Your 340B Report for March 3, 2020

An electron microscope image of SARS-CoV2 (round gold objects), the virus that causes COVID-19. Source: NIAD-RML

340B Providers Could Face Drug Access Challenges Due to Coronavirus

In theory, federal law and 340B program guidance should protect 340B entities from shouldering an unfair burden from drug shortages caused by the still-early COVID-19 coronavirus epidemic. But if the outbreak persists and supply disruptions grow, don’t be shocked if 340B providers face unique challenges in accessing needed drugs and medicine. Also, don’t be surprised to see renewed calls by the drug industry to be exempt from 340B price requirements on drugs in short supply.

Almost as soon as the news about COVID-19 broke, U.S. public health experts began worrying about a possible global pandemic’s effect on drug supplies here. That’s because the U.S. drug supply chain depends heavily on foreign producers. According to a Food and Drug Administration (FDA) 2019 report on shortages, 88 percent of the factories that make active pharmaceutical ingredients (APIs) for the U.S. market are abroad. Fourteen percent of those are in China, where the epidemic began. Sixty-three percent of the factories that make finished drug products for U.S. consumers are foreign. Eight percent are in China.

The U.S. drug supply chain felt the COVID-19 epidemic’s first rumble late last week. The FDA on Feb. 27 announced the first coronavirus-related U.S. drug shortage “due to an issue with manufacturing of an active pharmaceutical ingredient used in the drug.” Time will tell if more are coming.

The 340B statute and Health Resources and Services Administration (HRSA) 340B program guidance spell out how covered entities should be treated during drug shortages. Under the statute, drug manufacturers cannot charge 340B providers more than the applicable 340B ceiling price for a covered drug if that drug is made available to any other purchaser at any price. Under guidance HRSA issued in 1994 and clarified in 2012, drug makers can implement “alternate allocation procedures” when supplies of 340B covered outpatient drugs are insufficient to meet demand.

Manufacturers, however, “must demonstrate that 340B providers are treated the same as non-340B providers.” For example, they can’t single out 340B entities for restrictive conditions that would undermine 340B’s purpose or discourage entities from participating in 340B. “To lessen the potential for disputes,” HRSA’s Office of Pharmacy Affairs (OPA) asks manufacturers to voluntarily send the agency their drug shortage allocation plans at least four weeks before the implementation date. OPA then posts the plans on its website. 340B providers have complained that manufacturers have abused the limited distribution policy, forcing them to use the manufacturer’s preferred distributor. This has resulted in increased costs and access challenges for covered entities.

Factories in the European Union (31 percent), India (31 percent), and China (14 percent) account for the majority of APIs used to make drugs for the U.S. market. Plants in India (24 percent), the E.U. (18 percent), and China (8 percent) make 50 percent of the finished drugs sold in America (versus the 37 percent of finished drugs we make here for domestic use). If COVID-19 hits the E.U., India, and China hard, leading to drug shortages in the United States, expect to see many more limited distribution notices posted on OPA’s Manufacturer Notices to Covered Entities webpage. The number of such notices has risen significantly in recent years.

This isn’t the first time that drug shortages have made headlines in the United States. There was a rash of shortages in the early to mid 2010s, mainly involving generic sterile injectable drugs and mainly due to qualify control problems at a shrinking number of manufacturers. (The FDA says it continues to see shortages involving older sterile injectable drugs, mainly cancer drugs, anesthetics, drugs for emergency medicine, and electrolytes for patients on IV feeding.) The drug industry and its allies blamed 340B as a culprit. 340B ceiling prices, they said, were affecting manufacturing quality and capacity and 340B penny prices were encouraging hoarding. As drug industry champion Peter Pitts put it a 2014 op-ed, “Artificially low prices caused the manufacturing decline of the drugs that are in short supply, and a variety of perverse government regulations (ranging from Medicaid reimbursement rates to the benighted 340B Drug Pricing Program) contribute to the causes.”

Two recent federal studies, however, say other factors are mainly to blame. The Government Accountability Office in 2016 and an FDA task force last year issued findings on the root causes of drug shortages in the U.S. Neither fingered 340B.

In 2012, then-Rep. (now Sen.) Bill Cassidy , an influential Republican lawmaker from Louisiana, introduced a bill to curb drug shortages that would have exempted the vast majority of generic sterile injectable drugs from 340B discounts. The drug shortage situations then and now are very different. But if COVID-19 causes significant supply disruptions, don’t be surprised if you hear echoes of Pitts’ 2014 argument that scaling back or ending 340B would boost manufacturing of drugs in short supply.

(Updated March 4, 2020: FDA Commissioner Stephen Hahn informed Congress yesterday that India has restricted export of 26 APIs, representing about 10 percent of its export capacity. Also, according to FDA testimony before Congress on Oct. 30, 2019, as of August 2019, “only 28 percent of the manufacturing facilities making APIs to supply the U.S. market were in our country. By contrast, the remaining 72 percent of the API manufacturers supplying the U.S. market were overseas,” with 26 percent located in the E.U., 18 percent in India, and 13 percent in China. FDA testified that the number of registered facilities making APIs in China more than doubled between 2010 and 2019.)

HHS Secretary Alex Azar testifies before the House Energy & Commerce Committee on Feb. 26, 2020. Source: YouTube

340B Savings Should Help Patients, Not Just Hospitals, Azar Tells Congress

The Trump administration thinks 340B drug discount savings “need to actually make their way to patients, not just subsidizing hospitals,” Health and Human Services Secretary Alex Azar said in Feb. 26 testimony about the administration’s fiscal 2021 proposed HHS budget before the House Energy & Commerce Committee. Hospitals, he said, often buy insulin “at an extremely low price, but they don’t have to necessarily pass those savings on to the patient. That’s partly why we proposed the Part B changes that would reduce what seniors have to pay in the Medicare program for their drugs.”

Asked by Rep. Larry Bucshon (R-Ind.) if 340B needs more transparency, Azar answered: “Absolutely. We support transparency in the program, we support giving the regulatory authority as part of our budget and also requiring that hospitals that want to get the benefit of those savings I just talked about to retain that in the program would have to dedicate 1 percent of their work towards delivering charity care which seems like a pretty low bar.”

Last year, in its fiscal 2020 budget request, the administration proposed, as part of its ongoing Medicare Part B drug reimbursement cuts to 340B hospitals, to redistribute savings from the cuts to “hospitals providing at least 1 percent of patient care costs in uncompensated care…based on the percentage of all uncompensated care they provide compared with other outpatient hospitals.” Congress didn’t act on the proposal. The concept is missing from the administration’s current budget request.

In his testimony before the committee, Azar also made a pitch for the administration’s request in its current proposed budget for legislation giving the Health Resources and Services Administration (HRSA) explicit general regulatory authority over the 340B program. “We need regulatory authority to implement…oversight so that we can actually do audits in an enforceable way and have that kind of type of transparency,” he said.

Rep. Anna Eshoo (D-Calif.), Chair of the powerful Energy & Commerce Health Subcommittee,  interjected, “Just for the record, HHS has existing oversight authority of 340B and is my understanding that HRSA has conducted 1,300 audits of the program…. Look at your audits and see what's in them. It's under the control of your department.”

Supreme Court Ruling on ACA’s Viability Will Have Major 340B Implications

The U.S. Supreme Court agreed yesterday to review lower court rulings that the entire Affordable Care Act is unconstitutional because Congress in 2017 eliminated ACA’s federal income tax penalty on individuals who did not buy health insurance. If the high court agrees that the entire ACA is unconstitutional, the law’s 340B-related provisions would go down with it, including:

  • 340B’s expansion to over a thousand rural hospitals

  • Health center creation and support under the $4 billion Community Health Center Fund

  • Incentives to states to expand Medicaid

  • Higher Medicaid drug rebate percentages (and deeper 340B discounts by extension)

  • The Medicaid Drug Rebate Program’s expansion to Medicaid managed care, and the resulting debate over how to prevent 340B duplicate discounts in this sphere

  • Mandatory annual recertification of provider eligibility for 340B

  • Program improvements to prevent 340B overcharges, including the new secure 340B ceiling price website

  • Sanctions for manufacturers that knowingly and intentionally overcharge 340B entities, and for entities that knowingly and intentionally violate 340B’s prohibitions against drug diversion and duplicate discounts

  • Exclusion of 340B discounts on orphan-designated drugs for 340B rural and freestanding cancer hospitals.

The high court won’t hear arguments in the case until at least October and the decision likely will not be made until after the November election. Most Supreme Court observers believe that if the current makeup of justices remains in place, the ACA has a good chance of surviving. The five justices who upheld the ACA in 2012, Chief Justice Roberts and the four appointed by Democratic presidents, remain in place. In addition, there will likely be bills prepared prior to the decision that would keep much of the ACA intact. To take a closer look at why ACA elimination would be devastating to rural America, check out 340B Health Publisher and CEO Ted Slafsky’s May 1, 2019 op-ed in USA Today.  

Minnesota Health Centers Back Bills to Prevent Duplicate 340B Discounts and Medicaid MCO Rebates

New legislation in Minnesota would give state health officials and the state’s health centers the rest of this year to jointly decide how to prevent duplicate discounts on 340B-purchased drugs dispensed to Medicaid managed care beneficiaries served by the centers.

The Minnesota Association of Community Health Centers (MACHC) worked to get the companion bills (H.F. 3907 and S.F. 3859) introduced, CEO Jonathan Watson and Director of Public Policy Danny Ackert explained in an interview. They said MACHC wants to ensure that Minnesota health centers and their patients continue to benefit from 340B discounts to the greatest possible extent.

The bills would give the state Commissioner of Human Services and the state’s health centers a Jan. 1, 2021 deadline to collaboratively “develop a process to identify and report at point of sale the 340B drugs that are dispensed to enrollees of managed care organizations served by federally qualified health centers in order to exclude 340B claims from the Medicaid drug rebate program.”

“In developing this process, the commissioner shall work with federally qualified health centers, managed care organizations, and contracted pharmacies to ensure that 340B entities are allowed to maximize the 340B program…while ensuring that duplicate discounts for these drugs do not occur,” the bills say.

Tweets of Note

@auburn1159: @MikeBloomberg @BernieSanders @JoeBiden @DrBiden @ewarren if you are not familiar with 340B and its impact on Rural Health facilities and disproportionate care facilities please Educate yourself & your teams on this important LIFELINE for these facilities- the R’s want to Dismantle

@340BHealth: Patients with #HCV are relying on #340B for greater access to innovative treatment services. Learn about one example from a 340B hospital: http://bit.ly/2JIcZVE  #Protect340B

@AIR340B: Patients are being hit with exorbitant medical bills, raising even more concerns that hospitals are profiting at the expense of patients. Read more from @GovWaste https://t.co/w7AO2b9bji?amp=1

@MaddensPharma: Hospital we do #340B with wanted a meeting to discuss changing our contract. Why? Because our contract stipulates the Hospital pay the DIR fees on 340b PBM claims. They say the checks are too big to write. #DIR fees are nothing more than an ATM for PBMs. @340BCoalition @pcmanet