A judge’s gavel, a stethoscope and a blurred wall with books in the background.
On November 12, 2024, Johnson & Johnson took a bold step file a lawsuit against the Health Resources and Services Administration over the 340B Drug Pricing Program. The move came after a public row over J&J’s plan to change the way it handles cost rebates for $340 billion in purchases. The program changes designed by J&J and HRSA’s response demonstrate the complex dynamics at play, which have significant implications for patients, hospitals and drug manufacturers, and point to the urgent need for change in the implementation of the 340B program.
As I recently wrote, the 340B rebate program has received a lot of criticism, largely due to the lack of transparency about the covered entities receiving the rebates from drug manufacturers. Congress has the opportunity to take action to ensure that vulnerable populations realize the benefits for which 340B was originally designed. J&J, like other drugmakers, recognized the lack of transparency and potential for abuse given the lax oversight of 340B. They have drawn up an action plan to tackle these problems.
On August 23, 2024, J&J announced a new discount model that they would implement at DSH CEs only for two drugs (psoriasis treatment Stelara and blood thinner Xarelto). The model developed by J&J only changes the way the discount is provided. This does not affect eligibility for a 340B transaction or the amount of the rebate.
HRSA has responded to J&J September 17 And September 27 warning the drugmaker that they had not received approval from the HHS Secretary for their rebate model, and that J&J would face severe penalties if they went ahead with the planned October rollout. The penalties include terminating J&J’s pharmaceutical pricing agreement, which would exclude J&J from participating 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 six weeks later.
At the heart of the lawsuit is the language contained in the 340B statute. The statute does not prescribe how rebates will be provided, nor does it give HRSA the authority to impose a specific approach. The manufacturer has the freedom to determine which mechanism he will use. This course of action by HRSA appears inconsistent with their approach to other 340B issues, such as monitoring duplicate rebates between 340B and Medicaid. HRSA has made it clear that drug manufacturers must navigate that scenario. J&J’s goal in the lawsuit is simply to be allowed to implement their rebate model and not be subject to the sanctions threatened by HRSA. In addition to the lawsuit, there is also 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 discount model has the potential to address these gaps in the way 340B is managed today.
An examination of J&J’s proposal discount model finds merit in the approach as an improvement over the current rebate implementation under 340B. The existing reimbursement method primarily benefits large, well-resourced hospital systems, large for-profit pharmacy chains, and their affiliated PBMs. It provides very little data transparency and does not work consistently with 340B’s original intent to help disadvantaged patients. The proposed J&J rebate model improves transparency with real-time access to data. This data will reduce ongoing issues with double rebates in Medicaid by allowing J&J to more effectively track and prevent double rebates. The process will also support drug manufacturers’ compliance with the Inflation Reduction Act’s maximum fair price. The MFP is the price that Medicare negotiates for expensive drugs. The negotiated drug list takes into account cost, lack of a generic or biosimilar, the extent of therapeutic benefits provided and the impact on Medicare beneficiaries. MFP is designed to make expensive drugs more affordable for Medicare patients by letting the government negotiate better prices directly with drug manufacturers. Both Stelara and Xarelto fall under MFP, making compliance a notable benefit to the proposed J&J discount model. CEs’ access to real-time data on medications dispensed by CEs supports MFP compliance by helping J&J determine whether MFP or 340B applies to each prescription claim and to disbursing rebate funds within the required 14 days.
While the long term will require a more significant overhaul of the 340B, J&J’s discount model offers mechanisms that merit consideration. It addresses known issues with 340B today: lack of transparency, duplication of discounts, and failure to get funding to target patients. However, J&J’s approach is not without its detractors. The American Hospital Association called the J&J lawsuit “completely worthless”. In one letter to HRSAThe AHA asserted that the data sharing aspect of the approach will increase complexity and administrative burden for CEs and that the rebate process will delay the receipt of price rebates for CEs. 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 improved program transparency by streamlining the rebate process. It also positions the drugmaker well for IRA compliance. In both cases, manufacturers are innovating payment structures with $340 billion in discounts to create better transparency and control to minimize program abuse. It is curious that AHA claims there is an additional administrative burden on CEs, as the data requested in these models is the same data that CEs already collect and transmit electronically to their suppliers.
These new models provide viable, sustainable alternatives to current 340B processes that lawmakers should consider. The Supreme Court ruling of June 28, 2024 Overturning the Chevron Doctrine favors J&J and Eli Lilly in that the court will no longer defer to HRSA’s interpretation of the 340B statute, but will instead consider whether HRSA’s actions in are consistent with the statutory language and intent of the 340B program. Ultimately, bigger changes are needed in the way we finance healthcare in the US. In the meantime, these 340B proposals highlight important options that could be useful in addressing serious weaknesses in the current program. But a broader and more permanent solution should be a priority for all corners of the health care system and for the lawmakers who make and enforce the rules.