Bayer, EMD Serono announce 340B restrictions in wake of pharma's courtroom win

Two more drugmakers have announced they will be restricting some sales of 340B-discounted products to contract pharmacies just two days after the pharma industry was handed a win on the contentious issue by a federal appeals court.

Bayer and EMD Serono, a subsidiary of Merck KGaA, informed customers in letters that they will only be shipping discounted drugs to locations registered as 340B-covered entities or eligible child site locations.

Beginning March 1, the companies said they will not be filling bill-to/ship-to replenishment orders from partnered commercial pharmacies, with some exceptions such as cases where the covered entity does not have a capable in-house pharmacy of its own.

Drugmakers participating in the 340B program give substantial discounts on products to safety-net providers in exchange for participation in Medicare and Medicaid.

However, a 2010 guidance update from the Department of Health and Human Services (HHS) allowing covered entities to distribute the discounted products through an unlimited number of contract pharmacies spurred a roughly twentyfold increase in participating pharmacies.

Drugmakers now say that hospitals are abusing the program beyond Congress’ intent and have been willing to risk federal fines and lengthy lawsuits as they introduce new restrictions.

“Bayer supports the 340B program and its intended mission of supporting safety net healthcare providers in providing vulnerable patients with access to medical care and medications,” the drugmaker wrote in this week’s notification letter to customers. “Unfortunately, the program has strayed far from its original purpose and the current use of contract pharmacies is beyond the parameters of the statutory scheme. Bayer is concerned with the integrity issues that arise from contract pharmacy arrangements, and we believe meaningful improvements are needed to ensure that safety net providers and vulnerable patients come first.”

Bayer and EMD Serono are now the 20th and 21st pharmaceutical companies in recent years to adopt such restrictions, according to 340B Health, an industry group representing 340B hospitals. Other names that have pulled back on the program include Amgen, GSK, Johnson & Johnson and Pfizer.

Of note, word of their new policies came shortly after the U.S. Court of Appeals for the Third Circuit tipped the scales in pharma’s favor. Its Monday decision in favor of Sanofi, Novo Nordisk and AstraZeneca enjoined HHS from enforcing the Violation Letters it sent after drugmakers had adopted contract pharmacy restrictions.

The issue is still far from undecided, however, as two other federal appeals courts are weighing similar cases in other jurisdictions. Lower courts have previously gone both ways on the matter.

Responding to Bayer and Merck KGaA’s news, 340B Health President and CEO Maureen Testoni highlighted billions in 2021 drug revenues logged by Bayer and Merck KGaA “even after providing 340B discounts that are crucial to the healthcare safety net.”

“Now the companies are backing off their commitments by depriving 340B hospitals of resources they need to care for patients with low incomes and those living in rural areas,” she said in a statement. “By following the lead of the other 19 companies with 340B pricing restrictions, Bayer and EMD Serono will add to the well-documented levels of harm that these actions are causing to patient access and health outcomes.”

The new policies have been taking a toll on hospitals’ bottom lines.

In November, the American Hospital Association reported that the average 340B critical access hospital with 25 beds reported annual losses of $507,000 due to the restrictions, while the average 340B disproportionate share hospital saw nearly $3 million in annual losses. The group also said the restrictions have directly reduced patients’ access to care, particularly in rural areas.