Two drug manufacturers have separately sued the Health Resources and Services Administration (HRSA) for prohibiting the implementation of rebate models for drugs sold under the 340B Drug Pricing Program.
Johnson & Johnson (J&J) filed suit against HRSA on Nov. 12, alleging the agency illegally prohibited the manufacturer from implementing a rebate model. On Nov. 14, Eli Lilly also sued HRSA, alleging the agency violated the Administrative Review Act when it acted to prohibit implementation of a separate, previously unknown, proposed 340B rebate model.
J&J Lawsuit Attempts to Implement Rebate Model for Hospitals
In August, J&J announced it would transition from point-of-sale discounts to post-dispensing rebates for Stelara and Xarelto. Following association advocacy, HRSA declared implementing the model without prior secretarial approval was illegal. HRSA informed J&J that, if the manufacturer unilaterally imposed a rebate model, the agency would suspend the manufacturer’s pharmaceutical pricing agreement (PPA). A manufacturer PPA is required for reimbursement by Medicare Part B and “federal financial participation” under state Medicaid programs.
The filing argues J&J has a right under 340B statute to implement a rebate model. The manufacturer disagrees with HRSA’s position that the unilateral imposition of a rebate model violates the “agreement” referenced in 340B statute. J&J also argues that a rebate model is necessary to comply with the Inflation Reduction Act’s requirement that manufacturers offer the lower of the negotiated maximum fair price and 340B ceiling price to covered entities. J&J asks the court to declare HRSA’s determination that a rebate model without prior approval is unlawful, to declare the model permissible under 340B statute, and enjoin HRSA from taking any enforcement action against J&J for implementing rebates.
Eli Lilly Proposes Rebates for Every Drug at All Covered Entities
The Eli Lilly filing reveals the manufacturer has, since August, communicated with HRSA about implementing a wide-ranging 340B rebate program using a platform developed by industry vendor Kalderos. The manufacturer’s proposal encompasses all drugs manufactured by the company and applies to all 340B covered entities. In addition to changing covered entities’ upfront costs, the proposed model would require that covered entities allow the manufacturer to vet and approve 340B claims.
The lawsuit claims HRSA violated the Administrative Procedure Act when the agency acted to prohibit implementation of a rebate model. Eli Lilly argues statutory language permits the use of rebate models, and, since state programs use a rebate model to administer the AIDS Drug Assistance Program, the use of rebate models therefore is clearly permitted by statute.
While the filing only roughly outlines the details of the “cash replenishment” model, it would rebate covered entities on a weekly basis for verified 340B eligible sales. The manufacturer argues that rebates are necessary for the manufacturer to prevent duplication of manufacturer discounts. Lilly also posits that rebates are necessary to comply with the Inflation Reduction Act’s maximum fair price for negotiated products and the inflation rebate, which penalizes manufacturers for increasing drug prices faster than inflation. Eli Lilly has contracted with Kalderos to use a new platform, called Truzo, which covered entities would be required to use.
Calling HRSA’s position “arbitrary and capricious,” Eli Lilly requests that the court enjoin HRSA from taking any position against implementation of a cash replenishment rebate model and declare the cash replenishment model lawful.
Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.
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