Johnson & Johnson has informed the Health Resources and Services Administration (HRSA) that it has "no choice but to forgo implementation" of its controversial plan to swap out upfront 340B drug discounts for after-the-fact rebates.
The administrator had warned the drugmaker in multiple letters that its plan was not condoned and went against the 340B statute. Its final warning, sent Friday, threated to terminate its Pharmaceutical Pricing Agreement (PPA) and refer the company to the Health and Human Services Office of Inspector General if J&J did not call off the rebates by Monday.
The drugmaker did just that in a Monday letter from Chief Operating Officer of North America Innovative Medicine Scott White to HRSA Administrator Carole Johnson—though it made clear the decision came under duress.
"Due to HRSA’s unwarranted threats of excessive and unlawful penalties, J&J has no choice but to forgo implementation of the Rebate Model pending resolution of these issues," the letter reads.
J&J had floated the rebate plan in August and outlined an Oct. 15 implementation date (with a six-month grace period). It would apply to purchases of two products, Stelara and Xarelto, by disproportionate share hospitals (DSHs) participating in the drug subsidy program. The rebates were widely denounced by the hospital industry, which warned that the delayed discounts would burden financially strapped hospitals.
Monday's concession letter reiterated J&J's claims that the rebate strategy would improve the 340B programs integrity by bringing "needed transparency ... through real-time data validation of just two facts: whether a DSH entity actually purchased and dispensed a 340B priced medicine." J&J and much of the pharmaceutical lobby has alleged that many hospitals and health systems are taking advantage of the program by duplicating discounts and extending them to certain affiliated entities.
J&J noted in the letter that HRSA had passed on the drugmaker's request for a meeting "to discuss J&J’s goals of advancing patient access and furthering program transparency and integrity." Rather, the administrator opted for an "unprecedented" and "severely detrimental" step of threatening J&J's PPA.
"J&J nonetheless continues to believe that the Rebate Model is not only legally permissible but sorely needed to improve the integrity of the 340B Program," the letter reads.
In a Monday statement, America's Essential Hospitals thanked HRSA "for its forceful response to the J&J rebate scheme," as well as the cadre of lawmakers who wrote to Health and Human Services in support.
"Together we have protected this vital source of safety net support for essential hospitals and their disadvantaged patients," the group said.
The AIDS Healthcare Foundation also celebrated the demise of "J&J's illegal scheme" and critiqued the drugmaker's "hypocritical blather" surrounding the 340B program's sustainability and integrity.
"J&J’s retreat shows its '340B is not sustainable' argument is nonsense and should be disregarded whenever it is raised," the group said. " Drug companies will not quit the lucrative taxpayer-funded Medicaid and Medicare drug markets."
Sept. 18
HRSA tells J&J to 'immediately' end 340B rebate plan
The Health Resources and Services Administration (HRSA) has told Johnson & Johnson to "immediately" end its plan to provide required 340B drug discounts after the fact via rebate.
J&J had proposed the strategy last month, which it said would help cut down on the drug subsidy program's alleged widespread misuse. The company said it would kick off the policy on Oct. 15 for two of its drugs, Stelara and Xarelto, with a six-month grace period.
That announcement garnered immediate pushback from hospitals and a warning from HRSA, which oversees the 340B program, that the program isn't in line with the law.
That objection became more concrete Tuesday with a letter sent by HRSA Administrator Carole Johnson to J&J's Chairman and CEO Joaquin Duato.
The administrator told J&J it "expects J&J to cease implementation of its rebate proposal immediately and to inform HRSA no later than September 30, 2024, in order to provide adequate notice to covered entities."
HRSA again asserted that J&J would require the blessing of Health and Human Services Secretary Xavier Becerra before implementing the rebate policy. Becerra has not approved the proposal.
HRSA made it clear that it does not agree with the drugmaker's permissive interpretation of the 340B statute.
"In correspondence with HRSA, J&J asserts that their proposed rebate model is similar to 'replenishment' processes and that this authorizes J&J to unilaterally impose its proposed rebate model without violating the 340B statute," the administrator wrote. "This is incorrect. There are fundamental differences between J&J’s proposal and some covered entities voluntarily using inventory replenishment processes to manage their 340B inventory."
Failing to heed the administrator's demand could jeopardize J&J's Pharmaceutical Pricing Agreement or lead to civil monetary penalties, HRSA warned.
Tuesday's letter would presumably be welcomed by the hospital industry, which requested such action from the administrator amid warnings that some hospitals can't afford to float revenues (see the original story below).
Aug. 26
HRSA, hospitals say J&J's plan for 340B discounts via rebate not supported by statute
A major drugmaker’s plan to trade out upfront 340B discounts for rebates has found swift pushback from both hospitals participating in the drug subsidy program and the government administration that oversees it.
Friday, Johnson & Johnson issued a notice that beginning Oct. 15 it would no longer be processing wholesaler chargebacks for two of its drugs, Stelara and Xarelto, for certain program participants.
To receive the program’s discounts, disproportional share hospital covered entities would need to submit claims for a rebate through an online platform within 45 days of dispensing (with an initial grace period of over six months).
The 32-year-old 340B program was enacted by Congress to help subsidize safety-net care providers by manufacturer discounts on most drugs administered in the outpatient setting by covered entities.
With about a third of the country’s hospitals now participating—and government data suggesting a 22% jump in wholesale purchase discounts from 2021 to 2022 alone—pharmaceutical industry groups have critiqued and sought to circumvent what they view as providers’ abuse of the program.
Over the past couple of years, that effort has often taken the form of back-and-forth courtroom duels over hospitals’ practice of extending the subsidies to contracted pharmacies. J&J said its new approach has similar goals of cutting down misuse.
“We believe this update will significantly improve program integrity while at the same time enabling covered entities to obtain the 340B price on eligible 340B sales,” J&J wrote in its notice.
Shortly after the company delivered the notice, 340B Health, an association of more than 1,500 hospitals that participate in the program, released a statement calling on the Health Resources and Services Administration (HRSA), which oversees the program, to step in. J&J’s decision, 340B Health said, is at odds with the program’s statute and “undermines” its goals by imposing greater burden on safety-net hospitals.
“It would force these financially strapped hospitals to incur significant costs and float revenue to drug companies by paying full price for 340B-eligible drugs,” 340B Health President and CEO Maureen Testoni said in the statement. “These hospitals would go without vital resources they need to treat their patients in need while drugmakers and third parties determine when—and whether—to approve 340B rebates.”
HRSA appears to be of a similar mind. In an emailed statement, the administration said it has already communicated to the drugmaker that its proposal is running afoul of the law.
“Their proposal to implement a 340B rebate model is inconsistent with the 340B statute, which requires Secretarial approval of any such proposal,” HRSA said. “The Secretary has not approved J&J’s rebate model. HRSA has communicated this information to J&J and will take appropriate actions as warranted.”
J&J’s change specifically relates to disproportionate share hospitals, which comprise the bulk of the 340B program’s spending but also provide a majority of the industry’s uncompensated care and about three-quarters of all care to the more costly Medicaid population, per 340B Health.
The following days have seen more hospital industry groups take the offensive. Letters written to HRSA Wednesday by the American Hospital Association (AHA) and America's Essential Hospitals (AEH) underscored the impact J&J's policy would have on disproportionate share hospitals and reaffirmed HRSA's interpretation of the 340B statute.
Both groups encouraged the administrator not to waste any time in swatting down the drugmaker's new tactic.
"HRSA should immediately impose civil monetary penalties on J&J to send a clear message that drug companies cannot take unilateral action at the expense of 340B hospitals and the vulnerable patients they serve," the AHA wrote in its letter.
Though HRSA and the broader Department of Health and Human Services have often fallen on the side of the hospital industry in 340B disputes, the pharmaceutical industry’s position has found an ear in Congress. Legislators on both sides of the aisle, though more often than not Republicans, have raised concerns that the program has become a revenue stream for the hospital industry’s larger and more financially secure health systems.