The hospital lobby has filed a lawsuit seeking to block the federal government’s 340B Rebate Model Pilot Program, which is set to swap out safety-net providers’ longstanding upfront drug discounts for after-the-fact rebates beginning Jan. 1.
The complaint and an accompanying motion for a temporary restraining order was filed Monday in the U.S. District Court for the District of Maine by the American Hospital Association (AHA), the Maine Hospital Association and four individual safety-net health systems.
In these, plaintiffs said the Health Resources and Services Administration’s (HRSA’s) one-year test run of a drugmaker-friendly rebate process been hastily rolled out and would impose “hundreds of millions of dollars’ worth of annual costs” for providers due to new administrative burdens.
They also highlighted the large sums hospitals and other covered entities would be forced to “float” to the drug industry while they wait for their rebates and suggested the model “would invite mischief from drug companies that have every incentive to slow and stymie the issuance of rebates, figuring that some number of rebates can be withheld from safety-net hospitals by throwing the proverbial ‘sand in the gears.’”
“For covered entities to continue providing their current levels of healthcare to their patients, this Court must quickly enjoin this unlawful, unnecessary, unexplained and substantively unreasonable program that jeopardizes one of the key pillars of U.S. healthcare—the 340B Program,” they wrote in the complaint.
The 340B program was enacted by Congress over 30 years ago to help subsidize safety-net care providers by manufacturer discounts on most drugs administered in the outpatient setting by covered entities.
Annual total spending on drugs through the 340B program has grown from $6.6 billion in 2010 to $43.9 billion in 2021, or an average of 19% per year, according to a recent analysis from the nonpartisan Congressional Budget Office, with other analyses suggesting continued growth in subsequent years. Drugmakers have pointed to the 340B program’s rapid growth as evidence that the subsidy program has exceeded Congress’ intent as a support pillar for struggling safety net hospitals.
Beyond the financial repercussions for hospitals participating in the drug subsidy program, plaintiffs’ bid to stop the pilot centers on a hasty rollout they described as “textbook disregard of administrative law” and a violation of the Administrative Procedure Act.
Here, they pointed to the pilot’s July 31 proposal, Sept. 8 public comment deadline, Sept. 15 application deadline for participating drugmakers and Oct. 30 application approval announcement. That pace gave the HRSA little time for meaningful review or adjustments to the program, the plaintiffs wrote, and gives hospitals about two months to meaningfully prepare for the Jan. 1 implementation.
Since October, the “HRSA has been largely absent as covered entities await further guidance on how the program will work in practice,” the plaintiffs wrote. “Indeed, on information and belief, HRSA has not even bothered to test the software platform on which this program is supposed to run—just one more example of the lack of careful consideration that has gone into this transformative decision.”
The plaintiffs went on to suggest the HRSA had “ignored” public comments submitted by more than 1,100 stakeholders. Many of these came from 340B hospitals telling the office that the pilot’s “massive costs” would outweigh the pilot program’s benefits, requests to delay the effective date and questions over why mandatory participation for the country’s roughly 14,600 covered entities was chosen over a more narrow test.
“When the government announced its new rebate program just a few months ago, it recognized that it would fundamentally shift how the 340B program has operated for more than three decades,” AHA President and CEO Rick Pollack said in a Monday statement on the litigation. “When making such a major change, with such far-reaching consequences for patients and hospitals, it is important that the government follow the basic administrative rules of the road. Unfortunately, it did not do so here.”
The pilot program, as outlined by the HRSA, would require covered entities to submit a data report to a drugmaker within 45 calendar days of the drug being dispensed—with allowances for extenuating circumstances—and then receive the rebate payment within 10 days of submitting their report. The technical process for submitting these reports and the release of the rebate are largely under the purview of the participating drug companies, another sore point for hospitals concerned of insufficient oversight.
Drugmakers approved to participate are Bristol Myers Squibb, Immunex Corporation, AstraZeneca AB, Pharmacyclics, Merck Sharp Dohme, Boehringer Ingelheim, Novo Nordisk and Janssen Biotech. The covered drugs include Eliquis, Enbrel, Farxiga, Imbruvica, Januvia, Jardiance, Stelara, Xarelto and multiple Novolog and Fiasp products. Additionally, Novartis has been approved to include another drug, Entresto, beginning April 1.
The plaintiff providers noted that the applications submitted by these drugmakers have not been made public, and the HRSA has not indicated how it judged those applications or whether any modifications to drugmakers’ plans were required.
The filings are a last-ditch effort from hospitals to head off rebate models they’ve opposed since last year, when pharmaceutical companies moved to impose similar changes on their own. These were largely rebuked by the prior administration and the courts, which ruled that the companies needed the government’s approval before making such changes.
Emily Jane Cook, a partner with McDermott, previously told Fierce Healthcare that the HRSA’s pilot appeared to be “materially more favorable to 340B covered entities” than the drugmakers’ versions but said that recourse for covered entities should a manufacturer improperly deny their rebate was an open concern.
Following October’s approval of rebate model pilot plans, a spokesperson for lobbying group PhRMA encouraged the HRSA “to move swiftly to broaden use of the rebate across all 340B covered outpatient drugs, enabling wider use of rebates within the program. Expanding this pilot would help strengthen program integrity while preserving critical support for true safety-net providers and the patients they serve.”
In September, a bipartisan group of 163 lawmakers urged the administration to cancel the pilot program due to concerns over hospitals’ administrative burdens. However, leading lawmakers have suggested they are open to reforming the program to limit misuse and cut down government spending so long as vulnerable hospitals—but not necessarily larger health systems—remain protected.
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