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HHS, HRSA Propose Changes to 340B Administrative Dispute Resolution Process 11.30.2022

On November 29, the U.S. Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA) released a 340B Drug Pricing Program; Administrative Dispute Resolution Period proposed rule, which proposes changes to the administrative dispute resolution (ADR) process for the 340B Drug Pricing Program (340B Program). This process is intended to resolve disputes arising under the 340B Program, including overcharge claims by 340B covered entities or diversion and duplicate discount claims by manufacturers after good faith efforts have been exhausted by the parties. This rule would replace the existing 340B ADR Final Rule[1] (2020 Final Rule) and would apply to all covered entities and drug manufacturers that participate in the 340B Program. This rule proposes to:

  • Preclude ADR Panel review of claims if the issue claimed is the same as or similar to an issue pending in Federal court until the issue is no longer pending,
  • Establish a less formal, expedited 340B ADR administrative process,
  • Remove minimum damages and relief threshold requirements to participate in the 340B ADR process,
  • Require parties to undertake good-faith efforts to resolve disputes prior to initiating the ADR process,
  • Limit ADR proceedings to overcharge, diversion, or duplicate discount claims,
  • Establish a process to appeal a 340B ADR Panel’s decision to HRSA, and
  • Make changes to the 340B ADR Panel, including having the panel comprised exclusively of staff from HRSA’s Office of Pharmacy Affairs (OPA).

This proposed rule is scheduled to be published in the Federal Register on November 30, and comments are due by Monday, January 30, 2023.

Background

The release of this proposed rule comes several years after HRSA issued the 2020 Final Rule, following proposed rulemaking (NPRM) that was initially released in 2016.[2] The 2020 Final Rule followed on the heels of reports that pharmaceutical manufacturers began restricting 340B discounts to contract pharmacies, alleging that use of these pharmacies led to duplicate discounts. Providers and 340B advocates pushed back, arguing that 340B Program requirements prohibited these restrictions.

After issuing the 2020 Final Rule, HHS issued an Advisory Opinion addressing the provision of 340B discounts to contract pharmacies, concluding that manufacturers in the 340B program are obligated to deliver covered outpatient drugs to contract pharmacies at no more than the 340B ceiling price when contract pharmacies act as agents of a covered entity.[3]

The 2020 Final Rule and subsequent Advisory Opinion were subject to multiple lawsuits, and on March 16, 2021, a federal court issued a preliminary injunction, enjoining HRSA from enforcing ADR regulations against plaintiffs in the case, Eli Lilly and Company, et al. v. Norris Cochran, et al., 1:21-cv-00081-SEB-MJD. In response, HHS withdrew the Advisory Opinion in June 2021.

In September 2022, the Administrative Dispute Resolution Panel (340B ADR Panel) dismissed a claim from the National Association of Community Health Centers against two pharmaceutical manufacturers regarding a dispute that the manufacturers failed to provide 340B discounts to more than a single contract pharmacy for each health center. This dismissal was made on the grounds that the 340B ADR Panel did not have jurisdiction over the claim, based on a federal court ruling[4] that determined that Congress did not “clearly and unambiguously” indicate that pharmaceutical manufacturers are obligated to deliver 340B drugs to an unlimited number of contract pharmacies under the 340B Drug Pricing Program.[5]

HHS Proposes to Preclude ADR Panel Review of Claims with Issues Pending in Federal Court

In close alignment with the recent National Association of Community Health Centers Panel decision, HHS proposes a new requirement for the ADR Panel to conduct a review of any ADR claims to determine if the disputed issue is the same or similar to an issue pending in Federal court. If determined to be the case, the ADR Panel would suspend its review of the claim until the issue is no longer pending in Federal court.

HHS seeks comment on whether the 340B Panel’s review of claims should be suspended in these cases.

HHS Proposes to Establish a Less Formal, Expedited 340B ADR Administrative Process

Evidentiary Review

HHS proposes to revise the ADR process to no longer follow the Federal Rules of Evidence (FRE) and Civil Procedure (FRCP) to promote more accessibility, administrative feasibility, and timely resolution of claims. This is a significant departure from the 2020 Final Rule, which directed that to the extent applicable, the FRCP and the FRE apply to the proceedings unless the parties agree otherwise and the 340B ADR Panel concurs.

HHS believes that these trial-like rules and procedures fail to promote accessibility and timely resolution of claims, due to limited resources for petitioners in under-resourced communities as well as delays in the decision-making process.

HHS seeks comment on this revised process to relax formal proceedings in the effort to more timely resolve ADR claims.

Damage Threshold Requirements

HHS proposes to remove minimum damage threshold requirements to participate in the ADR process. This is a significant departure from the 2020 Final Rule that limited the 340B ADR Panel’s jurisdiction to petitions for which damages sought are in excess of $25,000 or cases where equitable relief sought will likely have a value of more than $25,000 during the one-year period after the Panel’s decision.

However, HHS notes that manufacturers and covered entities should closely evaluate whether minor or de me minimis claims should be adjudicated through the ADR process, given the resources required for all parties involved.

HHS solicits comments as to whether the ADR process should retain the existing minimum threshold, whether a new minimum threshold should be set, or if the minimum threshold should be eliminated altogether.

Good Faith Effort Requirements

HHS proposes that parties must undertake good-faith efforts to resolve disputed claims prior to initiating an ADR action. The filing party must provide a written summary to the Office of Pharmacy Affairs (OPA) of good faith efforts to resolve the disputed claims.

HHS seeks comment on the types of documentation that would effectively document good faith efforts and if a communication attempt threshold should be established.

Scope of Allowed Claims

HHS proposes to limit the scope of permitted claims to those set forth in Section 340B(d)(3)(A) of the Public Health Service (PHS) Act:

  1. claims by covered entities that they have been overcharged by manufacturers for drugs purchased under this section, and
  2. claims by manufacturers, after a manufacturer has conducted an audit of a covered entity, as authorized by section 340B(a)(5)(C) of the PHS Act, that a covered entity has violated the prohibitions against duplicate discounts and diversion

In other words, 340B ADR claims would be limited to overcharge, diversion, and duplicate discounts. Further, HHS proposes that the alleged harm must be specific to the parties identified in the claim. This is a notable change from the 2020 Final Rule, where claims permitted include “claims that a manufacturer has limited the covered entity’s ability to purchase covered outpatient drugs at or below the 340B ceiling price” and “claims that an individual does not qualify as a patient for 340B Program purposes and claims that a covered entity is not eligible for the 340B Program.”[6]

Covered Entity Claims

HHS proposes that covered entities’ claims must provide a basis that they have been overcharged by a manufacturer, to include, but not be limited to, the following:[7]

  1. a 340B purchasing account invoice which shows the purchase price by national drug code, less any taxes and fees;
  2. the 340B ceiling price for the drug during the quarter(s) corresponding to the time period(s) of the claim;
  3. documentation by the manufacturer or wholesaler of the attempts made to purchase the drug via a 340B account at the ceiling price, which resulted in the instance of alleged overcharging;
  4. documentation and correspondence with HRSA regarding the alleged overcharge, including price unavailability forms or other correspondence; and
  5. an estimate of monetary damages.

Manufacturer Claims

HHS proposes that manufacturers’ claims must provide a basis that a covered entity has violated the prohibition on diversion and/or duplicate discount, to include, but not be limited to, the following:[8]

  1. a final audit report which indicates that the manufacturer audited the covered entity for compliance with the prohibition on diversion (section 340B(a)(5)(B) of the PHS Act) and/or duplicate discounts (section 340B(a)(5)(A) of the PHS Act);
  2. any communication with the State Medicaid agency indicating rebates claimed (for duplicate discount violations only);
  3. the covered entity’s written response to the manufacturer’s audit finding(s); and
  4. an estimate of monetary damages.

Submission Procedures

HHS proposes that claim submissions would be made through a secure electronic system to better protect confidential and proprietary information. More details for this submission mechanism will be forthcoming in future sub-regulatory guidance. Consistent with the 2020 Final Rule, HHS will similarly require parties to file a written claim to OPA within 3 years of the alleged violation. The alleged violation must have occurred within the prior 3 years of the date of filing.

HHS further notes that the covered entity and/or manufacturer must maintain all files, records, and documents associated with the disputed claim until a final agency decision is issued.

The 2020 Final Rule specified that any manufacturer or covered 340B entity may initiate an action for monetary damages or equitable relief by filing a written petition with HRSA. Currently, the filing party must also mail a copy of the petition and any attachments to the General Counsel, other senior official, or legal counsel for the opposing party within three days of filing the claim with HRSA. After receiving notification that a claim will move forward to a 340B ADR Panel, the opposing party will have 30 days to provide a written response.

Pending Claims

HHS also proposes that after the proposed rule is finalized, any pending claims that were submitted under the 2020 final rule would be moved automatically to the new process.  HHS seeks comment on whether extensions should be granted for pending claims or if instead of being automatically reviewed under the new process they should be resubmitted.

Discovery and Information Requests

Under statute,[9] a covered entity may obtain information and documents from manufacturers and third parties relevant to a claim of being overcharged. The 2020 Final Rule specified that a covered entity must submit a written request for this information to the Panel. HHS proposes to have the Panel to continue to facilitate these requests and determine whether the information requested is reasonable and within scope. If so, the Panel will submit the request to the manufacturer.  Consistent with the 2020 Final Rule, the manufacturer must generally respond within 20 business days; however, the manufacturer may request one 15 business day extension if they cannot respond in full by the deadline.

In the 2020 Final Rule, HRSA noted that the statute expressly authorizes covered entities to obtain information from manufacturers but does not include similar authorization for manufacturers and consequently did not expand this process to allow manufacturers to request information from covered entities.

Submission of Joint Claims

The 2020 Final Rule established that covered entities or manufacturers may combine individual claims, as statute permits “multiple covered entities to jointly assert claims of overcharges by the same manufacturer for the same drug or drugs in one administrative proceeding . . .”[10]

Currently, joint claims from covered entities must include each entity, a letter requesting consolidation must accompany the claim, and documentation or information from each covered entity related to the claim. Associations or organizations representing covered entities may also submit joint claims on behalf of the covered entities. However, the covered entities included must be members of the association or organization representing them.

Consistent with the 2020 Final Rule, HHS proposes joint claims from manufacturers must include each manufacturer, a letter requesting consolidation, and the appropriate documentation and information related to the claim from each manufacturer. This documentation must also include consent by the covered entity to be included in the action, including signatures and appropriate contact information. However, HHS proposes that claims may not be filed by covered entities against multiple manufacturers in a single ADR proceeding. This means that a covered entity may only file a joint or individual claim against a single manufacturer in a single ADR proceeding for the same drug(s).

Further, HHS will not allow consolidated claims on behalf of manufacturers to be submitted by associations or organizations representing manufacturer interests, due to the absence of the statutory authority to do so.

HHS Proposes Changes to 340B Administrative Dispute Resolution Panel

Board and Panel Makeup

HHS proposes to revise the composition of the 340B ADR Panel by including 340B subject matter experts from the OPA. These Panels will be composed of three members of a roster of at least 10 OPA staff selected by the OPA Director or designee. HHS stated that Panels comprised of OPA staff is beneficial because they will have specific knowledge of 340B including the authorizing statute and operational processes of the program and their decisions and due to their expertise are unlikely to make decisions that conflict with current 340B policy.

In the 2020 Final Rule, HRSA established a 340B ADR Board consisting of at least six appointed members by the HHS Secretary. The Board is currently composed of equal members from HRSA, the Centers for Medicare and Medicaid Services (CMS), and the HHS Office of the General Counsel (OGC). Members of the Board are then chosen to serve on an Administrative Dispute Resolution Panel (340B ADR Panel). The 2020 Final Rule also established a 340B ADR Panel, composed of three Board members who review claims and make precedential and binding final agency decisions regarding claims filed by covered entities and manufacturers. The Panels are currently convened by the HRSA Administrator, who will also select the three Board members to serve on the panel, one member each from HRSA, CMS, and OGC.

HHS seeks comment on the size and composition of the 340B ADR panel, as well whether staff should be included from elsewhere in HHS or HRSA.

Panel Decisions

As proposed, the 340B ADR Panel will independently review and apply 340B law and policy considerations to the case-specific factual issues in overcharge, diversion, or duplicate discount disputes. Consistent with the 2020 Final Rule, decisions from a 340B ADR Panel do not need to be unanimous but must represent a majority of members. The 340B ADR Panel will prepare and submit a final agency decision based on review and evaluation of the submitted evidence.

Appeal Process

HHS proposes to provide a reconsideration process to HRSA for either party. Within 20 business days of the ADR Panel’s decision, the parties may initiate a reconsideration. If no party submits a timely reconsideration request, or HRSA Administrator has not submitted such a request, then the Panel’s decision will be binding upon the parties, unless invalided by a Federal court order.

This is a departure from the 2020 Final Rule that specified that Panel decisions are precedential and binding on parties to the claim without a reconsideration option. Currently, these decisions may only be reviewed in Federal court.

Panel Member Screening and Removal

The proposed rule would give the OPA director authority to remove and replace a member of the Panel and in addition would give the Secretary the authority to remove an individual from the roster of panelists or from a specific panel for any reason. Similar to the 2020 Final Rule, Panel members would be screened for potential conflicts of interest prior to reviewing a claim and can be replaced on a 340B ADR Panel if a conflict of interest is identified or for cause.

In addition, HHS proposes that each Panel member must undergo further screening prior to the review of a specific claim to rule out any specific conflicts. Further, OPA staff with ADR duties would also be screened to rule out any prior oversight work related to the parties involved in the dispute.

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This Applied Policy® Summary was prepared by Patrick Harrison with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact him at pharrison@appliedpolicy.com or at (202) 558–5272.

[1] 85 FR 80632

[2] The Affordable Care Act (ACA) directed the Secretary of HHS to establish and implement an administrative dispute resolution process for the 340B program. 42 U.S.C. §256b(d)(3)(A).

[3] U.S. Dep’t of Health & Hum. Servs., Off. of the Gen. Couns., Advisory Opinion 20-06 on Contract Pharmacies under the 340B Program (Dec. 2020).

[4] AstraZeneca v. Becerra, 543 F. Supp. 3d 47, 62 (D. Del. 2021)

[5] John Wilkerson, HHS Panel Dismisses 340B Dispute, Dashes Health Centers’ Hopes, InsideHealthPolicy (Sept. 29, 2022), https://insidehealthpolicy.com/daily-news/hhs-panel-dismisses-340b-dispute-dashes-health-centers%E2%80%99-hopes

[6] 85 FR 80645

[7] See page 16 of the unpublished rule.

[8] See page 17 of the unpublished rule.

[9] See 340B(d)(3)(B)(iii) of the Public Health Service Act

[10] Section 340B(d)(3)(B)(vi) of the Public Health Service Act