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340B Insight provides members and supporters of 340B Health with timely updates and discussions about the 340B drug pricing program. The podcast helps listeners stay current with and learn more about 340B to help them serve their patients and communities and remain compliant. We publish new episodes twice a month, with news reports and in-depth interviews with leading health care practitioners, policy and legal experts, public policymakers, and our expert staff.
Announcer (00:04):
Welcome to 340B Insight, from 340B Health.
David Glendinning (00:12):
Hello from Washington D.C. and welcome back to 340B Insight, the podcast about the 340B Drug Pricing Program. I'm your host David Glendinning with 340B Health. Our guest today, as it is every few months, is 340B Health President and CEO Maureen Testoni. 340B has had a busy summer and an even more eventful start to the fall season since we last had Maureen on the show.
(00:39)
So we brought her back on to get her latest take on the lay of the land. Here's that conversation. I am speaking today with 340B Health President and CEO Maureen Testoni. Maureen, we always appreciate your time with us. Welcome back to 340B Insight.
Maureen Testoni (00:56):
Thanks, David. It's great to be back.
David Glendinning (00:58):
We try to have you on the show about once every quarter, and so we last spoke with you back in June. What has been going on for 340B since then?
Maureen Testoni (01:07):
Well, some pretty significant developments. There has been a controversial proposal to turn 340B from an upfront discount plan into a rebate plan. There has been guidance proposed by the Centers for Medicare and Medicaid Services about how to implement the Inflation Reduction Act's provisions relating to the negotiation of Medicare fees, and that guidance has significant implications for 340B. We've also seen recently legislation introduced in Congress on 340B, and we are seeing recently more federal court action on the 340B contract pharmacy litigation.
David Glendinning (01:53):
Let's start with the rebates because I know from all the chatter out in the 340B community that this is a big deal. Please explain how this issue came about.
Maureen Testoni (02:03):
So David, this is not a new issue. The drug industry has been trying to turn 340B from an upfront discount program into a backend rebate program for years. There was a pharmaceutical vendor called Kalderos that really put a lot of effort into trying to move 340B into a rebate program for its clients, for its manufacturer clients, a number of years ago and HRSA did not approve that.
(02:33)
And that ended up resulting in litigation during the whole contract pharmacy when contract pharmacy restrictions were being first put into place. What is new, however, is Johnson & Johnson has now announced that they are going to stop selling 340B drugs at the discounted price and instead are not going to give covered entities the benefit of 340B until they have received data from covered entities, claims data, done their own validation of that data.
(03:04)
And then if they agree that that data complies with their own interpretations of 340B, then and only then would covered entities receive the 340B discount and 340B rebate. They're doing this for two of their drugs, STELARA and XARELTO. Both of those drugs are subject to Medicare negotiations under the IRA, which I think is tying to this issue with how that process is going to work with 340B.
(03:38)
But ultimately, it seems very clear that if this were to go forward, this is something that could have a massive impact on 340B because it could apply to all manufacturers and for all of their drugs.
David Glendinning (03:52):
First question we always have when there's a big 340B development like this is about what it will mean for covered entities. What would this mean for hospitals that buy these two drugs?
Maureen Testoni (04:05):
This would be a very significant negative impact for hospitals. It is impossible for me to really overstate that these are our safety net hospitals. They are already cast strapped hospitals. They have much lower margins than other hospitals if they even have a margin. And what this would do is it would require that these kinds of hospitals buy their drugs at much higher prices than the 340B discount.
(04:34)
They would buy that. They would put it on their shelves. And it would sit on their shelves until they dispense it to the patients and they bill the patients' insurer if the patient has an insurer. And at that point then, the hospitals would required to submit claims data to the manufacturers. The manufacturer, J&J, would go through what they refer to as a validation of the claims, but they give us no information as to what that would involve.
(04:59)
Their vendor, on the other hand, who will be receiving this data and evaluating it does make clear in their terms of use that this process could involve looking at the hospital's 340B data and comparing it to commercial claims data, which has nothing to do with 340B, as well as TRICARE, as well as Medicare, none of which really has anything to do with the 340B statute, but is very relevant for manufacturers' own voluntary arrangements that they have with PBM.
(05:30)
It would be very expensive this upfront spend, and then having to wait potentially months to get the rebate, not knowing if they're going to get the rebate because there's no clarity on the validation process. And it's very, very administratively burdensome to try to implement.
(05:47)
There's no clear mechanism that's been described for how you would even be able to tell whether you'd been paid the rebate, whether the information you get would tie directly to the claims that you submitted. I strongly believe this is really going to leave to some cash on hand problems for 340B hospitals as a result.
David Glendinning (06:06):
Certainly sounds like this is about much more than simply a change in when hospitals will receive those 340B savings. What has been the reaction to this proposal for such a major change?
Maureen Testoni (06:17):
So 340B Health thinks this is just clearly unlawful and our lawyers have advised HRSA of that legal analysis. There is just no way under the 340B statute that it is permissible for a J&J to just decide that they're not going to sell at the 340B price. The 340B statute requires manufacturers to offer drugs for purchase at the 340B price. So that is not a rebate, that is for purchase.
(06:46)
And HRSA has always made clear over the 30 plus years of 340B that this means upfront discounts, not a rebate. There was one small situation in which HRSA did permit a rebate and that was for AIDS Drug Assistance Program, known as ADAP. And that is only because that type of covered entity cannot access, at the time anyway, could not access 340B via discount.
(07:10)
So we've made clear that we do not believe legally that this can continue and we have asked HRSA to do everything in their power to block J&J from imposing rebates. So we're very pleased that HRSA responded with a very strong letter to J&J saying that they cannot move forward.
(07:30)
They needed to cease trying to move forward with the rebate program, and telling J&J that if they did not do that, HRSA was going to take or was poised to take some very strong enforcement action. And two of the strongest enforcement actions that HRSA has is to terminate the agreement that J&J has with HRSA that allows them to have their drugs covered by Medicare and Medicaid in return for providing 340B discounts.
(08:01)
So HRSA is saying, if you're not providing the discounts upfront, we're going to terminate that and you could lose access to coverage by Medicare and Medicaid for your drugs. And then the other big enforcement mechanism that HRSA said that would be at issue here would be civil money penalties and subjecting them to potentially millions of dollars in violations if they were to move forward with this rebate proposal.
David Glendinning (08:25):
And we will be sure to include that full HRSA letter to J&J in the show notes so listeners can read it. The language they use does not seem to be subtle. So does this mean the threat of rebates is off the table?
Maureen Testoni (08:39):
No. Unfortunately, we're not at a place where we can just sit back and say, "Okay, HRSA has spoken, so therefore. And they've made clear what the law is, so therefore this will go away." J&j has not responded yet publicly, so we are not aware of whether they will take it down. But they could decide that they're going to move forward and HRSA will take steps to enforce and that can lead to litigation.
(09:06)
And this is very typical in disputes with the government, and so it could be something where J&J is planning and maybe has planned from the beginning, I don't know, to go ahead and sue HRSA if in fact they try to enforce and then try to get a federal judge to agree that they have the power to turn 340B into a rebate program. However, separate from the litigation, it's really important that we continue to focus on advocacy around this issue.
(09:40)
It's vital that policymakers understand what a disaster this would be for hospitals if this rebate proposal went forward. And in fact, right now, members of Congress are preparing a letter that they will be sending to Secretary Becerra to continue to support the administration's opposition to J&J's rebate plan, and that is really important.
(10:05)
And there's other activities in the works as well, other letters that are being prepared and there's litigation certainly that covered entities are looking at for potential challenges. So there are a lot of things in motion here. So again, I don't think we can just say, "HRSA spoke, therefore we can relax." But it is fantastic and we were thrilled to see HRSA take such strong action and such a strong tone very quickly after J&J announced this proposal.
David Glendinning (10:39):
You mentioned that 340B rebates are not a new concept earlier, but why is this issue heating up now? What do you think is behind the latest push by drug companies to impose rebates?
Maureen Testoni (10:52):
It's coming up right now partly because of the Inflation Reduction Act and maybe that's giving J&J or manufacturers more of an opportunity to talk about rebates because the way that CMS is setting up how entities are supposed to receive that lower cost for Medicare drugs is essentially through a rebate type process where pharmacies will buy the drugs at their regular prices.
(11:24)
When a pharmacy processes a claim for a Medicare person for one of these drugs that's covered by this negotiated process, that information goes to CMS, and then it goes to a manufacturer, and then the manufacturer will repay the pharmacy the difference between what was spent and what this new negotiated price is. There's not like the way we're hearing with 340B where there's this big validation process that involves multiple sources of information outside of the government.
(11:57)
So it's expected to be much faster, much cleaner. So thinking of that as a potential rebate, that by itself I think gives manufacturers, "Oh, this is doing it as a rebate. Why can't we do 340B as a rebate?" And then also, because of this process, it makes 340B frankly more difficult to operate because when the claims are being sent for Medicare patients to CMS, CMS isn't going to know whether a 340B drug was used. Now, there are processes in place.
(12:34)
Oregon, for example, has a process in place where they collect separate data from covered entities and they match that against the claims data that they have. And so they can identify the ones that are 340B. And that is the process we believe that CMS should be using here. That said, it in no way requires 340B to work as a rebate. Even the collection of data by drug manufacturers does not mean it has to be a rebate.
(13:02)
It can allow them to collect data that would justify whether or not they're going to pay that extra rebate to a pharmacy. But I do believe that that tie and that this is coming up within the next year or so does present an opportunity for manufacturers to argue as they've done in the past that, oh, we can do a rebate. It's not going to be that different from what CMS is doing for the IRA. And that is just categorically false.
David Glendinning (13:31):
So much happening at the administrative level for 340B. So what about the legislative level? Has anything been happening on Capitol Hill lately with 340B?
Maureen Testoni (13:42):
Well, I'm happy to report, David, that Senator Pete Welch from Vermont recently introduced legislation to reinstate contract pharmacy in 340B, to really put that, make that a very clear part of the statute and to prohibit manufacturers from imposing conditions on access to 340B, which is exactly how 340B has operated for 30 plus years.
(14:07)
Senator Welch's bill is a companion to the house bill that was introduced earlier this year by Congressman Doris Matsui of California. So we're really pleased to see now both the House and the Senate has that legislation, and so we're working to raise support for that legislation as we move forward.
David Glendinning (14:28):
What are the chances we might see legislative action on 340B during the rest of this year?
Maureen Testoni (14:34):
So this year doesn't have a lot of time left. Congress usually will break before the November elections, and then they'll come back after that for a short period for what's referred to as a lame duck session. And typically that means that those sessions will address must pass legislation maybe to fund the government, for example, or make sure that certain necessary programs are authorized.
(15:03)
Also, legislation that has been passed already by both the House and the Senate, but had not yet been sent to the President, that legislation could come up and move forward if you're still waiting for a vote for one or the other. Or if both have voted on it and there's a conference to work out the details, then that legislation is the type of legislation that can move forward in the lame duck.
(15:28)
There is a provision that applies to 340B that has a chance of moving forward there. It relates to potential reporting if covered entities are receiving reimbursement from Medicaid managed care entities that's higher than the 340B price. So that is legislation that has already passed out of both the House and the Senate. That could be the type of legislation that we could see be enacted before the end of the year. But it's not even clear. That's not a definite thing.
(15:59)
There was a bipartisan group of senators working on 340B legislation. They were titling their draft legislation the 340B SUSTAIN Act. They're still working on that. That's a pretty far-reaching piece of legislation and then it would cover a lot of things. It would also reinstate contract pharmacy, but it has a lot of other provisions. That's the type of legislation that can be difficult to pass quickly because you're really addressing a lot of different things that may not have fully gone through the committee consideration process.
(16:33)
The House had earlier passed legislation to mandate 340B reporting. But again, it was a very partisan legislation which often has a difficult time getting the votes to make it through a lame duck process. So we'll have to wait and see, but it seems unlikely that that far-reaching 340B legislation could be enacted before the end of the year.
David Glendinning (16:59):
Well, by the time we have you back on the show, we should have more clarity about the elections and that lame duck session. Before we wrap up today, I want to make sure we get an update on some of the litigation that's been going on with 340B. Where does 340B stand when it comes to the courts?
Maureen Testoni (17:16):
So just a reminder for everybody, talking about contract pharmacy restrictions, when HRSA was enforcing those restrictions, manufacturers sued in four district courts and those decisions went up to three appellate courts. So at this point, one of those appellate courts has still not issued a decision and we're quite a ways away from the time when they heard that.
(17:39)
And that's the Seventh Circuit. The other two appellate court, the Third Circuit and the D.C. Circuit, have issued decisions and their decisions were similar. They essentially concluded that the 340B statute does not categorically prohibit manufacturer conditions around the distribution of drugs, and therefore HRSA's enforcement action could not be sustained because HRSA was saying that that statute did categorically prohibit all conditions.
(18:09)
So based on that outcome from the D.C. Circuit, there have been recently settlements that have been approved between some other outstanding litigation by manufacturers that had been paused. And so basically the settlements decisions for those other lawsuits are saying that there's no categorical prohibition from manufacturer conditions around the distribution of drugs.
(18:38)
Therefore, HRSA's enforcement letter cannot be sustained. However, it's important for all of us to keep in mind that the decision also made clear that 340B does not permit any and all conditions by manufacturer. And that in fact the court specifically said that onerous provisions that effectively raise the price of a drug above the 340B ceiling price or are impossible for one or more provider to meet to violate the 340B statute.
(19:11)
There's also a lot of litigation going on in states, and that's because eight states have passed legislation that effectively bans the contract pharmacy restrictions. And we've seen a number of manufacturers reinstate 340B pricing for the four contract pharmacies in those states. However, the pharmaceutical industry has been challenging those laws in every single state.
(19:33)
340B Health and other associations, we've been filing amicus brief in defense of those state laws, and we will continue to do so. Now, the decisions so far from federal court have upheld the state laws, but there are many lawsuits under different theories that are still outstanding. So I do expect the litigation to continue for a while. But so far, as I say, the states have supported and upheld the state laws, which is great news.
David Glendinning (20:01):
Okay, so sounds like a long legal road ahead, but we're all here for the ride, I suppose. Maureen, thank you for taking the journey with us today. Our aim in having you on regularly is to bring our listeners up to speed on 340B issues that only seem to be increasing in volume and complexity. So we all appreciate all that intel. Thanks again.
Maureen Testoni (20:23):
All right, thank you so much, David.
David Glendinning (20:25):
We thank Maureen Testoni again for keeping us current on all things 340B. The debate over 340B rebates and some of the other issues she mentioned have the tendency to move fast. So please check the show notes to see if we have any new developments to let you know about.
(20:42)
340B Health members also have access to the latest news through our weekly member newsletter and regular news alerts. We will be back in a few weeks with our next episode. In the meantime, as always, thanks for listening and be well.
Announcer (21:02):
Thanks for listening to 340B Insight. Subscribe and rate us on Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts. For more information, visit our website at 340Bpodcast.org. You can also follow us on Twitter @340BHealth, and submit a question or idea to the show by emailing us at podcast@340BHealth.org.