Eli Lilly Says It Doesn’t Have to Provide 340B-Priced Drugs to Contract Pharmacies

Your 340B Report for Tuesday July 7, 2020

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Eli Lilly and Co. has stopped distribution of its erectile dysfunction drug Cialis to 340B contract pharmacies on the grounds that “there is no statutory obligation to provide 340B priced product to contract pharmacies.”

Eli Lilly Says It Doesn’t Have to Provide 340B Priced Drugs to Contract Pharmacies

Drug manufacturer Eli Lilly and Co. stopped distribution of its erectile dysfunction drug Cialis to 340B contract pharmacies effective July 1 and is limiting distribution “directly to covered entities and their child sites only,” the company says in a notice on the U.S. Health Resources and Services Administration’s (HRSA) website. 340B Report has obtained a Lilly document that appears to be company scripted answers to anticipated questions about the suspension. In it, the company says: “There is no statutory obligation to provide 340B priced product to contract pharmacies.”

“The statute requires that manufacturers must offer 340B ceiling prices to covered entities, which Lilly is continuing to do,” the company’s messaging document states. “And, while HRSA has provided sub-regulatory guidance that, in HRSA’s view, permits contract pharmacies to acquire product at 340B prices, this guidance is inconsistent with the statute and not legally binding.”

The document further states that Lilly “at this time” has not decided whether to stop providing other products at 340B prices to contract pharmacies.

Lilly’s decision to halt deliveries of covered entities’ 340B-purchased Cialis to their contract pharmacies appears to be contrary to HRSA’s 2010 contract pharmacy final guidelines. It also appears to be a rare if not unprecedented act of manufacturer defiance of HRSA 340B program guidance.

Attorneys who represent 340B providers say they believe Lilly is inviting either a lawsuit or administrative proceedings to force the U.S. Health and Human Services (HHS) Department to defend the legitimacy of HRSA’s contract pharmacy guidance. Since the beginning of this year, HRSA has repeatedly cast doubt on its ability to enforce its 340B program guidance. Just days ago, in connection with the launch of a new online compendium of all federal health care guidance, HRSA told 340B Report its authority to enforce 340B policies grounded in guidance “is limited unless there is a clear violation of the 340B statute.” It said its “program integrity efforts focus on ensuring that 340B stakeholders comply with 340B statutory requirements.”

If HHS and HRSA buckle, other drug manufacturers might follow Lilly’s lead—not just on contract pharmacy, but possibly on other HRSA 340B requirements for manufacturers not specified in the 340B statute or in 340B regulations.

At least one attorney for providers thinks Lilly picked Cialis to be the focus of its challenge to HRSA’s contract pharmacy guidelines specifically because it will force HRSA to defend entities earning 340B revenue on a drug to improve sexual function—a potential political and public relations challenge.

In response to a request for comment, a Lilly spokesperson said:

Lilly decided to limit distribution of Cialis (tadalafil) formulations indicated to treat erectile dysfunction within the 340B program, only to 340B covered entities. “Contract pharmacies” will no longer be eligible to receive these formulations of Cialis at the 340B ceiling price unless an entity does not have its own in-house pharmacy. In those instances, Lilly has an exception process for the covered entities to allow them to designate one contract pharmacy location.

340B Report also reached out to HRSA for comment. HRSA acknowledged our request but was unable to provide us with its reply by our press time. We will update the online version of this article when HRSA’s reply arrives.

Lilly’s public notice on HRSA’s website says it is ceasing distribution of three Cialis formulations—10 mg, 20 mg, and 2.5 mg—all approved exclusively for use in patients with erectile dysfunction, to 340B contract pharmacies. Cialis also is indicated for benign prostate enlargement in a 5 mg dosage.

In its messaging document, Lilly says it is ceasing distribution of Cialis to 340B contract pharmacies because it “has concerns regarding contract pharmacy compliance and expansion and seeks to minimize the risk of certain penalties and repayment obligations associated with its participation in the 340B program. To address these concerns, Lilly is seeking to limit the number of 340B transactions to only those that are required by statute.”

Lilly’s answer in the document to the question, “Why Cialis? Or, why these package sizes of Cialis?” is, “These formulations of Cialis are approved exclusively for use in patients with erectile dysfunction. Since October 2018, generic versions of Cialis have been widely available, and currently more than a dozen generic manufacturers offer low-priced versions of these medicines.”

Typically, when a drug manufacturer posts a 340B limited distribution notice on HRSA’s website, the normal reason given is a supply disruption or the need for refrigeration or other special handling—not that the drug formulation is for a particular indication or that cheaper generic alternatives are widely available.

In its messaging document, Lilly anticipates the statement, “We believe Lilly is in violation of program requirements and we plan to inform HRSA of our concerns.” The company says: “Lilly has been open and transparent with HRSA regarding the design and implementation of this limited distribution plan and its position on compliance with the statute.”

In response to the statement, “We plan to institute proceedings against Lilly for violation of program rules,” the company says: “Please direct any correspondence 340B@lilly.com.”

Also in the document, Lilly says covered entities lacking an in-house pharmacy should contact it by email “to designate one contract pharmacy location”; that entity-owned or affiliated contract pharmacies will not be able to receive 340B-priced Cialis in the designated formulations; and that entities cannot buy Cialis at an approved site and redistribute it to contract pharmacies because “the statute prohibits the resale or transfer of drugs to a person who is not a patient of the entity.”

Jason Reddish, Partner at Feldesman Tucker who represents FQHCs and other covered entities, said Lilly “seems to be daring HRSA to take action against it for refusing to sell a covered outpatient drug to 340B covered entities if the drugs will be shipped to a contract pharmacy.” Reddish continued:

Lilly likely knows it is on the wrong side of the law, since nothing in the 340B statute addresses where covered entities can ship drugs—only that they cannot resell or transfer ownership of them to a party other than a patient. If HRSA sues Lilly for violating the statute or the Pharmaceutical Pricing Agreement between Lilly and the government, HRSA likely will have to defend its entire contract pharmacy sub-regulatory guidance (and the backdrop will be whether vulnerable patients can access an erectile dysfunction pill, which does not create the best optics). HRSA could also ask the [HHS] Office of the Inspector General to investigate and impose civil monetary penalties of up to $5,000 per instance for intentionally and knowingly overcharging covered entities. If HRSA takes no action, other manufacturers might believe they have the green light to pick and choose where 340B drugs can be shipped.

Another health care attorney who requested anonymity said, “On initial impression, Lilly is itching for a major fight…this is a major battle. Lilly's ‘limited distribution plan’ for Cialis doesn't indicate that there is anything special about the drug that would otherwise qualify it for a limited distribution plan, such as for specialty pharmacy. And contract pharmacy is a multi-billion dollar aspect of the program. This will not go quietly.”

HHS Secretary Alex Azar was a Lilly senior executive from 2007 through January 2017, when he was confirmed by the Senate as President Trump’s nominee to head the department. He is the former president of Lilly’s U.S. division. Earlier, he was Lilly’s senior vice president of corporate affairs and communications. It is not known if Azar would recuse himself from a federal lawsuit or administrative proceedings against Lilly over this action.

Lilly had $22.3 billion in worldwide revenues in 2019. According to news organization FiercePharma, that ranked it 15th among drug manufacturers internationally. Its U.S. revenue last year was $12.7 billion. The company reported $5.8 billion in worldwide revenue during the first quarter of 2020 and U.S. revenue of $3.3 billion, the latter driven in part by “patient prescription trends resulting from the COVID-19 pandemic that increased U.S. revenue by approximately $200 million.” For 2019, Lilly’s Cialis U.S. revenue was $231.7 million; worldwide revenue was $890.5 million. The percentage of Cialis sales at 340B prices is unknown.


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Merck Is Asking All 340B Entities for Contract Pharmacy Claims Data for its Products

Eli Lilly is not the only drug manufacturer raising questions about 340B contract pharmacy.

340B Report has learned that Merck has begun asking all 340B covered entities to upload their contract pharmacy claims into a vendor’s software platform. In a letter a 340B hospital received from Merck in late June, the company said it “will use this data to match against rebate claims it receives to ensure it isn't paying duplicate Medicaid discounts and duplicate discounts on Medicare Part D and commercial utilization through our contracts with commercial payers.”

Covered entities are obliged to inform the U.S. Health Resources and Services Administration (HRSA) about their Medicaid billing practices in order to prevent duplication of 340B discounts and Medicaid fee for service rebates on the same drugs. They are not similarly obliged with respect to duplicate discounts on Part D and commercial claims.

“Absent significant cooperation from covered entities, Merck may take further action to address 340B Program integrity, which may include seeking 340B Program claims information in a manner that may be less collaborative, and substantially more burdensome for covered entities,” the company warns.

According to the letter, Merck is asking covered entities to register on the website that houses the platform by Aug. 14.


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340B Providers Still Have Issues with Grassley’s Revised Drug Pricing Bill

U.S. Senate Finance Chair Chuck Grassley (R-Iowa) has reintroduced his drug pricing legislation with a change that addresses 340B covered entities’ deep concerns about the original version. Although groups and individuals who work on behalf of 340B providers give Grassley credit for listening and responding, they are dissatisfied with the solution he offered.

As we previously reported, Grassley’s original bill, S. 2543, would require Medicaid managed care organizations and/or their pharmacy benefit managers to reimburse covered outpatient drugs at ingredient cost plus a dispensing fee. That essentially would end providers’ revenues on 340B-purchased drugs billed to Medicaid (most states already require acquisition cost billing for 340B drugs in Medicaid fee for service). There is identical language in the U.S. House-passed drug pricing bill, H.R. 3. The House recently passed a bill to enhance the Affordable Care Act that includes elements of H.R. 3 but not the language objected to by 340B providers.

Groups representing 340B providers have been quietly lobbying in the House and Senate for a fix to H.R. 3 and S. 2543. Grassley’s solution in his new bill, S. 4199, is to give states the option of excluding 340B drugs from the new Medicaid managed care drug reimbursement requirement.

“If the default requirement is that the drugs are paid for at cost plus a professional dispensing fee, I cannot see very many states choosing to opt-out of that methodology for 340B drugs,” said Jason Reddish, Partner at Feldesman Tucker. “Even if a state opts out, payers could still use that methodology, if I understand the rest of the bill correctly.”

“We support the goal of cracking down on abusive spread pricing by PBMs, but the way this is written, there’s a giant flashing sign that says to states, ‘Hey, here’s something you can do,’” an executive at an association that represents 340B providers said. The executive said that while it is “obviously important” that the Senate Finance staff listened to 340B covered entities concerns, “we are still not happy with the bill.”

Grassley reintroduced the bill with nine co-sponsors, all Republicans. Finance Committee ranking Democrat Ron Wyden (D-Ore.) and his Democratic colleagues withdrew their support.


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Groups Applaud Senate Bill to Preserve Hospitals’ 340B Eligibility During Pandemic

Hospital groups are expressing gratitude for new U.S. Senate legislation to protect hospitals from losing eligibility for 340B drug discounts during the COVID-19 pandemic.

“We appreciate the bipartisan support for hospitals and thank the senators for introducing this bill,” said Beth Feldpush, America’s Essential Hospitals Senior Vice President of Policy and Advocacy. “It is crucial we protect access to 340B discounts, given the heavy toll COVID-19 has taken on jobs and health insurance coverage. Keeping medications affordable must be a priority.”

“We are pleased by this extraordinary show of bipartisan support for 340B hospitals serving on the front lines of the COVID-19 pandemic,” said 340B Health President and CEO Maureen Testoni. “This legislation will make sure safety-net hospitals will not lose their access to drug price discounts because of the changes in operation necessitated by the pandemic. This, in turn, protects patients at a time of public health emergency.”

The text of S. 4160 still had not been released as of late this morning. It was introduced on July 2 by Sens. John Thune (R-S.D.), Debbie Stabenow (D-Mich.), Rob Portman (R-Ohio), Tammy Baldwin (D-Wis.), Shelley Moore Capito (R-W.V.), and Ben Cardin (D-Md.). In a joint statement, they explained that their bill would protect hospitals from losing 340B eligibility in the future due to changes in patient mix during the pandemic.

Five of the six types of hospitals that can participate in 340B must serve a statutorily defined level of low-income patients to become and stay eligible. Some hospitals are concerned those levels could dip through no fault of their own during the pandemic.

A bipartisan group of more than 100 U.S. House members have called for similar legislation. The best chance of enactment is as part of the next COVID-19 relief bill.