Matt Wetzel is a partner in the Washington, DC office of Goodwin Procter LLP and serves as the WLF Legal Pulse’s Featured Expert Contributor, Life Sciences and Medtech Regulation. William Jackson is a partner in the firm’s Washington, DC office, and Heath Ingram is an associate in the firm’s New York, NY office.

In our WLF Legal Pulse post from earlier this month, “Probing HHS for Consistency on the 340B Pricing Program,” we assert that regularly changing guidance and agency actions driven by litigation have created inconsistencies in the 340B drug pricing program, specifically with respect to the issue of contract pharmacies.  Many clinics and facilities that qualify for 340B pricing (so-called “Covered Entities”) do not have their own in-house pharmacies to dispense drugs and thus depend on contracted pharmacies to do so.  Manufacturers, however, are wary both about duplicate discounts in which manufacturers make rebate payments, and about “drug diversion,” whereby 340B drugs are dispensed to patients at a contract pharmacy who are not actual patients of the Covered Entity, and therefore are not entitled to the low 340B price.

Accordingly, we note that some drug makers have implemented policies that prohibit dispensing 340B drugs to Covered Entities without an in-house pharmacy, unless the Covered Entity designates just a single contract pharmacy location to receive and dispense their 340B medications.  Manufacturers are also increasingly considering exercising their right to audit a Covered Entity to ensure compliance with a 340B pricing program, including preventing drug diversion and duplicate discount payments. 

The U.S. Health Resources & Services Administration, or HRSA, which implements the 340B drug pricing program, issued letters in May of this year to drug makers regarding their policies on contract pharmacies.  HRSA instructed manufacturers to “immediately begin offering . . . covered outpatient drugs at the 340B ceiling price to covered entities through their contract pharmacy arrangements, regardless of whether they purchase through an in-house pharmacy.”

On September 22, 2021, HRSA upped the ante and sent short follow-up letters to these same drug makers indicating that, given their alleged refusal to extend 340B discount pricing to all the contract pharmacies and pharmacy locations the Covered Entities contract with, the agency has referred the issue to the U.S. Department of Health & Human Services Office of Inspector General for review.  HRSA cites 42 C.F.R. section  10.11(a), which states, “Any manufacturer with a pharmaceutical pricing agreement “knowingly and intentionally charg[ing]a covered entity more than the [340B] ceiling price,” and implying that these manufacturers may be subject to civil monetary penalties not to exceed $5,000 for each instance of “overcharging.” 

Will the result of these referrals be better, more consistent guidance from OIG?  Or will OIG require drug makers to risk drug diversion and distribute drugs to all contracted pharmacies? 

One thing appears certain: the referral to the Office of Inspector General is likely to result in further litigation, over and above the proceedings we already identified in our WLF Legal Pulse post earlier this month.  What remains to be seen is whether the ultimate resolution is a reasoned and thoughtful implementation of this important program or the continued shifting landscape based on the settlement of that litigation.