HHS Withdraws Proposed 340B Drug Pricing Program "Mega Regs": Further Guidance Forthcoming

The Department of Health and Human Services (HHS) has withdrawn its greatly anticipated 340B Drug Pricing Program (340B Program) proposed regulations. The proposed regulations, nicknamed the 340B Program “Mega-Regs,” had been drafted by HHS and sent to the White House Office of Management and Budget for review in April, but had not been made available to the public. The withdrawn Mega-Regs were expected to address a variety of critical 340B Program issues, such as the definition of an eligible patient, compliance requirements for contract pharmacy arrangements, hospital eligibility criteria, and eligibility of off-site hospital facilities. The Health Resources and Services Administration (HRSA), within HHS, issued a statement that the agency plans to propose guidance for notice and comment in 2015 that will address key 340B Program policy issues. HRSA also plans to propose regulations related to the following specific 340B Program issues: civil monetary penalties for manufacturers; how the ceiling prices of 340B drugs are calculated; and dispute resolution.

HHS Scraps Plans for Comprehensive 340B Program Regulations

The withdrawal of the Mega-Regs signals a retreat for HHS in an ongoing dispute over the scope of the agency’s authority to issue regulations for the 340B Program. Last May, a U.S. District Court invalidated HHS’ first attempt to issue regulations for the 340B Program, which addressed the treatment of orphan drugs for 340B Program pricing at certain hospital covered entities. The court opinion ruled that HRSA lacked authority to issue the orphan drug rule, and further indicated that HHS lacks authority to issue binding legislative regulations for the 340B Program, except in those areas specifically authorized by Congress. HRSA has subsequently re-issued the orphan drug rule as an interpretive regulation, and this action is currently the subject of a separate court challenge. HRSA’s statement that it will issue regulations addressing only civil monetary penalties for manufacturers, 340B ceiling prices, and dispute resolution tracks language from the court identifying those areas where the agency’s authority to issue regulations is the strongest.

The withdrawn Mega-Regs would have addressed a number of key policy issues outside these circumscribed areas, including the definition of “patient” that establishes those individuals who are eligible to receive 340B Program drugs, and limitations on the use 340B Program contract pharmacy arrangements. HRSA’s statement indicates that it is likely to attempt to publish guidance on some of these topics in 2015, and will open up this guidance for public comment. However, the guidance will not be published as formal regulations. Covered entities and other stakeholders should be prepared to review the proposed guidance and to submit comments within the timeframes specified by HRSA. Stakeholders should also be aware that the issuance of non-regulatory guidance could lead to further challenges on the scope of HHS’ authority, which may be lead to further litigation.

2015 Likely to Be Critical Year for 340B Program

2015 is shaping up to be a critical year for the 340B Program. In addition to the forthcoming guidance and regulations, the Government Accountability Office (GAO) is studying 340B and non-340B hospitals’ sources of revenues and margins and how they have changed over time, and comparing 340B and non-340B hospitals’ Medicare Part B drug reimbursements and how those have changed over time. Additionally, the Office of Inspector General (OIG) plans to assess the risk of duplicate discounts for 340B-purchased drugs paid through Medicaid managed care organizations (MCOs) and States’ efforts to prevent them, as well as to review how much Medicare Part B spending could be reduced if Medicare were able to share in the savings for 340B-purchased drugs. These reports will be highly anticipated by stakeholders interested in the future of the 340B Program, and could prompt legislative action by the new Congress. We will continue to monitor these critical developments and provide updates on significant issues impacting the 340B Program.