The View from the Nation's Capital

Guest Contributor: Ted Slafsky
September 22, 2020

How a U.S. Supreme Court decision underscores the need for government action on 340B crisis

Two months ago, I wrote about the importance of the November elections for the 340B program’s future. Perhaps sensing a less-friendly political environment in 2021, the drug industry has fired the first missiles in what could be a long battle. While few expected that Lilly, AstraZeneca and other companies would be so brazen in cutting or threatening a critical lifeline to pharmacy access, it is not a total surprise that pharma thinks it can exploit a perceived weakness in government enforcement.

For too long, the U.S. Health Resources and Services Administration (HRSA) has taken a laissez-faire approach to pharmaceutical manufacturer compliance with the 340B program. It took close to a decade for HRSA to post 340B ceiling prices on its website and finalize regulations imposing civil monetary penalties on drug companies that overcharge providers. All of these provisions were enacted under the Affordable Care Act (ACA) in March 2010. Congress gave the agency six months to implement these directives, but the agency only moved forward after hospital groups sued HRSA in 2018. To make matters worse, HRSA never finalized the 2010 requirement to establish a formal 340B dispute administrative process to resolve claims by covered entities or manufacturers of non-compliance. HRSA also has audited only 24 pharmaceutical manufacturers, compared to nearly 1,400 340B providers, since it began to audit 340B stakeholders in 2012.


Astra USA v. Santa Clara County

While it may be hard to believe, the U.S. Supreme Court has specifically weighed in on  whether 340B covered entities have the right to sue pharmaceutical manufacturers for overcharges. In a 2011 decision (Astra USA v. Santa Clara County), the Supreme Court unanimously agreed that 340B providers do not have the right to sue drug companies and only the HHS Secretary may enforce the manufacturer’s obligation to charge at or below the 340B ceiling price.

In an illuminating memorandum published by the attorneys at Powers Law, you will find that although the decision in favor of the pharmaceutical industry was unanimous, it was made under the assumption that the government was going to imminently begin to police drug manufacturers who do not comply with the 340B statute. During oral arguments, Justice Steven Breyer pointed out that ever since the famous Marbury v. Madison decision of 1803, aggrieved parties have had a right to challenge a wrong – either through the courts or administratively. He pointed out that where there is a wrong, there should be a remedy.

Later in oral arguments, the late Justice Ruth Bader Ginsburg was assured by the federal government attorney that HRSA would be “moving forward” with administrative remedies now that the notice and comment period had ended. Ginsburg, who wrote the unanimous opinion, took note of the various ways HRSA had enforced and would enforce manufacturer compliance with the program. Based on the government’s representations, the court decided that covered entities would need to rely on the federal government to enforce the 340B law.


Can’t change the rules after 24 years

While the formal administrative dispute resolution process has not been finalized, it does not preclude the government from enforcing the 340B statute. As attorney Steve Kuperberg of Rifkin, Livingston, Weiner points out, “In the case of contract pharmacy, both the agency and Congress have already spoken. Congress enacted 340B in 1992; the agency announced its interpretation of the statute requiring manufacturers to honor contract pharmacy in 1996; and Congress has acted several times, most notably in the ACA in 2010, to expand the scope and effect of the statute with contract pharmacy fully part of the program. If Congress thought that the agency had overstepped regarding contract pharmacy, it needed only to say so in legislative language, a committee report, or even a new statutory mandate. Congress did not because the agency had not. Instead, today the agency drags its heels rather than enforcing its own 24-year continuous and clear viewpoint of the statutory requirements.” Kuperberg notes that there is no need for more regulatory authority in order for HRSA to do its job.

HRSA’s initial weak reaction to Lilly’s actions gave the company the green light to dramatically expand its restrictions on the 340B program. HRSA’s latest statement that it is “investigating whether recent manufacturer policies to restrict access to 340B pricing at contract pharmacies violates the 340B statute and whether sanctions may apply” is an improvement. Nonetheless, talk is not enough.


A call for leadership

In HRSA’s defense, it can’t make decisions in a vacuum. The agency must defer to political appointees that change in every administration. And this administration has been particularly hostile to the 340B program. But if there was ever a time for leadership, the time is now for HHS Secretary Alex Azar and HRSA Administrator Thomas Engels to step up to the plate and block this assault on the safety net mission.


Please note the opinions expressed herein are Mr. Slafsky’s personally, and do not necessarily reflect those of 340B Report or PSG.



Other “View From the Nation’s Capital” Posts from Mr. Slafsky: 

Recent Actions Underscore the Need for a Renewed Focus on Protecting 340B – August 2020
Why the November Elections Really Matter for Drug Pricing and the 340B Program – July 2020
Time to Tackle Racial Disparities in Healthcare – June 2020
The Nation’s View of the Drug Industry and its Implications for 340B Stakeholders – May 2020 
COVID-19’s Impact on the 340B Community: Every Cloud Has a Silver Lining – April 2020

Ted Slafsky, a leading pharmaceutical policy thought leader, is Publisher & CEO of 340B Report, the first and only independent news service covering the federal 340B drug pricing program.  He is also Founder & Principal of Wexford Solutions, a Washington, D.C. based firm that provides government relations, communications, and business development services. You can follow Mr. Slafsky on Twitter at @tslafsky or reach him at [email protected] or (703) 517-1325.


About 340B Report:

340B Report is the only independent news service that provides breaking news and analysis about the federal 340B Drug Pricing Program. We follow all 340B program developments big and small—in federal government agencies, Congress, courts, the states, associations, the private sector, academia, and more.