PhRMA Sues Over “Unconstitutional” 340B Rule

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In late January, the Pharmaceutical Research and Manufacturers of America (PhRMA) sued the United States Department of Health and Human Services (HHS) in federal court over the 340B Drug Pricing Program Administrative Dispute Resolution (ADR). In its filing, PhRMA has argued that the regulation is arbitrary and capricious, is not the product of reasoned decision-making, and is unconstitutional.

PhRMA contends that the ADR final rule “further distorts an already broken program” and that it is burdensome and hampers the manufacturers’ ability to address program requirement violations by covered entities. PhRMA also believes that when finalizing the rule, the Trump Administration did not address concerns that were raised by stakeholders when the rule was initially proposed in 2016, nor did it update the rule to account for changes that have occurred in the program and the United States healthcare system overall since that time.

Arbitrary and Capricious

One of the main points PhRMA makes in its complaint is that the ADR rule is arbitrary and capricious in violation of the Administrative Procedure Act. PhRMA argues that by rushing out a previously withdrawn proposal and finalizing it by using old data, HHS and the Health Resources and Services Administration (HRSA) failed to appropriately consider stakeholder comments and changed circumstances, as indicated above.

PhRMA specifically notes that HRSA failed to adequately address comments regarding the audit guidelines, which dictate the prerequisite for manufacturers to initiate ADR claims and block a path for manufacturers trying to use the ADR process to seek relief from covered entity violations (diversion and duplicate discounts).

Contrary to Law

PhRMA also argues that the manufacturer audit guidelines are contrary to law because the audit guidelines exceed the limited grant of authority in the statute that authorizes HHS to create “procedures…relating to the number, duration, and scope of audits” conducted by manufacturers.

For one, PhRMA argues that the audit guidelines “impermissibly require manufacturers to establish ‘reasonable cause’” to HRSA that a covered entity has violated the prohibitions on diversion or duplicate discounts before an audit can even begin. PhRMA believes this requirement is not a “procedure[] … relating to the number, duration, [or] scope” of audits.”

PhRMA also argues that the requirement that the manufacturers hire a third party to conduct audit contradicts the plain language of the statute, which directs covered entities to “permit the Secretary and the manufacturer” to audit the covered entities’ records.

Unconstitutional

Another point PhRMA raises in its complaint is that the rule is in violation of the Appointments Clause of the United States Constitution because it circumvents the roles of the President to appoint and the Senate to confirm ADR Board members, who are principal officers of the United States because they independently determine how to conduct proceedings and make final precedential determinations for HHS that are not subject to any further executive branch review.

Relief

PhRMA is seeking declaratory and injunctive relief to set aside, vacate, and remand the 340B Drug Pricing Program Administrative Dispute Resolution Regulation Final Rule.

PhRMA Statement

When announcing the lawsuit, PhRMA Executive Vice President and General Counsel James C. Stansel released a statement, saying:

“The biopharmaceutical industry is committed to the 340B program and working with policymakers to restore it to the safety-net program Congress originally intended – a program that puts patients first, not the financial interests of large hospital systems, for-profit pharmacies and other middlemen. However, the 340B program of today is riddled with problems that prevent it from truly working to help our nation’s vulnerable patients access the medicines they need. There are patient-centered solutions that could get the 340B program back on track – like increasing transparency in the program to ensure the tens of billions of dollars in discounts provided by manufacturers are used to help patients. Instead, the Trump Administration rushed to finalize a flawed ADR rule and ignored the program’s larger issues.”

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