On December 10, 2020, the Health Resources and Services Administration (HRSA) released a Final Rule to establish an administrative dispute resolution (ADR) process and ADR panels to resolve certain 340B Program disputes between drug manufacturers and 340B covered entities.

The establishment of a 340B ADR process was mandated by the Affordable Care Act (ACA) more than 10 years ago. Nevertheless, the timing of the release has raised concerns regarding the effectiveness of the Final Rule in light of recent efforts by drug manufacturers to limit access to 340B drugs for dispensing under contracted pharmacy arrangements. Questions also remain as to when ADR panels will be established and begin hearing claims.

Background

Development and Timing of the Final Rule

The ACA requires the establishment of a binding ADR process for certain disputes between drug manufacturers and 340B covered entities arising under the 340B Program.

In 2010, HRSA issued an advanced notice of proposed rulemaking requesting input on the development of the ADR process, followed in 2016 by a proposed rule describing the ADR process and requesting further comments. The proposed rule was subsequently withdrawn in 2017, making the release of the Final Rule, more than three years later, somewhat unexpected.

The Final Rule

340B ADR Panels

The Final Rule establishes a 340B ADR Board (Board) consisting of at least six members appointed by the Secretary of HHS, with equal numbers of members from HRSA, the Centers for Medicare and Medicaid Services (CMS) and the HHS Office of General Counsel (OGC).

For each claim brought to HRSA for review under the ADR process, the HRSA Administrator will select three members of the Board to form an ADR Panel, one each from HRSA, CMS and OGC. There will also be one ex-officio, non-voting member from the staff of the HRSA Office of Pharmacy Affairs (OPA).

Jurisdiction

The 340B ADR Panel’s jurisdiction is restricted two types of claims and any issues ancillary to these types of claims:

1. 340B covered entities are permitted to bring claims that they have been overcharged for covered outpatient drugs by manufacturers.

2. Drug manufacturers are permitted to bring claims that a covered entity has violated the 340B Program prohibition on diversion or duplicate discounts.

Parties bringing claims before the 340B ADR Panel must generally do so within three years of the conduct giving rise to the claim and must seek damages exceeding $25,000, or seek equitable relief which will likely have a value of more than $25,000 during the 12-month period following the 340B ADR Panel’s decision.

Unlike 340B covered entities, drug manufacturers seeking to bring claims are subject to certain conditions prior to adjudication. Consistent with the 340B statute, drug manufacturers may only bring claims following a formal audit of a covered entity, which requires use of an independent auditor and approval of the audit protocol by HRSA. HRSA expects drug manufacturers and covered entities to attempt (and document) good-faith resolution of disputes before bringing them to the ADR Panel for review.

Joint or Consolidated Claims

Covered entities are permitted to jointly file claims of overcharges by the same manufacturer for the same drug or drugs. Additionally, an association or organization may file consolidated claims of overcharges on behalf of multiple covered entities if each covered entity represented could file a claim against the manufacturer, is a member of the association or organization, and has agreed to the representation by the association or organization.

Multiple manufacturers may request to consolidate claims against the same covered entity if the 340B ADR Panel determines that such consolidation is appropriate and consistent with the goals of fairness and economy of resources. However, in contrast to covered entities, associations or organizations representing the interests of drug manufacturers are not permitted to file consolidated claims on behalf of their members.

Information Requests and Sanctions

The 340B ADR Panel may request additional information from either party in a case. If a party fails to respond to an information request, the 340B ADR Panel may take actions such as:

1. Holding facts to have been established in the proceeding

2. Precluding a party from presenting or contesting a particular issue

3. Excluding evidence

4. Judgment in the proceeding or dismissal of proceeding.

ADR Proceedings

The 340B ADR Panel has discretion to determine the form and timeline of the ADR process. The Final Rule does require the 340B ADR Panel to conduct an evidentiary hearing when there are material facts in dispute. Further, unless the parties and the 340B ADR Panel agree otherwise, the Federal Rules of Civil Procedure and the Federal Rules of Evidence apply to the ADR proceedings.

Final Agency Action

Following the proceedings, the 340B ADR Panel members will decide whether a violation has occurred based on a preponderance of the evidence standard; that is, whether a violation is more likely to have occurred than not. The decision of a majority of the members of the 340B ADR Panel will be a precedential and binding final agency decision. The 340B ADR Panel will submit the final agency decision to all parties, and to HRSA for appropriate action regarding refunds, penalties, removal or referral to other appropriate federal authorities. Where appropriate, the 340B ADR Panel may make recommendations to HRSA for sanctions, including referrals to the HHS Office of Inspector General for its consideration of civil monetary penalties. Final decisions of the 340B ADR panel will be made public by CMS and will be subject to judicial review under the Administrative Procedures Act.

Key Takeaways

Timing

Although HRSA has not made any public statements addressing the timing of the Final Rule, it comes at a time when HRSA is under pressure to resolve the high-stakes contract pharmacy dispute between drug manufacturers and 340B covered entities. (Read more about this issue here.) 340B covered entities argue that drug manufacturers are openly violating the 340B statute and that HRSA has clear authority under the 340B statute to take punitive actions against drug manufacturers. While the ADR process could provide a venue to resolve the dispute, forcing 340B covered entities to rely on the ADR process could greatly prolong the path to resolution.

Implementation

Although the effective date of the Final Rule is January 13, 2021, it may be many months or years before covered entities and drug manufacturers are able to see results from the ADR process. Further, the Final Rule could be subject to legal challenges based on the delay between the proposed rule and the Final Rule, the use of the decisions as a method of rulemaking, or other procedural concerns.

Formalized Process

The Final Rule creates a significantly more formalized process for review and disposition of 340B Program compliance issues than has historically been undertaken by HRSA. The adoption of certain aspects of the Federal Rules of Civil Procedure Federal Rules of Evidence and establishment of a clear pathway to final agency action subject to judicial review pursuant to the Administrative Procedure Act will bring a materially different tone and structure to 340B Program oversight. This process contrasts with prior experiences under the existing 340B self-disclosure and audit processes, which are generally informal, as compared to other federal administrative review and adjudication processes.

Back-Door Rulemaking

The Final Rule is also notable in establishing that the decisions of the 340B ADR panel will be precedential and will address areas of 340B Program requirements for which HRSA does not have rulemaking authority. For example, the Final Rule identifies claims of diversion related to patient and covered entity eligibility (including whether a pharmacy is part of a covered entity) and claims of duplicate discounts arising as to Medicaid Managed Care claims as within the scope of the 340B ADR Panel. This raises concerns that the decisions of the 340B ADR Panel could be used by HRSA as a “back door” to creating binding requirements for 340B Program compliance that it could not otherwise impose without a change in the 340B statute granting HRSA rulemaking authority over 340B diversion and duplicate discount requirements, subject to potential vulnerability to legal challenge.