Member Article

The U.S. Health Resources and Services Administration (HRSA) recently released a draft final rule (Final Rule) that establishes a binding administrative dispute resolution (ADR) process concerning drug costs under the Federal 340B Drug Discount Program (340B Program). As per its terms, the Final Rule will be formally published on Dec. 13, 2020 and will take effect on Jan. 13, 2021.

The Final Rule comes after a nearly 10-year wait for HRSA to establish an ADR process as required under 42 U.S.C. § 256b (the 340B Program Statute). However, HRSA’s Final Rule appears mostly motivated by two recent lawsuits filed by groups representing 340B Program-eligible health centers and HIV/AIDS clinics that participate in the 340B Program. In brief, these lawsuits asserted recent actions taken by drug manufacturers to restrict access to 340B Program discounted medications violated the 340B Program Statute and HRSA violated administrative procedure obligations in delaying publication of the Final Rule.

At its core, the Final Rule will create an ADR procedure through which: (i) 340B Program covered entities can assert claims that they have been overcharged by drug manufacturers for 340B Program eligible drug purchases and (ii) drug manufacturers can assert claims that 340B Covered Entities have violated diversion or duplicate discount requirements. Other claims that may be asserted under the ADR procedures also include claims concerning covered entity eligibility, patient eligibility, or manufacturer restrictions on 340B Program discounted drug sales deemed relevant for resolving an overcharge, diversion, or duplicate discount claim. Additionally, parties may seek financial damages, equitable remedies like injunctions, or both, provided the party’s claim meets a $25,000 value threshold. Further, the filing party will bear the burden of proving their claims by a preponderance of the evidence.

Importantly, however, HRSA expressly stated the Final Rule’s ADR procedures are not intended to be a forum of first resort for resolving 340B Program-related disputes. Rather, as HRSA has historically instructed, covered entities and drug manufacturers are asked to initially work together in good faith to resolve 340B Program-related disputes prior to utilizing the ADR procedures set forth in the Final Rule. Furthermore, drug manufacturers will be required to engage in a 340B Program Statute audit of a subject covered entity prior to initiating a matter under the ADR procedures against that covered entity.

The ADR procedures will be administered by a 340B ADR Board comprised of at least six members. The ADR Board’s composition must include at least two people from HRSA, the Centers for Medicare and Medicaid Services (CMS), and the Health and Human Services Office of General Counsel (HHS/OCG). Further, each individual ADR case will be handled by ad hoc ADR panels composed of three people appointed to the ADR Board. Each ADR panel will also include one HRSA Office of Pharmacy Affairs (OPA) staff member, who will serve in an ex officio, non-voting capacity. Decisions on any ADR matters must be made by a simple majority (i.e., 2 to 1) of the ADR panel.

Procedurally, ADR matters will be governed by the Federal Rules of Civil Procedure, the Federal Rules of Evidence, and applicable portions of the Federal Administrative Procedures Act, unless expressly agreed otherwise by the parties to an ADR matter. Further, all claims filed will be subject to a three-year limitations period as well as any applicable state statutes of limitation that may affect a claim. Moreover, the ADR procedures contain timely filing and notice requirements, as well as allow for limited discovery among the parties.

Interestingly, the ADR procedures also allow for consolidation/aggregation of claims by covered entities and drug manufacturers. However, the ADR procedures allow only covered entities to be represented by industry or trade groups so long as the covered entities are members of the trade group. Further, consolidation and aggregation of claims will be particularly important, as all decisions made by ADR panels will be precedential and binding upon all parties and made publicly available. Moreover, when appropriate, an ADR panel may also make recommendations to HRSA or other governmental agencies for sanctions, including referrals to the HHS Office of Inspector General for its consideration of civil monetary penalties, as appropriate.

HRSA’s publication of the 340B Program ADR procedures represents a major shift in how covered entities and drug manufacturers can resolve 340B Program-related disputes moving forward. In this regard, if you or your organization are interested in learning more about the 340B Program ADR process, please contact Dinsmore’s health care practice group.