Eli Lil­ly serves up a win over Biden's HHS in drug dis­count court case

In the bat­tle over a grow­ing fed­er­al drug dis­count pro­gram and whether phar­ma com­pa­nies can uni­lat­er­al­ly change what en­ti­ties re­ceive cer­tain dis­counts, the in­dus­try was just dealt a win from a US dis­trict court.

Sarah Evans Bark­er

The In­di­ana court ruled that a let­ter from HHS to drug­mak­ers in May, which said their uni­lat­er­al changes to the dis­counts were il­le­gal, is “ar­bi­trary and capri­cious.” Now HRSA, which runs the 340B drug dis­count pro­gram, has to come up with fur­ther con­sid­er­a­tion/ac­tion con­sis­tent with the opin­ion.

The win is good news for the oth­er five com­pa­nies cit­ed in that let­ter too, in­clud­ing No­var­tis, No­vo Nordisk, Sanofi and Unit­ed Ther­a­peu­tics, and like­ly means the com­pa­nies will not be as­sessed fines.

How­ev­er, the opin­ion al­so makes clear that “the statute, cor­rect­ly con­strued, does not per­mit drug man­u­fac­tur­ers, such as Lil­ly, to im­pose uni­lat­er­al ex­tra statu­to­ry re­stric­tions on its of­fer to sell 340B drugs to cov­ered en­ti­ties uti­liz­ing mul­ti­ple con­tract phar­ma­cy arrange­ments,” judge Sarah Evans Bark­er wrote.

But in the end, she ex­plained how the agency’s May let­ter “fails to ac­knowl­edge or ex­plain the agency’s changed po­si­tion(s) with re­gard to its au­thor­i­ty to en­force statu­to­ry com­pli­ance when the al­leged vi­o­la­tion is en­tan­gled with a reg­u­lat­ed en­ti­ty’s fail­ure to com­ply with the agency’s non­bind­ing con­tract phar­ma­cy guid­ance.”

The size of the bal­loon­ing 340B pro­gram, which is now the sec­ond-largest fed­er­al drug dis­tri­b­u­tion/fi­nanc­ing pro­gram and in­volves 30 bil­lion dis­count­ed pur­chas­es each year, was a con­stant theme in the court’s opin­ion. It al­so seemed to place the onus on Con­gress to make changes to 340B.

“The de­mand for 340B drugs and the preva­lence of con­tract phar­ma­cies has ex­plod­ed in a way that Con­gress like­ly did not imag­ine ei­ther when the statute was first en­act­ed in 1992,” Bark­er wrote. “Giv­en the ex­pan­sion of the 340B pro­gram and the vast pro­lif­er­a­tion of con­tract phar­ma­cy arrange­ments since Con­gress’s most re­cent amend­ments to the 340B statute, Con­gress may at some point choose to amend the statute to di­rect­ly ad­dress these is­sues. But that is for Con­gress to de­ter­mine; drug man­u­fac­tur­ers may not usurp the role through uni­lat­er­al ex­tra-statu­to­ry re­stric­tions.”

She al­so not­ed ex­am­ples of some 340B-cov­ered en­ti­ties that lost ac­cess to hun­dreds of thou­sands in dis­counts. “A crit­i­cal-ac­cess hos­pi­tal in Ne­bras­ka doc­u­ment­ed nu­mer­ous in­stances where it paid prices far above the 340B ceil­ing price for Lil­ly drugs, in­clud­ing in­stances where it paid $326, $339, $551, and $797 for Lil­ly in­sulin,” the opin­ion notes.

How­ev­er, Lil­ly won the de­ci­sion in the end be­cause HRSA, which runs the pro­gram un­der HHS, has “failed even to ac­knowl­edge any change in its po­si­tion re­gard­ing its abil­i­ty to take en­force­ment ac­tion re­lat­ed to drug man­u­fac­tur­ers’ deal­ings with cov­ered en­ti­ties through con­tract phar­ma­cy arrange­ments, much less pro­vide ‘good rea­sons’ for such change, the de­ter­mi­na­tions in the May 17 Let­ter are ar­bi­trary and capri­cious and must be set aside and va­cat­ed and the is­sues re­mand­ed to the agency as ac­tions vi­ola­tive of the APA.”

HHS’ ar­gu­ments would “car­ry more weight if,” she not­ed, if “pri­or to the is­suance of the Ad­vi­so­ry Opin­ion, the agency had not in­di­cat­ed on sev­er­al oc­ca­sions that its en­force­ment pow­ers were lim­it­ed and that it lacked au­thor­i­ty to ‘com­pel[]’ man­u­fac­tur­ers ‘to pro­vide 340B dis­counts on drugs dis­pensed by con­tract phar­ma­cies.'”

But it wasn’t all good news for the phar­ma in­dus­try, ei­ther, as she poked holes in many of its ar­gu­ments and laid out sev­er­al key ques­tions, not­ing:

We do not know, for ex­am­ple, why the agency said for so long that it was no­table to en­force its view of drug man­u­fac­tur­ers’ oblig­a­tions un­der the statute in the con­text of con­tract phar­ma­cy arrange­ments and then sud­den­ly changed tack and said it was able to en­force these re­quire­ments. We can­not di­vine whether Con­gress in­tend­ed for drug man­u­fac­tur­ers to have un­lim­it­ed de­liv­ery oblig­a­tions un­der the statute, un­teth­ered to the par­tic­u­lar cov­ered en­ti­ty’s ac­tu­al dis­tri­b­u­tion needs. We have no in­sight in­to why there is ap­par­ent­ly so much re­luc­tance to pro­mul­gate a holis­tic leg­isla­tive pro­pos­al to bring clar­i­ty to the scope of the reg­u­lat­ed par­ties’ oblig­a­tions and en­ti­tle­ments un­der the statute with re­gard to con­tract phar­ma­cy arrange­ments rather than en­gage in piece­meal in­ter­pre­ta­tions and af­ter the fact patch­work char­ac­ter­iz­ing the his­to­ry of the agency’s at­tempts to man­age this pro­gram.

Has the mo­ment fi­nal­ly ar­rived for val­ue-based health­care?

RBC Capital Markets’ Healthcare Technology Analyst, Sean Dodge, spotlights a new breed of tech-enabled providers who are rapidly transforming the way clinicians deliver healthcare, and explores the key question: can this accelerating revolution overturn the US healthcare system?

Key points

Tech-enabled healthcare providers are poised to help the US transition to value, not volume, as the basis for reward.
The move to value-based care has policy momentum, but is risky and complex for clinicians.
Outsourced tech specialists are emerging to provide the required expertise, while healthcare and tech are also converging through M&A.
Value-based care remains in its early stages, but the transition is accelerating and represents a huge addressable market.

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