The Department of Health and Human Services (HHS) has filed for summary judgment in its favor regarding lawsuits brought by pharmaceutical companies that attempted to reinvent hospital discounts through the 340B program—the first explicit sign that the new administration is taking up its predecessor’s stance on the controversial industry issue.
The HHS, now listing Secretary Robert F. Kennedy Jr. as a defendant, asked the courts to rule against plaintiffs Eli Lilly, Bristol Myers Squibb and Novartis Pharmaceuticals in one of the ongoing consolidated lawsuits related to a 340B rebate model they had planned to adopt.
The department wrote in a Monday filing that the HHS’ pushback on the model was lawful and that permitting the model to move forward “would have upended the way the 340B Program has operated for more than thirty years.”
Prior to Monday, the new administration had only filed for a time extension, telling the court in February that the department was “undergoing leadership transitions.”
Those new heads would “require sufficient time to be briefed on the matters at issue in this lawsuit, ensure that the Department’s position is consistent with the new administration’s policies, and review a draft of the brief before filing,” the HHS wrote at the time. It also noted at least five other similar cases the new leadership would need to review as well.
The Trump administration’s HHS has already chosen to step away from at least some of the Biden administration’s ongoing healthcare legal battles, most notably those involving emergency medical abortion protections.
Last year, Johnson & Johnson unveiled a new rebate model for the long-standing subsidy program, which would swap out upfront drug discounts for after-the-fact rebates.
The company said the approach, initially for two of its products, would cut down what it has describe as providers’ improper reliance on the program. The policy was denounced by hospital groups, which warned that delayed discounts would weigh down financially struggling hospitals, but shortly after emulated by other drugmakers.
The HHS’ Health Resources and Services Administration (HRSA), which oversees the program, took the side of hospitals. It warned J&J that adopting the rebate approach without the blessing of Xavier Becerra, then HHS’ secretary, was a violation of the 340B statute and threatened to pull the company’s Pharmaceutical Pricing Agreement and impose civil monetary penalties.
Drugmakers did pull the model, but shortly after began filing lawsuits against the government. They broadly argued in court documents that the blocked rollout of their rebate models conflicts with implementation flexibilities within the 340B statute and that HRSA violated the Administrative Procedure Act and acted arbitrarily and capriciously “in multiple ways.”
The HHS’ latest filing rebuffed each of the drugmakers’ allegations, writing that the decision to require the secretary’s approval is consistent with the 340B statute; that it “acted reasonably,” and therefore not arbitrarily or capriciously, when it prohibited the model in order to preserve a long-standing status quo; and that other arguments relating to due process are unsuccessful.
The 340B program was enacted by Congress over 30 years ago to help subsidize safety-net care providers by manufacturer discounts on most drugs administered in the outpatient setting by covered entities.
About a third of the country’s hospitals now participate in the program, with government data suggesting a 22% jump in wholesale purchase discounts from 2021 to 2022 alone. Pharmaceutical industry groups have critiqued what they view as providers’ abuse of the program and sometimes have won a sympathetic ear from lawmakers.
The new administration’s continued stance against the rebate model is likely appreciated by provider organizations, which had previously cheered on the HRSA when it told drugmakers to change course last year.
In early March, the judge overseeing this case permitted UMass Memorial Medical Center, Genesis HealthCare System and 340B Health, a trade group representing those and other providers participating in the program, to intervene as parties in the case.
Around the same time, other hospital industry groups—the American Hospital Association, the Children’s Hospital Association, the Association of American Medical Colleges and America’s Essential Hospitals—filed a friend-of-the-court brief (PDF) supporting the government’s legal argument and describing the drugmakers’ rebate model as “an undisguised power grab.”