A Republican White House and a Republican-run Congress could bring significant changes to the 340B Drug Pricing Program (“the 340B program”). Many in Washington believe that the new administration and Republicans in Congress will favor the concerns of drug manufacturers over the concerns of providers or health plans. If the price of drugs becomes an issue for the new Congress, it is very likely that drug manufactures will ask Congress to “scale back” or potentially even eliminate the 340B program as the “quid pro quo” for imposing even the most modest forms of drug price regulation.

This Alert describes possible congressional and administrative actions. The list of possible threats to the 340B program is not intended to be exhaustive, and both Congress and the new administration could propose many other approaches to diminishing or even eliminating this important program.

Although this Alert describes the threats confronting the 340B program, all is not lost. As we approach the holiday season, it may be appropriate to borrow from Charles Dickens’ famous story, A Christmas Carol. In that story, the third ghost, the Ghost of Christmas Yet to Come, shows Ebenezer Scrooge a terrifying future. Scrooge begs the ghost to tell him how to prevent this nightmarish future. The threats described in this Alert are not preordained. 340B stakeholders have the ability to take action now to impact the future course of the 340B program.

Background

While this Alert describes some of the potential changes in years to come, it does not address the possible release of the so-called 340B mega-guidance now under review by the current administration’s Office of Management and Budget. It is not clear if the current administration will release this guidance prior to the inauguration of the new president. Further, even if the current administration does release the guidance, it is also not clear if Congress or the new administration would quickly rescind the guidance if it were released.

There is also an open question about the scope of the Health Resources and Services Administration’s (“HRSA”) discretion to limit the program without congressional action. In two separate challenges brought by Pharmaceutical Research and Manufacturers of America (“PhRMA”), a D.C. Circuit Court ruled that the Secretary of Health and Human Services (“HHS”) has limited authority to regulate the 340B program. In a 2014 decision, the court found that HRSA did not have broad rulemaking authority, but instead only has explicit authority to implement regulations in three areas: (1) the calculation of ceiling prices, (2) the imposition of manufacturer civil monetary penalties, and (3) the dispute resolution process. However, the court left open the possibility that the HRSA could issue interpretive rules and policy guidance.

After this decision, HRSA issued what was styled as an “interpretive rule” governing orphan drugs under 340B. PhRMA again brought suit, arguing that this interpretive rule violated the 340B statute. Again, the court agreed with PhRMA.

The new administration may still try to make major changes to the 340B program through guidance. For example, the new administration could argue that the guidance is not creating new obligations or requirements, or the guidance is permissively implementing ambiguous statutes through the administrative process. Of course, any attempt to amend the program through policy guidance would be subject to additional legal challenges.

The Size of the 340B Program—Eligible Providers

Many Republicans openly criticize the size of the 340B program. Congress created the 340B program in 1992. Initially, the program required drug manufacturers to offer a discount on outpatient drugs to a small number of programs and providers. The 1992 statute covered approximately 800 hospital outpatient facilities treating large numbers of medically indigent patients, as well as a number of programs funded through the Public Health Services Act, such as Federally Qualified Health Centers, Ryan White Clinics, and Indian Health clinics.

Since 1992, the number of providers able to claim drug discounts has increased significantly. For example, the Affordable Care Act extended the program to include pediatric hospitals, critical access hospitals, sole community hospitals, rural referral centers, and freestanding cancer centers. Today, over 28,000 hospitals and affiliated sites qualify for 340B discounts.

Many Republicans in Congress, including President-elect Trump’s nominee for HHS Secretary Congressman Tom Price, believe that the program has grown well beyond its original intent. As Republicans drafted the first versions of the 21st Century CURES bill, a number of senior Republicans in the House and Senate wanted to add provisions reducing the size and scope of the 340B program. For example, these members wanted to replace the current criteria for determining 340B eligibility, i.e., the disproportionate share adjustment percentage, with criteria similar to the criteria described in the 1992 statute, i.e., a safety net provider serving large numbers of uninsured and underinsured patients.

Pressure from congressional Democrats and Republicans with 340B eligible providers in their district or state forced House and Senate Republicans to remove 340B provisions from the CURES Act. However, similar proposals will, in all likelihood, surface again next year.

Patient Eligibility

Although Congress did not include 340B provisions in the CURES Act, the question of which patients qualify for discounted drugs is still on the table. The 340B statute provides that “with respect to any covered outpatient drug “ … a covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity.” The statute does not provide any other context about how to determine who is a “patient of the entity.” Many argue that Congress created the 340B program as a very broad program allowing a 340B Covered Entity to claim the drug discount for virtually all patients of the provider, without regard to the patient’s health plan coverage or ability to pay. Others, such as drug manufacturers, argue that Congress’s intent was more limited; that is, allowing the drug discount only for medically indigent patients.

Through legislation, regulation, or guidance, Republicans may propose a number of changes to patient eligibility. For example, Congress or the new administration may propose only permitting a 340B provider to claim the discount if a physician employed or under contract with the Covered Entity writes the prescription at the time of the patient’s visit to a qualified hospital location of the Covered Entity. Other proposals could include limiting eligible prescribers employed by or under contract with the Covered Entity, and for whom the Covered Entity could bill. Similarly, a change in law could be more dramatic and require a 340B provider to demonstrate that the patient is a “patient of the Covered Entity” by, for example, requiring multiple interactions or visits. In its most extreme, some Republicans have argued the discount should only be available for indigent patients of a Covered Entity.

Child Site Eligibility

340B Child Sites may also be at risk. A Child Site is an outpatient facility listed as a reimbursable location on a 340B-eligible hospital’s most recent Medicare cost report and registered with HRSA. The next administration may take steps to limit the number of Child Sites. For example, the Bipartisan Budget Act of 2015 requires the Centers for Medicare and Medicaid Services (“CMS”) to reimburse a large number of hospital off-site outpatient services at the physician fee schedule rate. CMS initially proposed to accomplish this through reimbursing these services as a physician service and not as a hospital outpatient service. This could have had the effect of not allowing these sites to claim the 340B discount. However, the recently released final regulations implementing this provision provided that off-campus outpatient services departments could still claim the 340B discount. The new administration could easily reverse this decision.

Contract Pharmacies

Contract pharmacies are pharmacies under contract with 340B Covered Entities to dispense 340B program covered drugs. Since 1992, the number of 340B program contract pharmacies has grown by 770%. The Office of the Inspector General found that contract pharmacy arrangements have led to 340B drug discounts being claimed for patients or prescriptions that were not eligible in some circumstances. Many critics of contract pharmacies, including Members of Congress, believe that contract pharmacies take some portion of the financial benefit of the 340B program discount inappropriately. It is very possible that the new administration and/or Congress will seek to limit the role of contract pharmacies by, for example, returning to HRSA’s initial guidance related to contract pharmacies that limited the number of contract pharmacies and imposed geographic limitations.

Medicaid and Duplicate Discounts

The 340B statute prohibits “duplicate discounts.” If a state claims a Medicaid rebate for a prescription and the 340B Covered Entity claims a discount for the same prescription, then the drug manufacturer is providing two discounts for the same prescription. Over the last several years, CMS has required states to claim the Medicaid rebate for all prescriptions dispensed to Medicaid recipients, including through Medicaid Managed Care Organizations. This, in turn, reduces the cost to the Federal Government by reducing the Medicaid match payments made to states. However, identifying duplicate discounts is difficult. Drug manufacturers, along with some members of Congress, will likely point to this problem in order to support reducing or potentially eliminating certain portions of the 340B program.

Conclusion

The change in administration creates additional uncertainty for the 340B program. Some in Washington believe the 340B program may face an existential threat. 340B “stakeholders” need to be engaged now, and not after Congress or the new administration proposes scaling back or eliminating the program.