340B Tips for Grantees: Understanding the Evolution & Role of Contract Pharmacies
Written by: William Wood (RPh, Senior Director), Kristin Fox-Smith (Senior Vice President)
Welcome back to Visante’s new series of key takeaways for grantees! In this installment we discuss contract pharmacies. We believe it is important that you are familiar with the details and history and to allow you to better understand the evolution and role of contract pharmacies.
Contract pharmacies are a key element of the 340B Program that have created what can only be described as chaos. You may want to refer to Visante’s previous blog titled Manufacturers Create Chaos For the 340B Program to refresh your memory concerning the manufacturer actions.
History of Contract Pharmacies
To begin, let’s review the history of the 340B Program as it relates to contract pharmacies. The 340B Program began in 1992 with passage of the Veteran’s Health Care Act. The first official publication appeared in the Federal Register/ Vol. 58/ No. 87/I Friday, May 1, 1993/ Notices. This publication detailed the establishment of 340B, the initial Covered Entities eligible and the requirements applicable to each type. Additionally, it included possible future Covered Entities, calculation of the 340B price, manufacturer requirements, Covered Entity requirements, and duplicate discounts and rebates. The issue of contract pharmacies is not addressed anywhere in this document.
The first official publication addressing contract pharmacies did not appear until it was published in Federal Register / Vol. 61, No. 165 / Friday, August 23, 1996 / Notices. SUPPLEMENTARY INFORMATION. In that publication it made this statement: Proposed guidelines for contract pharmacy services were announced in the Federal Register at 60 FR 55586 on November 1, 1995.
Among the various statements in the publication is this one, which is critical to understanding the role of contract pharmacies in 340B:
Section 340B, which established the Drug Pricing Program, requires manufacturers to sell to covered entities at or below a ceiling price determined by a statutory formula. The statute is silent as to permissible drug distribution systems. There is no requirement for a covered entity to purchase drugs directly from the manufacturer or to dispense drugs itself. It is clear that Congress envisioned that
various types of drug delivery systems would be used to meet the needs of the very diversified group of 340B covered entities.
The notice goes on to say: It has been the Department’s position that if a covered entity using contract pharmacy services requests to purchase a covered drug from a participating manufacturer, the statute directs the manufacturer to sell the drug at the discounted price. If the entity directs the drug shipment to its contract pharmacy, we see no basis on which to conclude that section 340B precludes this type of transaction or otherwise exempts the manufacturer from statutory compliance. However, the entity must comply, under any distribution mechanism, with the statutory prohibition on drug diversion.
The notice also makes the following statement which applies specifically to grantees and specialty clinics: During the early period of program implementation, it became apparent that only a very small number of the 11,500 covered entities used in-house pharmacies (approximately 500), although additional entities participated by buying drugs for their physician dispensing activities. In addition, many of the larger groups of covered entities, including community and migrant health centers, hemophilia clinics and most of the Ryan White HIV service programs (e.g., State AIDS Drug Assistance Programs) depend upon outside pharmacy services. Yet, because the delivery of pharmacy services is central to the mission of and a legal mandate in some instances for these providers, they rely on outside pharmacies to fill the need.
The notice also makes this statement which several notable legal experts in the 340B area feel addresses the legality of contract pharmacies: As a matter of State law, entities possess the right to hire retail pharmacies to act as their agents in providing pharmaceutical care to their patients. As a general rule, a person or entity privileged to perform an act may appoint an agent to perform the act unless contrary to public policy or an agreement requiring personal performance. Restatement of Agency 2d § 17 (1995). Hence, even in the absence of Federal guidelines, covered entities have the right to contract with retail pharmacies for the purpose of dispensing 340B drugs. By issuing guidelines in this area, ODP (The Office of Pharmacy Affairs was known as the Office of Drug Pricing at that time) is not seeking to create a new right, but rather is simply recognizing an existing right that covered entities enjoy under State law.
Could this be a method to challenge the legality of the recently announced manufacturer restrictions on contract pharmacies?
Then in 2010 Federal Register / Vol. 75, No. 43 / Friday, March 5, 2010 / Notices, HRSA published its guidelines to permit Covered Entities to use multiple contract pharmacy arrangements. Notice that this publication is referred to as “guidelines.” In the Notice, HRSA states: This guidance neither imposes additional burdens upon manufacturers, nor creates any new rights for covered entities under the law. HRSA has used interpretive guidance and statements of policy to provide guidance. Contract pharmacy service guidelines have been considered by HRSA to be ‘‘interpretative rules and statements of policy’’ since the inception of the program and to create a working framework for its administration.
HRSA also states in the Notice that: HRSA has no statutory authority to assess additional penalties beyond the authority provided in section 340B.
Applying this background to Grantees
It is important to understand how this background applies to grantees. At the beginning of this article we suggested that you review Visante’s previous article Manufacturers Create Chaos For the 340B Program, in which Visante reviewed in detail the actions taken recently by manufacturers against Covered Entity contract pharmacies.
Here is a very brief summary of these actions:
- Drug manufacturers Merck, Eli Lilly, Sanofi, Novartis, and Astra Zeneca announced that they would begin various actions against contract pharmacies.
- Merck and Sanofi announced that they would require Covered Entities to submit contract pharmacy claims to a new organization by the name 340B ESP.
- AstraZeneca informed Covered Entities that, starting Oct. 1, it no longer will offer 340B pricing to Covered Entities with on-site outpatient pharmacies for any of its drugs dispensed through contract pharmacies
At the recent 340B Coalition Virtual Conference, Admiral Krista Pedley, Director of HRSA’s Office of Pharmacy Affairs (OPA) stated: “HRSA’s enforcement ability is limited, as guidance does not provide HRSA appropriate enforcement capability.”
Shortly after this statement from OPA, the highly regarded “340B Report” made this statement: “The wave of drug manufacturer activity all appears to trace back to HRSA’s position that it cannot enforce its 340B program guidance absent a clear violation of the 340B statute.”.
What does this mean for Grantees?
So what does all of this mean for grantees? In our background discussion we included the following statement from the Notice in the Federal Register of 1996: In addition, many of the larger groups of covered entities, including community and migrant health centers, hemophilia clinics and most of the Ryan White HIV service programs (e.g., State AIDS Drug Assistance Programs) depend upon outside pharmacy services. Yet, because the delivery of pharmacy services is central to the mission of and a legal mandate in some instances for these providers, they rely on outside pharmacies to fill the need.
This statement is as true now as it was then. Not only do the vast majority of grantees rely on contract pharmacies, but contract pharmacy services typically represent the only 340B benefit for many!
From virtually the first announcement of these manufacturer actions, opposition has arisen from numerous sources. Among the organizations voicing opposition are:
Health Resources and Services Administration (HRSA)
National Association of Chain Drug Stores (NACDS)
Powers, Pyles, Sutter & Verville Law Firm (PPSV)
American Society of Health System Pharmacists (ASHP)
American Hospital Association (AHA)
The 340B Report
National Association of Community Health Centers (NACHC)
Ryan White Clinics for 340B Access (RWC-340B)
It is beyond the scope of this article to discuss the details of the opposition voiced by the above-named organizations, but the take-away is they have all been unanimous in their statements of opposition.
Yes, we said that HRSA is among the organizations that have spoken against the manufacturers. Exactly what has HRSA had to say?
In one of its first statements, HRSA stated: In response to AstraZeneca’s announcement that it will no longer provide 340B pricing for drugs dispensed by contract pharmacies, HRSA has said that it is considering the issues raised by the recent actions of the manufacturers and is evaluating its next steps.
HRSA has not commented specifically on Sanofi, Novartis, and Merck initiatives using the 340B ESP platform.
In 340B Report of September 2, the following appeared:
HRSA is not posting a letter at this time as HRSA is considering whether manufacturer policies, including Lilly’s, violate the 340B statute and whether sanctions may apply. Under section 340B(a)(1) of the Public Health Service Act (PHSA), a manufacturer participating in the 340B Program must offer its covered outpatient drugs for purchase at or below the 340B ceiling price. Those sanctions could include, but are not limited to, civil monetary penalties pursuant to section 340B(d)(1)(B)(vi) of the PHSA.
The 340B statute does not specify the mode by which 340B drugs may be dispensed. However, the Agency believes contract pharmacies serve a vital function in covered entities’ ability to serve underserved and vulnerable populations, particularly as many covered entities do not operate in-house pharmacies. Without comprehensive regulatory authority, HRSA has only limited ability to issue enforceable regulations to ensure clarity in program requirements across all the interdependent aspects of the 340B Program. Of course, this is not the first time we have seen this statement from HRSA!
On September 23, the 340B Report reported on a strongly worded letter sent by the top lawyer at the U.S. Health and Human Services (HHS)[the parent agency of HRSA] to Eli Lilly and Co. warning Lilly that it
“cannot and should not view the absence of any questions from the government” about Lilly’s decision to dramatically scale back 340B pricing on its products “as somehow endorsing Lilly’s policy.” The letter further stated that HRSA “has significant initial concerns” about Lilly’s new 340B policy, continues to review the policy, “and has yet to make a final determination as to any potential action.”
“Correspondingly, Lilly cannot and should not view the absence of any questions from the government as somehow endorsing Lilly’s policy, especially when this department is leading the government’s response to the COVID-19 pandemic.”
This is the strongest message we have seen to-date!
On October 13, HRSA indicated “HRSA continues to review the policies of these manufacturers and has yet to make a final determination as to any potential action.”
These are the latest statements that we are aware HRSA has made. Does it mean that all they are doing is “reviewing the policies” taken by the manufacturers?
Are lawmakers interested?
They certainly are. In recent weeks, this is what we have seen:
From 340B Report 9/3/2020:
Three U.S. House Energy & Commerce (E&C) Committee leaders warned U.S. Health and Human Services (HHS) Secretary Alex Azar in a letter stating:
“These actions are not oversight or compliance measures authorized by law and could represent a failure of manufacturers to meet their requirements under the 340B statute,” the committee and subcommittee chairs wrote. They continued: “HHS has an obligation to ensure manufacturers comply with the law. Furthermore, Congress has provided you with tools, including manufacturer auditing rights and civil monetary penalties, to enforce it. Failure to enforce 340B requirements threatens to undermine program integrity. Allowing manufacturers to institute extralegal requirements on covered entities under the threat of refusing to ship drugs as required or allowing manufacturers to pick and choose where they will comply with program requirements, could set us on a treacherous path where program participants might disregard any or all of their legal obligations.”
From 340B Report 9/17/2020:
Twenty eight U.S. senators—15 Democrats, 12 Republicans, and an independent—wrote to U.S. Health and Human Services (HHS) Secretary Alex Azar today to urge the U.S. Health Resources and Services Administration (HRSA) “to take immediate and appropriate enforcement action” to halt “recent actions from pharmaceutical manufacturers that threaten to undermine the role of contract pharmacies in the 340B drug pricing program.”
Democratic Sen. Joe Manchin (D-W.Va.) wrote separately to Azar on Sept. 15 asking him to direct HRSA to “notify these companies that their actions are counter to the guidance governing the program and they must cease and reverse these policies.”
On October 14, 243 U.S. House members—174 Democrats and 69 Republicans—wrote to Azar demanding “immediate action to stop [drug] companies from either denying or limiting access to 340B pricing to hospitals, health centers, and clinics participating in 340B.”
Also, from 340B Report dated 10/1/2020:
Congressman Grills Novartis Executive About Steps to Limit 340B Discounts
“340B drug discounts are crucial for my constituents, and we should be thoughtful about how any changes to the program would affect us going forward,” Rep. Fred Keller (R-Pa.) told Novartis U.S. Country President Tom Kendris.
More from 340B Report dated 10/6/2020:
Connecticut Attorney General William Tong (D) today sent letters to Eli Lilly and Co., AstraZeneca, Sanofi, Novartis, and Merck demanding they cease recent unilateral actions restricting access to 340B pricing for drugs dispensed by contract pharmacies or cease unreasonable demands for contract pharmacy claims data. He went on to say, “My office will not stand by while Eli Lilly and other drug companies prioritize profits over access to affordable prescription medications and other critical services for vulnerable communities.”
Tong told each manufacturer there was “no legal basis” for its actions, stating “Denying outpatient access to appropriate 340B drug pricing is a clear violation of federal law. Nothing in the [Public Health Service] Act allows [Eli Lilly, Astra Zeneca, Merck, Sanofi, and Novartis] to impose conditions or restrictions on covered entities’ access to 340B drug pricing, including discontinuing the longstanding practice of shipping drugs to contract pharmacies”
What about legal actions. Have there been any? Should we expect any?
Consideration of legal actions against the manufacturers began almost as soon as the restrictions were announced. Among the organizations that early on announced consideration of legal actions were:
National Association of Community Health Centers (NACHC)
Subsequent to the numerous activities discussed above and having received either negative or no response from the manufacturers, lawsuits were announced by Ryan White Clinics for 340B Access (RWC-340B) and the National Association of Community Health Centers (NACHC).
The 340B Report for Saturday Oct. 10, 2020 made the following announcement:
HIV/AIDS Clinics Sue HHS Over Drug Manufacturers’ Denials of 340B Pricing
The Ryan White Clinics for 340B Access (RWC-340B) and two of its members late last night sued U.S. Health and Human Services (HHS) Secretary Alex Azar in federal court to compel him to protect their rights to buy covered outpatient drugs from four manufacturers that refuse to sell them when ordered through 340B contract pharmacy arrangements.
Following the notice of the RWC-340B lawsuit, the 340B Report of Oct. 21 made this announcement:
The National Association of Community Health Centers (NACHC) today sued the U.S. Health and Human Services (HHS) Secretary Alex Azar to force him to implement a long-delayed 340B program mandatory and binding administrative dispute resolution (ADR) process. NACHC said in a news release that the ADR process would let health centers “act against drug companies that are violating the 340B statute and have abruptly stopped shipping discounted drugs to health centers’ contracted pharmacies.”
“While HHS has signaled some disapproval of recent manufacturers’ practices, no action has been taken despite concerns raised by hundreds of bipartisan Members of Congress,” NACHC said.
In its legal complaint, NACHC said HHS’s failure to implement the congressionally mandated 340B ADR process “has tied the covered entities’ hands and deprived them of their exclusive means to protect themselves….Outside of 340B’s exclusive remedial scheme, covered entities have no other—much less an adequate—remedy available to them to challenge the drug manufacturers’ violation of the 340B statute or to remedy the significant harm these violations have caused and will continue to cause.”
As of the publication date of this article, these two legal actions are the only ones taken so far. Can we expect more? As we stated above, 340B Health, the national advocacy organization representing 340B hospitals, stated shortly after the manufacturers announced their actions that it would consider legal action if other advocacy efforts were unsuccessful.
During the first weeks following the manufacturer announcements, articles appeared almost daily. However, currently we seem to be in somewhat of a “holding pattern” as we wait developments.
There was one slightly positive development when Novartis appeared to take a small step backward a few days before Novartis President Tom Kendris appeared before Congress.
Novartis had said in August that, starting Oct. 1, it would stop providing 340B pricing to entities on drugs dispensed by contract pharmacies if the entities declined to share their data. It backed off from that position last week, a few days before Kendris’ testimony before Congress.
When he was asked “if a hospital hasn’t [supplied] that data by Oct. 1, are they still going to be able to participate in the discounts?”
Kendris answered “Yes, we still intend to honor valid, legitimate 340B discounts,” “And what we’ll do is see the responses, we’ll look at the data, and we’ll talk to the hospitals and move on from there.”
Is Novartis likely to abandon its plan?
What about the other manufacturers? Might they offer some concessions or back off completely?
Are the lawsuits likely to succeed?
Will HRSA declare the manufacturer actions to be in violation of the 340B regulations in spite of its stated “lack of statutory authority”?
What about HHS, the parent organization of HRSA? Is it likely to take action? If so, what kind of action?
Congressional actions? As we mentioned above there has been a great deal of Congressional opposition. Is a divided Congress likely to take any meaningful actions?
STOP THE PRESSES!
This came in late in the day on October 30:
Drug manufacturer Novartis announced changes this afternoon to its policy on provision of 340B discounts on drugs dispensed by contract pharmacies. It said in a new fact sheet:
- Ryan White clinics, community health centers, and other federal grantee covered entities will continue to receive 340B discounts “exactly as they do today.”
- Novartis will honor hospital contract pharmacy arrangements for contract pharmacies located within a 40-mile radius of the covered entity hospital. It said it would work with rural hospitals and other institutions with special circumstances to ensure they have “appropriate access to a contract pharmacy.”
“After listening to stakeholders and following careful consideration, we have decided to take an approach that focuses on the vast networks of contract pharmacies that hospitals have established well outside of the communities they serve. We believe this is a common-sense step to maintain the integrity and intent of the program,” Novartis spokesperson Swedlin said.
As we stated above STAY TUNED! Could there be more?