The 340B Drug Pricing Program, a cornerstone policy aimed at increasing access to affordable medications for low-income patients, has become a battleground between providers and drug manufacturers. A recent court ruling has delivered a significant blow to providers, raising concerns about potential disruptions to patient care.
At the heart of the controversy lies the program’s core principle. The 340B statute requires pharmaceutical companies to offer significant discounts – ranging from 25% to 50% off the list price – on covered drugs to providers serving a disproportionate share of low-income populations. However, drugmakers have long accused providers of manipulating the system, particularly when partnering with outside pharmacies to dispense medications.
Federal guidance issued in 2010 sought to expand access to the program by allowing providers to contract with an unlimited number of pharmacies for dispensing 340B drugs. This, however, opened the door for further disputes. Drugmakers began implementing restrictions, citing concerns that providers were intermingling discounted and non-discounted drugs to generate duplicate discounts.
Examples of these restrictions include Novartis’s policy of only working with pharmacies located within a 40-mile radius of a covered hospital. Similarly, United Therapeutics limited distribution to pharmacies a provider had previously used during a specific timeframe.
The Department of Health and Human Services (HHS) initially pushed back on these limitations, arguing that drug manufacturers were legally obligated to distribute 340B drugs to any pharmacies chosen by providers. Enforcement letters were sent to multiple pharmaceutical companies, including Novartis and United Therapeutics, threatening fines for non-compliance.
In 2021, Novartis and United Therapeutics challenged the HHS stance in court. Their argument centered on the notion that the 340B statute does not explicitly prohibit manufacturers from imposing conditions on how they distribute discounted drugs.
A district court sided with the drugmakers, and a recent appellate court decision upheld that ruling. The majority opinion, authored by Judge Gregory Katsas, acknowledged concerns raised by manufacturers regarding potential manipulation of discounts by providers and third-party administrators. Judge Katsas cited a 2020 Government Accountability Office report highlighting the significant increase in contracted pharmacies following the 2010 expansion, a potential indicator of broadened opportunities for duplicate discounting.
The opinion also referenced a 2014 Office of Inspector General report that found a lack of comprehensive oversight by 340B providers, although some oversight activities were documented.
While the court decision grants pharmaceutical companies the right to establish requirements for contracted pharmacies, it also clarifies that these conditions cannot violate the core principles of the 340B program. The court left the door open for future challenges, suggesting that certain “onerous conditions” may still be deemed unlawful.
Provider groups reacted strongly to the ruling. The American Hospital Association’s General Counsel and Secretary, Chad Golder, expressed concern that the decision “The Court regrettably handed drug companies a permission slip to block patients from easily accessing 340B drugs at their local pharmacies or from specialty pharmacies,” Similarly, Beth Feldpush, Senior Vice President of Policy and Advocacy for America’s Essential Hospitals, argued that the ruling “Today’s decision by the U.S. Court of Appeals for the District of Columbia allows drug companies to continue their egregious restrictions on 340B discounts for drugs dispensed by contract pharmacies and puts care for disadvantaged patients at risk,”
This latest development adds to a string of legal battles surrounding 340B pharmacies. Last year, an appeals court ruled that drug manufacturers are not obligated to distribute 340B drugs to an unlimited number of pharmacies.
The ongoing saga surrounding the 340B program highlights the complexities of balancing affordability with concerns about program integrity. The recent court decision is likely to have significant ramifications for patient access to medications, with potential impacts on both providers and drug manufacturers. As the legal battle unfolds, stakeholders will be closely monitoring how the ruling translates into real-world consequences for the healthcare landscape.
