How lawsuits may reshape 340B reimbursement

By Alex Kacik / November 11, 2024

A new lawsuit over how pharmaceutical companies can dole out drug discounts to providers amplifies an constant legal battle between hospitals and drugmakers.

Johnson & Johnson sued the federal government Tuesday, claiming the Health Resources and Services Administration does not have the authority to restrict how the drug manufacturer can distribute 340B drug discounts. The pharmaceutical company seeks to charge 340B-enrolled disproportionate share hospitals full price for its anticoagulant Xarelto and the Crohn's disease medication Stelara and administer discounts later, rather than at the time of purchase.

The lawsuit is part of a perpetual fight between drugmakers seeking to rein in 340B discounts offered through the burgeoning program and providers who say they rely on those savings to maintain services and stay afloat. The federal program is designed to save hospitals, physician groups and outpatient facilities that treat large numbers of low-income and uninsured patients an estimated 25% to 50% on outpatient drugs.

Here’s what to know about the complaint filed in the U.S. District Court for the District of Columbia and the 340B program.

What led to the lawsuit?

In August, Johnson & Johnson told 340B hospitals it would implement a new reimbursement model for Xarelto and Stelara starting in mid-October.

The model would allow Johnson & Johnson to vet data from providers who purchase and dispense 340B discounted drugs to validate their eligibility before issuing rebates. This policy was fueled by criticism that ineligible providers, or third-party pharmacies those providers use, illegally benefit from the program.

In response to the proposed change, HRSA threatened to fine Johnson & Johnson or kick it out of the program. The pharmaceutical company scrapped its plan on Sept. 30, but looks to revive the policy through the courts.

Why does a rebate model interest drug manufacturers?

Pharmaceutical manufacturers say vetting 340B providers through a rebate model will increase transparency and limit discounts to providers who allegedly don't qualify for the program.

A Johnson & Johnson spokesperson said in a statement the narrowly focused transparency rebate model supports the 340B program’s long-term sustainability, ensures compliance with requirements in the Inflation Reduction Act of 2022 and ultimately protects patients’ access to care.

“Johnson & Johnson is taking action to bring much-needed transparency essential to helping the 340B program achieve its original intent to support prescription drug access for vulnerable patients,” the spokesperson said.

A spokesperson from Pharmaceutical Research and Manufacturers of America, which represents drug manufacturers, said the policy change can help weed out duplicate discounts for the same prescription and ineligible providers.

“Hospital abuse of 340B is one of the reasons the program continues to balloon in size letting hospitals make billions of dollars in profits from marking up the prices of medicines they charge to employers, Medicare, Medicaid and patients," the spokesperson said in a statement.

How did hospitals react to the lawsuit?

Providers claim that pharmaceutical companies are putting profits over patient care.

An American Hospital Association spokesperson called Johnson & Johnson’s legal arguments completely meritless.

“We look forward to the courts rejecting J&J’s effort to put profits over people,” the spokesperson said in a statement.

A spokesperson for 340B Health, an association that represents 340B hospitals, said changing the reimbursement model would be disastrous for 340B hospitals and their patients. It would also conflict with HRSA’s longstanding interpretation of the 340B statute requiring upfront discounts, the association said.

“These hospitals would go without vital resources they need to treat their patients in need while drugmakers and third parties determine when—and whether—to approve 340B rebates,” Maureen Testoni, president and CEO of 340B Health, said in a statement.

The Health and Human Services Department, as well as its subagency HRSA, declined to comment.

What other 340B lawsuits are pending?

There are many other pending lawsuits that challenge the 340B reimbursement model and providers’ eligibility.

More than a half-dozen states are grappling with legal challenges to laws that prevent drug manufacturers from restricting 340B discounts on drugs dispensed through contract pharmacies.

In June, Novartis sued to block a contract pharmacy-linked state law in Mississippi, alleging it was preempted by federal law. A federal court in July denied Novartis' request for a preliminary injunction blocking the law. Novartis appealed the decision.

There is a similar case in Arkansas, where district and appellate courts also sided with providers. In July, PhRMA filed a petition for the Supreme Court to hear the case. The Supreme Court has not said whether it will take the case.

Premier filed a lawsuit earlier this month seeking to set aside a regulation requiring 340B-eligible hospitals that purchase drugs through a group purchasing organization to do so at the wholesale acquisition cost, rather than the 340B price or the discounted rates group purchasing organizations negotiate with drug manufacturers.