HRSA warns Johnson & Johnson of consequences of 340B rebates

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The Health Resources and Services Administration has sent a letter to Johnson & Johnson warning the company of the consequences if it proceeds with its planned 340B rebate proposal.

In a Sept. 17 letter, HRSA said it expects the pharmaceutical company to cease implementation of rebates to 340B hospitals. The potential consequences of not doing so include termination of its Pharmaceutical Pricing Agreement and civil monetary penalties.

The Pharmaceutical Pricing Agreement (PPA) is a contract between a pharmaceutical manufacturer and the secretary of Health and Human Services requiring the drugmakers to provide discounts on certain drugs to eligible entities in the 340B Drug Pricing Program. The 340B program was created in 1992 to help safety-net providers access affordable drugs.

HRSA gave J&J a deadline of September 30 to reply and cease implementation of its rebate proposal. 

WHY THIS MATTERS

On August 23, Johnson & Johnson announced that it would 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 would require all disproportionate share hospitals participating in the 340B Drug Pricing Program to purchase these drugs at full price. J&J would then refund DSH hospitals the discounted 340B price by way of rebate. 

This means that disproportionate share hospitals would be required to purchase these drugs at the wholesale acquisition cost, which is the commercial price, and be given a rebate payment at J&J's discretion.

HRSA on Aug. 14 already told Johnson & Johnson it could not use a rebate model to replace upfront discounts in its 340B drug pricing program. 

Under the 340B statute, the drug price shall not exceed the ceiling price as set by HHS secretary, HRSA said. If the rebate program is implemented, J&J would violate Section 340B of the Public Health Service Act.

In correspondence with HRSA, J&J asserted that its proposed rebate model is similar to the "replenishment" processes, and that this authorizes J&J to unilaterally impose its proposed rebate model without violating the 340B statute. 

HRSA said it disagrees.

THE LARGER TREND

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.

Email the writer: SMorse@himss.org

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