A three-judge panel has denied the federal government's appeal of a district court decision temporarily blocking the launch of a hospital industry-opposed pilot swapping upfront 340B drug discounts for after-the-fact rebates.

The 1st U.S. Circuit Court of Appeals, on Jan. 7, wrote that the Department of Health and Human Services and its agencies had "failed to carry its burden of 'mak[ing] a strong showing that [it is] likely to succeed on the merits.'" 

The panel favorably recounted the lower court's "careful and thorough decision" on Dec. 29 to grant a preliminary injunction and subsequent denial of the government's request for a stay pending appeal, and said it agreed that the administrative record was "devoid of evidence that the federal government considered the hospitals' significant reliance interests—a critical factor in the analysis of an arbitrary-and-capricious claim." 

The panel also wrote that the government did little to support its claim that an "experimental program" like the 340B Rebate Model Pilot Program requires less justification than a permanent change under the Administrative Procedures Act, and that it has not shown it would be irreparably injured without a stay from the court. 

"For these reasons, the federal government has not demonstrated that it is entitled to stay relief," the panel wrote in its order. "The motion for a stay pending appeal is thus DENIED."

Hospital organizations, including the plaintiff American Hospital Association (AHA), have argued for months that the pilot program is unnecessary and would place a substantial burden on covered entities, or participating providers. The groups filed their lawsuit to block the pilot in early December.

"The First Circuit recognized that the district court’s decision halting the 340B Rebate Program was 'careful and thorough'—and correct," AHA President and CEO Rick Pollack said in a statement. "The AHA remains pleased that these courts have put on hold this harmful program that would have a devastating effect on America’s most vulnerable patients and communities, and the hospitals that serve them."

Dec. 29

Judge orders temporary pause to 340B rebate pilot

The hospital lobby has scored a court-ordered pause on the federal government's 340B Rebate Model Pilot Program just days before it was set to begin. 

On Dec. 29, U.S. District Judge Lance Walker, the chief of the U.S. District Court for the District of Maine, ordered a preliminary injunction against the "hastily assembled" pilot set to kick off on Jan. 1 on the basis of "likely" violation of the Administrative Procedure Act's (APA's) arbitrary and capricious standard. 

As such, the Health Resources and Services Administration (HRSA) is, at least temporarily, enjoined from permitting the program's nine participating drugmakers from acting on their plans to swap longstanding upfront drug discounts for after-the-fact rebates.

"The Agency’s roll out has involved a rather threadbare administrative record that likely fails to consider and reasonably explain the impact of a rebate model on 340B hospitals, who rely on upfront price concessions to stretch few resources as far as possible to serve rural and poor communities," Walker wrote in Monday's order. "The APA likely requires more from Defendants."

The federal government, in filings earlier this month, argued that any short-term block ordered by the court should be limited to the plaintiff hospital organizations and their members. The judge disagreed, writing that under the APA his court has the authority to "preliminarily set aside" agency actions such as the pilot program on a more sweeping basis. 

Hospital organizations, including the plaintiff American Hospital Association (AHA), have argued since the pilot's proposal during the summer that the program is unnecessary would place a substantial burden on covered entities, both due to new administrative burdens and the hit some hospitals' limited liquidity. After months of opposing statements and submitted public comments—including criticisms of a tight notice and comment period—they filed a lawsuit to block the pilot in early December (see that story below). 

"On behalf of our members—including safety-net hospitals serving rural and underserved communities—we are pleased with today’s decision," American Hospital Association President and CEO Rick Pollack said in a Monday statement. "The court’s decision halts a rule that would have caused a devastating sea change in a 30-year-old program relied upon by hospitals that serve America’s most vulnerable patients and communities."

Maureen Testoni, president and CEO of 340B Health, which represents 340B hospitals but is not a plaintiff in the suit, said the decision is "a welcome and necessary safeguard for hospitals that depend on 340B to care for low-income and vulnerable patients nationwide."

The pilot program would require covered entities to submit a data report to a drugmaker within 45 calendar days of the drug being dispensed, with allowances for extenuating circumstances. The covered entities would then receive a rebate payment within 10 days of submitting their report. 

Drug companies approved to participate in the pilot would oversee the IT framework for submitting these reports and the release of the rebates, giving drugmakers the ability to deny a rebate payment if they detect a duplicate or otherwise improper claim. Alongside their other cost and burden concerns, hospitals have pushed back against that structure over worries that the drug companies could abuse their position to improperly hold up payments.

Dec. 1

Hospital groups file lawsuit to enjoin pharma-supported 340B rebate pilot

The hospital lobby has filed a lawsuit seeking to block the federal government’s 340B Rebate Model Pilot Program, which is set to swap out safety-net providers’ longstanding upfront drug discounts for after-the-fact rebates beginning Jan. 1.

The complaint and an accompanying motion for a temporary restraining order was filed Monday in the U.S. District Court for the District of Maine by the American Hospital Association (AHA), the Maine Hospital Association and four individual safety-net health systems.

In these, plaintiffs said the Health Resources and Services Administration’s (HRSA’s) one-year test run of a drugmaker-friendly rebate process been hastily rolled out and would impose “hundreds of millions of dollars’ worth of annual costs” for providers due to new administrative burdens.

They also highlighted the large sums hospitals and other covered entities would be forced to “float” to the drug industry while they wait for their rebates and suggested the model “would invite mischief from drug companies that have every incentive to slow and stymie the issuance of rebates, figuring that some number of rebates can be withheld from safety-net hospitals by throwing the proverbial ‘sand in the gears.’"

“For covered entities to continue providing their current levels of healthcare to their patients, this Court must quickly enjoin this unlawful, unnecessary, unexplained and substantively unreasonable program that jeopardizes one of the key pillars of U.S. healthcare—the 340B Program,” they wrote in the complaint.

The 340B program was enacted by Congress over 30 years ago to help subsidize safety-net care providers by manufacturer discounts on most drugs administered in the outpatient setting by covered entities.

Annual total spending on drugs through the 340B program has grown from $6.6 billion in 2010 to $43.9 billion in 2021, or an average of 19% per year, according to a recent analysis from the nonpartisan Congressional Budget Office, with other analyses suggesting continued growth in subsequent years. Drugmakers have pointed to the 340B program’s rapid growth as evidence that the subsidy program has exceeded Congress’ intent as a support pillar for struggling safety net hospitals.

Beyond the financial repercussions for hospitals participating in the drug subsidy program, plaintiffs’ bid to stop the pilot centers on a hasty rollout they described as “textbook disregard of administrative law” and a violation of the Administrative Procedure Act.

Here, they pointed to the pilot’s July 31 proposal, Sept. 8 public comment deadline, Sept. 15 application deadline for participating drugmakers and Oct. 30 application approval announcement. That pace gave the HRSA little time for meaningful review or adjustments to the program, the plaintiffs wrote, and gives hospitals about two months to meaningfully prepare for the Jan. 1 implementation.

Since October, the “HRSA has been largely absent as covered entities await further guidance on how the program will work in practice,” the plaintiffs wrote. “Indeed, on information and belief, HRSA has not even bothered to test the software platform on which this program is supposed to run—just one more example of the lack of careful consideration that has gone into this transformative decision.”

The plaintiffs went on to suggest the HRSA had “ignored” public comments submitted by more than 1,100 stakeholders. Many of these came from 340B hospitals telling the office that the pilot’s “massive costs” would outweigh the pilot program’s benefits, requests to delay the effective date and questions over why mandatory participation for the country’s roughly 14,600 covered entities was chosen over a more narrow test. 

“When the government announced its new rebate program just a few months ago, it recognized that it would fundamentally shift how the 340B program has operated for more than three decades,” AHA President and CEO Rick Pollack said in a Monday statement on the litigation. “When making such a major change, with such far-reaching consequences for patients and hospitals, it is important that the government follow the basic administrative rules of the road. Unfortunately, it did not do so here.”

The pilot program, as outlined by the HRSA, would require covered entities to submit a data report to a drugmaker within 45 calendar days of the drug being dispensed—with allowances for extenuating circumstances—and then receive the rebate payment within 10 days of submitting their report. The technical process for submitting these reports and the release of the rebate are largely under the purview of the participating drug companies, another sore point for hospitals concerned of insufficient oversight. 

Drugmakers approved to participate are Bristol Myers Squibb, Immunex Corporation, AstraZeneca AB, Pharmacyclics, Merck Sharp Dohme, Boehringer Ingelheim, Novo Nordisk and Janssen Biotech. The covered drugs include Eliquis, Enbrel, Farxiga, Imbruvica, Januvia, Jardiance, Stelara, Xarelto and multiple Novolog and Fiasp products. Additionally, Novartis has been approved to include another drug, Entresto, beginning April 1.

The plaintiff providers noted that the applications submitted by these drugmakers have not been made public, and the HRSA has not indicated how it judged those applications or whether any modifications to drugmakers’ plans were required.

The filings are a last-ditch effort from hospitals to head off rebate models they’ve opposed since last year, when pharmaceutical companies moved to impose similar changes on their own. These were largely rebuked by the prior administration and the courts, which ruled that the companies needed the government’s approval before making such changes.

Emily Jane Cook, a partner with McDermott, previously told Fierce Healthcare that the HRSA’s pilot appeared to be “materially more favorable to 340B covered entities” than the drugmakers’ versions but said that recourse for covered entities should a manufacturer improperly deny their rebate was an open concern.

Following October’s approval of rebate model pilot plans, a spokesperson for lobbying group PhRMA encouraged the HRSA “to move swiftly to broaden use of the rebate across all 340B covered outpatient drugs, enabling wider use of rebates within the program. Expanding this pilot would help strengthen program integrity while preserving critical support for true safety-net providers and the patients they serve.”

In September, a bipartisan group of 163 lawmakers urged the administration to cancel the pilot program due to concerns over hospitals’ administrative burdens. However, leading lawmakers have suggested they are open to reforming the program to limit misuse and cut down government spending so long as vulnerable hospitals—but not necessarily larger health systems—remain protected.