On November 12, 2024, Johnson & Johnson took a bold step by filing a lawsuit against the Health Resources and Services Administration over the 340B Drug Pricing Program. The move came following a public squabble over J&J’s plan to adjust how it addresses the cost discounts for 340B purchases. The program changes designed by J&J and HRSA’s response demonstrate the intricate dynamics at play, which have significant implications for patients, hospitals, and drug manufacturers, and signal the urgent need for change to the administration of the 340B program.
As I recently wrote, the 340B discount program has received its share of criticisms, largely due to the lack of transparency into covered entities who receive the discounts from drug manufacturers. Congress has the opportunity to take action to ensure vulnerable populations realize the benefits 340B was originally designed to deliver. J&J recognized, as have other drug makers, the lack of transparency and potential for abuse given the lax oversight to 340B. They designed a plan of action to address these issues.
On August 23, 2024, J&J announced a new rebate model they would implement for two drugs (psoriasis treatment Stelara and blood thinner Xarelto) only at DSH CEs. The model J&J developed changes only how the discount is delivered. It does not affect 340B transaction eligibility nor the amount of the discount.
HRSA issued responses to J&J on September 17 and September 27 warning the drug maker they had not received approval from the HHS Secretary for their rebate model, and that J&J would be subject to severe penalties should they proceed with their planned October implementation. The penalties included terminating J&J’s Pharmaceutical Pricing Agreement, which would exclude J&J from participation in 340B, Medicaid, and Medicare. On September 30, 2024, J&J informed HRSA that it would suspend plans to implement the rebate model in October due to the threats the agency had made. J&J filed their lawsuit against HRSA 6 weeks later.
At the center of the lawsuit is the language contained in the 340B statute. The statute does not prescribe the way discounts will be delivered, nor does it authorize HRSA to mandate a specific approach. The manufacturer has discretion to determine the mechanism they will use. This course of action by HRSA seems incongruent to their approach on other 340B issues, such as monitoring duplicate discounts between 340B and Medicaid. HRSA has been clear that drug manufacturers should navigate that scenario. J&J’s stated objective in the lawsuit is simply to be permitted to implement their rebate model and not be subject to the sanctions threatened by HRSA. Beyond the lawsuit is the recognition of the need for improved data, transparency, and eligible drug rebates that CEs can and should use for disadvantaged patients, as the 340B statute intends. J&J’s rebate model has the potential to address these gaps in how 340B is being administered today.
An examination of J&J’s proposed rebate model finds merit to the approach as an improvement over the current discount implementation under 340B. The existing reimbursement method primarily benefits large, well-resourced hospital systems, major for-profit retail pharmacy chains and their affiliated PBMs. It provides very little data transparency and does not operate consistently with 340B’s original intent of helping disadvantaged patients. The proposed J&J rebate model improves transparency with real-time access to data. This data will mitigate the ongoing Medicaid duplicate discount issues by allowing J&J to more effectively track and prevent duplicate discounts. The process also will support drug manufacturers’ compliance with the Inflation Reduction Act’s Maximum Fair Price. The MFP is the price negotiated by Medicare for high-cost drugs. The list of negotiated drugs considers cost, the lack of a generic or biosimilar, the degree of therapeutic benefits provided, and the impact on Medicare beneficiaries. MFP is designed to make expensive medications more affordable for Medicare patients by allowing the government to negotiate better prices directly with drug manufacturers. Both Stelara and Xarelto are addressed under MFP, making compliance a noteworthy benefit for the proposed J&J rebate model. Access to real-time data for 340B-dispensed drugs by CEs supports MFP compliance by helping J&J determine whether MFP or 340B is applicable to each prescription claim and to disbursing rebate funds within the required 14 days.
While a more significant overhaul to 340B is needed for the long term, J&J’s rebate model offers mechanics that warrant consideration. It addresses known issues with 340B today: lack of transparency, duplicate discounts, and a failure of funding benefiting intended patients. However, J&J’s approach isn’t without its detractors. The American Hospital Association called the J&J lawsuit “completely meritless”. In a letter to HRSA, the AHA claimed the data sharing aspect of the approach will add complexity and administrative burden for CEs and the rebate process will delay CEs’ receipt of pricing discounts. Alternative approaches are beginning to be introduced, as is the case with Eli Lilly’s cash replenishment model. Their model provides weekly direct cash payments to CEs for verified purchases and enhanced program transparency by streamlining the discount process. It also positions the drug maker well for IRA compliance. In both cases, manufacturers are innovating 340B discount payment structures to create better transparency and auditing to minimize program abuses. It is curious that AHA would make the claim of added administrative burden for CEs as the data being requested in these models is the same data that CEs already collect and send electronically to their vendors.
These new models present viable, sustainable alternatives to current 340B processes that legislators should consider. The Supreme Court’s June 28, 2024 ruling to overturn the Chevron doctrine plays to J&J’s and Eli Lilly’s favor, in that the court will no longer defer to HRSA’s interpretation of the 340B statute, but will instead consider whether HRSA’s actions align with the statutory language and intent of the 340B program. Ultimately, bigger changes are needed to how we fund healthcare in the U.S. In the interim these 340B proposals highlight important options that can be helpful in addressing serious weaknesses in the current program. But a broader and more permanent solution should be a priority for all corners of the healthcare system and the legislators who make and enforce the rules.
