[author: Regina DeSantis]

Like the Brood X cicadas emerging from their 17-year chthonic slumber, summer 2021 saw the reemergence of something else set to dominate headlines: 340B contract pharmacies.  Given the link between the Medicaid drug rebate program and 340B, we at Medicaid and the Law cover relevant 340B topics for our readers.

Today, we are discussing the “340B Contract Pharmacy Saga” in light of the Department of Health and Human Services (HHS) Office of General Counsel’s (OGC’s) June 18 announcement withdrawing Advisory Opinion 20-06.  On December 30, 2020, OGC (under former HHS Secretary Alex Azar) issued this Advisory Opinion, which sided with 340B covered entities in the midst of long-simmering tension between 340B covered entities (including DSH hospitals, FQHCs, and others) and manufacturers over the participation of contract pharmacies in the 340B program.

Before diving into this most recent update, here is a quick recap.

Background on the ‘Saga’

Last year, my colleague Alex reported how, in July 2020, several drug manufacturers notified 340B covered entities of their intentions to limit 340B patient use of contract pharmacies—specifically, the manufacturers in question sought to cease offering some (or all) of their products to contract pharmacies under arrangements with covered entities.  Many 340B covered entities have long used contract pharmacies to dispense discounted drugs on their behalf, and the entities argue that contract pharmacies help expand their services to needy patients.  The drug makers, on the other hand, have held that contract pharmacies are not “covered entities” under § 340B of the Public Health Service Act (PHSA), for which the program is named. Moreover, they point to the dramatic growth in the number of participating contract pharmacies in recent years, and ongoing concerns about duplicate discounts and diversion.

Throughout 2020, the covered entities urged the Health Resources and Services Agency (HRSA), which regulates the program, to prevent the drug makers from refusing to provide discounted drugs to contract pharmacies.  The covered entities argued that a 2010 guidance document from HRSA allows 340B covered entities to use multiple contract pharmacies.  Federal court decisions have held that HRSA does not have authority to issue binding decisions for the 340B program, and HRSA itself has indicated that its authority is limited.  In light of this, some manufacturers do not recognize contract pharmacies as covered entities and therefore believe they are not obligated to provide discounted drugs to entities other than the covered entity themselves.

Following the manufacturers’ decision to limit 340B participation, several covered entities brought suit to compel HHS to enforce the 2010 guidance document.  Last year, a group of 340B providers asked the US District Court for the District of Columbia to require HHS to issue an administrative dispute resolution regulation, something it was required to do under the Affordable Care Act (ACA).  On December 10, 2020 HHS resurrected and issued a final rule titled “340B Drug Pricing Program; Administrative Dispute Resolution Regulation,” which creates a panel to adjudicate disputes between drug makers and covered entities to resolve claims of overcharging and issues involving diversion and duplicate discounts (the rule went into effect on January 13, 2021).

Later in the month, on December 30, 2020, OGC issued Advisory Opinion 20-06, which is where the saga picks up again.

Advisory Opinion and Notice of Withdrawal

As we noted above and in a post earlier this year, in its Advisory Opinion 20-06, OGC sided with the 340B covered entities by concluding that “covered entities under the 340B Program are entitled to purchase covered outpatient drugs…and manufacturers are required to offer covered outpatient drugs” at the 340B price “even if those covered entities use contract pharmacies to aid in distributing those drugs to their patients.”  However, OGC cautioned that Advisory Opinion 20-06 is “not a final agency action or a final order, and it does not have the force or effect of law.”

Following its release, several pharmaceutical manufacturers brought suit challenging the position set forth in Advisory Opinion 20-06.  In one particular instance, on January 12, 2021, AstraZeneca Pharmaceuticals sued HHS (under then-Secretary Azar) in the US District Court for the District of Delaware.  The drug manufacturer claimed that Advisory Opinion 20-06 violated the Administrative Procedure Act (APA) because it exceeded the agencies own authority as set forth by Congress.  HHS filed a motion to dismiss.  On June 16, 2021, the court issued its opinion, which denied HHS’ motion.  According to Delaware District Court Judge Leonard P. Stark, Advisory Opinion 20-06 differs from the 2010 HRSA guidance document (and earlier guidance), as the Advisory Opinion “is the first document in which HHS explicitly concluded that drug manufacturers are required by statute to provide 340B drugs to multiple contract pharmacies.”  Stark also determined that the Advisory Opinion is “legally flawed” because “there is more than one permissible interpretation of the 340B statute.”

On June 18, two days after the court refused to dismiss AstraZeneca’s case, OGC issued its Notice of Withdrawal.  In its Notice, OGC explained how its decision to withdraw the Advisory Opinion was made “in the interest of avoiding confusion and unnecessary litigation.”  OGC added how its initial Advisory Opinion “was never intended to do what plaintiffs in those suits allege: to create new, binding obligations on plaintiffs or to serve as the predicate for enforcement against those plaintiffs,” and affirmed that it “respectfully [disagrees] with the decision…in AstraZeneca Pharmaceuticals.”

Notably, OGC explained that its decision to withdraw Advisory Opinion 20-06 does not impact HRSA’s efforts “to enforce the obligations that 42 U.S.C. § 256b places on drug manufacturers, including HRSA’s May 17, 2021 violation letters concerning restrictions placed on contract pharmacy arrangements.”  In May, HRSA determined that the pharmaceutical manufacturers that sought to limit participation in the 340B program by refusing to sell drugs to contract pharmacies are “in violation of the 340B statute.”  On May 17, the agency sent letters to the drug makers explaining this and demanding the manufacturers “provide an update on [plans] to restart selling, without restriction, covered outpatient drugs at the 340B price to covered entities that dispense medications through contract pharmacy arrangements by June 1, 2021.”

Future Episodes

Previously, we shared our expectation that the Biden Administration is likely to side with the 340B covered entities in this matter.  Prior to his confirmation as HHS Secretary, then-California Attorney General Xavier Becerra spearheaded a bipartisan coalition calling on HHS to stop drug makers from “withholding or threatening to withhold” 340B discounts and to hold “non-compliant drug manufacturers accountable.”  However, in light of OGC’s decision to withdraw the Advisory Opinion (which favored covered entities), it remains to be seen how HHS under the Biden Administration will approach the next chapter in the 340B Contract Pharmacy saga.  While OGC has now withdrawn its Advisory Opinion, the warning letters to various manufacturers remain in place.  It is clear that this story is far from over. Here at the Medicaid and the Law Blog, we will continue to update you as it progresses.