A federal judge blocked the Biden administration from implementing a controversial rule to handle disputes over the 340B drug discount program, handing drugmakers a major win in an escalating feud over the program. The opinion grants a preliminary injunction sought by Eli Lilly, which sued the feds over the rule. The ruling comes as Lilly and several other drugmakers restricted sales of drugs discounted under the 340B program to contract pharmacies, which are third parties that dispense the products on behalf of the covered entities. The ruling from the U.S. District Court for the Southern District of Indiana focused on whether the Department of Health and Human Services (HHS) followed federal law when the rule was finalized last December.
The Current Controversy
The 340B Program is a discount drug pricing program established in 1992 to arrange for large drug manufacturers to sell outpatient drugs at a heavily discounted price to certain public and non-profit hospitals, community centers, and other federally funded clinics serving low-income patients. Manufacturers are required to participate in the 340B program as a condition of participating in Medicaid and Medicare Part B. At the same time, covered entities are prohibited from requesting “duplicate discounts or rebates,” meaning that covered entities may not request both a 340B discount and a Medicaid rebate for the same drug.
At the start of the 340B Program, covered entities purchased and dispensed 340B drugs exclusively through in-house pharmacies. In 1996, HHS issued guidance advising that covered entities may purchase 340B drugs through outside, contracted pharmacies.
In 2010, as part of the Affordable Care Act, Congress directed HHS to, within 180 days, establish a 340B Program administrative dispute resolution (ADR) process for covered entities and manufacturers. In September 2010, HHS released an advanced notice of proposed rulemaking on the ADR procedures, however HHS did not release a proposed rule until August 2016. Following comments, the proposed ADR rule was added to a semiannual compilation of federal regulations under development, and in 2017, was removed from this agenda entirely and without explanation.
Controversy around the 340B Program picked up in 2020 as several major drug manufacturers, including AstraZeneca and Eli Lilly, began refusing discounts for 340B drugs if they were to be dispensed through contract pharmacies. In addition, other large drug manufacturers began requesting that covered entities provide more detailed reports on their 340B drug distributions to patients.
In December 2020 and in the middle of this ongoing controversy, HHS released a final rule on 340B ADR procedures. About two weeks after the release of the ADR final rule, HHS also released an advisory opinion stating that “to the extent contract pharmacies are acting as agents of a covered entity, a drug manufacturer in the 340B Program is obligated to deliver its covered outpatient drugs to those contract pharmacies and to charge the covered entity no more than the 340B ceiling price for those drugs.”
On January 12, 2021, the HRSA launched a website announcing that stakeholders could begin submitting petitions. Covered entities immediately began filing petitions against several major drug manufacturers, including Eli Lilly, challenging the manufacturers’ recent restrictions on the sale of 340B drugs to covered entities using contracted pharmacies.
Federal Court Ruling
The U.S. District Court for the Southern District of Indiana heard oral arguments on Eli Lilly’s challenge in February 2021. Judge Sarah Evans Barker granted Eli Lilly’s motion for a preliminary injunction halting the implementation of the rule. Judge Barker found that Eli Lilly established with a fair likelihood of success that HHS violated Administrative Procedure Act notice and comment requirements and that the manufacturer is likely to suffer irreparable harm.
In regard to the APA’s notice and comment requirements, Judge Barker held that “the agency’s message regarding the ongoing rulemaking related to the ADR Rule was ambiguous, confusing, duplicitous, and misleading—the antithesis of fair notice under the APA,” noting that all actions from HHS and HRSA indicated that they had withdrawn the 2016 proposed rule, which required HHS and HRSA to reopen the notice and comment period before finalizing the 340B ADR rule, which they had failed to do.
Specifically, Judge Barker noted that more than three years had passed since HHS and HRSA withdrew the 2016 340B ADR proposed rule and that neither HHS nor HRSA had taken any additional action with regard to the rulemaking. Judge Barker also referenced the above-mentioned article regarding the status of the 340B ADR rule, which quoted a HRSA official as stating that “HRSA does not plan to move forward on issuing a regulation due to the challenges with enforcement of guidance.”
Judge Barker held that the public’s interest in the implementation of the 340B ADR rule did not outweigh Eli Lilly’s harm. The court noted that, while some ADR petitions have been filed, the injunction will only be putting on hold a process that is “not even currently operational,” adding that the ADR process is still being implemented by the agency and the court was given no indication as to when the ADR board will be named and ADR panels will be assigned and begin reviewing ADR petitions.
What’s Next
Despite Judge Barker’s comment that HHS may want to promulgate a valid 340B ADR rule expeditiously, it is unclear whether HHS will appeal this decision or reissue the 340B ADR rule with a notice and comment period. In light of the other pending lawsuits, the scope of the court’s decision and status of the rule remain unclear.