I don’t know if anyone reading this has kids but, in my experience, my kid will start to stretch the boundary on behavior. Small at first. Then three weeks later I realize that everything has gone off the rails and I have to pull in the reigns. It feels like a rubber band that has been stretched too far. I use this analogy because it feels like the 340B program parallel; the manufacturers bent until finally one day they looked ahead and said that they just couldn’t keep going.
In 2020, some pharmaceutical manufacturers starting imposing limits on 340B sales to contract pharmacies. The limits take different flavors; some manufacturer policies have eliminated access to 340B pricing for use in any contract pharmacy unless the covered entity does not have an in-house pharmacy, in which case the entity may use one contract pharmacy location. Other policies impose data-sharing requirements to access discounted pricing for contract pharmacy use, among other exceptions. Certain policies impact all covered entity types, whereas other policies are limited to hospitals and continue to provide access to 340B pricing for federally-qualified health centers (FQHCs) and other providers that qualify for 340B based on their federal grantee status.
As you can imagine, these restrictions didn’t go over very well. The Department of Health and Human Services (HHS) issued an advisory opinion that stated manufacturers must deliver 340B drugs to an unlimited number of contract pharmacies. And in May 2021, the Health Resources and Services Administration (HRSA) sent violation letters to drug manufacturers that refused to comply with the HHS opinion. Sanofi, Novo Nordisk, and AstraZeneca sued HHS for its interpretation of the 340B statute.
In late January, the US Court of Appeals for the Third Circuit ruled in favor of drug manufacturers limiting supplies of discounted medications to 340B contract pharmacies. The Court found that the Department of Health and Human Services (HHS) does not have the authority to force drug makers to deliver to an unlimited number of contract pharmacies.
The Third Circuit found that the legislative text of section 340B does not mention contract pharmacies and does not explicitly prohibit drug makers from implementing restrictions on their offers to covered entities. The Court said the 3 drug makers’ policies still allowed covered entities to use the 340B program, but the legislation does not require them to “deliver goods wherever and to whomever the buyer demands.” If you’re wanting to know more about 340B and like a good nerdy read, I thought the ruling was an amusing read.
Now we are up to 25 manufacturers restricting 340B contract pharmacy sales. Drug makers argue that distributing to an unlimited number of contract pharmacies violates the original intent of the 340B program and is just a way to increase profits.
Just this week Adam Fein released the latest 340B numbers he got through a Freedom of Information Act request from HRSA. It’s the first look we’ve had at 2022 340B numbers and they are a doozy. Spending was up to $53 billion dollars in 2022, a 22% increase over 2021. This $53 billion translates into $106 billion in sales. A considerable discount from the manufacturers.
The footnote from HRSA implies that in 2022, contract pharmacy sales of $470 million were lost to restrictions. That is significantly lower than 340B advocacy organizations have been saying and, quite honestly, I would have thought there would be more of an impact. 340B Health has suggested that the loss is in the billions each year. (Sidenote: I am wondering another way of looking at that to say that the 340B entity went ahead with $470million of purchases even at non-340B price? If it were a contract pharmacy that was now restricted, would it ever show up as 340B? I don’t know but trying to make sense of a number that seems off.)
In terms of what is next, there are other federal courts (D.C. Circuit and Seventh Circuit) scheduled to rule on the scope of 340B contract pharmacy requirements leaving the door open for a possible Supreme Court review in 2024. In the meantime, we expect the number of manufacturers who put restrictions on their 340B contract pharmacy contracts to continue to grow. It is also possible that Congress could step in and add additional legislation to clarify the scope of the program. Although they seem to have bigger issues in front of them this week with the potential shutdown on the horizon.
But it is extremely important to know that 340B has gotten huge. That there is no real mission to the program other than to get money to covered entities and hope they use it well. HRSA, the agency in charge, is limited in what they can do to manage the program. We just have the second largest government prescription drug program hanging out there – a little directionless.