HRSA tells Johnson & Johnson to nix its plan for 340B drug rebates

Photo: Andrew Brookes/Getty Images

The Health Resources & Services Administration has told Johnson & Johnson it cannot use a rebate model to replace upfront discounts in its 340B drug pricing program, according to the American Hospital Association.

On Aug. 23, Johnson & Johnson announced that it will change the way it makes 340B pricing available for two of its most popular products, Stelara and Xarelto. Starting Oct. 15, J&J said it will require all disproportionate share hospitals participating in the 340B Drug Pricing Program to purchase these drugs at full price and submit data to J&J. Upon verification of the drug's 340B status, the DSH hospitals will receive a rebate for the discounted 340B price.

The American Hospital Association said it contacted the Health Resources and Services Administration about the policy and as soon as the HRSA was made aware, it informed J&J that its rebate model was inconsistent with the 340B statute. Also, HRSA said the model had not been approved by the Secretary of the Department of Health and Human Services, according to the AHA. 

HRSA further informed the AHA that it has told J&J that it would take appropriate action as warranted.

A spokesperson for J&J said its "limited scope rebate model is fully consistent with the 340B statute, which specifically references rebates as a payment mechanism, and is expected to mitigate legally prohibited program abuses by improving transparency."

J&J also said: "The 340B program is not meeting its original goal of allowing safety net providers to obtain discounted medicines for vulnerable patients. Patients are not realizing the full benefit of the 340B program because of rampant abuse and misuse. To help the 340B Program better serve vulnerable patients, J&J is implementing reasonable, standard business practices used across other government programs and contracts. J&J's use of reasonable, standard and time sensitive business practices will help the 340B program meet its original intent, and better ensure discounts are more directly benefiting vulnerable patients."

340B Health also contacted the Health Resources & Services Administration and submitted a formal request saying that such a policy shift would violate the 340B statute and would harm safety-net hospitals.

WHY THIS MATTERS 

Disproportionate share hospitals serve a large population of vulnerable patients. They have benefitted from the 340B statute that requires manufacturers to offer these hospitals a discounted price on prescription drugs. 

But drug manufacturers have said there's abuse in the system from diversion and duplication when pharmacies distribute the drugs.

In 2020, multiple drug companies began to adopt policies refusing to provide 340B discounts for drugs if dispensed to 340B patients at contract pharmacies.

When HRSA took steps to stop the practice, multiple companies sued.

In May, an appeals court upheld a lower court ruling on 340B that sided with drug manufacturers. The D.C. Circuit said the statute does not categorically prohibit manufacturers from imposing conditions on the distribution of covered drugs and that restricting access to contract pharmacies does not violate the 340B statute.

In 2021, a separate drug manufacturer vendor, Kalderos, filed a lawsuit challenging HRSA's interpretation of the statute that manufacturers may not impose conditions, including rebates, on 340B pricing, according to 340B. That lawsuit has been stayed pending final appeals following a decision in the D.C. Circuit regarding the drug company challenges to HRSA's position.

ON THE RECORD

340B Health President and CEO Maureen Testoni said: "Moving to a rebate system would be a violation of the 340B statute's requirement that drugmakers provide eligible drugs 'for purchase at or below the applicable ceiling price' and would conflict with HRSA's long standing interpretation of that language as requiring upfront discounts. This shift would impose massive financial and administrative burdens on 340B hospitals, which serve vulnerable patients and underserved communities."

Email the writer: SMorse@himss.org