HHS Issues 340B Administrative Dispute Resolution Final Rule

According to statements in the preamble to the final rule, the new rule is intended to make the ADR process more accessible, expedite review of claims, promote the use of subject-matter expertise to resolve claims, and align the ADR process with the provisions set forth in the 340B statute. The following are key changes from the current ADR process as stated by HHS:

• Removing the requirements to follow the Federal Rules of Evidence and Civil Procedure;
• Limiting the ADR panel members to 340B subject matter experts from the HRSA Office of Pharmacy Affairs (OPA);
• Requiring all parties to engage in good-faith dispute resolution efforts before initiating the ADR process;
• Limiting claims to disputes involving overcharges, duplicate discounts and diversion; and
• Establishing a reconsideration process for ADR panel decisions.

In addition to HHS’s explicitly cited differences, the final rule makes other material modifications from the current rule, including some that were not incorporated into the proposed rule, and retains some provisions from the current rule that were not included in the proposed rule. Provisions that were absent from the proposed rule but are present in the final rule include:

• Requiring that each 340B ADR panel member undergo an additional screening for conflicts of interest prior to the review of a claim.

The stated purpose of this additional screening is to ensure that any ADR panelist involved in reviewing a specific claim was not directly involved in a previous decision concerning the specific issue of the ADR claim, including previous 340B ADR panel decisions. The final rule gives the Secretary of HHS authority to remove any individual from the roster of 340B ADR panelists for any reason, including from any 340B ADR panel to which the individual has already been assigned. This change was added in response to concerns raised by manufacturers about potential conflicts of interest by OPA staff members. Limiting the ADR panel members to OPA experts is likely to promote ADR panel decisions that more closely follow existing 340B program guidance.

• Allowing for the HRSA administrator to review and reverse, alter or uphold any 340B ADR panel or reconsideration decision.

Such a decision will represent the final binding decision of the agency, unless invalidated in federal court. The final rule emphasizes the HHS Secretary’s authority to not only review and reverse such decisions even in the absence of a request by a party, but also to oversee the entire 340B ADR process. This emphasis was added in response to comments by manufacturers noting the absence of a mechanism for review of a 340B ADR panel decision by a so-called “principal officer,” i.e., one appointed by the president with Senate confirmation. Likely related to this change and deriving from the same manufacturer concerns and litigation, the final rule includes an explicit severability provision. Presumably this is intended to ensure that the ADR process can continue even if a court invalidates one or more components of the final rule.

• Removing the provision suspending claims that are the same or similar to an issue pending in federal court.

This change was made in response to comments opposing this provision on grounds that an issue relevant to an ADR proceeding may be pending in several district courts and that court decisions may diverge and not achieve a final resolution of the issue. Commenters also noted that the ruling in Astra USA, Inc. v. Santa Clara County (563 U.S. 110 (2011)) determined that covered entities do not have a cause of action to sue manufacturers for 340B violations, and that the ADR process is an important forum for covered entities to bring such complaints. The proposed provision may also have been argued to have violated the Administrative Procedure Act to the extent that it would have prevented the 340B ADR panel from resolving a claim for an indefinite period of time, a divergence from HHS’s statutory mandate to issue final agency decisions binding on parties involved in a 340B dispute. Given the barrier that ongoing litigation over drug manufacturer restrictions on purchases of 340B drugs has presented to date in bringing related claims to the ADR panel, the ADR panel will likely receive a high volume of covered entity challenges to such manufacturer restrictions as soon as the new rules are effective.

• Restoring language explicitly stating that a manufacturer’s restriction on sales of drugs at or below the 340B ceiling price is an example of an “overcharge” eligible to be addressed by the ADR panel.

Although the current ADR rule includes language defining an overcharge to include manufacturer limits on a covered entity’s ability to purchase covered outpatient drugs at or below the 340B ceiling price, this language was removed from the proposed rule. Notwithstanding comments in the final rule’s preamble confirming that limits on purchases at or below the 340B ceiling price would be considered an overcharge but that a definition was not needed in the regulation, HRSA returned the explicit statement to the rule establishing that such limits are within the definition of an overcharge. The preamble includes similar language concluding that 340B drugs dispensed to Medicaid managed care enrollees are within the scope of duplicate discount claims that may be brought to the ADR panel, but HRSA opted not to add similar explicit language reflecting this position to the regulation text.

• Establishing an expectation that the ADR panel issue a decision within one year of receiving a complete claim for review.

In response to comments to the proposed rule that the ADR panels be required to resolve claims in a timely manner, HRSA finalized a provision that ADR panel reviews will be completed within one year, unless circumstances outside of the control of the ADR panel extend the period past one year. HRSA notes that the comments suggested periods of 45 to 180 days, yet HRSA finalized a one-year period with caveats that certain claims could take longer and provided no explanation of why the periods requested in the comments could not be met.

The final rule does not incorporate any new defined terms, notwithstanding language in the recent court opinion in Genesis v. Becerra suggesting that the statutory authority to issue formal regulations for the ADR process allows HRSA a mechanism to further clarify, and possibly codify in regulations, definitions of key defined terms necessary for the operation of the 340B program, such as a definition of “patients” eligible to receive 340B drugs.

NEXT STEPS

• 340B covered entities and manufacturers should carefully consider whether the new final ADR process provides opportunities to pursue claims subject to review by the ADR panel, and whether the new provisions in the final rule will result in the need to defend claims.

Because the current process has been so ineffectual and rarely used, it is difficult to determine how the final rule will change the landscape of 340B compliance enforcement for covered entities and manufacturers. Further, because the ADR process is intended to result in the issuance of a “final agency decision” that can be challenged in federal court, it would appear highly likely that many ADR panel decisions will be appealed to a federal district court and, depending on the outcome, higher federal appeals courts. Because there is likely to be a large volume of filings following the effective date of the final rule (June 18, 2024), stakeholders should consider preparing to file claims as soon as possible after the effective date.

• 340B covered entities should be prepared for increased manufacturer audit requests, particularly regarding Medicaid managed care duplicate discounts.

To date, although clearly established in the 340B statute, drug manufacturers may have been disincentivized to audit covered entities for diversion or duplicate discounts because there has been no functional process to enforce the results of any such audits. If the final rule is able to effectuate a workable ADR process, manufacturers may be more willing to expend the resources necessary to audit 340B covered entities. Recent activity by manufacturers as to Medicaid managed care duplicate discount inquiries and audits, as well as the final rule’s explicit endorsement of this issue as appropriate for claims to the ADR panel, suggests that this may be a particular area of focus.

• 340B stakeholders should keep a close eye on how the ADR panels approach claims from covered entities against manufacturers alleging overcharges due to restrictions on 340B drug sales. The outcome of these claims may provide insight into how ADR panels will evaluate conflicting positions on issues that come before them.

Notwithstanding commentary in the prior rule’s preamble alluding to an expected low volume of claims being brought to the ADR panel, the initial period following the implementation of the new final rule is likely to see a material volume of claims against manufacturers by covered entities alleging overcharges due to restrictions placed by the manufacturers on sales of 340B drugs. HRSA notes in the preamble that all claims will be reviewed taking into account “the 340B statute, relevant case law, all applicable regulations, and consider[ing] 340B policies and guidance documents” (emphasis added). The outcome of these claims is therefore difficult to predict, given that the opinion in the only related appeals court decision to date found that manufacturers are permitted to impose restrictions on 340B drug sales, while HRSA’s stated policy and government arguments in litigation hold that such restrictions are not permitted.

Various aspects of the new process will not be known until the ADR panels are up and running, such as whether the process will be subject to a judicial challenge from drug manufacturers, as occurred with prior attempts at implementing a functional ADR process. Despite these uncertainties, the new final rule represents an important development in helping to alleviate the ongoing challenges for both covered entities and manufacturers in participating in a federal program without formal regulations and with agency guidance and interpretations that have been subject to constant changes. To the extent that covered entities and manufacturers make robust use of the ADR process, it likely will result in the development of ADR decisions and possibly corresponding case law that will aid 340B stakeholders in carrying out 340B program operations.

The chart below compares key provisions in the current ADR rule, the previous proposed rule and the new final rule.