Earlier this month, the United States Court of Appeals for the First Circuit issued a Rule 42 motion to voluntarily dismiss a case filed by the American Hospital Association (AHA) against Robert F. Kennedy Jr. and the Health Resources and Services Agency (HRSA) regarding the implementation of a new pilot 340b rebate program. The 340B program provides substantial discounts on outpatient drugs to covered entities fitting into six categories: disproportionate share hospitals, children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals. These entities, after being deemed eligible for the program, receive significant discounts on a substantial amount of outpatient medications. This program has enabled under-resourced hospitals serving vulnerable populations to provide comprehensive outpatient medication options without imposing a significant financial burden on providers or patients. The 340b program has expanded significantly from approximately 389 covered entities at its inception in 1992 to 5,085 in 2022.
The usefulness of the 340b drug pricing program has long been debated between healthcare providers and drug manufacturers. Covered entities have argued that these discounted drug prices are essential for poorly resourced healthcare centers to provide adequate care to vulnerable Americans. Drug manufacturers have raised concerns about duplicate discounts, in which discounts are provided through 340b and Medicaid, as well as issues with oversight and transparency regarding who truly saves money through the 340b program.
The proposed pilot sought to address some of the concerns held by drug companies and it would have required 340b providers to assume the full cost of 10 common-use drugs, primarily used to treat diabetes and chronic heart conditions, and later submit claims data to the drug manufacturers for potential 340b pricing. This pilot program was met with resistance from several providers, resulting in legal action from the American Hospital Association.
In American Hospital Association et al. v. Kennedy et al. the AHA and multiple covered entities filed suit against Secretary Kennedy and HRSA in the United States District Court for the District of Maine, alleging that the proposed pilot program violates the Administrative Procedure Act and would impose unnecessary administrative and financial burdens on already under-resourced hospitals and healthcare providers. The Plaintiff’s complaint alleged that the over 1,000 comments submitted during the mandatory comment period for this proposed pilot were largely ignored by Secretary Kennedy and HRSA, thereby violating the Administrative Procedure Act’s public comment requirements
Several pharmaceutical companies submitted motions to intervene in support of HRSA’s efforts, citing issues with duplicate discounts for Medicaid and 340b, as well as concerns about program integrity and transparency. Secretary Kennedy and HRSA, in their response to AHA’s complaint, alleged that the pilot program and its comment period proceedings were not in violation of the Administrative Procedure Act precedent and that the plaintiffs had failed to show any irreparable harm. The District Court of Maine granted the plaintiff’s motion for a preliminary injunction, which the defendants appealed to the United States Court of Appeals for the First Circuit. The case was ultimately dismissed, and the Department of Health and Human Services withdrew the proposed pilot, indicating that they may restart the administrative process for a similar program in the future.
340b reform remains an important topic of conversation as the program continues to expand across the nation. While this most recent attempt at reform ultimately did not come to fruition, it seems likely that more attempts for 340b reform may be on the horizon, indicating potential changes in the program forthcoming.