Drugmakers restrict 340B sales after appellate court ruling

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Bayer and EMD Serono told customers Wednesday they would limit 340B discounts on drugs dispensed through contract pharmacies, announcements made just days after three other drug manufacturers were handed a court victory on the issue.

Starting March 1, Bayer and EMD will only offer 340B drug discounts to hospitals and their affiliates registered as 340B-covered entities, the companies said in letters to customers. The decisions make Bayer and EMD two of around 20 companies that restrict 340B discounts distributed through outside pharmacies.

The program has “strayed far from its original purpose” of helping safety-net hospitals increase access to medication for vulnerable, low-income populations, Bayer said in its letter. 

Bayer did not respond to a request for comment. EMD said in a statement that the policy change does not deny a single discounted sale to any 340B-covered entity and that it supports the mission of the program.

Monday’s ruling in the Third Circuit Court of Appeals was largely in favor of three drug companies that imposed limits on 340B drug discounts provided to safety-net hospitals via contract pharmacies. The three-judge panel concluded the Health and Human Services Department cannot require AstraZeneca, Novo Nordisk and Sanofi to deliver 340B-discounted drugs purchased by hospitals to an unlimited number of community and specialty pharmacies. Two similar cases cases are pending in federal appeals courts.

The three companies applauded the ruling. Hospital associations said it will result in greater profits for pharmaceutical companies at the expense of hospitals and the low-income individuals they serve.

The 340B program gives hospitals that treat low-income and uninsured patients drug discounts as steep as 50%. Participation has grown considerably over the past two decades, prompting scrutiny from drug manufacturers and policymakers regarding whether hospitals are abusing the program.

Monday’s ruling could prompt other manufacturers that hadn’t limited 340B drug sales to contract pharmacies to take action, experts said.

Because of the ruling, it is unlikely that HHS would issue any enforcement actions against manufacturers that limit the sales of 340B drugs, said Emily Cook, a healthcare partner at  law firm McDermott Will & Emery. “The decision Monday opened a path for drug manufacturers to impose more restrictions than they have been imposing to date on the sales of 340B drugs,” she said.

More 340B hospitals may invest in their IT systems to meet drugmakers’ 340B data requests to prove  the discounted drugs are benefiting vulnerable populations, said Ricky Yuen, a principal at the consultancy ZS.

“The implication to 340B hospitals is that their contract pharmacy savings continue to be impacted, unless they comply to many of these pharmaceutical manufacturers’ requirements of submitting claims data in order to extend the 340B pricing back to multiple contract pharmacies,” he said in an email. 

In 2010, HHS allowed 340B hospitals to use more than one contract pharmacy and since then, the compound annual growth rate of 340B purchases has grown by roughly 25%. Drugmakers began limiting 340B drug sales to outside pharmacies in 2020, alleging the practice led to more drugs entering the black market and, in some cases, to the drugmakers providing double discounts on the same drug.

In addition to the two other pending cases involving contract pharmacies, there are two pending lawsuits involving the administrative dispute resolution process between 340B hospitals and drugmakers and another related to the 340B program definition of a patient and whether that definition is consistent with the 340B statute.

Earlier this month, a federal judge ordered HHS to create a plan to correct underpayments made to 340B hospitals from 2018 to 2021 under a regulation the Supreme Court in June deemed unlawful. In 2018, the Centers for Medicare and Medicaid Services cut 340B reimbursement by nearly 30% and redistributed the money to all hospitals.

CMS is expect to release more information about the repayment plan by April, Cook said. Hospitals may disagree with the terms and file lawsuits, she said.

The American Hospital Association sent a letter to HHS Wednesday requesting a meeting to discuss the repayment plan. 

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