J&J backs down from its planned 340B rebate model

Photo: Helen King/Getty Images

Johnson & Johnson is backing down from using its planned rebate model in the 340B program.

In a September 30 letter to the Health Resource and Services Administration, J&J said it would not implement the rebate model. The HRSA had threatened the drug company with financial penalties and termination of its Pharmaceutical Pricing Agreement.

"Due to HRSA's unwarranted threats of excessive and unlawful penalties, J&J has no choice but to forgo implementation of the Rebate Model pending resolution of these issues," the letter said.

Termination of the Pharmaceutical Pricing Agreement would mean millions of Medicare and Medicaid patients would lose access to J&J medications, including those that treat cancer, cardiovascular disease, mental illness and autoimmune conditions, the letter said.

The drugmaker said it thinks the rebate model is legally permissible and necessary to improve the integrity of the 340B program, which has "suffered immense harm in recent years, all without clear benefit to the patients it is intended to serve."

This is due to duplicate discounts and diversion benefit for-profit entities such as pharmacy benefit managers and their affiliates that are exploiting the 340B program for financial gain, J&J said.

WHY THIS MATTERS

The American Hospital Association and America's Essential Hospitals praised the action.

AHA president and CEO Rick Pollack said, "We are especially appreciative of HRSA's efforts to convince J&J to put an end to this unlawful proposal and those members of Congress who demonstrated their firm support of the 340B program."

America's Essential Hospitals president and CEO Dr. Bruce Siegel said, "The decision by Johnson & Johnson to back down from its illegal plan for rebates in the 340B Drug Pricing Program shows how swift and firm federal action and vigorous advocacy by essential hospitals can stop harmful drug industry behaviors that would put our healthcare safety net at risk."

Siegel said, "We also appreciate the many members of Congress who signed a letter to Health and Human Services Secretary Xavier Becerra – a letter we actively supported – calling out J&J for its unlawful plan."

AIDS Healthcare Foundation said, "J&J's illegal scheme would have denied required 340B discounts to eligible healthcare safety net covered entities and instead provide rebates if and when it chooses. J&J's scheme may or may not have reimbursed providers at a later date, cheating safety net providers, making every claim subject to dispute and protracted payment."

THE LARGER TREND

On August 23, Johnson & Johnson announced it would change the way it makes 340B pricing available for two of its most popular products, Stelara and Xarelto. Starting October 15, J&J 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. 

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

Currently, drugmakers give DSH hospitals an upfront discount.

On August 14, HRSA told Johnson & Johnson it could not use a rebate model to replace upfront discounts. The rebate program would violate Section 340B of the Public Health Service Act, HRSA said.

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.

In a more strongly worded letter on September 17, HRSA said it expected the pharmaceutical company to cease implementation of rebates to 340B hospitals. The potential consequences of not doing so included termination of its Pharmaceutical Pricing Agreement and civil monetary penalties.

ON THE RECORD

In a statement, a J&J spokesperson said: "J&J is strongly committed to the original intent of the 340B Program to help serve vulnerable patients. Increased transparency, including the use of a statutorily permitted Rebate Model, will help the 340B program better serve vulnerable patients. Despite the glaring need for more transparency and accountability, J&J is forgoing implementation of its transparency rebate model pending resolution of issues raised by HRSA. We are taking this action to ensure HRSA's unprecedented position would not restrict patients' access to J&J's life-saving and life-changing medicines."

Email the writer: SMorse@himss.org