U.S. House Democrats and Republicans “Deeply Concerned” About 340B Rebate Model

Six U.S. House members—three Democrats and three Republicans—are asking House colleagues to sign a letter to U.S. Health and Human Services (HHS) Secretary Alex Azar expressing deep concern about drug industry technology services company Kalderos’ work with drug manufacturers to reconfigure the 340B drug pricing program “from one of up-front discounts to post-sale rebates.” The lawmakers—Reps. Abigail D. Spanberger (D-Va.), Cindy Axne (D-Iowa), David McKinley (R-W.Va.), Dusty Johnson (R-S.D.), John Katko (R-N.Y.), and Doris Matsui (D-Calif.)—set a Friday deadline for signatures.

In a cover letter to their House colleagues, the six lawmakers said “such a change would greatly harm Community Health Centers’, Ryan White HIV/AIDS clinics’, safety-net hospitals’, and other covered entities’ access to 340B savings. It also threatens to cause manufacturers to be in violation of their statutory responsibility to provide 340B pricing, creating significant compliance issues.”

The lawmakers said their letter to Azar urges the U.S. Health Resources and Services Administration (HRSA) “to make clear that manufacturers and third-party vendors may not unilaterally change 340B into a rebate model without HRSA’s approval.” The lawmakers also said their letter to Azar says “HRSA must go through a formal rulemaking process with notice and comment before making any such change.”

Their letter also asks Azar to answer by Nov. 1:

·         Has Kalderos, any other third-party vendor, or any drug company sought input from HHS regarding the use of a rebate model [for] covered entities?

·         What guidance has HHS provided to Kalderos, any other third-party vendors, or drug companies regarding the use of a rebate model for covered entities?

·         What oversight, if any, would HRSA have into the operations of [Kalderos’ 340B discount-to-rebate platform] or similar third-party platforms that provide manufacturers with significantly more authority over the 340B program and jeopardize their compliance with 340B statutory requirements?

·         What steps would be taken to ensure that drug companies not deny 340B pricing to covered entities and that covered entities would be able to access 340B pricing in a timely manner and without facing unnecessary administrative or financial burden?

The text of the letter to Azar says “unilaterally forcing 340B participants to purchase drugs at list price and then request rebates would give drug manufacturers tremendous leverage over covered entities.” It continues:

This action is also inconsistent with HRSA’s long-standing guidance that the 340B program is an up-front discount program. HRSA issued guidance in both 1993 and 1994 stating that discounts must be made available to 340B covered entities. In addition, HRSA has previously only allowed the use of a rebate model in a limited case, and only after issuing guidance through the notice-and-comment process and soliciting feedback from stakeholders.

This platform could make participation in 340B more difficult for covered entities, effectively reshaping the 340B program in a way that only serves manufacturers’ and these third-party vendors’ financial interests. These tactics open the door for significant compliance issues, threatening to put manufacturers in violation of their statutory obligation to provide 340B pricing.

We asked Kalderos for comment about the lawmakers’ concerns. It said:

We created the 340B rebate model after working with thousands of covered entities to identify where 340B duplicate discounts are occurring and the underlying root cause for why they continue to happen even with best efforts to prevent them. The 340B statute supports the use of rebates and discounts. Kalderos designed 340B Pay working closely with covered entities, manufacturers, and states in order to ensure it was non-burdensome for covered entities large and small. Finally, 340B Pay's rebate process has been compliantly implemented, consistent with the statute. 

In late August, Kalderos announced a platform, 340B Pay, under which manufacturers would choose which drugs to pay rebates on in lieu of 340B discounts, on an NDC by NDC basis, and on which drugs to pay traditional 340B discounts. For NDCs on which rebates would be paid instead of discounts, covered entities would have to use 340B Pay or connect their pharmacy software to Kalderos’ software to request reduced 340B pricing. Manufacturers would then use the platform to identify “noncompliant discounts,” including Medicaid, Medicare Part D, and commercial managed care rebates. After this validation process, manufacturers would “approve appropriate 340B rebate requests and authorize electronic 340B discount payments to 340B covered entities,” Kalderos said.

Kalderos told 340B Report that 340B Pay would be configured by default to honor covered entities’ requests for 340B payments in the event of duplicate requests for rebates for drugs dispensed to Medicaid managed care or commercially insured patients. The final decision, however, would be up to participating manufacturers, it said.

340B Pay was slated to launch on Sept. 8, but did not, and there have been no further announcements from the company about a new launch date.

340B Pay’s delayed launch roughly coincided with separate moves by five drug manufacturers—Lilly, AstraZeneca, Sanofi, Novartis, and Merck—either to stop providing 340B pricing on drugs dispensed by contract pharmacies, or to condition continuation of 340B pricing for contract pharmacies on covered entities’ provision of pharmacy claims data to let the companies look for and act on overlapping 340B discounts and Medicaid, Medicare Part D, and commercial rebates.

Lilly, Astra Zeneca, and Sanofi’s denials of 340B pricing have created a firestorm of controversy—apparently with blowback on Kalderos.

Kalderos told 340B Report in August that it communicated with HRSA during 340B Pay’s design and testing. It said HRSA “has not identified any enforcement issues raised by our model.”

HRSA told 340B Report in late September that it “is aware of the Kalderos model and is in the process of reviewing and determining next steps.” We had asked HRSA to comment on reports that Kalderos and/or manufacturers that have contracted with it asked either HHS, HRSA, or both to grant a waiver to let drug manufacturers provide 340B ceiling pricing to covered entities in the form of a rebate.

In late September, HHS General Counsel Robert Charrow told Lilly it should not have interpreted the absence of a final determination by HRSA about the legality of Lilly’s plans to limit 340B pricing to contract pharmacies on virtually all of its products as a green light to implement those plans on Sept. 1.

Hospital group 340B Health asked Azar last month either to reject a 340B rebate model or to approve one only after publishing 340B program guidance subject to notice and comment. The National Association of Community Health Centers (NACHC) last month characterized “forcing health centers to pay full sticker price for medications upfront and then deciding if and when to reimburse them for the discounts required under the statute” as an attack against the 340B program.

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