In this episode of AHLA's monthly series on fraud and abuse issues, Matthew Wetzel, Partner, Goodwin Procter, speaks to Todd Nova, Shareholder, Hall Render, about issues related to the 340B drug discount program. They discuss discrepancies in how federal courts are interpreting the program’s requirements around contract pharmacies, issues related to drug diversion and duplicate discounts, legislative and regulatory developments, and predictions for 2022 and beyond. From AHLA's Fraud and Abuse Practice Group. Sponsored by BRG.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
In this episode of AHLA's monthly series on fraud and abuse issues, Matthew Wetzel, Partner, Goodwin Procter, speaks to Todd Nova, Shareholder, Hall Render, about issues related to the 340B drug discount program. They discuss discrepancies in how federal courts are interpreting the program’s requirements around contract pharmacies, issues related to drug diversion and duplicate discounts, legislative and regulatory developments, and predictions for 2022 and beyond. From AHLA's Fraud and Abuse Practice Group. Sponsored by BRG.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
The following message and support for a H a is provided by Berkeley research group, a global consulting firm that helps organizations advance in the areas of disputes and investigations, corporate finance, and strategy and operations BRG helps clients stay ahead of what's next for more information, visit think brg.com.
Speaker 2:Good morning. Good afternoon. Welcome to another edition of the American health law association, fraud abuse podcast. I'm your host, Matt Wetzel today. We're talking with Todd Nova, the Milwaukee office of hall render Todd is a shareholder in the firm and focuses on health law issues for providers across the country. He works with integrated healthcare systems, pharmacies, hospitals, GPOs, and more. His focus is on regulatory reimbursement, corporate and compliance issues. Advising providers on third party, reimbursement opportunities, licensure certification standards, and regulatory compliance mandates. Todd is an expert on matters related to the sourcing delivery dispensing and reimbursement of pharmaceuticals, including the three 40 B drug discount program, which is the topic of our discussion today. Okay, well listen. Hey Todd, let's let let's jump right in. Um, you know, there's been a lot reported recently about the three 40 B program and most notably from my perspective discrepancies and how federal courts are interpreting some of the three 40 B program requirements around contract pharmacies. Do you wanna walk us through the issues that there?
Speaker 3:Sure, absolutely happy to do it. So, um, relatively recently, um, relatively the operative word in, in the past year, year and a half or so, um, led by your manufacturers, uh, Novartis Lilly, AstraZeneca, uh, handful full of others. Um, manufacturers have begun limiting the contract pharmacies to which they will deliver their drugs at three 40 B pricing. And just a level set for folks. A a contract pharmacy is, is a, is a contracted arrangement where a, a incorporated very often for profit retail pharmacy will take delivery of three 40 B price, drugs, and dispense those drugs to patients of three 40 B covered entities and covered entities in the, in, in the three 40 B world are, are what HERSA OPA the agency that administers the program refers to, uh, that that's how the op that's how OPA refers to three 40 participating, uh, providers, right? Providers as distinct from suppliers providers are obviously hospitals, um, FQHCs, uh, Ryan and other federal grantees that are eligible to participate as three 40 B covered entities, purchasing discount of drugs, and then suppliers being the, the retail pharmacy. So what was happening is the, the covered entities were contracting with, with retail pharmacies. So, um, whether specialty or traditional retail, Walgreens, CVS, uh Accredo uh, and, and then, and then they would allow their drugs to be purchased on accounts and then shipped to the, the term is shipped to, to these contract pharmacies. So, um, historically those drugs would be shipped. Um, there are thousands and thousands, uh, upwards, uh, upwards of, of 18,000, uh, contract pharmacy arrangements nationally. So it is, it is clearly a big issue and, and a handful of manufacturers to date. It's up to, uh, I think 11 manufacturers, maybe it's 12, um, who, who have said that they will limit the delivery of those drugs to typically only one third party retail pharmacy, and then wholly own and pharmacies in, in a lot of cases. So, so these manufacturers have, have unilaterally said they will no longer offer that pricing to multiple contract pharmacies. So that that's the crux of the issue. Um, and, and they, there is litigation in various district courts related to, to that, that usual with, with plaintiffs, both, uh, both on the manufacturer and the covered entity side on the covered entity side, it tends to be more, uh, more affinity organizations, uh, aha, uh, Ryan, white coalition and Mac.
Speaker 2:And can you talk a little bit Todd about sort of the reasons that manufacturers have taken this position that, you know, we're only going to distribute to, uh, one pharmacy or to the pharmacy of record? What's the, um, what's the thinking there from the manufacturer's perspective,
Speaker 3:Right? From the manufacturer's perspective, their, their position, if we were to distill it down and obviously it, it, it gets fairly nuanced, but to distill it down, their position is the, at the, the, the statute that governs the three 40 B program requires that they must offer, uh, uh, prescription drugs at three 40 B prices to covered entities. And ultimately their position is that these retail pharmacies don't constitute the covered entity. And so they are in fact offer the three 40 price to the covered entity. Uh, but that does not require them in their view to make tho that pricing available to, to third party contract pharmacies.
Speaker 2:And just to, just to maybe play a little devil's advocate here, um, you know, part of the issue is I understand it, uh, is the concept of drug version, or rather the idea that, um, patients who may not necessarily, um, merit the, the, the lower three 40 B pricing are able to access it through these contract pharmacies, what sorts of controls should be put in place to avoid that type of issue, um, that might be, you know, helpful from both sides of the, of, of, of the concern, both from the, you know, the, the provider side, the covered entity side, and then also, uh, the manufacturer side.
Speaker 3:That, it's a, it's a great question, Matt, and I'm, I'm gonna answer that, but then I'd also like to get your thoughts on that, given your, um, how you come at this right more from the manufacturer side and more from the life sciences side and, and, and me, uh, you know, coming at it more from the, the provider covered entity care delivery side. Um, so, so, so I think the, the manufacturers are they're, I know the manufac actual position, um, is, is trying to address a few different issues and, and, and you just touched on a lot there, right? So, so it's two primary issues. You, you mentioned diversion, but then also there's a duplicate discount issue. So the first is whether or not drugs are being provided, uh, or made available to, to covered entity patients. Um, these covered entities are audited. The contract pharmacies are, are audited, uh, by HRSA OPA. And it's a, it's a, it's a subcontracted audit model, uh, through a group called Elle group. Um, but there's, there is diversion that, that has been noted to occur, but the percentage of diversion findings is that actually very low in, in decreasing. They, there were, uh, there was a significant uptick in three in HRSA, OPA audit activity beginning about four or five years ago. And, and a lot of the, the alleged diversion and the actual diversion, I mean, it does occur, um, has those findings have, have, have decreased significantly. Um, but what that doesn't necessarily address are some issues that, that the manufacturers have relative to a term called duplicate discount. And that's a bit of a misnomer, but a duplicate discount is this. So the, the manufacturers are not required under Medicare, uh, Medicaid fee for service to offer a three 40 B two to give a three 40 B dis count, and then also pay a rebate to the state Medicaid agencies, um, when drugs are, are dispensed through contract pharmacies, however, um, if they are dispensed to a Medicaid fee for service beneficiary, um, then very often because of some of the nomenclature and backend tracking, there can be a, a, a re date that's paid and then a discount that's also paid, which is not, which is, which is restricted by, by the statute. Um, so, so that is, is occurring at a relatively infrequent basis. I think the industry's pretty clear that Medicaid fee for service needs to be excluded, um, from those models. So operationally, I just don't think that that's that big of a deal. I don't think that diversion is that big of a deal, but fundamentally a lot of this boils down to, um, whether or not contract pharmacies are an appropriate venue, uh, for extension of care to covered patients.
Speaker 2:Yeah, no, I think it's a, it's a, it's an interesting point. And certainly, um, you know, these are, these are the areas that, that we do talk about quite a bit. I, you know, from my perspective, um, you know, working primarily on the manufacturer side, I think a big part of it, you know, and perhaps it's more of a policy issue, um, but a big part of it is the complexity associated with the price reporting requirements that manufacturers are already under. And you, you know, here, as you talk about the duplicate discount, the idea of both the, you know, the Medicaid rebate and the three 40 B, you know, um, discounted pricing, you know, the idea here being that it's tough, it's tough to keep track. And, um, to the extent that, um, you know, these additional, uh, entities that might not necessarily be, um, specifically mandated under the statute, um, are also receiving the pricing. It complicates, um, that process. Not that that's, um, not that that's, uh, you know, the entire world, uh, for, uh, for, uh, for a manufacturer, but, um, it does certainly add, um, some administrative, um, burden to the manufacturer side that, that really kind of takes away, um, from, you know, the, the real goal, which is to, you know, get drugs in the hands of patients who, who have a real need for them, um, at the pricing, um, to which they're, you know, legally, uh, uh, entitled. Um, but, you know, it's been an interesting, um, back and forth, you know, one of the other pieces of concern, at least, you know, some, some clients have expressed is this idea that, um, HHS is response has been somewhat on the arbitrary side, um, in this, in this area, um, maybe not arbitrary, but, uh, you know, not, not something that's led to sort of predicting, you know, uh, predictive behavior, uh, uh, moving forward. Um, some of this has been in response to litigation. Some of it has been sort of, you know, made final, um, without, uh, you know, a significant amount of, um, uh, notice and public comment. So I think there's probably some room here for clarity from HHS, uh, on the issue that might help settle it as well. Um, I wonder on that front, um, Todd, you know, one of the, um, areas that's of interest, um, to me to three 40 B, is this sort of, you know, evolving ecosystem of regulation. What can you tell us about the latest developments, either legislative or regulatory on the three 40 B, uh, with respect to the three 40 B program?
Speaker 3:Um, great question. And, and so may, maybe we can, we can take a step back to, to, because you and I are, are both pretty involved in this space and we both clearly clearly enjoy it. So let me try to try to pull myself outta the weeds a little bit. So what we are seeing with respect to, um, the regulatory oversight of the program has a lot to do with what the statute does and doesn't permit, uh, what it affirmatively allows us to be regulated versus what's interpretive guidance. So, so for those of us, um, admin law and nerds on, uh, that are listening to this right there, there's the kind of what is interpretive permissible, interpretive guidance, and what's, what's an authorized regulation. The three 40 B statute is relatively sparse on what is permitted to be administered via ire. One of those things is an administrative dispute resolution policy or procedure. Now, now, interestingly enough, uh, about a week ago, um, the government issued guides indicating that they would be withdrawing the ADR rule, which is actually really significant and is gonna delay resolution on a lot of what we're talking about here. Mm-hmm<affirmative>, um, and they're delaying it because it, my, my belief, and I don't have any inside baseball on this, but, but it seems to me that they are doing it due to, to address some potential procedural deficiencies that manufacturers, um, have attempted to litigate that being, um, too, too long of a timeframe between the proposed rule and the final rule. It, it would, it had to have been, uh, finalized within in three years now. Um, it's an open question about whether or not that was met, but if, if, uh, HHS does in fact withdraw that, and, and I would anticipate that they will, um, it'll be very interesting to see from a process perspective, how that ADR rule changes. Um, they, they, they did indicate that they would reissue it. So there will be an ADR process, but the, there has to be an ADR process because the statute requires it. Okay. So that will form the basis, by the way, everyone's wondering, what does this mean for three 40 B? Uh, nobody knows that the answer to that question, but when we're looking at a timeframe for resolution, I think the courts, a lot of courts now have said, we're not saying that contract pharmacies are not permissible. We're not saying they are, but, but that is, that is a, there's a reasonable argument that they are permissible. And, and, and not to put words in, in your mouth, Matt, but I would guess that you would also say there's a reasonable argument that they're not so pushing that, that discussion aside, um, what, what a lot of courts have said is the first stage in this, uh, process from an administrative law perspective is that that ADR panel has to issue a a or the ADR process has to, out of that has to come a final determination. And that final determination is then what can be appropriately litigated. So, so from a to answer your question, so what are we seeing from a regulation perspective? That's really the, the primary, um, result of that. Now, everything else pretty much in, in the, um, in, in the statute would require, um, interpretive interpretive guidance. You're, you're probably familiar back, uh, number of years ago now there was, they Hera, uh, issued a couple rules, one to address orphan drug use of orphan drugs and three photo program, right? The other, the omnibus guidance, um, that was withdrawn as, because it was alleged that those were over, over broad. Um, so, but we've all, all seen CMS. I think a lot of this has to do with OPA, right? So you have HHS, which is over HRSA, which is over OPA office of pharmacy affairs that administer the three program. Mm-hmm<affirmative> the office of pharmacy affairs is not, they just don't have as much experience as relative to CMS with implementation of some of these procedural considerations under admin law. Um, now that Admiral Petley is, has stepped back from her role. We would anticipate someone coming in to administer the program that perhaps has less of a pharmacy focus background, and perhaps more of an administrative focus background to address some of these, um, some of these procedural deficiencies, um, that have, uh, at a minimum delayed resolution on a lot of these questions that we're talking about now. So, um, anyway, that's a, that's a sorry for the long-winded
Speaker 2:Answer, but no, that was, that was terrific Todd and that really, you know, puts a lot of, a lot of these issues into perspective. And, you know, as I think about, uh, you know, the, you mentioned the administrative, uh, law law nerds, I consider myself to be one on, uh, you know, just thinking about the various, um, you know, smart and, and, uh, and knowledgeable lawyers who work on both sides of this issue. I imagine that, uh, you know, sort of a clear process, a clear statement, a clearer set of expectations from OPA, uh, from HRSA, from HHS. I, you know, I think that would go a long way to, you know, perhaps resolving this dispute or at least, you know, creating a, a, you know, a framework whereby, um, you know, a solution can be found. Um, you know, you mentioned a couple of potential changes at OPA and, you know, one, one question that I've, I do like to ask especi with this time of year, uh, for lawyers who are, uh, you know, in, in similar, or, uh, you know, adjacent practices to mine, I'd love to hear your prognostications for 2022. Uh, what do you think, uh, is going to happen in the three 40 B world, uh, with respect to either, you know, any legislative changes, perhaps some of these regulatory, um, you know, enhancements we're talking about, you mentioned perhaps some, you know, um, some changes on the administration side. I'd love to, to, to hear what you think for 2022,
Speaker 3:Uh, well, for, for it's a, it's a great question. Um, like everyone, I, I wish I knew, um, but I would anticipate that we will have vinyl clarity on, in, on an ADR process. I, I don't anticipate any material changes from a legislative perspective. We've seen various proposals on the hill, uh, while for the better part of, of 40 years now, um, relative to price, transparency, price reporting, uh, reporting of, of how the benefit is used, sort of similar to, uh, the community benefit reporting that that is required under IRS standards. Um, I don't sense that there's a, a lot or I, there are certainly, uh, inertia behind it, but I don't know that there's critical mass to get material changes, um, to get material changes to the program. I anticipate that the, the root of the program will, will stay in place. We know, uh, by that we've been talking mainly about HRSA OPA. One of the things we, we haven't touched on that is, is the CMS price, uh, uh, reimbursement reductions relative to three 40 B pricing. Um, I would, if you had asked me the same question a year ago, uh, with a new administration, whether or not CMS would reverse its policy to, uh, uh, allow for reduced reimbursement for three 40 B acquired drugs, I, I would've anticipated that would be the case, but, um, the, the O P P yes, rule that, that relatively recently came out indicates that the administration actually is gonna be keeping that in place. Um, so I think for, for folks that are involved listening to this that are involved in three 40 B, uh, three 40 B reimbursement, um, that, that the government will continue to, to obtain the three 40 B savings and reallocate those to fund the market basket adjustment, a bright, which, which goes to both nonprofit and for profit, uh, entities. And, and so, so I think that will stay in place. I think we will see a reissued ADR petition. I think the, I think N or multiple, um, ADR processes will, will proceed. Um, and I would anticipate by the end of the year, will at least have a final, uh, final rule, if not a final decision in the ADR process, then into 2023, as hard as that is to believe, I would anticipate that whatever the results are, um, of that weather favorable to manufacturers or covered entities, that that will be subsequently litigated. Um, and so we're probably looking at best to two year window to have any substantive resolution on contract pharmacies. I wouldn't anticipate any, um, significant legislative changes to the program. There may be some reporting changes. Um, I, I, I think that there, there is enough while there are frustrations with the program. I, I, I think it's fair to say that no one is, is counseling in, uh, at the hill in either party. No one is counseling in favor of, of abolishing the program. They're certainly talking about, uh, uh, addressing, uh, reporting and, and contract pharmacy clarity. But I, I, I, I just don't see enough inertia because of the reliance on, on the program. And some of the other priorities, um, that the government has. And the government also is both Medicaid and Medicare are now coming to rely on those discounts, uh, to fund some of their operations. So it makes makes for, for a very complex issue. Um, I think that's probably where we end up at the end of the year, which is
Speaker 2:Some additional clarity, but certainly not final resolution sounds like we may have an exciting year and two years in front of us, uh, with respect to the three 40 B program. And, uh, that, uh, we can expect changes on several fronts, uh, with respect to the program. But at the end of the, uh, you know, we might need to wait a little bit until we get clarity on some of the, you know, current controversial issues, basing the program. Todd Nova, thanks so much for joining us today. This has been incredibly insightful, and I'm sure our listeners appreciate all of the, uh, uh, insight and information that you have on this important program, uh, for healthcare. Thank you very much. Thank you, Matt. I, I appreciate the opportunity and your time. Thanks also to our listeners for joining us today. This has been another addition of the American health law Association's fraud abuse podcast. I'm your host, Matt Wetzel, and we'll return next month with another episode.
Speaker 4:Thank you for listening. If you enjoy this episode, be sure to subscribe to a L a speaking of health law, wherever you get your podcasts to learn more about ALA and the educational resources available to the health law community, visit American health law.org.