As a holiday gift to providers, the U.S. Department of Health and Human Services (HHS) General Counsel recently issued a strongly worded Advisory Opinion indicating that federal law requires drug manufacturers to deliver covered outpatient drugs purchased by providers at 340B discounted rates to contract pharmacies, so that contract pharmacies can dispense such drugs to patients on behalf of providers. See HHS General Counsel Advisory Opinion, dated December 30, 2020. During 2020, several manufacturers refused to deliver 340B discounted drugs to contract pharmacies, though providers had ordered and paid for the drugs. HHS issued the Advisory Opinion in response to numerous requests from both providers and manufacturers regarding the propriety of the manufacturers’ refusal to provide the drugs to contract pharmacies.

In the Advisory Opinion, HHS concluded that the 340B statute could not be “less ambiguous” in requiring that manufacturers offer covered outpatient drugs at no more than the 340B ceiling price for purchase by providers, regardless of how the providers intend to dispense the drugs. HHS also noted that not allowing contract pharmacies to dispense covered outpatient drugs would undercut a main purpose of the 340B Program, which seeks to benefit providers that are remote, small, resource-limited, receiving federal assistance, or serving disadvantaged populations. As HHS put it, “[t]hese are the poster children of providers that one would expect to lack an in-house pharmacy,” meaning contract pharmacies are a necessary link in the 340B distribution chain. HHS noted that denying discounts due to contract pharmacy use would foreclose 95% of all 340B discounts, a nonsensical result.

The Advisory Opinion confirms HHS’s consistent affirmation of the use of contract pharmacies. HHS noted that if manufacturers are genuinely concerned about diversion and duplicate discounts for 340B drugs—the manufacturers’ stated reasons for refusing to provide discounted drugs to contract pharmacies—they can proceed through the available dispute resolution channels, which now include a formal alternative dispute resolution process implemented by the recent adoption of the final rule. See Verrill Client Alert, dated December 14, 2020.

On balance, the Advisory Opinion is a positive development for providers, though it is possible that manufacturers will not view the Advisory Opinion as legally binding, as it is neither law nor regulation. It is also possible that the incoming presidential administration will take a different view of manufacturer requirements vis à vis contract pharmacies, though a pro-manufacturer change in position seems highly unlikely. Still, for now, the Advisory Opinion strongly and unequivocally establishes HHS’s current view that manufacturers must provide 340B discounts for covered outpatient drugs dispensed through contract pharmacies.