Health Law Daily Wrap Up, PHARMACEUTICAL NEWS: Experts discuss 340B trends and litigation during AHLA session, (Mar 23, 2023)

By Sheila Lynch-Afryl, J.D., M.A.

Presenters covered updates in contract pharmacy and patient eligibility litigation, fraud and abuse issues, and other emerging developments.

2023 will be “a very busy year for 340B,” according to presenters at the American Health Law Association’s Institute on Medicare and Medicaid Payment Issues in Baltimore. In the session “What’s Going On with 340B? Updates on Litigation and Trends,” Emily J. Cook, partner at McDermott Will & Emery, LLP and Jeff Davis, member at Bass Berry & Sims PLC, highlighted updates in contract pharmacy and patient eligibility litigation, fraud and abuse issues, and emerging developments in what they called an “extraordinarily dynamic” program.

Contract pharmacy litigation. Davis explained that 21 manufacturers imposed restrictive policies on 340B contract pharmacies; in response, HRSA sent violation letters to 11 manufacturers and referred eight to the Office of Inspector General for consideration of civil money penalties. Ten of the manufacturers filed lawsuits against HRSA, with varying results. The decisions were appealed to the D.C., Third, and Seventh Circuits, and in January the Third Circuit issued a decision.

The Third Circuit invalidated HHS Advisory Opinion 20-06 and several violation letters claiming that Public Health Service Act §340B requires drug makers to deliver drugs to an unlimited number of contract pharmacies (see HHS’ attempt to enforce its interpretation of section 340B contract pharmacy requirement ruled unlawful, February 1, 2023). The court found that no language in section 340B requires delivery to an unlimited number of contract pharmacies, and “legal duties do not spring from silence.”

Davis noted that the other two circuits have not yet issued their decisions, but in the meantime, the Third Circuit decision has caused manufacturers to impose more restrictions.

Patient eligibility. Cook discussed the confusion surrounding who is considered a “patient” under the 340B statute. The statute does not define “patient,” but HRSA issued guidance in 1996 and later released proposed changes and FAQs. According to Cook, providing 340B drug to anyone other than a “patient” is considered diversion, which could require a refund to the drug manufacturer and result in removal from the 340B Program.

Fraud and abuse. Cook said that Medicaid “actual acquisition cost” billing requires identifying 340B drugs and reporting the actual 340B acquisition cost, so a failure to identify drugs as 340B drugs or to accurately report the 340B acquisition cost could result in overpayments. In addition, there is no requirement to pass 340B savings on to patients, and doing so routinely could result in violations of state and federal fraud and abuse laws. She advised covered entities to be “careful” in approaching their patient assistance programs.

Medicare Part B. Davis discussed the U.S. Supreme Court’s decision in American Hospital Association v. Becerra, which unanimously invalidated a final rule that reduced Medicare Part B drug reimbursement rates for 340B hospitals, holding that HHS failed to conduct a survey of hospitals’ acquisition costs, as required by the Medicare statute (see U.S. Supreme Court invalidates HHS’ reduction of payments to 340B hospitals, June 15, 2022). The district court later vacated the prospective application of the drug reimbursement rate for 340B hospitals in the 2022 hospital outpatient prospective payment system (OPPS) final rule (see HHS forbidden from underpaying 340B claims for the remainder of 2022, October 3, 2022). According to Davis, in January the court remanded the issue of the remedy for 2018 through 2022 to HHS.

He noted that CMS intends to publish separate rule on this issue, probably by November. In addition, the modifier policy continues even though payment rate is the same, apparently to help identify 340B drugs for inflation rebates, which exclude 340B drugs.

HRSA request. Cook noted that in early March, HRSA sent letters to many hospital covered entities requesting information regarding eligibility of off-campus outpatient locations, patient definition, and use of 340B savings. According to Cook, the legal authority was not well articulated in the letters and it isn’t clear what HRSA intends to do with this information. She advised, however, that covered entities should expect that it will be made public.

Attorneys: Emily J. Cook (McDermott Will & Emery, LLP). Jeff Davis (Bass Berry & Sims PLC).

Companies: American Health Law Association

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