PhRMA sues HHS to overturn dispute resolution rule for 340B program

Gavel and flag in courtroom
PhRMA sued the Department of Health and Human Services late last week, asking a federal court to strike down a new rule that sets up a dispute resolution process for the 340B program. (Getty/AlexStar)

The pharmaceutical industry wants to overturn a new rule that aims to resolve disputes between manufacturers and hospitals over the 340B drug discount program.

The Pharmaceutical Research and Manufacturers of America (PhRMA) sued the Department of Health and Human Services (HHS) in federal court late Friday over a rule finalized late last year that creates an administrative dispute resolution process for handling disputes. The lawsuit comes as several major drug companies have cut off access to discounted products to 340B covered entities’ contract pharmacies.

“The Trump administration rushed to finalize a flawed ADR rule and ignored the program’s larger issues,” said James Stansel, PhRMA executive vice president and general counsel.

The ADR process can be applied to issues such as whether someone is a patient or a contract pharmacy, which dispenses drugs acquired under the program, is part of a covered entity. PhRMA’s complaint filed in the U.S. District Court for the District of Maryland said the rule is arbitrary and capricious.

The drug manufacturing lobbying group said in a release that the rule defeats a key part of the ADR process, which is to resolve disputes over violations for duplicative discounts or diversion. The rule also circumvents the president’s role in appointing and the Senate confirming any board members who will decide the disputes.

The Affordable Care Act called for the creation of the ADR rule when the law was passed in 2010. HHS did propose the rule back in 2016, but it was pulled a year later.

A group of community health centers sued HHS last year in an attempt to finalize the rule.

340B requires drug companies to offer discounts to safety-net hospitals, community health centers and other providers in exchange for participation in Medicare and Medicaid.

PhRMA charges that the program needs more transparency to ensure that the discounts are filtered down to patients.

However, the hospital industry said that the program is needed to help safety-net providers who operate on thin margins and struggle with massive price hikes for drug companies.

The lawsuit is the latest in an escalating feud between drug manufacturers and 340B covered entities. A group of major drug companies last year moved to cut off access to 340B drugs to contract pharmacies. Providers clamored for HHS to halt the moves and the agency’s general counsel found that the drug companies’ actions did violate the federal 340B statute.