Regulatory Market Update

Updates for Pharma Manufacturers

As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting Lead or and we would be happy to talk you through it.

Supreme Court Rules in Favor of Hospitals in Case Against 340B Rate Cuts

On June 15, 2022, the Supreme Court, in a unanimous decision written by Justice Brett Kavanaugh, reversed the Department of Health and Human Services (HHS) decision in 2018 to reduce 340B hospital reimbursement rates. The case was brought forth by the American Hospital Association (AHA) and other hospitals across the US.

In 2018, HHS made the decision to establish two types of payments to hospitals: one for 340B hospitals and one for non-340B hospitals. The reimbursement rate was set to Average Sales Price (ASP) plus 6% for non-340B hospitals, while reimbursement to 340B hospitals was reduced to ASP minus 22.5%, based on “an estimate from the Medicare Payment Advisory Commission that 340B hospitals obtained prescription drugs at an average discount of at least 22.5 percent below the average sales price charged by manufacturers.”1 With this decision, reimbursement to 340B hospitals will return to ASP plus 6% for each covered drug.

Under the 2003 law that expanded Medicare to cover prescription drugs, HHS has two options to set reimbursement rates. Option 1 applies if HHS has conducted a survey of hospitals’ acquisition costs for each covered outpatient drug. Under this option, HHS may set reimbursement rates based on hospitals’ “average acquisition costs” and may adjust reimbursement rates by hospital group.2 Absent a survey of hospital costs, option 2 allows HHS to set reimbursement rates based on ASP.3 Option 2 does not allow HHS to vary reimbursement rates for different hospital groups. From 2006-2018, when HHS decided to adjust hospital reimbursement rates, HHS did not conduct a survey of hospital costs, so the Court argued that because HHS did not conduct a survey, it was not afforded the discretion to vary reimbursement rates by hospital group. 

For manufacturers with buy and bill products, this will likely make their products more profitable at 340B facilities, due to the increased reimbursement rate.

  2. Supreme Court Unanimously Rules in Favor of Hospitals in 340B Decision
  3. Hospitals win SCOTUS case against 340B rate cuts

Pharma vs 340B Program

Contract Pharmacy arrangements with certain qualified hospitals and HRSA’s federal directives opening that door has caused quite a stir with many large pharmaceutical companies. So much so that many have stopped access or are planning to stop access for those such pharmacies while others have filed suit against HRSA. As of this writing, HRSA has posted 13 letters of Correspondence and a few follow-up letters(1) to stakeholders that are going against the HRSA regulations. Some of those companies include Merck, AstraZeneca, Novartis, and Sanofi (to name a few). The follow-up letters from HRSA threaten Civil Monetary Penalties (CMP) and is referring those that do not comply with the HHS OIG in accordance with the 340B Program ceiling price and Civil Monetary Penalties Final Rule.2 

Due to the federal directives placed by HRSA recently, the 340B membership has expanded tremendously and has opened the opportunity for duplicate discounts and diversion which highly impacts pharmaceutical companies.  On the other end, pharmaceutical companies going against the rulings are causing many hospitals to lose millions of dollars and 340B providers not retaining their normal large discounts. The end patient is being impacted the most by either paying more or having to change their medications to something that may or may not be as effective but is more affordable. There is not an end in sight in the foreseeable future, with some courts agreeing with HRSA and another court stating that it could be interpreted differently. HRSA argues that nowhere in the 340B statute does it state that pharmaceutical companies can place conditions on their statutory obligations. Time will tell if more pharmaceutical companies join the fight against HRSA or if the HHS OIG will take extreme actions first. 

  2. HRSA Letter to AstraZeneca Regarding Sales to Covered Entities through Contract Pharmacy Arrangements

Avoiding the Inflation Penalty

Notes from the Consumer Price Index-Urban

All of us as Americans are acutely aware of the rising inflation rampant across the country right now when it comes to commodities such as food and gas. But have we given thought to what this period of high inflation means to the pharmaceutical manufacturer enrolled within Federal Contracts which often include pricing penalties calculated around the Consumer Price Index Urban (CPI-U)?

For the past 13 months, we have seen an unprecedented increase in the CPI-U from ~1.5% year over year, to the current 8.6% published for May 2022. This has created an environment in which modest price increases of 3-5% are often no longer triggering the inflation penalty due to prices rising faster than inflation. For products that were already experiencing inflation penalties, this period has also given reprieve or even full relief of the penalty, as the Allowable AMP has caught up to the Current AMP.

If we listen to our Fed Chair, Jerome Powell, we would have thought this inflation to be transitory. But after a solid 9 months of continuous increases*, this period does not seem to be deflating as soon as quickly as expected. When inflation does finally slow, and the CPI-U rates return to historical averages of ~1-2% manufacturers will again want to closely monitor their price increases as they will more easily trigger the inflation penalty.

IntegriChain has experienced individuals and cutting-edge models to help manufacturers navigate this changing landscape and maximize potential pricing opportunities. If you think this is an area that is important to you, please contact your consulting lead or account manager today. 

*CPI-U decreased from 8.5 to 8.3 in April but immediately reversed course and increased to 8.6 in May 2022.


Consumer Price Index Historical Tables for the U.S. City Average

Learn More

Webinar: 340B at 30 and the Impending Cliff on the Road to 40

About the Author

Marta Rutherford

Marta Rutherford

Manager, Operational Consulting

Marta Rutherford is a manager in IntegriChain's Operational Consulting team. Marta has more than 20 years of industry experience working with mid-size Pharma in all areas of the Contracts and Pricing space. She brings extensive experience in the Government Pricing area, State Price Transparency Reporting, system implementations, chargeback validation, rebate processing, GP calculations, negotiations of contracts, and managing and negotiating the Federal Supply Schedule. She is currently focused on managing the Government Pricing and State Price Transparency Reporting areas.

About the Author

Michael Gorokhovsky

Michael Gorokhovsky

Manager, Operational Consulting

Michael has over seven years of experience in life sciences and healthcare consulting, working with small startups and single-physician offices to some of the largest manufacturers and health systems in the US. Michael began his career at Deloitte Risk and Financial Advisory, specializing in Bona Fide Service Fee and Fair Market Value analyses. Michael also has experience working with manufacturers, payers, and providers on various finance, M&A, systems implementation, and change management projects.