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HHS Advisory Opinion on Contract Pharmacies Offers Hope for 340B Programs

A new advisory opinion from the Department of Health and Human Services (HHS) clarifies that 340B hospitals are entitled to buy covered outpatient drugs at the discounted price, even if they use contract pharmacies to distribute the drugs to patients.

In the advisory opinion released on Dec. 30, 2020, HHS states that the requirement to offer covered outpatient drugs at or below the ceiling price for purchase by covered entities “is not qualified, restricted, or dependent on how the covered entity chooses to distribute the covered outpatient drugs. All that is required is that the discounted drug be ‘purchased by’ a covered entity.”

The advisory opinion is a positive step forward for 340B-eligible safety net hospitals, as most rely on savings through the 340B program to provide essential services in their communities.

“It is the intent of the 340B program to take care of the most vulnerable patient populations. And to the extent that covered entities aren’t able to stretch scarce federal resources, they should be allowed to utilize contract pharmacies. There’s nothing in the statute that says they can’t,” says Ken Maxik, MBA, MBB, FACHE, RPh, CompleteRx Vice President, Support Services.

The HHS advisory opinion comes in response to a lawsuit filed by 340B Health, several national hospital organizations and the American Society of Health System Pharmacists against HHS. The lawsuit challenges the department’s failure to address actions of several drug companies that refused to discount covered outpatient drugs because hospitals used contract pharmacies. In addition to the lawsuit, attorneys general from 28 states and the District of Columbia also asked HHS to force drug manufacturers to comply with 340B Drug Pricing Program rules.

Next Steps in the 340B Dispute

Although HHS’ advisory opinion is a promising development, it doesn’t carry the force of law. Therefore, some drug companies have signaled that they will not comply with the opinion, stating that they believe their policies comply with all applicable legal requirements.

Barring enforcement of the policy by the Health Resources and Services Administration, the path forward for 340B programs might go a few different directions:

  • Civil Penalties: The HHS Office of Inspector General has the authority to impose civil monetary penalties on a drug company that “knowingly and intentionally” overcharges providers for drugs. HHS’ advisory could help support levying penalties, especially if drug companies continue denying discounts despite the advisory opinion.
  • Administrative Dispute Resolution: Hospitals may try to challenge the overcharges using a new administrative dispute resolution process that HHS approved for the 340B program last December. However, since the process is so new, it has never been tested before and could take some time to set up.
  • Legal Action: The lawsuit filed by hospital associations against HHS could pick up momentum. The first hearing in that case is scheduled for Feb. 23, 2021.

Against the backdrop of the 340B dispute, a new president and administration took office this month. Time will tell what the new administration’s point of view will be on the issue, although new HHS Secretary Xavier Becerra led the state attorneys general effort in urging former HHS secretary Alex Azar to stop manufacturers from violating the statute.

As we watch and wait for new developments, CompleteRx recognizes the critical role the 340B program plays in helping eligible hospitals provide services and affordable medications to vulnerable patients and communities. We are pleased that HHS is taking steps to address the refusal of some drug companies to discount covered outpatient drugs for hospitals that use contract pharmacies.

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