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Top Ten 2024: Drug Pricing—340B Developments to Watch

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Based on AHLA’s annual Health Law Connections article, this special series brings together thought leaders from across the health law field to discuss the top ten issues of 2024. In the tenth episode, Sarah Bowman, Principal, PYA, speaks with Jolee H. Bollinger, Deputy General Counsel, Sharp HealthCare, and Andrew D. Ruskin, Partner, K&L Gates LLP, about potential 340B activity in 2024 as drug manufacturers continue to tighten access to 340B pricing. They discuss the impact of the Genesis case, how covered entities can navigate this uncertain environment and protect their access to 340B pricing, and trends pertaining to audits of covered entities. Sponsored by PYA.

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Speaker 1:

A HLA is pleased to present this special series highlighting the top 10 health law issues of 2024, where we bring together thought leaders from across the health law field to discuss the major trends and developments of the year. Support for A HLA in this series is provided by PYA, which helps clients find value in the complex challenges related to mergers and acquisitions, clinical integrations, regulatory compliance, business valuations , and fair market value assessments, and tax and assurance. For more information, visit PYA pc.com.

Speaker 2:

My name is Sarah Bowman , and I'm a consulting principal. I work primarily in the revenue and compliance advisory area of PYA . Really excited for today's discussion on three 40 B developments to watch . This is part of ALA's top 10 issues in Health Loss series . I'm joined today with Jolie Bollinger from Sharp Healthcare and Andrew Reskin from KL Gate .

Speaker 3:

Nice , nice to meet everybody. Uh , I'm a partner in the DC office of , of , uh, canal gates , uh, and , uh, do a a lot of three 40 B along with , uh, uh, any ancillary areas such as Medicare, Medicaid, reimbursement and compliance.

Speaker 4:

Hi, Sarah said , I'm Jolie Bollinger, privileged to serve as Deputy General Counsel of Sharp Healthcare in San Diego, California. And happy to be with the two of you today and everyone else to talk about three 40 B.

Speaker 2:

Thank y'all so much. So let's get started. So last year we saw plenty of industry chatter and ongoing litigation as Doug manufacturers continue to tighten access to three 40 B pricing through contract pharmacy restrictions. What should covered entities be expecting for this year? Should we expect kind of the same level of activity and the same level of scrutiny, or what are you all seeing from, from your perspective?

Speaker 4:

So , Sarah , I'll take out my crystal ball and we have pretty good basis to believe that the activity will continue. We should see a lot of action in 2024, and I describe it that way because who knows at this point whether the action will turn into developments, but through the first couple of months of the year, we've certainly seen a lot of activity. So I'll categorize those in a couple of buckets as we talk about what we've seen and maybe what we'll see through the remainder of the year. The first overall topic is contract ies . So we saw a lot of activity in 2023. We saw a decision from the third circuit, and here we are in 24. So what have we seen so far in January? Started off early in the year we saw the 29th drug maker Tata pull out of the contract pharmacy program where much like its other 29 manufacturers, Tata decided that they would no longer sell three 40 B discounted drugs to contract pharmacies through 23. We saw a lot of health systems and hospitals that participate in the program take action to try to shore up patient access to those three 40 B price drugs. I would expect that we'll continue to see that through 2024 going right along with that manufacturer action. And the 29 manufacturers that have pulled out, we are still awaiting decisions from the seventh circuit and the DC circuit in the contract pharmacy litigation. So the Eli Lilly case in the seventh circuit, the Novartis case in the DC circuit remain undecided. We have been waiting for a while on those decisions and hopefully we will see some action and opinions on those cases in 2024. In addition to that federal circuit action and cases that are ongoing, we have states that are getting active in the space of three 40 B trying to preserve the right of contract pharmacies to obtain the three 40 B discounted drugs. And we've seen states pass laws that actually require those manufacturers to sell the discounted drugs to community pharmacies. Two of those laws, one in Arkansas and one in Louisiana, are both currently engaged in litigation. We may see opinions on those cases this year, but in the meantime, Arkansas in particular is continuing to attempt to get those discounted drugs into community pharmacies and actually struck a deal with Novo Nordisk in relation to having the community pharmacies access the three 40 B discounted prices. So a lot of activity in that one portion of three 40 B with contract pharmacies that we will see action on and hopefully some decisions through 2024. The other aspect that I wanted to talk about is congressional action. So that's been high on everyone's list. Many of the providers in the three party B space responded to the request that we saw come out through an RFI issued by the three 40 B committee, and I use that in air quotes , not official committee, but the congressional committee that was requesting information. 300 providers responded. I would imagine many in Congress are going through those responses and trying to determine exactly what to do with those responses. And we've seen some action. So we continue to see Senator Cassidy reaching into the three 40 B program. There was a letter that came out in the fall requesting information from Walgreens and CVS in connection with their participation in the contract pharmacy program. Those responses were due in early February. If you search for the letters and review them, they are extensive. I can only imagine the efforts that may have gone into responding, but that process continues to be ongoing in larger news and maybe we'll see action, although I'm suspicious , um, of how this one may turn out. But we did see at the beginning of February, a bipartisan group of six senators issue a discussion draft of the legislation. The legislation is entitled Sustain three 40 B Act and the legislation or the proposed discussion draft is not legislation in this ordinary sense . When we see it, it's actually a document that explains the goals that are trying to be achieved, which is clarity, transparency, and accountability, coupled with an RFI where additional information is requested . If you represent a provider in the three 40 B space or if you are in-house with a three 40 B covered entity, definitely take time to review that particular sustained three 40 B act. It has several provisions that we've seen for years in three 40 B, such as requesting information on the definition of patient, a discussion on contract pharmacies, and what this bipartisan group is thinking. However, there are new aspects of the act such as creating a national clearing house for data sharing to ensure that duplicate discounts are not charged to manufacturers. Also having a user fee on covered entities to help fund some of the processes that need to be built around three 40 B and a whole host of other items. Again, the responses are due by April 1st. There are groupings within the healthcare community of different entities, some on very different spectrums coming together to submit those responses and comments. So you may want to be on the lookout for that. The last thing I want to touch on, which I view as unusual for three 40 B, is the lack of overall media attention that we've seen in 2024. Some of you may have noticed in late January, several different interest groups in connection with three 40 B. Were taking out full page ads in newspapers where three 40 B and the position of the particular sponsors of the advertisement were publicly advertising views, connecting readers to websites where more information could be obtained. And also an article in January published in the New England Journal of Medicine, discussing the connection between hospital prices and cost of drugs in connection with physician , um, prescriptions for privately insured patients. So to wrap all of that up into one summary, Sarah , much activity, not sure at this point what the outcome will be, but we certainly are waiting for a lot of information that we've frankly been waiting for a while to review and receive.

Speaker 2:

That's really helpful, Jolie . Thank you. Um, you , you touched on briefly kind of the, the , the patient definition, and I wanna dig into that just just a little bit more if we can. So , um, we know that back in November, the US District Court for the District of South Carolina ruled that HRSA's limitations on qualified patients have covered entities were unlawful. Course this decision only applies to the Genesis case and to Genesis specifically right now, it does demonstrate that opportunity for providers and, and also for manufacturers to interpret versus patient definition themselves and, and, and challenge it. So at this point, that definition is about 28 years old. My math is correct. It's , it's, it's not young anymore. Pretty mature. Um, so should we expect to see other cases brought forward like the Genesis case, what can we, what can we expect? Again, crystal ball, what , what do you, what do you think, Andy?

Speaker 3:

Yeah, so, and there is , there is at least one case that is percolating. Um, uh, there's a , uh, a , a group of of covered entities that are suing , uh, HRSA for, its, its, its , uh, reversing course , uh, with respect to , uh, child sites , uh, where HRSA back in the fall , uh, suddenly said that even though it had already acknowledged in , uh, July of 2020, that it didn't have the regulatory authority necessary to create these child sites and require that they be on the cost report, it nevertheless is now saying that , um, you know , other than in a limited set of instances where a site might be grandfathered , uh, that , uh, the , uh, the sites are no longer gonna be be allowed going forward unless and until they're on the cost report. So there are approximately, I wanna say 40 , uh, covered entities that are challenging that particular policy. So we, we, the, the Genesis case was not the end all and be all , uh, associated with , uh, where things stand now. Uh, you have to understand that, as Julie mentioned there, there are two other circuit courts that are looking at the contract pharmacy issue. And anytime you have either side of the equation, whether it be manufacturer's covered entities that are challenging anything about three 40 B, what they're really challenging is, is hearst's ability to set ground rules. And so anytime either side wins, both sides wins, both sides win, and they also both lose. Uh, so it's, it's really important to just understand, look, anytime that that hearst's authority is just whittled down, then that's either good or bad, or both for both sides. So even though one wouldn't think about those two other ca circuit court cases as being meaningful for the patient definition as opposed to simply contract pharmacy authority, they still are. Um, and , uh, chances are there will be enough uniformity among all of these cases in terms of the , uh, deference that is going to hrsa, the ability for HRSA to, to, to essentially just , uh, say what is allowed and not what is required, that there won't be enough dissonance among these different opinions to result in the Supreme Court taking up action. And as a result of that, where , whereas the definition of patient will continue to evolve, at least as a matter of law , uh, it will not necessarily , um, uh, mean that , uh, hrs , uh, HRSA's position will be challenged at the Supreme Court. Uh, so, so that's how I think we're gonna see some of this case law continue to play out on both the patient side as well as on the contract pharmacy side.

Speaker 2:

So, Andy, thanks so much. That's, that's really helpful. And it's fair to say that these items are absolutely creating confusion for three 40 B covered entities who are really trying to do the right thing for their patients and for their program compliance. In light of, of this environment that everyone is, is operating in today and these developments and the continued uncertainty, are there things that covered entities should be focused on right now, you know, from an an operational perspective and from an advocacy standpoint , um, that they can , that they can do to help protect their access to three 40 B pricing? Um, Julie , maybe you can give us some insight from an operational standpoint.

Speaker 4:

Yeah, Sarah , happy to do it. The , the one constant theme that all of us have mentioned in this call is confusion and lack of clarity. And Andy and I have spent several a HLA sessions talking about three 40 B and drugs and other things, and we've always been talking about confusion and lack of clarity, and here we are again. So if you think about how covered entities, hospital systems that participate in three 40 B , what can they do to ensure that they are complying, which is always important, and at the same time, do use the program to the advantage of patients? So I'll give a few pieces of advice, and I'm not sure that they, they're different from the pieces of advice that we've given over the years, but the first is to ensure that your internal qualified team is active in the three 40 B space. There are so many new developments that are raising questions and uncertainties. What should the definition of a patient be within a particular covered entity? How is that implemented in accordance with guidance that we have? Ensure that the team is monitoring new developments and monitoring guidance from all of the different advocacy groups to confirm that whatever decisions are made are supported by recent guidance. It's really difficult to build that qualified team and to ensure compliance if strong and broad analytics are not available. So whoever the team of , of three 40 B may be working with to monitor and confirm that compliance compliance ensure that data is as real time as possible, and that the reports are being given and reviewed regularly so that compliance can be determined. And when there is a problem, a change can be made, particularly in light of all of the changing guidance, we may need to make a change really quickly to comply with a new rule or a new interpretation. And then the final piece of advice I would give on the operational side is since we are in a midst of great changes and uncertainty, simply act cautiously, a lot of the changes that covered entities are making with their contract pharmacy relationships or the location of that contract pharmacy within a health system org chart are actually decisions that cost fairly large capital dollars to make and also require pretty large lead times with state pharmacy boards and other things. So I would say to pause before any change is made, and really ensure that the covered entity understands the impact of that change on its system as a whole. So, no, no, great new advice there. Just a continuation of the past, maybe with a new emphasis on caution due to the great uncertainty.

Speaker 2:

Thanks, Jolie . That's very helpful. Andy, from an advocacy standpoint, what would you, what would you recommend?

Speaker 3:

Yeah, so , uh, it's it's not just about advocacy, right? It's about , um, risk assessment. So Jolie said you should move cautiously, but yeah, you need to figure out in light of the fact that we do have these opinions in light of the fact that HRSA's authority is now not just being questioned by stakeholders on both sides, but is also actually being successfully challenged. What do you wanna do? Uh, and so every organization needs to figure out its own risk tolerance, and that is a cautious decision, and then base their decisions accordingly. So , uh, HRSA has historically, or has in the last several years, not been so , uh, uh, um, uh, vigorous about its enforcement of, of diversion. And so , uh, covered entities may decide, Hey, look at this , uh, we, we can , uh, perhaps be a little bit more expansive in terms of our definition of patient. Well, okay, HRSA could change its policy at some point , um, merely because the Genesis decision came down in favor of a broader understanding of patient that only really applies to Genesis , but nominally also to providers in South Carolina. Uh, but other entities , uh, can look at that and say, well, maybe there's , uh, some room there. And you do that , um, with, with , uh, a forethought with understanding what those risks are and a decision as to whether or not you're willing to challenge , uh, an adverse audit because HRSA could decide tomorrow it's gonna start looking for this , um, all the way up through court, where as you'll, you'll recognize there's already favorable precedent, but you do that with knowledge as to all the , the potential consequences. At the same time, as Julie said, data is really important. You need to be focused on what your data is showing because the manufacturers certainly understand what your data is showing. And so you also have to decide whether or not you're willing to, to put yourself out there , uh, in terms of your relationship with the manufacturers who are going to say, Hey, are you a, a good steward of the three 40 B program? Uh, because we're looking at this, our velocity reports, and we're seeing that, you know, that there's utilization here that you doesn't make any sense. And so you have to decide whether or not you're willing to take on those discussions, recognizing that this is really going to be a, a, a two-way street where you're talking pretty much directly with the manufacturer, and HRSA is gonna pretty much stay on the sidelines. Data, of course, is also incredibly important if , uh, the sustain act moves forward because the data requirements there are , unlike any data requirements, any covered entity has ever had to, to , um, gather , uh, in , and it could cost a ton of money, and there may be a ton of assumptions and exactly how do we expect that CVS and Walgreens are gonna react when , uh, they're being asked to furnish data regarding their reimbursement that they would consider to be proprietary. And so there are not just necessarily opportunities to assess how we are gathering data at the moment, but whether or not , uh, we need to talk to the gang of six about , uh, trying to carve back that legislation to something that is going to make more sense , uh, in light of the , um, in light of existing infrastructure , uh, and cost , in keeping in mind that, that the purpose here is not to set up a new , uh, gravy train for consultants, but really this is about , uh, uh, extending scarce resources , uh, for safety net providers. So those are some thoughts in terms of what else people should be thinking about proactively , uh, as they, as they continue to work through the new environment.

Speaker 2:

Those are really great. Those are really great points, Andy, and you, you mentioned kind of that, that risk-based consideration. Just a really good segue into , um, audits, HRSA audits. So you know, now that we're done with COVID-19 from a public health emergency standpoint anyway, we know that HRSA's kind of back, back to work business as usual with their program audit. The Baz group has been awarded , um, a another five year contract to continue serving as that auditor for covered entities for hrsa. What types of things are we seeing from a findings perspective? What types of trends , um, are you noticing in your work, Andy, with , um, covered entities that are going through those audits?

Speaker 3:

Sure. The, the audits are so different now from the way they used to be. Um, you know, if you practice in the world of three 40 B, which Jolie and I have been doing for, for decades at this point, <laugh> practicing together for , in this area for decades, actually , um, uh, the, the, the , the , the audits used to be with an innuendo. You used to only be as smart preparing for an audit as to what the last three audits were , um, because that's the only way you knew what, what they were gonna focus on here. There was no rulemaking, there was no announcement as to here's what our findings are in detail for everyone to see. It was, Hey, this is what BLL group thought was appro appropriate here. This is what they thought was appropriate there. Now these audits are focusing less on diversion because HRSA understands that they're on on weak , uh, uh, uh, territory when they start to talk about diversion in light of the Genesis case, which has been percolating since 2018. Um, but they're doing more in terms of trying to avoid duplicate discounting, meaning that they're trying to avoid instances where Medicaid , uh, drug rebates are paid on the same utilization , uh, as three 40 B pricing. Uh, and they're also doing more in terms of figuring out if you've registered every child site exactly the way that HRSA wants, including down to going down to the epic department, which is , uh, incredibly detailed and has nothing to do with any purpose in the statute, but it's one of those few areas that HRSA has not yet been challenged on. Now, if that case I mentioned earlier, that's challenging HRSA's ability to, to require that child sites be listed on the cost report , uh, or that even child sites seem to exist at all is successfully challenged, we maybe we'll see that all , all that HRSA's even gonna have to carve back , uh, regulating even there. Uh, but in the short term , uh, those seem to be the areas that HRSA is focusing on, that could change in a heartbeat. Um, but , uh, but at least for right now, that is , uh, that is what, what HRSA's focused on. Uh, HRSA's already become aware of many of, of covered entities that are engaged in alternate distribution models , um, where they accept a delivery of, of drug purchased under three 40 B and they ship it to contract pharmacies that's not even yet resulting in any findings. And so we'll have to just see if any of that ever makes its way to HRSA's , uh, radar and results and findings as well. But right now it seems like , uh, the, the three 40 B program is evolving in terms of how it's being implemented far faster , uh, than , uh, than hrsa uh, is, is auditing. Uh, and partly that's because the courts are, are slapping HRSA down each and every way. And so we, we may very well be in a situation where some of that never comes to light until there might be a change in the legislation. So

Speaker 2:

Thanks, Sandy , that's super helpful and, and hopefully , um, helpful for our listeners as well . Um , Andy Jolie, thank you both so much for your time and your insights . This has been, this has been great. I hope everyone has a great day.

Speaker 1:

Thank you for listening. If you enjoy this episode, be sure to subscribe to a HLA speaking of health law wherever you get your podcasts. To learn more about a HLA and the educational resources available to the health law community, visit American health law.org.