The 340B Program in 2024: A Tumultuous Year in Review
The 340B Program has continued to undergo significant upheaval in 2024 that has the potential to bring about impactful changes to how the 340B Program operates moving forward. These developments have left 340B stakeholders in a position of increasing uncertainty. This article synthesizes these key developments of 340B Program developments and trends from the past year. In the coming weeks, we will also publish a companion piece detailing how we expect these developments to impact 340B stakeholders prospectively in 2025 and beyond.
Proposed Rebate Models
In arguably the most significant 340B development this year, several drug manufacturers introduced dramatic changes in their 340B sales model that fundamentally change how 340B covered entities purchase 340B medications and realize the corresponding benefit. Specifically, rather than offer a discounted 340B price to qualifying entities up-front when the purchase is made, these manufacturers would instead implement a rebate model whereby the covered entity would initially purchase the drug at a higher, non-340B price and receive a “rebate” from the manufacturer for the difference between the 340B and non-340B price once certain claim information is submitted by the covered entity to a manufacturer-aligned digital platform.
Manufacturers claim that these rebate models are necessary to curb purported 340B Program abuses by covered entities. For example, in a letter discussing its proposed model, Johnson & Johnson (the first manufacturer to propose a transition to 340B rebate payments) indicated that such a model would allow it “to carry out its 340B obligations while protecting program integrity, consistent with the 340B statute’s prohibitions against duplicate discounts and diversion.”1 On the other hand, covered entity-aligned stakeholders have starkly criticized these rebate models, pointing to the significant cash flow difficulties many safety nets providers would experience if forced to make up-front drug payments at substantially higher costs. These stakeholders have also criticized lack of defined timeframe for rebate payments from manufacturers, along with the fact that manufacturers would have full control of whether submitted claims qualified for a “rebate” with little to no Health Resources and Services Administration (HRSA) oversight. Notably, the proposed data submission parameters for the rebate request would include the National Provider Identifier (NPI) of the billing provider, allowing manufacturers to disqualify all claims from contract pharmacies that do not align with manufacturer restrictions on contract pharmacy arrangements.
To date, the HRSA/U.S. Department of Health & Human Services (HHS) has rejected these rebate proposals and forcefully stated that operating these models without HHS Secretary approval violates the 340B statute and would both threaten the manufacturers’ continued ability to be reimbursed under Medicare Part B and Medicaid and lead to significant civil monetary penalties.2 Unsurprisingly, several manufacturers, including Johnson & Johnson,3 Eli Lilly,4 and Bristol-Myer Squibb,5 have sued HHS, claiming that its rebate models both comply with the 340B statute and do not require HHS approval before operationalizing. While these cases are all in their infancy, 340B stakeholders will closely monitor these cases due to their potentially significant impact on 340B Program operations for both covered entity and manufacturer-aligned entities.
Ongoing Manufacturer Contract Pharmacy Restrictions
A large number of manufacturers (at least 37 at the time of publication) have continued to significantly restrict 340B pricing available for drugs dispensed via contract pharmacy arrangements. Despite ongoing legal challenges by HRSA, courts have continued to affirm manufacturers’ ability to impose these restrictions. For example, the U.S. Court of Appeals for the District of Columbia sided with manufacturers earlier in the year, unanimously ruling that drug manufacturers may impose at least some limits on how they distribute discounted drugs to 340B providers in the contract pharmacy context. Tracking closely with the reasoning of a January 2023 Third Circuit decision considering many of the same issues, the D.C. Court found that the 340B statute’s silence on distribution conditions preserves manufacturers’ rights to set limits, but notably signaled that some types of restrictions could violate the 340B statute (although no examples were provided).
Importantly, the U.S. 7th Circuit Court of Appeals is expected to soon release a decision in a separate case regarding the same manufacturer-imposed contract pharmacy restrictions. If decided differently than the other two federal appellate courts, the 7th Circuit decision could result in a “circuit split” and potentially be taken up by the United States Supreme Court.
In the meantime, the manufacturers appear comfortable keeping restrictions in place pending resolution of the ongoing litigation. In fact, numerous manufacturers have made their contract pharmacy 340B pricing policies even more restrictive over the last 12 months, including broadening applicability to clinic/grantee covered entities and increasing claim reporting obligations necessary to “unlock” 340B pricing for selected contract pharmacy locations.6
Proposed Federal Legislation
With HRSA’s authority to enforce its sub-regulatory guidance (such as its contract pharmacy requirements) continuing to erode, it is increasingly likely that new legislation will be required to address areas of ongoing 340B Program uncertainty. Although there are several proposed pieces of federal legislation7 that directly or indirectly impact the 340B Program, the 340B SUSTAIN Act seemed to gather the most traction in 2024 and may have the needed momentum for eventual passage. Although the bill has not yet been formally proposed, a draft bill released by its bipartisan group of sponsors signaled an intent to compromise between various stakeholder interests and more clearly define 340B Program parameters. Among other items, the proposed bill is expected to (1) formalize contract pharmacy arrangements within the 340B statute and impose penalty on manufacturers that refuse to offer/impose conditions on 340B pricing availability, (2) establish a neutral, centralized clearinghouse to process claim information submitted by covered entities and state Medicaid agencies to reduce opportunities for Medicaid duplicate discounts, (3) introduce a “user fee” on covered entities to fund 340B Program oversight measures, and (4) clarify the 340B eligible patient definition. While release of the proposed bill has been delayed and likely will not be released until early 2025, this particular bill remains one to watch in 2025.
State-Level Activity
While efforts to address 340B Program issues on the federal level have been slow to develop, state legislatures have stepped in with increasing frequency in 2024.
Contract Pharmacy Access Laws. In direct response to ongoing manufacturer-imposed restrictions in the 340B contract pharmacy space, a growing number of states have enacted laws to protect contract pharmacy access for 340B-participating covered entities. These laws typically require manufacturers to offer 340B pricing to covered entities in the state for an unlimited number of validly registered contract pharmacies. As of late 2024, eight states have enacted contract pharmacy access laws– Minnesota, Kansas, Missouri, West Virginia, Maryland, Arkansas, Mississippi, and Louisiana–with similar bills being introduced in over a dozen others, including several that have secured passage in at least one legislative chamber.
These laws have consistently withstood legal challenge thus far from manufacturers. In the most high-profile example, the 8th Circuit Appellate Court upheld the validity of Arkansas’s version of the law earlier this year, reasoning that that because 340B statute is silent on 340B drug distribution, states are not preempted from regulating that specific space. Notably, the Supreme Court recently declined to hear an appeal of this decision, further strengthening the law’s validity.
Transparency Initiatives. A handful of states have also enacted laws that introduce covered entity reporting requirements related to 340B savings utilization generated through the 340B Program, ostensibly to improve 340B Program transparency. 2024 provided the first example of a state (Minnesota) releasing a report summarizing the results of this type of reporting.8 While the report garnered criticism for lacking context, some 340B stakeholders are concerned that other states may use it as a template for introducing similar reporting requirements in their states.
PBM/Insurers Anti-Discrimination Protections. In a continuing trend, more than half of the states have enacted laws prohibiting PBMs and health insurers from reducing reimbursement for 340B drugs billed, with many also prohibiting additional conditions on 340B-participating pharmacies for network participation. Covered entity-aligned groups continued to push for similar bills in several additional states in 2024, including Missouri and Delaware.9
New 340B Alternative Dispute Resolution Process
After a long wait, HRSA issued its revised final rule pertaining to the 340B Administrative Dispute Resolute (ADR) process in mid-2024. The new ADR rule provides a defined process that can be used by covered entities and manufacturers to resolve disputes related to potential overcharges, 340B diversion, and Medicaid duplicate discounts. Notably, the revised version differs from the previously released ADR rule in several key ways:
- Covered entities will be permitted to directly challenge ongoing manufacturer policies restricting 340B pricing availability via contract pharmacy arrangements. The previous version did not allow the ADR process to be used if the disputed issue was actively being litigated.
- The ADR Panel may consider duplicate discount disputes tied to Medicaid fee-for-service (FFS) and Medicaid Managed Care Organization claims (the previous version only allowed for disputes over FFS claims).
- The revised rule removed minimum dollar thresholds necessary to bring forth claims.
Numerous parties have filed claims under the new ADR rule and are currently navigating the updated process. The first decisions by the newly formed ADR panel are expected in 2025.
HRSA Audit Trends
Despite ongoing litigation threatening HRSA’s enforcement authority over requirements contained outside the 340B statute itself, HRSA continues to conduct its audits based on requirements identified in sub-regulatory guidance. For example, HRSA continues to assess claim eligibility based on its historic 1996 eligible patient definition,10 and also continues to enforce cost report-based child site registration requirements found outside of the 340B Program statute. At this stage, it does not appear that HRSA will modify its audit approach, although continuing to enforce requirements solely found in sub-regulatory guidance could open the door for additional legal challenges to those findings.
Check back in soon for a companion piece covering what to expect in the 340B Program in 2025, detailing how many of the developments discussed in this article will drive activity in the space moving forward.
If you have any additional questions related to 340B Program considerations, reach out to your Quarles attorney or:
- Richard Davis: (414) 277-5844 / richard.davis@quarles.com
- Michael French: (312) 715-5261 / michael.french@quarles.com
- Brenda Maloney Shafer: (602) 229-5774 / brenda.shafer@quarles.com
- Jake Pallotta: (317) 399-2810 / jake.pallotta@quarles.com
END NOTES
1 Johnson & Johnson Health Care Systems Inc. 340B Rebate Model, available here.
2 HRSA Letter to Johnson & Johnson, available here.
3 Johnson & Johnson Health Care Systems Inc. v. Becerra et al., available here.
4 Eli Lily & Co. v. Becerra et al., available here.
5 Bristol Myers Squibb Co. v. Johnson et al., available here.
6 See Novo Nordisk: Notice Regarding Revised Limitation on Hospital and Grantee 340B Contract Pharmacy Distribution, available here.
7 See 340B ACCESS Act, available here.
8 340B Covered Entity Report, Minnesota Department of Health, available here.
9 See Mo. S.B. 1213, available here.
10 Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Patient and Entity Eligibility, available here.