MATSUI, SPANBERGER AND COLLEAGUES LEAD SUCCESSFUL BIPARTISAN EFFORT TO PREVENT JOHNSON & JOHNSON’S ATTEMPT TO HIKE PRESCRIPTION DRUG PRICES

ASHINGTON, D.C.- U.S. Representatives Doris Matsui (D-CA-07), Abigail Spanberger (D-VA-07), Dusty Johnson (R-SD-AL), Rob Wittman (R-VA-01), Debbie Dingell (D-MI-06), and Tracey Mann (R-KS-01) on Friday led a bipartisan group of 188 House colleagues in urging the U.S. Department of Health and Human Services (HHS) to quickly prevent burdens on providers and patients caused by Johnson & Johnson (J&J)'s impending blatant violation of the federal 340B Drug Pricing Program. Today, after this Congressional engagement, J&J communicated to HRSAthat they would no longer be pursuing this policy.

Following this strong bipartisan show of support for the 340B program, J&J reversed their August 23, 2024 decision to transition two drugs - STELARA and XARTELO - currently available at a direct discount under the 340B program to an unapproved rebate model. This decision preserves decades of federal law and longstanding guidance from HHS's Health Resources and Services Administration (HRSA) which ensure direct discounts for hospitals primarily serving low-income communities. This averted the potentially harmful impacts on care for patients in underserved communities in which providers may have no longer been able to afford the upfront cost of the drug without a direct discount.

In a letter sent Friday to U.S. Secretary of Health and Human Services Xavier Becerra, the lawmakers urged the Department to act swiftly to prevent the significant financial challenges and administrative burdens for safety net hospitals and patients that would have been caused by J&J's transition to a rebate model, including pursuing available enforcement actions. Additionally, the lawmakers underscored how switching to a rebate model would have violated the 340B statuteand threatened access to care for the most vulnerable Americans.

"We write to express our concern over the Johnson & Johnson (J&J) plan to upend more than 30 years of federal law by delaying access to 340B discounts on pharmaceuticals for certain safety-net hospitals. J&J aims to impose new extra-statutory rules for hospitals to follow as a condition of accessing those discounts. This unapproved and unlawful change would have severe consequences for our nation's safety net providers and the patients they serve," wrote the lawmakers. "We understand that J&J is moving forward with this proposal despite being told by the Health Resources & Services Administration (HRSA) that the company's proposal is inconsistent with the 340B statute."

"Under the rebate model, these safety-net hospitals would be required to purchase drugs at the high sticker price of wholesale acquisition cost (WAC), instead of at the substantially lower 340B discount, and wait for an undetermined period to receive the 340B discount as a rebate," the lawmakers continued. "This model reduces resources available for patient care, undermining the core purpose of 340B."

Experts and 340B-covered providers who supported this bipartisan effort include the National Association of Community Health Centers, Association of American Medical Colleges, National Rural Health Association, Children's Hospital Association, AIDS United, the American Hospital Association, Advocates for Community Health, the Alliance of Safety-Net Hospitals, America's Essential Hospitals, the American Society of Health-System Pharmacists, and 340B Health.

The full text of the letter is available below and here.

Dear Secretary Becerra,

We write to express our concern over the Johnson & Johnson (J&J) plan to upend more than 30 years of federal law by delaying access to 340B discounts on pharmaceuticals for certain safety-net hospitals. J&J aims to impose new extra-statutory rules for hospitals to follow as a condition of accessing those discounts. This unapproved and unlawful change would have severe consequences for our nation's safety net providers and the patients they serve. We understand that J&J is moving forward with this proposal despite being told by the Health Resources & Services Administration (HRSA) that the company's proposal is inconsistent with the 340B statute. We urge you to protect safety-net hospitals by taking immediate action to prevent J&J from moving forward with this devastating change to 340B.

On August 23, 2024, J&J announced its intent to cease providing upfront 340B discounts on the price of drugs, instead instituting a back-end rebate model for hospitals that participate in 340B as disproportionate share (DSH) hospitals, the largest category of 340B covered entities. Despite the lack of legal authority and existing infrastructure that would be necessary to impose it, this policy will go into effect on October 15, 2024.

Under the rebate model, these safety-net hospitals would be required to purchase drugs at the high sticker price of wholesale acquisition cost (WAC), instead of at the substantially lower 340B discount, and wait for an undetermined period to receive the 340B discount as a rebate. This model reduces resources available for patient care, undermining the core purpose of 340B. 340B DSH hospitals provide high levels of care to patients with low incomes and are responsible for 75% of all hospital care to Medicaid patients and 60% of uncompensated care. 340B savings enables hospitals to expand access to necessary services that improve patient care, subsidize many essential services that operate at a loss, and support community health initiatives.

Congress intended 340B to provide financial resources to the nation's safety-net hospitals that serve a disproportionate share of patients with low incomes as well as those living in rural areas. A rebate model would severely undermine that purpose. As HRSA has stated, it is not in compliance with the law and the Department of Health and Human Services (HHS) should act quickly to prevent the financial impact and burden this change would create for safety-net hospitals across the country.

A rebate model would create significant financial challenges for safety-net hospitals, which already are operating under much lower operating margins than non-340B hospitals. J&J's announcement states that rebate payment would be received within 10 days after the claim is "validated." Without any description of what it means to validate a claim, and no timeframe provided for that validation, hospitals could be carrying that high cost for months to the sole benefit of J&J. Many hospitals also would be forced to hire new full-time employees to develop new purchasing arrangements as well as to monitor, validate, and reconcile the rebates. Moreover, there is no existing infrastructure for accumulating and sharing the data that J&J would require for hospital rebate claims.

Medicaid programs throughout the country would also be impacted by this proposal. More than 35 state Medicaid fee-for-service (FFS) programs require covered entities to bill 340B drugs at actual acquisition cost (AAC), which is based on the invoice price paid for that category of drugs. Under J&J's rebate model, the invoice price would be the high WAC price, depriving states of upfront savings and requiring an entirely new infrastructure or process for reconciling payments if a J&J rebate is received.

The 340B statute requires manufacturers to offer a discounted price on the "purchase" of drugs. Providers must comply with rules governing to whom the drugs are dispensed and other requirements that HRSA oversees. J&J's proposed rebate model violates the statute by requiring providers to purchase drugs at WAC and submit data to the manufacturer for "validation." Instead, J&J's rebate model hijacks HRSA's oversight role and delays the benefit of the 340B price until some undetermined date. This approach is to the manufacturer's financial benefit because the company retains those sums for a longer time.

The rebate approach also runs contrary to longstanding HRSA program guidance that distinguishes rebates and retroactive discounts from upfront 340B discounts. In the more than 30-year history of 340B, HRSA has permitted rebates in only one limited circumstance to accommodate state AIDS drug assistance programs (ADAPs). Many ADAPs reimbursed pharmacies for drugs rather than purchasing them directly and therefore were unable to access a 340B discount at the point of purchase. Also, while a recent decision by the U.S. Court of Appeals for the D.C. Circuit found manufacturers could impose some conditions on 340B providers' ability to access discounts, it was clear that "onerous" conditions may violate the 340B statute.

The 340B program was created to serve our most vulnerable neighbors. J&J actions threaten both the integrity and effectiveness of the program. With these concerns in mind, we respectfully request the following information.

1. What enforcement tools can HHS leverage to ensure that J&J, and other companies who attempt to use an unapproved rebate model, remain compliant with 340B statutory requirements?
   1. Will HRSA consider imposing civil monetary penalties against J&J for overcharging disproportionate share hospitals by denying direct discounts on the purchase of 340B drugs and instead offering unapproved rebates?
2. What oversight, if any, would HRSA have into J&J's rebate model, including ensuring that covered drugs are not denied and that discounts are repaid to covered entities in a timely manner without facing unnecessary administrative or financial burden?
3. Have any other manufacturers ever sought guidance from HHS regarding the use of a rebate model for covered entities? How has HHS approached these inquiries?

We appreciate HHS's continued efforts to support 340B, and we look forward to partnering with you to ensure 340B continues to enable hospitals to meet their communities' needs. Thank you for your prompt consideration of these important matters.

BACKGROUND

The 340B Drug Pricing Program was enacted by Congress in 1992 with bipartisan support and is overseen by HHS. The program requires that pharmaceutical companies give safety net and rural healthcare providers discounts on their drugs, in exchange for having their drugs covered by Medicaid.

The program has a demonstrated record of protecting patients who are low-income, live in underserved communities, or suffer from serious chronic illnesses from the threat of skyrocketing prices for the drugs they depend on the most.

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