An early draft of the Trump administration’s proposed executive order (“EO”) on drug pricing issues could result in significant changes to the 340B Drug Pricing Program (“340B Program”). In particular, the draft EO calls for the Health Resources and Services Administration (“HRSA”) to rescind or revise administrative actions that have allowed benefits under the 340B Program to accrue to populations and entities other than covered entities and their patients, raising the possibility that HRSA may take steps to attempt to limit the scope of the 340B Program.

It is unclear whether the 340B Program language will be included in the final version of President Trump’s forthcoming EO; [1] nevertheless, the draft EO represents part of ongoing efforts by policymakers to address the rising cost of prescription drugs. Major policy proposals so far have called for the federal government to negotiate directly the price of drugs covered by the Medicare program, accelerate the approval of generic drugs, require greater transparency from pharmacy benefit managers (“PBMs”), and allow Americans to import drugs from outside the United States.

In this regard, the draft EO, titled “Reducing the Cost of Medical Products and Enhancing American Biomedical Innovation,” does not specifically include any of the proposals above but rather outlines a series of high-level directives involving various federal agencies within the Department of Health and Human Services (including HRSA, the Food and Drug Administration, and the Centers for Medicare and Medicaid Services), as well as the Internal Revenue Service (“IRS”), the Office of the U.S. Trade Representative, the Department of Commerce, the Federal Trade Commission, the Department of State, the Office of Management and Budget, and the Executive Office of the President. These directives focus on issues such as value-based purchasing, reducing regulatory and administrative burdens that distort drug prices and slow commercialization, and international drug purchasing issues including price differentials between foreign governments and the United States, potential revisions to bilateral and multilateral trade agreements to promote competition in the global market, and potential violations of trade agreements. The draft EO also calls for the IRS to update rules relating to the high deductible health plan “preventive care safe harbor” — which allows a health plan to meet the definition of a high deductible health plan for federal tax purposes despite not having a deductible for preventive care — to ensure that plans without a deductible for medications that are intended to prevent chronic disease progression or complications can satisfy the safe harbor.

Background

The draft EO, which was published by POLITICO Pro on June 23, 2017, [2] states as follows as it relates to the 340B Program:

The Secretary of Health and Human Services shall ensure that resources provided by the program established by Section 340B of the Public Health Service Act are directed in such a way they primarily benefit the lower income or otherwise vulnerable Americans for which the program was intended, including by rescinding or revising regulatory or other administrative actions that have allowed benefits of the program to accrue to other populations or entities other than the safety net healthcare providers that the program was intended to strengthen.

In this regard, the 340B Program is intended to allow covered entities (i.e., safety net providers who receive discounts on covered outpatient drugs through the 340B Program) to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” [3] The 340B Program has grown significantly since its enactment, partially as a result of Congress adding new categories of eligible covered entities through the Patient Protection and Affordable Care Act [4] but also through developments such as the emergence of contract pharmacy arrangements, which are not specifically identified in the 340B Program statute but which HRSA has permitted through guidance. [5] Critics of the 340B Program, responding to this rapid growth, have argued that the benefit of the 340B Program should not accrue to entities such as contract pharmacies and PBMs, but should instead be used exclusively for the covered entities described in statute and their indigent patients.

Potential Impact

Although the administration has not yet verified the contents of the draft EO, its broad language suggests that HRSA could take steps in the months ahead that would impact the 340B Program as it exists today. This could include changing its guidance on contract pharmacies (e.g., by imposing caps on the number of contract pharmacy locations and arrangements a covered entity may have). The draft EO could also be read to allow HRSA to impose limits on prices that covered entities charge to indigent patients for 340B drugs. Similarly, discussion draft legislation reportedly under development by Rep. Chris Collins (R-NY), a member of the House Energy & Commerce Committee, would require covered entities to establish a sliding fee schedule for providing 340B drugs to low-income individuals and those without minimum essential coverage. Under Rep. Collins’ draft bill, the Secretary would be required to issue regulations defining “low-income individual,” providing a methodology for establishing the sliding fee schedule, and protecting data confidentiality. [6]

With that said, HRSA could also use the draft EO’s directives to declare, for example, that contract pharmacy fees must be in line with fair market value or that PBMs should not be permitted to implement two-tier 340B pricing models in which the PBM reimburses one rate to 340B covered entities and a higher rate to non-340B covered entities, thereby capturing part or all of the 340B discount. Notably, Rep. Collins’ discussion draft also calls for capping contract pharmacy fees at fair market value.

Any such action must be consistent with HRSA’s existing regulatory authority in order to withstand scrutiny if challenged in court. [7] Nonetheless, if the draft EO is finalized in the form that is currently available, it suggests that the administration is open to policy changes to the 340B Program through administrative action beyond what was included the President’s Fiscal Year 2018 budget request to Congress. In this regard, the President’s budget request generally called for funding of provider education and compliance efforts through HRSA, but otherwise asked Congress to grant broader regulatory authority to HRSA and impose limits on the 340B Program through statute. (See here for our prior alert on this topic.)

340B Stakeholders should continue to monitor the draft EO and other 340B Program-related developments from Congress and the administration.