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Six drugmakers are in violation of 340B statute, says HRSA

The drug manufacturers have placed restrictions on the program that have resulted in overcharges, HRSA says.

Jeff Lagasse, Associate Editor

Photo: Jeff Lagasse/Healthcare Finance News

Six drugmakers who have violated the 340B statute should immediately begin offering drugs at discounted prices to hospitals participating in the federal drug-pricing program, according to a letter sent to the drugmakers this week from the Health Resources and Services  Administration.

The HRSA maintained that the drug manufacturers in question – AstraZeneca, Eli Lilly, Novartis, Novo Nordisk, Sanofi and United Therapeutics – placed restrictions on the 340B program for hospitals that dispense drugs through contract pharmacies, and these restrictions resulted in overcharges, which are in direct violation of the statute.

Various actions from the manufacturers limited beneficiaries' access to discounted drugs available through the 340B program, HRSA said. Some, for instance, stopped providing the 340B ceiling price on products sold to covered entities and dispensed through contract pharmacies. Others limited sales by requiring specific data submissions or selling drug products only after a covered entity had demonstrated 340B compliance.

The 340B Program Ceiling Price and Civil Monetary Penalties final rule states that any manufacturer participating in the 340B Program that knowingly and intentionally charges a covered entity more than the ceiling price for a covered outpatient drug may be subject to a civil monetary penalty not to exceed $5,000 for each instance of overcharging. Assessed CMPs would be in addition to repayment for an instance of overcharging.

The drug manufacturer "must immediately begin offering its covered outpatient drugs at the 340B ceiling price to covered entities through their contract pharmacy arrangements," HRSA Acting Administrator Diana Espinosa wrote in the letters. "[The drug manufacturer] must comply with its 340B statutory obligations and the 340B Program's CMP final rule and credit or refund all covered entities for overcharges that have resulted from [this] policy. ... Continued failure to provide the 340B price to covered entities utilizing contract pharmacies, and the resultant charges to covered entities of more than the 340B ceiling price, may result in CMPs as described in the CMP final rule."


The HRSA notice under the Biden Administration reverses policy set under former President Donald Trump.

Drug companies stopped providing the discounted drugs after a federal appeals court in August 2020 ruled that 340B hospitals would be subject to Medicare cuts in outpatient drug payments by nearly 30%, reversing an earlier ruling calling those cuts illegal. The 2-1 decision by the U.S. Court of Appeals for the District of Columbia Circuit essentially gave the Trump Administration and the Department of Health and Human Services the legal authority to reduce payment for Medicare Part B drugs to 340B hospitals.

In the recent letters, HRSA told the drug manufacturers that they should start offering covered drugs at the 340B ceiling price, even if hospitals use contract pharmacies, and should credit or refund all hospitals for overcharges that resulted from these policies. If they don't, they face possible financial repercussions, including civil monetary penalties for each overcharging incident.

The 340B program enables covered entities to stretch federal resources with the intent of reaching more eligible patients and providing more comprehensive services. Manufacturers participating in Medicaid agree to provide outpatient drugs to covered entities at significantly reduced prices. Eligible healthcare organizations are defined in the statute and include HRSA-supported health centers and look-alikes, Ryan White clinics and State AIDS Drug Assistance programs, Medicare/Medicaid Disproportionate Share Hospitals, children's hospitals and other safety net providers.


America's Essential Hospitals praised the move this week, saying the limits on 340B discounts are unlawful.

"Essential hospitals serve people who face significant social and financial barriers to care, and they depend on 340B savings to meet their safety net mission," the group wrote. "The 340B program operates as Congress intended, making affordable drugs available to low-income patients and creating savings hospitals use to reach underserved communities. Essential hospitals extend their reach into these communities by partnering with pharmacies to make 340B drugs more accessible."

340B Health President and CEO Maureen Testoni also expressed support for the move, and highlighted a bipartisan bill spearheaded by Congresswoman Doris Matsui (D-Calif.) that would protect 340B hospital eligibility during the pandemic.

The bill waives 340B drug pricing program criteria that require hospitals to meet a minimum Medicare disproportionate share hospital adjustment percentage on their most recent Medicare cost reports to qualify for 340B. The legislation protects hospitals whose percentages drop below those minimums because of changes in patient case mixes due to COVID-19.

"We are grateful for Representative Matsui's leadership on this bipartisan show of support for safety-net hospitals participating in 340B," Testoni said. "As front-line providers in the COVID-19 pandemic, 340B DSH hospitals have had to adjust to changes in the healthcare delivery system that can change their patient mix and negatively affect their 340B status. This much-needed legislation will protect these hospitals and the patients they serve until our nation fully emerges from this historic public health emergency."


In September 2020, more than 1,100 hospitals sent a letter to Health and Human Services Secretary Alex Azar demanding that the department enforce 340B drug pricing requirements.

In weeks leading up to that letter, several major drugmakers had stopped providing 340B pricings for safety net hospitals. First, AstraZeneca announced it would stop offering discounts for 340B drugs beginning October 1. Then Eli Lilly cut off discounts for the drugs, with a limited exception for insulin products.

Merck, Sanofi and Novartis had also threatened to block access to discounts if hospitals didn't provide them with claims data, which the letter said providers have no obligation to do under the law.

Then in December five hospital groups and an organization of hospital pharmacists representing participants in the 340B program filed a federal lawsuit against the U.S. Department of Health and Human Services over what they call the department's failure to enforce program requirements that drug companies provide prescription drug discounts under the 340B program. The groups also submitted a memo in support of a permanent injunction against current drug company practices.

A growing number of drug companies have unilaterally refused to provide discounts to 340B hospitals on drugs that are dispensed at community-based pharmacies, the lawsuit said.

In April, the American Hospital Association asked Health and Human Services Secretary Xavier Becerra to ensure that hospitals participating in the 340B drug pricing program continue to have access to the program despite changes in their payer mix as a result of COVID-19.

The AHA specifically requested a Section 1135 waiver of the Social Security Act for certain 340B program eligibility criteria for 340B hospitals enrolled during the public health emergency that may have experienced a temporary change in payer mix due to the COVID-19 pandemic.

The public health emergency resulted in hospitals suspending nonurgent services and shifting resources to treat COVID-19 patients. These actions, combined with a slow resurgence of patient volumes, lowered the proportion of hospital patients paying through Medicaid or Medicare.

One of the primary eligibility criteria for hospitals in the 340B program is the Medicare disproportionate share hospital patient percentage adjustment, which is based on the volume of inpatient Medicaid and Medicare Supplemental Security Income patients.

Twitter: @JELagasse
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