation around the existing ADR process from the 2020 final rule may also continue, and would not become moot until a new proposed ADR process is finalized and takes effect. (The Proposed Rule provides that any existing disputes from the previous ADR process will be transferred to the new process.)

We are available to discuss the Proposed Rule and related issues regarding the 340B Program with you in further detail.

[1] 340B Drug Pricing Program; Administrative Dispute Resolution, Dep’t of Health and Human Svcs. (HHS) 87 Fed. Reg. 73,516 (Nov. 30, 2022) (“2022 Proposed Rule”), available at https://www.federalregister.gov/documents/2022/11/30/2022-25752/340b-drug-pricing-program-administrative-dispute-resolution.

[2] 340B Drug Pricing Program; Administrative Dispute Resolution Regulation, HHS, 85 Fed. Reg. 80,632 (Dec. 14, 2020) (“2020 Final Rule”).

[3] For a summary of a number of these cases, see https://www.medicaidandthelaw.com/2021/11/09/district-courts-issue-key-decisions-in-340b-contract-pharmacy-cases/.

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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.