Drugmaker Eli Lilly has joined Johnson & Johnson is suing the Biden administration to try to reinstate plans that change the way the companies offer drug discounts to hospitals.
Eli Lilly filed a lawsuit in U.S. District Court for the District of Columbia on Thursday against the Health Resources and Services Administration (HRSA) and the Department of Health and Human Services (HHS) and is asking a judge to declare its cash replenishment program lawful, according to a copy of the complaint (PDF).
J&J filed a lawsuit against HRSA on Nov. 12 over the agency blocking its new 340B rebate plan.
Both J&J and Eli Lilly proposed plans to swap upfront 340B discounts for after-the-fact rebates under the federal drug discount program.
"The 340B program currently uses a slow, indirect 'product replenishment' model that was created by for-profit pharmacies, third-party administrators, and large hospitals. It was designed to exploit arbitrage opportunities, is deliberately opaque, and allows these entities to freely circumvent the law," Eli Lilly said in a statement on its website.
The company said it's new 340B "cash replenishment model" is better and is designed to pay cash directly to 340B covered entities every week," ensuring they pay no more than the 340B ceiling price."
"This model offers faster payments, improves cash flow for covered entities, and increases transparency. And it aims to prevent abuses seen in the current program, ensuring compliance with existing laws and new requirements under the Inflation Reduction Act," the company said.
HRSA issued a letter to Lilly on September 18 that declared this new payment model is unlawful and warned manufacturers that implementing cash replenishment approaches will subject them to civil monetary penalties and removal from not just the 340B program but also Medicaid and Medicare Part B, Eli Lilly said in its complaint.
"HRSA’s disapproval of Lilly’s cash replenishment program contravenes the Administrative Procedure Act several times over. Most importantly, the agency’s position conflicts with the 340B statute. The statute requires manufacturers to offer their medicines to covered entities at the reduced price, on commercially reasonable terms." the company said in the lawsuit. "And the statute expressly contemplates that 340B pricing may be offered through either an up-front “discount” or an after-the-fact “rebate.” Even if HRSA can require one or the other, the statute requires HRSA to do so through the Pharmaceutical Pricing Agreement (PPA) manufacturers sign to participate in the program. HRSA has not done so here. "
Lilly said it brought the lawsuit because "HRSA does not have the authority to arbitrarily reject this model, which serves the original goals of the 340B program and improves transparency, efficiency, and program integrity," according to its statement.
Originally published Nov. 13 at 5:30 p.m. ET
Johnson & Johnson is escalating its fight with the federal government over its controversial plan to change how it doles out drug discounts to hospitals.
The drugmaker is asking a federal judge to back its plan to swap upfront 340B discounts for after-the-fact rebates under the federal drug discount program.
J&J is suing the Health Resources and Services Administration (HRSA) within the Department of Health and Human Services for blocking the implementation of its new 340B rebate model. The company filed its lawsuit in district court seeking a ruling that declares its rebate plan legal and clears the way for it to roll out the model.
J&J said its rebate model would allow the drugmaker to verify 340B claims are actually purchased and dispensed by a 340B entity.
"J&J’s transparency model is legally permissible, uses commercially standard data validation practices, and will help ensure compliance with the Inflation Reduction Act’s (IRA) requirements, while ultimately protecting patients’ access to care," the company said in a statement posted to its website.
J&J had floated the rebate plan in August and outlined an Oct. 15 implementation date. It would apply to purchases of two products, Stelara and Xarelto, by disproportionate share hospitals participating in the drug subsidy program. The company argued that the change would help cut down on the drug subsidy program's alleged widespread misuse.
To receive the program’s discounts, DSH-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 providing manufacturer discounts on outpatient drugs.
The rebates were widely denounced by the hospital industry, which warned that the delayed discounts would burden financially strapped hospitals.
A month later, in September, HRSA told Johnson & Johnson to "immediately" end its plan to provide required 340B drug discounts after the fact via rebate.
The administrator warned the drugmaker in multiple letters that its plan was not condoned and went against the 340B statute. Its final warning, sent Sept. 27, threatened to terminate its Pharmaceutical Pricing Agreement and refer the Health and Human Services Office of Inspector General if J&J did not call off the rebates immediately.
J&J immediately scrapped the change, saying it had "no choice but to forgo implementation" of its controversial plan. "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," J&J's chief operating officer of North America innovative medicines, Scott White, said in a letter to HRSA Administrator Carole Johnson.
In the lawsuit, the company said HRSA's attempts to bar J&J from implementing its rebate model are "fundamentally at odds with the 340B statute, the Administrative Procedure Act and HRSA's own stated program integrity goals."
"They are also entirely inconsistent with the approach that HRSA has taken regarding the replenishment models that covered entities unilaterally implemented more than a decade ago, even though replenishment models have many of the same features and operate in materially the same manner as J&J's proposed rebate model," the drugmaker wrote.
The company is asking the district court judge to declare HRSA's three letters that prohibit J&J from implementing the model unlawful and enjoin the Biden administration from moving forward with enforcement action.
The 340B Program sales have grown by 129% since 2018—more than 3x the growth rate for non-340B sales, according to data from IQVIA. In 2023, 340B sales were $124 billion.
"The government’s own data spotlights how the rapid growth of the 340B Program can result in cases of diversion or duplicate discounts. Federal government audits have yielded more than 500 diversion-related findings among covered entity audits over an eight-year period," J&J wrote in its online post.
The Government Accountability Office found more than 400 instances of noncompliance related to duplicate discounts among audited covered entities, which is prohibited by the 340B statute, the company said.
"The risk of further duplicate discount abuse is heightened with the implementation of the Inflation Reduction Act (IRA), which statutorily requires manufacturers to certify that no duplicate discounts are occurring," J&J wrote.