Authored by Alan J. Arville, J.D. and Kala K. Shankle, J.D.of Epstein Becker Green

In 2021, Congressman David McKinley (R-WV) and Abigail Spanberger (D-VA) introduced H.R. 4390, the “Preserving Rules Ordered for The Entities Covered Through 340B Act of 2021” or the “PROTECT 340B Act of 2021,” which seeks “to ensure the equitable treatment of covered entities and pharmacies participating in the 340B drug discount program.”^[1] The proposed legislation follows significant industry activity in the 340B program over the past two years, including actions by certain pharmaceutical manufacturers to limit the availability of 340B drug discounted drugs at contract pharmacies of covered entities. Such actions set off a whirlwind of federal agency action, litigation, and state legislation. In addition, several states have passed legislation intended to protect covered entities and their contract pharmacies in at least some manner from disparate treatment from third-party payors and pharmacy benefit managers (PBMs) as it specifically relates to the 340B program.^[2]

H.R. 4390 was developed in an effort to create a national standard (rather than a patchwork of individual state laws) to prohibit third-party payors and pharmacy benefit managers (PBMs) from imposing certain requirements on covered entities or their contract pharmacies that are specific to their participation in the 340B program. For now, political realities may put the legislation on the backburner because it is unlikely that the legislation will move in the upcoming election season and subsequent lame duck session. The bill’s co-sponsor, Congressman McKinley, also lost his primary on May 10, 2022, meaning he will leave office on January 3, 2023. Nonetheless, Congresswoman Spanberger could reintroduce the legislation next Congress and find a co-sponsor across the aisle from the bill’s current list of 110 co-sponsors.^[3]

Background

The 340B program requires pharmaceutical manufacturers to provide discounts on drugs to “covered entities.” Covered entities are specified types of hospitals as well as non-hospital entities that have federal designations or receive funding from federal programs. The 340B program has been contentious for years. Manufacturers have raised concerns regarding how the 340B savings are uses by hospital-covered entities and have argued that the expanded use of contract pharmacy arrangements has gone beyond the intent of the 340B statute. Meanwhile, some third-party payors and PBMs have imposed contractual requirements that require covered entities and contract pharmacies to specifically identify 340B drugs when submitting claims, and, in some cases, impose a reduced reimbursement rate for 340B drugs. From the perspective of PBMs, identifying 340B discounts is necessary to meet contractual obligations with their customers and manufacturers to identify “duplicate discounts.”  In contrast, covered entities have argued that the manufacturer and PBM actions aimed at contract pharmacy arrangements undermine the ability of covered entities, as safety net providers, to support the vulnerable populations they serve.

Until H.R. 4390, federal action to protect the 340B program has largely focused on manufacturer actions to restrict contract pharmacy arrangements. However, several states have passed laws that address the ability of payors and PBMs to impose requirements on participating providers that are specific to the 340B program. For example, last year, Ohio’s 133rd General Assembly passed Senate Bill 263, which prohibits contracts between a health plan or PBM and a covered entity that contain a reimbursement rate for a prescription drug that is less than the national average drug acquisition cost rate for that drug.^[4] The law also prohibits PBMs from making payments pursuant to a health benefit plan that discriminates against a 340B covered entity in a manner that prevents or interferes with a patient’s choice to receive a prescription drug from a covered entity or contracted pharmacy.^[5]

Summary of H.R. 4390

H.R. 4390 would broadly prevent third-party payors from taking certain actions that the bill’s sponsors believe are discriminatory towards covered entities. Specifically, the bill would prohibit third-party payors and PBMs from (1) reimbursing a covered entity or its contract pharmacy for 340B drugs an amount less than what would be paid to a similarly situated entity for a non-340B drug, (2) imposing differing terms (including fees, chargebacks, or audits) on covered entities and their contract pharmacies, (3) interfering with an individual’s choice to receive drugs from a covered entity or its contract pharmacy, (4) requiring a covered entity or its contract pharmacy from identifying 340B drugs, and (5) refusing to contract with a covered entity or its contract pharmacy on the basis that they participate in the 340B program.

Notably, the bill would amend Medicare Part D statutes to clarify that the provisions in the bill apply to Part D contracts. This is an important aspect of the bill because the applicability of state laws regulating PBM relationships with pharmacies to the Medicare Part D program (particularly the regulation of reimbursement) has been the subject of debate and litigation (on the basis that federal Medicare Part D laws preempt state law). The bill would also amend Medicaid statutes to require the U.S. Department of Health and Human Services to contract with an independent third-party contractor to operate a clearinghouse to ensure that states do not get duplicate Medicaid rebates on 340B-purchased drugs. Duplicate discounts, which are prohibited by the 340B program, occur when 340B drugs are dispensed to patients, but the manufacture also pays a rebate to the state under the Medicaid Drug Rebate Program for that same discounted drug. Despite being prohibited, manufacturers have raised concerns that duplicate discounts continue and states need to enhance compliance activities to prevent them.

Conclusion

The passage of H.R. 4390 would serve as a federal standard to protect covered entities and contract pharmacies in the 340B program from disparate treatment, but it also raises questions on the impact to PBMs and manufacturers in the event they cannot access information to identify duplicate discounts. While political realities may currently stall legislation in the next few months, 340B stakeholders should play close attention to H.R. 4390 in the next Congress because it is a clear federal alternative to the current state patchwork of state 340B legislation.

Works Cited

[1] PROTECT 340B Act of 2021, H.R. 4390, 117th Congress (2021), available at https://www.congress.gov/bill/117th-congress/house-bill/4390.

[2] See, e.g., Ohio Rev. Code Sections §§ 3902.71, 5167.123; Minnesota Statutes §62W.07(f); W. V. Code § 33-51-9(d); Mont. Code § 33-22-180; S.D. Codified Laws § 58-29E-15; Utah Code § 31A-46-310.

[3] Ballotpedia, David McKinley, available at https://ballotpedia.org/David_McKinley.

[4] Ohio Rev. Code § 3902.71(A)(1).

[5] Ohio Rev. Code § 3902.71(B).