340B Providers Get Partial Relief from New Dispute Resolution Regulation

1. 340B ADR Process Established

At long last, more than ten years after Congress directed it to do so, HHS has finalized an alternative dispute resolution (“ADR”) process for both providers and pharmaceutical manufacturers participating in the 340B Program. 85 Federal Register 80632 (Dec. 14, 2020), available at https://www.govinfo.gov/content/pkg/FR-2020-12-14/pdf/2020-27440.pdf (“ADR Rule”). This Rule will allow aggrieved providers to bring pharmaceutical manufacturers to a final and binding process to resolve pricing disputes. While welcome relief, the Rule does not provide the full relief for manufacturer charging issues that providers sought.

Still, the ADR Rule should be useful to providers and, to a lesser extent, to pharmaceutical manufacturers. Providers may invoke the ADR process if they believe that they have been overcharged by manufacturers. You should recall that, as of January 1, 2019, manufacturers must disclose maximum per unit ceiling prices that can be charged to 340B providers, so providers now have access to critical ceiling price information to support their ADR claims. Conversely, a manufacturer seeking to invoke the ADR process must first complete an audit of a provider in order to determine if there has been a diversion of 340B drugs by the provider or if there have been duplicate discounts. The relatively burdensome audit requirement suggests that a manufacturer’s ability to bring ADR claims may be somewhat less than a provider’s, particularly given provider access to ceiling prices. And a provider who receives a manufacturer ADR claim would be well advised first to review whether the manufacturer conducted the requisite audit.

Providers will also likely be able to avail themselves of certain efficiencies in the ADR process. Although ADR requests by a provider must exceed the $25,000 threshold, a provider may consolidate multiple claims alleging overcharges by the same manufacturer for the same drug. In addition, trade associations can consolidate and submit claims on behalf of numerous providers. Meanwhile, manufacturers may not be able to consolidate claims as easily, given the statutory requirement that a manufacturer first audit a provider before bringing a claim. And the statutory authority for the 340B ADR process does not allow associations or organizations representing manufacturers to submit claims on behalf of manufacturers. Providers should therefore have an easier path to the efficiency of claims consolidation.

One drawback of the ADR process may be the timing of ADR results. The ADR Rule does not require the three-person ADR panel hearing a particular claim or consolidated claims to issue a decision within a specified timeframe, meaning a decision could lag significantly behind the issue. Another potential drawback is the $25,000 threshold for ADR claims. Depending on cost of the drug(s) in question, a sole provider may have to endure a substantial number overcharges before it can invoke the ADR process, unless it can convince a trade association to bring an ADR demand on behalf of multiple providers with the same problem.

Finally, the ADR Rule will not assuage all provider 340B-related grievances. In particular, it is not clear that the ADR process will address certain issues, such as recent manufacturer refusals to distribute drugs at the 340B price to provider contract pharmacies. Further, even if the process does provide an avenue for addressing such issues, the lack of deadline for ADR decisions means that determinations on those issues may not be speedy. Last week, the American Hospital Association and numerous other trade associations filed a lawsuit against HHS, seeking to require HHS to take action against manufacturers who refuse to offer 340B discounted pricing for drugs if a provider dispenses the drug through a contract pharmacy. In short, though the ADR Rule should offer some relief to providers, it is not a panacea.

2. 340B Payments Not Further Reduced

In a smaller positive turn of events for providers, CMS’s 2021 Outpatient Prospective Payment System Final Rule (the “2021 OPPS Final Rule”) did not implement the proposed further decrease in payments suggested in the 2021 OPPS Proposed Rule. Available at https://www.cms.gov/files/document/12220-opps-final-rule-cms-1736-fc.pdf. The 2018 OPPS Final Rule had reduced Medicare payment for 340B drugs from Actual Sale Price + 6% to ASP – 22.5%. Providers challenged the reduction in court but lost, meaning the payment reduction stands. The 2021 OPPS Proposed Rule suggested a further reduction in payment amount, to ASP – 28.7%, but the 2021 OPPS Final Rule did not finalize that change, so the payment rate remains ASP – 22.5%.

Please contact Gary Rosenberg, Cecilie MacIntyre, or another member of Verrill’s Health Care & Life Sciences Group with any questions.