340B Developments in 2024 – Litigation and Legislation

Newsletter

Although we are only two and a half months in, 2024 has already seen its fair share of impactful 340B developments on both the litigation and legislative fronts.

Litigation Update

Although 340B stakeholders still await the 7th Circuit and the DC Court of appeals to weigh in on the permissibility of manufacturer contract pharmacy restrictions, another Appellate Court ruling reinforced the growing efforts on the state level to prohibit these same restrictions imposed against covered entities. On March 12, 2024, the 8th Circuit Court of Appeals upheld an Arkansas law prohibiting manufacturer restrictions on the acquisition or delivery of 340B drugs to covered entities and their contract pharmacies located within the state. Affirming the District Court’s ruling, the court agreed that Congressional silence within the 340B statute on pharmacies indicates that Congress did not intend to preempt state-level laws related to 340B drug delivery to those pharmacies. The decision is sure to be well-received by 340B covered entities and related advocacy groups.

While Arkansas is one of two states with current laws that bar manufacturer contract pharmacy restrictions (Louisiana is the other), there are at least 19 additional states that have introduced similar proposed legislation. The 8th Circuit Decision reinforcing the validity of the Arkansas version of these covered entity protections may spur even more states to propose similar legislation in the coming months.

Proposed Federal Legislation

On the legislative front, Senator Doris Matsui introduced the 340B PATIENTS Act, a federal bill that would prohibit manufacturers from restricting 340B pricing availability for contract pharmacy relationships or otherwise imposing conditions on offering 340B pricing via those arrangements. The bill is substantively similar to the numerous state-level laws described above and would formally codify the concept of contract pharmacies (and a covered entity’s ability to receive 340B pricing through those relationships) within the 340B statute itself.

Importantly, federal legislative activity has not been limited to addressing 340B contract pharmacy relationships, as other more comprehensive efforts to address 340B Program uncertainties are also being considered. Most notably, a group of six bipartisan Senators recently released the Supporting Underserved and Strengthening Transparency, Accountability, and Integrity Now and for the Future of the 340B Act (“SUSTAIN Act”), a draft discussion bill addressing many areas of uncertainty that exist in the current 340B Program space. Many 340B stakeholders are viewing the draft SUSTAIN Act as an important initial step to crafting comprehensive “compromise” legislation that better and more clearly defines 340B Program parameters. As the SUSTAIN Act contains benefits and concessions for and from both covered entities and manufacturers, there is a material chance that this legislation may gain traction in Congress.

At a high level, the SUSTAIN Act proposes the following key changes:

  • Contract Pharmacy Use: Formalizes covered entity contract pharmacy arrangements within the 340B statute and imposes a penalty on drug manufacturers that refuse to offer or otherwise impose conditions on 340B pricing available for drugs utilized in contract pharmacy arrangements. This provision is similar to the protections within Arkansas’ now upheld Act 1103 and the proposed 340B PATIENTS Act on the federal level, both mentioned above.
  • Patient Definition: Includes placeholder for a definition of the term “patient,” allowing stakeholders to propose an appropriate definition. This is particularly relevant in light of the recent Genesis decision, which highlighted the lack of statutory clarity as to who is a “patient” for 340B Program purposes.
  • Child Sites: Clarifies child site eligibility criteria and directly ties eligibility to existing Medicare provider-based rules.
  • Transparency: Requires covered entities to provide additional reports on the use of the 340B savings generated.
  • Program Integrity: Allows for more extensive government oversight and auditing of 340B Program participants.
  • Duplicate Discounts: Establishes a neutral, centralized clearing house to process claim information submitted by covered entities and state Medicaid agencies.
  • PBM Anti-Discrimination: Enacts federal prohibitions on PBM discrimination against covered entities, in line with similar legislation enacted in a majority of states.
  • Miscellaneous Provisions: Introduces a 340B “user fee” on covered entities, facilitates studies and reports regarding duplicate discounts and contract pharmacy dispensing fees, and approves an additional $3 million per year in funding from 2025 to 2029 for 340B Program audits, oversight, investigations, and enforcement activities.

The six Senators included a request for information (“RFI”) in their release, giving interested stakeholders an opportunity to provide feedback on various proposed aspects of the draft bill. Responses to the RFI are due by April 1, 2024.

The RFI gives 340B stakeholders a unique opportunity to weigh in on the SUSTAIN Act and influence what could ultimately serve as the basis for comprehensive and consequential changes to the 340B Program.

If you or your entity is interested in submitting comments to the SUSTAIN Act RFI or would like to further discuss the potential impact of recent court decisions or proposed legislation on your 340B Program, please reach out to your Quarles attorney or:

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