Federal 340B Program Update: Eli Lilly Blocks the Government from Deciding Discounts it Owes to Contract Pharmacies

Under the Section 340B federal discount drug program (340B program), pharmaceutical manufacturers enter into contracts with the Health & Human Services (HHS) in exchange for having their drugs covered by Medicaid and Medicare.  Pursuant to these contracts, drug manufacturers agree to provide discounts on drugs purchased by Covered Entities, or healthcare organizations such as federally qualified health centers and hospitals who serve vulnerable patient populations.  The Covered Entities enter into agreements with Contract Pharmacies to provide pharmacy services to patients.  The number of pharmacies contracted with Covered Entities has been growing in recent years, yet at the same time, drug manufacturers have been refusing to provide discounts to Covered Entities and attempting to block the federal government from deciding the discounts that drug manufactures owe pharmacies contracted with Covered Entities to provide 340B services.  Drug manufacturers seek to only provide discounts to one pharmacy for every Covered Entity, and have even stated they will only provide discounts to Covered Entities that do not have in-house pharmacies.  Preventing Contract Pharmacies from obtaining medications at the same discount as Covered Entities requires Contract Pharmacies to direct resources to seeking other options for obtaining medications, such as reimbursement and inventory replenishment.

Earlier this year, drug manufacturer Eli Lilly sought to prevent the HHS from determining discounts it must provide to Contract Pharmacies.  At the end of 2020, HHS implemented a rule establishing legal processes for Contract Pharmacies to sue pharmaceutical manufacturers for receiving the same discounts that the Covered Entities receive and creating panels to resolve disputes under the 340B program.  Thereafter, in March of 2021, Eli Lilly successfully persuaded an Indiana federal judge to find that it will be irreparably harmed if HHS is allowed to decide discounts on drugs because it was not afforded the opportunity to comment on the new HHS rule before it was implemented.  While HHS argued that Eli Lilly is trying to restrict Contract Pharmacies’ access to drug discounts, the Indiana judge sided with Eli Lilly because HHS ultimately did not comply with procedural requirements which permit feedback to HHS proposed rules. 

While Eli Lilly was successful in blocking the HHS rule, Eli Lilly’s success only preliminarily prevents HHS from implementing the rule.  We have yet to see the lasting impact of the judge’s findings on the 340B program.  In contrast to Eli Lilly’s win, drug manufacturers across the United States are being investigated by bipartisan coalitions of attorney generals for the refusal to provide discounts to Covered Entities.  As a result, while Eli Lilly persuaded the federal judge in Indiana, the controversy surrounding the 340B program and the new HHS rule is not over.

In contrast to the position of Eli Lilly and other drug manufacturers, the impact of the HHS rule on Contract Pharmacies would be beneficial to patients, Contract Pharmacies, and Covered Entities alike.  By allowing drug manufacturers to provide discounts to both hospitals and pharmacies under the HHS rule, and providing an avenue for disputes regarding discounts, hospitals and pharmacies would be able to serve more patients who are in greater need of assistance.

How Frier Levitt Can Help

Frier Levitt assists entities with the negotiations of contracts between Contract Pharmacies and Covered Entities.  If you are considering participating in the 340B program, contact us to speak with an attorney today.

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