On Sept. 22, 2021, the U.S. Health Resources and Services Administration (HRSA) publicly referred six matters involving drug manufacturers to the United States Department of Health and Human Services (HHS) Office of Inspector General (OIG) for possible imposition of civil monetary penalties (CMPs).   HRSA’s referrals stem from the above-referenced manufacturers’ unilateral restriction of 340B drug sales to 340B program-eligible health care providers (Covered Entities) that, among other activities, utilize more than one contract pharmacy partner.[1]

HRSA’s referrals to OIG are unprecedented in the 340B Program space and are indicative of a concerted effort by HHS, HRSA and OIG to meaningfully address 340B compliance matters, including ongoing manufacturer sales restrictions in the 340B Program space. However, more importantly, HRSA’s action clearly highlights the need for 340B Program stakeholders to monitor the ever-changing 340B legal landscape.

As background, in exchange for Medicaid and Medicare Part B coverage of drug manufacturers’ products, the federal 340B drug discount program requires drug manufacturers “offer each covered entity covered outpatient drugs for purchase at or below the [340B Program ceiling price.]”[2] This requirement is not qualified, restricted, or dependent on how the covered entity chooses to distribute the covered outpatient drugs to its patients. Manufacturers who fail to sell 340B Program-eligible drugs at or below of the 340B Program ceiling price risk having to repay covered entities for overcharges and also risk termination of Medicaid and Medicare Part B coverage of their products. Further, a manufacturer that knowingly and intentionally charges a covered entity more than the 340B Program ceiling price for a covered outpatient drug may be subject to civil monetary penalties not to exceed $5,000 for each instance of overcharging, as well as repayment for any instance of overcharging.[3]

Despite the foregoing CMP risks, certain drug manufacturers have, over the past two years, refused to sell 340B Program-eligible drugs to covered entities that utilize a contract pharmacy and either: (a) outright own a pharmacy; or (b) have a contract with one or more other contract pharmacies. Specifically, these drug manufacturers allege the 340B Program statute permits them to restrict sales of 340B Program-eligible drugs to covered entities on the basis of contract pharmacy usage because contract pharmacies are not expressly contemplated by the 340B Program statute. Such manufacturer restrictions have caused safety net health care providers to incur substantial financial losses and required many providers to significantly alter their 340B Program-related operations. 

In May 2021, as a result of the foregoing manufacturer restrictions, HHS sent letters to six drug manufacturers advising  continued refusal to sell 340B Program-eligible drugs to covered entities based upon contract pharmacy usage “resulted in overcharges and is in direct violation of the 340B statute.”[4] HHS further advised that CMPs could be levied against such manufacturers depending upon the manufacturers’ willingness to comply with the 340B Program statute. Despite HHS’ letter, each named manufacturer continued to restrict 340B Program-eligible drug sales based upon covered entities’ contract pharmacy usage. 

As a result of these manufacturers’ continued use of sales restrictions, HRSA has since referred the manufacturers’ matters to OIG for possible imposition of CMPs.  Should CMPs be imposed, it is likely the manufacturers will challenge the CMPs through litigation.  In effect, HRSA’s referral to OIG could cause the issue of manufacturer restrictions on 340B sales to work its way out of an administrative gray area and into court for resolution.

If you or your organization wish to learn more about the 340B program or the current status of 340B Program-related litigation, please contact Dinsmore’s health care and life sciences practice attorneys.