New PBM State Laws Indicate a Shifting Battlefront over 340B Program Drug Pricing

While much attention has been paid to the ongoing litigation related to the ongoing 340B Medicare Part B payment reduction litigation (which is now pending before the US Court of Appeals for the DC Circuit), new legislation at the state level may also have a significant impact on covered entity reimbursement for 340B drugs.

Specifically, state legislatures have been getting involved in 340B Program reimbursement rate regulation between covered entities and pharmacy benefit managers (PBMs) regarding 340B drugs. By way of brief background, some PBMs have been attempting to negotiate lower reimbursement rates for 340B Program drugs, essentially claiming that because the covered entity pays less for the drug, the PBM is entitled to reimburse the covered entity at a lesser amount. Covered entities argue that they are entitled to the benefits of the difference between the preferential 340B Program drug pricing and the standard reimbursement rate. In the absence of legislation, this is ultimately a contractual and negotiation issue. Essentially, a PBM and covered entity may negotiate any rate for reimbursement of a 340B drug, even if that rate is significantly below the reimbursement rate for a non-340B drug.

State legislatures, however, have been enacting legislation to address this issue. Thus far, state legislatures generally appear to be siding with covered entities and have enacted new laws which prohibit PBMs from discriminating against a covered entity or one of their contract pharmacies regarding 340B drug reimbursement (e.g., S.D. Codified Laws § 58-29E-15 (2019), Minn. Stat. Ann. § 62W.07(f) (2019), 2019 Or. Laws Ch. 526 (H.B. 2185), W. Va. Code § 33-51-9(d) (2019)). Montana has taken an even more granular approach, setting a reimbursement floor for PBMs for 340B drugs based on a statutorily specified reference price calculation based on the national average drug acquisition cost (NADAC) index maintained by CMS. Mont. Code Ann. § 33-22-180(1)(a)(2019). As legislation related to PBM contracting is relatively "hot" right now, other states may consider some form of legislative control over PBM reimbursement for 340B drugs in the months and years to come.

For now, both PBMs and covered entities in states which have enacted reimbursement controls regarding 340B drugs should closely analyze their existing PBM contracts. Depending on the effective date of the legislation, there may be an immediate need to update/amend these contracts to comply with the new state law.

If you have any questions about these updates and how they might affect your 340B program participation, please contact your Quarles & Brady attorney or:

• Brenda M. Shafer: (602) 229-5774 / brenda.shafer@quarles.com
• Richard B. Davis: (414) 277-5844 / richard.davis@quarles.com