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The Current State of 340B and What to Expect in 2023

Blog - To Be Or Not To 340B
Health & Life Sciences

2022 was an eventful year on the 340B front, packed with updates to consequential litigation, proposed new rules, ongoing uncertainty into the Health Resources and Services Administration's (HRSA) underlying enforcement authority, and changes to 340B-related laws on the state level. We saw the Supreme Court side with 340B hospitals in a significant $1.6 billion Medicare Part B drug payment ruling. There were developments in the impactful Genesis case regarding the definition of a 340B-eligible patient. We saw multiple states either enact or propose anti-discrimination laws restricting the ability of payors and pharmacy benefit managers (PBMs) to reimburse 340B-eligible claims at a lower rate. HRSA proposed a revised ADR rule outlining a more informal dispute resolution process. We saw the continuation of litigation surrounding manufacturers’ 340B pricing restrictions for prescriptions filled at contract pharmacy locations. Given the multitude of developments in 2022, we expect 2023 to be another action-packed year for 340B covered entities and stakeholders. Below, we discuss the 340B issues to track and where additional developments are likely to occur.

  • Genesis Litigation: The 4th Circuit Court of Appeals is currently considering the contours of what can compliantly be considered a “340B-eligible patient,” and we expect the federal court to issue its decision at some point in the coming months. We encourage covered entities and other stakeholders to continue keeping an eye on updates for this case, as it could have significant impacts on 340B Program operations as detailed further below. In a sign of the importance and scrutiny the case is garnering, a federal court recently opted to seal HRSA’s submitted records related to Genesis’s initial 340B HRSA audit results and subsequent reinstatement into the 340B Program.

If the court rules in favor of Genesis, it would essentially invalidate HRSA's eligible patient guidance and result in expanded covered entity patient definitions in the short term, significantly increasing 340B capture available to covered entities and their contract pharmacy partners. There is also the potential that such a decision could spur Congressional action on the 340B Program. While it's unclear what form such action may ultimately take, it would likely result in additional clarity and potentially introduce new parameters as to how covered entities may participate in and utilize the 340B Program.

For additional analysis on this topic, please see our detailed write-up located here.

  • Restriction on Manufacturer Contract Pharmacy Prohibitions:
    • HRSA Litigation: Litigation surrounding manufacturer policies significantly restricting 340B pricing availability for otherwise eligible 340B contract pharmacy fills continues in multiple venues around the country. The first of these appellate rulings released at the tail-end of January 2023 was a clear victory for manufacturers, with the 3rd Circuit ruling that manufacturers have no obligation under the 340B statute to provide 340B drugs to an unlimited number of contract pharmacy locations. The decision appeared to strengthen manufacturer resolve for implementing contract pharmacy-related limitations, with Bayer and EMD Serono becoming the 20th and 21st manufacturers to introduce such restrictive policies in the days immediately following the 3rd Circuit ruling.
    • New Scope of Manufacturer Policies: In late December 2022, Eli Lilly released a policy that forbids 340B covered entities from designating central fill pharmacies as “exempted” pharmacy locations for continued 340B pricing. Lilly is the first manufacturer to take this step, but we expect other manufacturers will likely follow suit in 2023.
    • Arkansas Act 1103: Arkansas’ 340B Drug Pricing Nondiscrimination Act, enacted in May 2021, prohibits manufacturers from putting in place limits on covered entities’ use of contract pharmacies. The Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit in 2021 and the litigation continues to be ongoing. In December 2022, the U.S. District Court for the Eastern District of Arkansas ruled in Arkansas’ favor, giving room for states to regulate drug distribution systems within the borders of the state. The court has yet to rule on the dormant commerce clause issue raised in the litigation, but we expect a ruling in 2023.
  • Anti-Discrimination Laws: In 2022, we saw quite a few states either pass or introduce 340B anti-discrimination legislation. For example, Arizona recently enacted a law (effective 9/24/22) that states:

"All contracts that are issued, delivered or renewed on or after January 1, 2024 for a third party that reimburses for 340B drugs shall not do any of the following:

  1. Discriminate in reimbursement on the basis that the pharmacy dispenses a 340B drug.
  2. Assess any fee, chargeback, clawback or adjustment on the basis that a pharmacy dispenses a 340B drug.
  3. Exclude a pharmacy from a third party's pharmacy network on the basis that the pharmacy dispenses a 340B drug.
  4. Restrict the methods or pharmacies within a third-party network by which a 340B covered entity may dispense or deliver 340B drugs." Ariz. Rev. Stat. Ann. § 20-3343.

We expect this trend to continue in 2023, with many state legislatures reconsidering proposed anti-discrimination legislation and others introducing entirely new legislation on the issue. For additional analysis on this topic, please see our detailed write-up located here.

  • ADR Rule: In late November 2022, HRSA introduced a proposed ADR Rule that moves away from the formal dispute resolution process outlined in prior iterations of the rule and substantially changes the make-up of review panels, inserting individuals with greater 340B Program subject matter expertise. Comments on the proposed rule are currently open and due by the end of January 2023. Stakeholders are encouraged to submit comments on the proposed rule. The final version of the new ADR process will be closely watched by both manufacturers and covered entities, and will likely serve as a more viable, timely method to resolve certain types of disputes than the current version.
  • Medicare Part B Payments: On June 15, 2022, after many years of ongoing litigation, the U.S. Supreme Court unanimously overturned a substantial Medicare Part B payment reduction to many 340B Program participating hospitals related to certain outpatient prescription drugs provided to Medicare patients. As a result of this decision, on January 10, 2023, a D.C. federal district judge declined to force the government to repay hospitals immediately, instead allowing the U.S. Department of Health and Human Services (HHS) to propose a repayment methodology in subsequent rulemaking. Additionally, Centers for Medicare & Medicaid Services (CMS) recently announced that it will plan to introduce a proposed rule in early 2023 regarding “potential remedies” to 340B hospitals for the 2018 to 2022 underpayments ahead of the release of its CY2024 OPPS proposed rule. While the delay has certainly been frustrating for affected 340B hospitals, the proposed rulemaking process will allow for comments from affected stakeholders the ability to directly influence the parameters of the ultimate final remedy.

For additional analysis on this topic, please see our detailed write-up located here.

  • 340B Federal Legislation: In August of 2022, President Biden signed the Inflation Reduction Act of 2022 into law. The law contains three programs with potential 340B program implications impacting the ultimate 340B price calculated for eligible covered entities: (1) Drug Price Negotiation Program; (2) Medicare Part B and Part D Inflation Rebates; and (3) Medicare Part D Redesign. We expect additional federal legislation outlining the operational details of these programs, which may further impact the 340B Program.

Additionally, on January 12, 2023, the first 340B-related bill of 2023 was introduced in Congress. The proposed bill would impose onerous conditions on hospital participation in the 340B program. Specifically, this bill would:

  • Impose a two-year moratorium on non-rural disproportionate share (DSH) hospital and child site registration in the 340B program.
  • Codify additional requirements related to child site registration (notably requiring the facility to be wholly owned, provide a full range of outpatient services, and adhere to hospital charity care policies and sliding fee scales).
  • Require contracts with state or local units of government (required for non-governmental covered entities) to contain an enforceable obligation for the hospital to provide direct medical care to low-income individuals ineligible for Medicare and Medicaid in an amount that represents at least 15 percent of the hospital’s total costs for all items and services furnished at such hospital.
  • Detailed annual reporting of the 340B benefit obtained by the hospital.
  • Statutory claims modifier requirements for all 340B claims submitted to governmental payors, including Medicare Part D plans.

While we also anticipate the introduction of more "pro-covered entity" legislation, the aforementioned bill reflects the potential for increased governmental control and oversight over the 340B Program. It is unclear what (if any) legislation will ultimately pass in a divided Congress and obtain the President's signature.

  • 340B State Legislation: On January 20, 2023, a 340B-related bill was introduced in the Virginia General Assembly. The proposed bill requires 340B hospitals to report the following information to non-profit organizations that are part of the state’s health care data reporting program:
    • A narrative description of how the hospital uses 340B Drug Pricing Program savings to benefit the residents of the geographic area in which the hospital is located;
    • The hospital’s estimated 340B Drug Pricing Program savings; and
    • Details regarding the hospital’s commitment to rigorous internal oversight to ensure compliance with 340B Drug Pricing Program rules and guidance.

In 2023, additional states may propose legislation imposing similar data reporting requirements on 340B hospitals and/or other types of covered entities.

  • Lifting of Public Health Emergency (PHE): With the recent announcement that the federal PHE related to the COVID-19 pandemic will officially be lifted on May 11, 2023, it is unclear which, if any, of HRSA’s 340B Program flexibilities will remain in place. To the extent they are relying on any of these flexibilities (e.g., reduced recordkeeping requirements, eligible patient definition, etc.), covered entities should begin to plan for the post-PHE world and modify existing operations and associated policies accordingly to comply with HRSA’s existing statute and regulations.

If you have any questions related to the rapidly changing 340B space or are interested in discussing strategies to best navigate anticipated program changes, please reach out to our 340B attorneys:

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