On November 13, 2024, pharmaceutical manufacturer Johnson & Johnson (“J&J”) filed a lawsuit in the United States District Court for the District of Columbia against the Department of Health and Human Services (“HHS”) and the Health Resources Services Administration (“HRSA”) arguing that the government had impermissibly rejected J&J’s 340B rebate model in HRSA’s September 17, 2024 letter to J&J. By way of background, the J&J rebate model would have required disproportionate share hospitals (“DSH”) 340B Covered Entities to purchase STELARA and XARELTO at a non-340B price (e.g., WAC), submit a timely rebate claim to the J&J rebate administrator, and then (if deemed eligible by J&J) receive a rebate equal to the difference between the non-340B purchase price and the 340B ceiling price.
In the complaint, J&J argued that the 340B statute requires the HHS secretary to “enter into an agreement with each manufacturer of covered outpatient drugs under which the amount required to be paid (taking into account any rebate or discount, as provided by the Secretary) by covered entities is at or below the 340B ceiling price. 42 USC 256b(a)(1).” J&J contends that the 340B statute does not specify what mechanism through which a manufacturer must make available the 340B discount. Therefore, J&J argues, 340B pricing could be made available through a point of purchase discount, a manufacturer rebate, or through some other mechanism. As such, J&J contends that the 340B statute’s mandate is satisfied even where a Covered Entity is initially charged a high price and subsequently receives a rebate that reduces the net price to the 340B ceiling price for that drug (as would occur under J&J’s proposed 340B model). Moreover, J&J argued that no provision in the 340B statute limits a pharmaceutical manufacturer’s discretion to select a pricing mechanism (such as a rebate model) or otherwise grants HRSA discretion to mandate a pricing mechanism through its letters. J&J further rejected that HRSA had any “broad rulemaking authority” under the 340B statue to prohibit such pricing models through its letters and is only authorized to issue binding regulations in certain narrow areas, as specified by Congress.
Accordingly, J&J requested that the federal district court declare HRSA’s letters as arbitrary and capricious, an abuse of discretion, and unlawful under the 340B statute and the Administrative Procedure Act (“APA”), as well as to declare J&J rebate’s model lawful under the 340B statute and to vacate HRSA’s letters.
In previous 340B litigation, the federal District Court for the District of Columbia has ruled in favor of pharmaceutical manufacturers seeking to implement restrictive 340B policies. Thus, it is possible that the court here may be receptive to J&J’s arguments. Irrespective of which way the court decides, there is a myriad of HRSA and manufacturer policies that 340B Covered Entities and Contract Pharmacies must navigate to maintain compliant programs at their entities and institutions. Frier Levitt attorneys have experience assisting 340B covered entities and contract pharmacies navigate 340B policies and procedures based on HRSA rules as well as manufacturer policies. Stakeholders are encouraged to consult with qualified counsel if they are subjected to strict manufacturer practices or are otherwise in need of their own compliance review and potential restructuring.
