Health Law Daily December 2020 HRSA opinion materially altered 340B guidance on drug distribution
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Monday, June 21, 2021

December 2020 HRSA opinion materially altered 340B guidance on drug distribution

By Jeffrey H. Brochin, J.D.

Because neither the 1996 Guidance nor the 2010 Guidance addressed the "must offer" requirement that manufacturers offer 340B Program drugs to contract pharmacies supplying covered entities, the December 2020 opinion obligating manufacturers to do so was materially different from the two previous guidances.

A federal district court in Delaware has denied the motion for summary judgment filed by HHS in a lawsuit brought by AstraZeneca Pharmaceuticals, LP against HHS regarding compliance with the agency’s December 2020 340B Program Opinion. However, the manufacturer’s cross-motion for summary judgment was not ruled upon pending further input as to the impact of the agency Opinion (AstraZeneca Pharmaceuticals, LP v. Becerra, June 16, 2021, Stark, DJ).

340B drug discount program. In 1992 Congress established the 340B Drug Price Program (340B Program), a drug-discount regime administered by HHS which required, as a condition of participating in Medicaid and Medicare Part B, that pharmaceutical manufacturers sell outpatient drugs at a heavily discounted price to "covered entities," which included providers serving low-income patients. Pharmaceutical manufacturers participating in the 340B Program were required to offer covered entities outpatient drugs for purchase at or below the applicable ceiling price.

The instant dispute related to the covered entities use of third-party pharmacies, referred to as "contract pharmacies" which were used as the suppliers of 340B Program discounted drugs to covered entities. The statute did not address whether the covered entities must have an in-house pharmacy for purchasing discounted drugs from manufacturers or whether they could use contract pharmacies, which, the manufacturers determined were abusing the system by providing discounted drugs to non-covered entities thereby harming the manufacturers’ profit margins.

1996 and 2010 Guidances. The 340B Program is administered by the Health Resources and Services Administration (HRSA) which issued a guidance in 1996 and another one in 2010 regarding the permissible distribution system for 340B Program drugs. The two guidances were similar except that the 2010 Guidance allowed covered entities to use an unlimited number of contract pharmacies to dispense 340B Program drugs, and since the issuance of that guidance, the number of contract pharmacies dispensing 340B Program drugs increased dramatically.

Limiting distribution. In response to the proliferation of contract pharmacies, AstraZeneca announced in August, 2020 that effective October 1, 2020, it would begin limiting distribution of 340B Program drugs to covered entities that had in-house pharmacies as long as they did not use any contract pharmacies. Other drug manufacturers made similar changes. In December, 2020, HHS’s general counsel issued the subject Opinion that concluded that covered entities were entitled to purchase the 340B Program drugs at no more than the ceiling price—and, that manufacturers were required to offer the drugs at that price even if the covered entities used contract pharmacies. The instant lawsuit ensued.

Opinion materially different from guidances. The court concluded that the December 2020 opinion was the first document in which HHS explicitly concluded that drug manufacturers were required by statute to provide 340B Program drugs to multiple contract pharmacies. The court also noted that as announced in August 2020, AstraZeneca’s new policy would not have run afoul of the 1996 Guidance—yet it directly contradicted the 2020 opinion. That reality demonstrated the government’s interpretation of manufacturers’ obligations under the 340B Program did not remain constant, but evolved over time. The court found that because the government changed what covered entities may do, it consequently changed what manufacturers must do.

Opinion legally flawed. The court determined that because there was more than one permissible interpretation of the 340B Program statute, and the agency opinion wrongly determined that the purportedly unambiguous statutory language mandated its conclusion regarding covered entities’ permissible use of an unlimited number of contract pharmacies, the agency opinion was legally flawed. Although the court denied HHS’s motion for summary judgment, it withheld deciding AstraZeneca’s cross-motion for summary judgment pending further input from the parties regarding how, if at all, the case should proceed.

The case is No. 1:21-cv-00027-LPS.

Attorneys: Michael P. Kelly (McCarter & English, LLP) for AstraZeneca Pharmaceuticals LP. Rachael Westmoreland, U.S. Attorney's Office, for Xavier Becerra.

Companies: AstraZeneca Pharmaceuticals LP

MainStory: TopStory CaseDecisions CMSNews DrugBiologicNews MedicaidNews MedicareContractorNews PaymentNews PartBNews PrescriptionDrugNews DelawareNews

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