Legal, BioPharma

Hospitals sue drug companies over discount program

The lawsuit follows action by at least a half-dozen drug companies to rein in what they see as waste and abuse in the program, overseen by the Department of Health and Human Services. Meanwhile, the Hospital plaintiffs have a potentially powerful ally in the person picked to head the department under the incoming Biden administration.

A legal fight has erupted over a drug-discount program designed to benefit uninsured and low-income people.

Hospital groups are suing a federal agency in hopes of forcing drug companies to abandon efforts that the plaintiffs argue are undermining the program. On the other hand, the drug companies claim the program is no longer working as intended and they need to take steps to ensure its integrity.

The lawsuit, filed last week in a federal court in California, argues that the Health Resources and Services Administration, or HRSA, has failed to exercise its authority to compel the drug companies to comply with the 340B Drug Pricing Program, which was originally created in 1992.  The 340B program requires drug companies to offer significant discounts on outpatient drugs to eligible health care organizations, known as covered entities, that serve vulnerable populations. 

Among the plaintiffs are the American Hospital Association, the Association of American Medical Colleges, the American Society of Health-System Pharmacists, the Children’s Hospital Association and 340B Health, which represents a range of hospitals and health systems that take part in the 340B program.

The legal move follows actions by a half dozen major drug companies over the last few months to limit sales through the 340B program to so-called contract pharmacies, including those operated by CVS Health, Walgreens, Walmart, Rite Aid and Kroger.

The drug companies named in the lawsuit are AstraZeneca, Eli Lilly, Novartis Pharmaceuticals, Novo Nordisk, Sanofi-Aventis U.S., and United Therapeutics. MedCity News reached out to all six companies. Novo Nordisk declined to comment. Eli Lilly did not respond to a call and email seeking comment. AstraZeneca and United Therapeutics similarly did not respond to an email. 

All six drugmakers all have taken steps this year to curtail the role of contract pharmacies in the 340B program, though they have said they are working to help entities like federally qualified and Indian health centers that may not have their own in-house pharmacies to pick up the slack.

The hospital groups, however, say existing guidance clearly authorizes the use of contract pharmacies and that the drug companies’ actions are bad for patients and safety-net hospitals.

“Drug industry players have moved without restraint to undermine the 340B drug pricing program, putting access to vital medications at risk for millions of Americans and destabilizing hospitals – including those on the front lines of the Covid-19 pandemic,” said Dr. Bruce Siegel, president of America’s Essential Hospitals, in a statement.

The association, which represents 300 hospitals in the U.S., is a plaintiff in the lawsuit. 

A spokesperson for HRSA, an arm of the U.S. Department of Health and Human Services, declined to comment on the lawsuit. But as the conflict has unfolded, the department has not been entirely silent.

Eli Lilly wrote to HHS this summer seeking an opinion on its new 340B policies, which reportedly involved an end of shipments to contract pharmacies, with some exceptions.

In a Sept. 21 letter, HHS’s general counsel, Robert P. Charrow, said HRSA had “significant initial concerns” with the drugmaker’s new policies but had not yet determined any action in response.

“Correspondingly, Lilly cannot and should not view the absence of any questions from the government as somehow endorsing Lilly’s policy especially when this Department is leading the government’s response to the Covid-19 pandemic,” wrote Charrow.

The drug companies say the limits they have enacted over the last few months are needed to curb the potential for waste and abuse and to ensure that the discounts help patients who need them. In response to MedCity News, Novartis cited a 2018 report by the U.S. Government Accountability Office, which found that the 340B program had weak oversight and potential for duplicate discounts at contract pharmacies, among other problems.

Sanofi, meanwhile, said it rolled out a policy in October saying it would collect de-identified claims data on 340B drugs dispensed by contract pharmacies as a means of identifying fraud and abuse. If hospitals don’t provide the data, it will ship drugs only to the hospital itself, said a spokeswoman who declined via email to be publicly identified.

“Sadly, and contrary to recent public statements by other program stakeholders, patients do not always benefit from contract pharmacy arrangements,” she said. “Often patients receive no discount at all on contract pharmacy-dispensed drugs, and 340B covered entities’ own in-house pharmacies are much more likely to provide discounts to patients than pharmacy chains.”

Another report, by consulting firm Berkeley Research Group, claims the 340B program has been a money maker for national pharmacy chains.

“The enormous growth in 340B contract pharmacy arrangements seems to boil down to a single factor: outsized profit margins,” said the report, which counted more than 100,000 contract pharmacy arrangements as of April 2020, up from 2,321 in April 2010. Retail-pharmacy access to the 340B program was expanded that year under the Affordable Care Act.

The conflict also stems from HRSA’s uncertain regulatory authority over the 340B program, according to lawyers familiar with the program and its history. The agency has little rulemaking authority under the statute that created the program and has relied instead on guidance documents, said Richard Davis, a Milwaukee-based attorney for the law firm Quarles & Brady.

The hospitals’ lawsuit could help settle the matter by deciding whether existing guidance carries the force of law, Davis said in a phone interview. Over the years, that guidance has allowed for the expanded use of contract pharmacies.

Drug companies could reply with a lawsuit of their own, said Davis, who represents contract pharmacies and other entities covered under the 340B program but is not involved in the lawsuit.

“Legally, in my opinion, it can go either way,” he said.

Arguments could be made that the guidance is not binding but also that it is since players in the program have been abiding by it. 

Another attorney said that contract pharmacies also can be considered legal extensions of the covered hospitals that use them. In that case, they would not need to be covered by a separate statute, said Kyle Vasquez, a shareholder in the Chicago office of law firm Polsinelli.

“I’m hopeful that we don’t need any new statutory language to resolve this,” said Vasquez, who represents hospitals in the 340B program.

At any rate, hospitals could soon have an ally with the ear of the next U.S president.

Xavier Becerra, the attorney general of California and President-elect Joe Biden’s pick to head HHS, sided with the hospitals’ argument in a letter sent this week to current HHS Secretary Alex Azar and HRSA Administrator Thomas J. Engels.

“Drug manufacturers’ concerted efforts to cut off, threaten, or belabor discounted drug distribution to contract pharmacies utilized by covered entities undermines HRSA’s efforts to support these safety-net providers,” wrote Becerra and 28 other state attorneys general. “We urge you to provide immediate relief, not only because it is critical to the community providers that serve low-income patients, but also because it is more necessary than ever now as many of these Americans are also the hardest hit by the Covid-19 pandemic.”

Photo: artisteer, Getty Images