Drugmakers in recent weeks have taken increasingly aggressive actions to crack down on 340B drug discounts through contract pharmacies and demand more data from healthcare providers.

Pharmaceutical companies appear to be testing how far they can challenge subregulatory guidance issued by the Health Resources and Services Administration that allows 340B providers to receive discounts for working with multiple contract pharmacies. If the trend continues at its current clip, the limitations on discounts could have a big impact on some covered entities’ finances.

“These changes are aimed at the contract pharmacy model, and they are aimed at covered entities’ bottom lines. Through those pharmacies, covered entities are able to utilize those savings and they use the benefits they receive to benefit their patient populations,” Sentry Data Systems head of industry relations Lisa Scholz said.

The two drugmakers taking the most boundary-pushing steps are AstraZeneca and Eli Lilly, which notified providers of plans to restrict how 340B providers can contract with pharmacies.

Eli Lilly went first, and said it would only allow contract pharmacies to get discounted units of its erectile dysfunction drug Cialis if a 340B provider did not have an in-house pharmacy.

“When that decision was announced, it was clear that other manufacturers would see the decision and know this is the first public step that has been taken,” said Rebecca Davison, a director at healthcare consulting firm ADVI.

AstraZeneca followed suit soon after, announcing restrictions on discounts for all of its drugs through contract pharmacies.

Contract pharmacy usage has skyrocketed since HRSA issued guidance 340B covered entities to contract with multiple pharmacies in 2010. An analysis by the Drug Channels Institute found that fewer than 1,300 locations served as contract pharmacies in January 2010, compared with nearly 28,000 in July 2020.

Drugmakers say they are worried that the program has grown too fast without proper oversight on duplicate discounts by HRSA, and say that a right to use contract pharmacies is not included in statute. A recent statement on a HHS database of guidance documents states that guidance documents “do not have the force and effect of law and are not meant to bind the public in any way.”

King & Spalding partner John Shakow said drugmakers have been concerned about abuses and lax oversight in the program for years.

“They were trying to be good citizens, but took action when the cost of doing so became so intolerable,” Shakow said.

AstraZeneca said it believes the change is consistent with HRSA guidelines and operative 340B statutory provisions in a written statement.

But 340B providers disagree and argue the change runs counter to HRSA guidance and hurts safety-net providers during a pandemic.

“AstraZeneca’s serious escalation of this trend would punch holes in the system of 340B discounts that Congress mandated,” 340B Health said in a written statement.

The American Hospital Association accused some drugmakers of picking and choosing which program requirements to which they will adhere.

“They are publicly flaunting the 340B statute and HRSA 340B programmatic guidance and taking matters into their own hands to suit their best interests,” AHA wrote to HHS on July 30.
It’s unclear exactly how big of an impact strict limitations on discounts through contract pharmacies could have, but attorneys who work with providers say the impact could be significant.

“If this continues to expand, with the ramifications of the OPPS payment reductions it calls into question viability of some covered entities long term at worst, and their participation in 340B program in the first place,” said Hall Render attorney Todd Nova.

The National Association of Chain Drug Stores also decried the moves, saying the group is concerned that the changes will undermine contract pharmacy participation in the 340B program.

Drugmakers Merck, Sanofi and Novartis have taken an alternative approach of asking covered entities for claims data using a new platform with ties to Berkeley Research Group consultants.

The drugmakers are asking for wide-ranging data on claims on Medicaid, commercial, and Medicare Part D rebate invoices, and Novartis and Sanofi threatened to restrict discount availability through contract pharmacies if 340B providers don’t hand over data.

Hospitals have criticized the data requests as too broad. America’s Essential Hospitals President and CEO Bruce Siegel said the requests exceed the scope of federal protections from duplicate discounts. “These data requests have no clear link to program integrity. Rather, they seem to be little more than a fishing expedition,” Siegel said in a written statement.

Drugmakers argue the requests are reasonable.

“Although AHA mischaracterizes our initiative as intended to limit distribution of 340B-priced drugs, instead our program solely seeks the information needed to protect our company from duplicate discounts,” Sanofi wrote to HHS on Aug. 13.

Novartis said it continues to support the 340B program, but believes the program has grown beyond its original intent and wants data to help mitigate duplicate discounts.

Currently, covered entities are responsible for ensuring compliance and avoiding duplicate discounts, but a government watchdog report from January found HRSA does not require covered entities to address or work to repay duplicate discounts in Medicaid managed care.

Covered entities’ options to challenge drugmakers’ actions may be limited due to a unanimous 2011 Supreme Court ruling stating that providers cannot sue drugmakers for overcharging public hospitals for drugs.

However, 340B Health and attorneys who work with providers said providers are weighing their options to challenge drugmakers’ decisions.

“If the administration will not use its authority to enforce the law, we will pursue all legislative and legal avenues available to us to defend the safety net,” 340B Health said.

However, some doubt that providers would truly want to risk a court case where they could lose big on discounts. Instead, they may try to pursue talks on a case-by-case basis.

“I don’t doubt that folks may come up with a clever argument and are actively trying to figure that out. Alternatively, given their significance as a customer to manufacturers, many providers may be able to work this out collaboratively,” said Richard Church, a partner at K&L Gates.

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