0:14

A HLA is pleased to present this special series

0:16

highlighting the top 10 health law issues of

0:19

2024, where we bring together

0:21

thought leaders from across the health law field

0:23

to discuss the major trends and developments

0:25

of the year. Support for A

0:27

HLA in this series is provided by PYA,

0:30

which helps clients find value in the

0:32

complex challenges related to mergers and acquisitions,

0:36

clinical integrations, regulatory compliance,

0:40

business valuations , and fair market value

0:42

assessments, and tax and assurance.

0:44

For more information, visit PYA

0:47

pc.com.

0:49

My name is Sarah Bowman , and I'm a consulting

0:51

principal. I work primarily in the revenue and compliance

0:53

advisory area of PYA . Really

0:56

excited for today's discussion on three

0:58

40 B developments to watch . This is

1:00

part of ALA's top 10 issues in

1:02

Health Loss series . I'm joined today with

1:05

Jolie Bollinger from Sharp Healthcare and Andrew

1:07

Reskin from KL Gate .

1:11

Nice , nice to meet everybody. Uh , I'm a

1:13

partner in the DC office of , of

1:15

, uh, canal gates , uh, and

1:18

, uh, do a a lot of three 40

1:20

B along with , uh, uh,

1:22

any ancillary areas such as Medicare, Medicaid, reimbursement

1:25

and compliance.

1:27

Hi, Sarah said , I'm Jolie Bollinger, privileged

1:30

to serve as Deputy General Counsel of

1:32

Sharp Healthcare in San Diego,

1:34

California. And happy to be

1:37

with the two of you today and

1:39

everyone else to talk about three 40 B.

1:42

Thank y'all so much. So let's get started. So

1:45

last year we saw plenty of

1:47

industry chatter and ongoing litigation as

1:50

Doug manufacturers continue to tighten access

1:52

to three 40 B pricing through

1:54

contract pharmacy restrictions. What

1:57

should covered entities be expecting for

1:59

this year? Should we expect kind of the same

2:01

level of activity and the same level of scrutiny,

2:03

or what are you all seeing from, from your

2:05

perspective?

2:08

So , Sarah , I'll take out my crystal ball and

2:11

we have pretty good basis to

2:14

believe that the activity will continue.

2:17

We should see a lot of action

2:20

in 2024, and I describe it

2:22

that way because who knows at this

2:24

point whether the action will turn into

2:26

developments, but through the

2:28

first couple of months of the year, we've

2:31

certainly seen a lot of activity.

2:34

So I'll categorize those in a

2:36

couple of buckets as we talk about what

2:38

we've seen and maybe what we'll see through

2:40

the remainder of the year. The

2:43

first overall topic is contract

2:46

ies . So we saw a lot of activity

2:48

in 2023. We

2:51

saw a decision from the third circuit,

2:53

and here we are in 24. So what

2:55

have we seen so far in

2:58

January? Started off early in

3:00

the year we saw the 29th drug

3:02

maker Tata pull

3:05

out of the contract pharmacy

3:07

program where much

3:10

like its other 29 manufacturers,

3:13

Tata decided that they would no

3:18

longer sell three 40 B discounted

3:20

drugs to contract pharmacies

3:24

through 23. We

3:26

saw a lot of health systems and

3:29

hospitals that participate in the program take

3:31

action to try to shore

3:33

up patient access

3:35

to those three 40 B price drugs.

3:39

I would expect that we'll continue to

3:41

see that through 2024

3:44

going right along with that manufacturer

3:47

action. And the 29 manufacturers

3:49

that have pulled out, we are still

3:51

awaiting decisions from the

3:54

seventh circuit and the DC circuit in

3:56

the contract pharmacy litigation. So

3:59

the Eli Lilly case in the seventh circuit,

4:01

the Novartis case in the DC circuit

4:04

remain undecided. We

4:06

have been waiting for a while on those decisions

4:09

and hopefully we will see some action

4:12

and opinions on those cases

4:14

in 2024. In

4:17

addition to that federal circuit action

4:20

and cases that are ongoing, we

4:23

have states that are getting active in

4:25

the space of three 40 B trying

4:27

to preserve the right of contract

4:29

pharmacies to obtain

4:32

the three 40 B discounted drugs.

4:35

And we've seen states pass

4:37

laws that actually require

4:41

those manufacturers to

4:44

sell the discounted drugs to community

4:46

pharmacies. Two of those laws, one

4:49

in Arkansas and one in Louisiana,

4:52

are both currently engaged in

4:54

litigation. We

4:56

may see opinions on those cases this

4:58

year, but in the meantime, Arkansas

5:01

in particular is continuing

5:03

to attempt to get those

5:06

discounted drugs into community

5:08

pharmacies and actually struck

5:10

a deal with Novo Nordisk

5:13

in relation to having

5:15

the community pharmacies access

5:18

the three 40 B discounted prices. So

5:21

a lot of activity in that one

5:23

portion of three 40 B with contract

5:25

pharmacies that we will

5:28

see action on and hopefully some

5:30

decisions through 2024.

5:34

The other aspect that I wanted to

5:36

talk about is congressional action.

5:39

So that's been high on everyone's list.

5:42

Many of the providers in the three party

5:44

B space responded to

5:47

the request that we saw come

5:49

out through an RFI issued

5:52

by the three 40 B committee,

5:54

and I use that in air quotes , not official committee,

5:57

but the congressional committee that was

5:59

requesting information. 300

6:01

providers responded. I would

6:03

imagine many in Congress

6:06

are going through those responses and

6:08

trying to determine exactly

6:10

what to do with those responses. And

6:13

we've seen some action. So we

6:15

continue to see Senator Cassidy reaching

6:17

into the three 40 B program. There

6:20

was a letter that came out in the fall

6:22

requesting information from Walgreens

6:25

and CVS in connection

6:27

with their participation in the contract pharmacy

6:29

program. Those responses were

6:31

due in early February. If

6:34

you search for the letters and review them,

6:36

they are extensive. I can

6:38

only imagine the efforts that may have gone

6:41

into responding, but that process

6:43

continues to be ongoing in

6:47

larger news and maybe we'll

6:49

see action, although I'm

6:51

suspicious , um, of how this

6:54

one may turn out. But we did see at

6:56

the beginning of February, a bipartisan

6:59

group of six senators issue a

7:01

discussion draft of the legislation. The

7:03

legislation is entitled Sustain

7:06

three 40 B Act and

7:08

the legislation or the proposed discussion

7:11

draft is not legislation in this

7:13

ordinary sense . When we see it, it's

7:16

actually a document that explains

7:19

the goals that are trying to be achieved, which

7:22

is clarity, transparency, and

7:24

accountability, coupled with

7:26

an RFI where additional information

7:29

is requested . If

7:31

you represent a provider in the three 40

7:33

B space or if you are in-house

7:36

with a three 40 B covered

7:38

entity, definitely take time

7:40

to review that particular sustained

7:43

three 40 B act. It has

7:46

several provisions that we've seen for

7:48

years in three 40 B, such

7:50

as requesting information on the

7:52

definition of patient, a discussion

7:55

on contract pharmacies, and

7:57

what this bipartisan group

7:59

is thinking. However,

8:01

there are new aspects of

8:04

the act such as creating

8:06

a national clearing house for data

8:08

sharing to ensure that duplicate

8:11

discounts are not charged

8:13

to manufacturers. Also

8:16

having a user fee on

8:18

covered entities to

8:20

help fund some of the processes

8:23

that need to be built around three

8:26

40 B and a whole host of

8:28

other items. Again,

8:30

the responses are due by April

8:32

1st. There are groupings

8:35

within the healthcare community

8:38

of different entities, some on very

8:40

different spectrums coming together

8:42

to submit those responses

8:45

and comments. So you may want to

8:47

be on the lookout for that. The

8:50

last thing I want to touch on, which I

8:52

view as unusual for three

8:54

40 B, is the lack of overall

8:56

media attention that we've

8:58

seen in 2024. Some

9:00

of you may have noticed in late

9:03

January, several different

9:05

interest groups in connection with three 40 B.

9:08

Were taking out full page ads in

9:10

newspapers where three

9:12

40 B and the position of

9:15

the particular sponsors of

9:17

the advertisement were publicly

9:20

advertising views, connecting

9:22

readers to websites where more information

9:25

could be obtained. And also

9:27

an article in January published in

9:29

the New England Journal of Medicine, discussing

9:33

the connection between hospital

9:35

prices and cost

9:37

of drugs in connection with physician

9:40

, um, prescriptions for

9:42

privately insured patients. So

9:45

to wrap all of that up into one

9:47

summary, Sarah , much

9:50

activity, not sure at this

9:52

point what the outcome will be, but

9:55

we certainly are waiting for a lot of information

9:57

that we've frankly been waiting for a while to

10:00

review and receive.

10:02

That's really helpful, Jolie . Thank you. Um,

10:05

you , you touched on briefly kind of the,

10:08

the , the patient definition, and I wanna

10:10

dig into that just just a little bit more if

10:12

we can. So , um, we know that

10:14

back in November, the US District Court

10:16

for the District of South Carolina ruled

10:19

that HRSA's limitations on qualified

10:21

patients have covered entities were unlawful.

10:24

Course this decision only applies to the Genesis

10:26

case and to Genesis specifically right

10:28

now, it does demonstrate that

10:31

opportunity for providers and, and

10:33

also for manufacturers to

10:35

interpret versus patient definition

10:38

themselves and, and, and challenge

10:40

it. So at this point, that definition

10:42

is about 28 years old. My

10:45

math is correct. It's , it's, it's not young

10:47

anymore. Pretty mature. Um,

10:49

so should we expect to see other

10:52

cases brought forward like the Genesis case,

10:54

what can we, what can we expect? Again, crystal

10:56

ball, what , what do you, what do you think, Andy?

10:58

Yeah, so, and there is , there

11:01

is at least one case that is percolating.

11:03

Um, uh, there's a , uh, a

11:06

, a group of of covered entities that

11:08

are suing , uh, HRSA for,

11:11

its, its, its , uh, reversing

11:13

course , uh, with respect to , uh,

11:16

child sites , uh, where HRSA

11:18

back in the fall , uh, suddenly said

11:21

that even though it had already acknowledged

11:24

in , uh, July of 2020, that

11:26

it didn't have the regulatory

11:28

authority necessary to

11:31

create these child sites and

11:33

require that they be on the cost report,

11:36

it nevertheless is now saying that , um,

11:39

you know , other than in a limited set

11:41

of instances where a site might be grandfathered

11:44

, uh, that , uh, the , uh,

11:46

the sites are no longer gonna be be allowed

11:49

going forward unless and until

11:51

they're on the cost report. So there

11:53

are approximately, I wanna say 40 , uh,

11:56

covered entities that are challenging

11:58

that particular policy. So

12:00

we, we, the, the Genesis case was

12:02

not the end all and be all , uh,

12:05

associated with , uh, where things

12:07

stand now. Uh, you

12:09

have to understand that, as Julie mentioned

12:12

there, there are two other circuit courts that

12:14

are looking at the contract pharmacy

12:16

issue. And anytime you

12:18

have either side of the equation,

12:20

whether it be manufacturer's covered

12:24

entities that are challenging anything

12:26

about three 40 B, what they're really challenging

12:28

is, is hearst's ability

12:31

to set ground rules. And so

12:33

anytime either side wins, both

12:36

sides wins, both sides win, and

12:38

they also both lose. Uh, so it's,

12:40

it's really important to just understand, look,

12:43

anytime that that hearst's authority is

12:45

just whittled down, then that's

12:48

either good or bad, or both for

12:51

both sides. So even though one wouldn't

12:53

think about those two other ca circuit

12:55

court cases as being

12:57

meaningful for the patient definition

13:00

as opposed to simply contract pharmacy

13:02

authority, they still are. Um,

13:05

and , uh, chances are there will be enough

13:07

uniformity among all of these cases

13:10

in terms of the , uh, deference

13:12

that is going to hrsa, the

13:14

ability for HRSA to, to, to

13:17

essentially just , uh, say what

13:19

is allowed and not what is required, that

13:21

there won't be enough dissonance among

13:24

these different opinions to result

13:26

in the Supreme Court taking up action. And

13:28

as a result of that, where , whereas the

13:31

definition of patient will continue

13:33

to evolve, at least as a matter of law , uh,

13:36

it will not necessarily , um,

13:38

uh, mean that , uh, hrs

13:41

, uh, HRSA's position will be challenged at the Supreme

13:43

Court. Uh, so, so

13:45

that's how I think we're gonna see some of this case law continue

13:47

to play out on both the patient side

13:49

as well as on the contract pharmacy side.

13:53

So, Andy, thanks so much. That's, that's really

13:55

helpful. And it's fair to say that

13:57

these items are absolutely creating confusion

13:59

for three 40 B covered entities who

14:01

are really trying to do the right thing for their patients

14:04

and for their program compliance. In

14:06

light of, of this environment that everyone

14:08

is, is operating in today and these developments

14:11

and the continued uncertainty, are

14:13

there things that covered entities should be

14:16

focused on right now, you know, from an

14:18

an operational perspective and from an advocacy

14:20

standpoint , um, that they can , that

14:22

they can do to help protect their access to three

14:24

40 B pricing? Um, Julie , maybe

14:27

you can give us some insight from an operational standpoint.

14:30

Yeah, Sarah , happy to do it. The , the

14:32

one constant theme that all

14:34

of us have mentioned in this call is confusion

14:37

and lack of clarity. And

14:39

Andy and I have spent several

14:42

a HLA sessions talking about

14:44

three 40 B and drugs and

14:46

other things, and we've always been talking about

14:49

confusion and lack of clarity, and here

14:51

we are again. So if you think

14:53

about how covered entities, hospital

14:56

systems that participate in three 40

14:58

B , what can they do to

15:02

ensure that they are complying,

15:04

which is always important, and at the same

15:07

time, do use

15:09

the program to the advantage of

15:12

patients? So I'll

15:14

give a few pieces of advice, and I'm not sure

15:16

that they, they're different from the

15:18

pieces of advice that we've given over

15:20

the years, but the first is

15:23

to ensure that your internal qualified

15:25

team is active

15:28

in the three 40 B space. There

15:30

are so many new developments that are

15:32

raising questions and uncertainties.

15:36

What should the definition of a patient be

15:38

within a particular covered

15:40

entity? How is that implemented

15:42

in accordance with guidance that we have?

15:46

Ensure that the team is

15:48

monitoring new developments and

15:51

monitoring guidance from all of

15:53

the different advocacy groups to

15:56

confirm that whatever decisions

15:58

are made are supported by recent

16:01

guidance. It's really

16:03

difficult to build that qualified

16:06

team and to ensure compliance

16:09

if strong and

16:12

broad analytics are not available.

16:15

So whoever the

16:17

team of , of three 40 B may

16:19

be working with to monitor

16:22

and confirm that compliance compliance

16:25

ensure that data is as real

16:27

time as possible, and that the reports

16:30

are being given and reviewed

16:32

regularly so that compliance

16:34

can be determined. And when there is a problem,

16:37

a change can be made, particularly

16:39

in light of all of the changing guidance, we

16:42

may need to make a change

16:44

really quickly to comply

16:47

with a new rule or a new interpretation.

16:50

And then the final piece of advice I would

16:52

give on the operational side is

16:55

since we are in a midst of

16:57

great changes and uncertainty,

17:00

simply act cautiously, a

17:03

lot of the changes that

17:05

covered entities are making with

17:07

their contract pharmacy relationships

17:10

or the location of that contract pharmacy

17:13

within a health system org chart

17:15

are actually decisions that cost

17:19

fairly large capital dollars to

17:21

make and also require

17:23

pretty large lead times with

17:26

state pharmacy boards and other

17:28

things. So I would say

17:30

to pause before any change

17:33

is made, and really ensure that

17:35

the covered entity understands the impact

17:38

of that change on its system

17:40

as a whole. So, no, no,

17:43

great new advice there. Just

17:45

a continuation of the past, maybe

17:48

with a new emphasis on caution

17:51

due to the great uncertainty.

17:54

Thanks, Jolie . That's very helpful. Andy,

17:57

from an advocacy standpoint, what would you, what

17:59

would you recommend?

18:01

Yeah, so , uh, it's it's not just

18:03

about advocacy, right? It's about , um,

18:05

risk assessment. So Jolie

18:08

said you should move cautiously, but yeah,

18:10

you need to figure out in light

18:12

of the fact that we do have these opinions in light

18:14

of the fact that HRSA's authority is

18:16

now not just being questioned by stakeholders

18:19

on both sides, but is also actually

18:21

being successfully challenged. What

18:24

do you wanna do? Uh, and so every

18:26

organization needs to figure out its own

18:28

risk tolerance, and that is a cautious

18:31

decision, and then base their decisions

18:34

accordingly. So , uh, HRSA

18:36

has historically, or has in

18:38

the last several years, not been so

18:40

, uh, uh, um, uh,

18:43

vigorous about its enforcement of,

18:45

of diversion. And so , uh,

18:47

covered entities may decide, Hey, look at this

18:50

, uh, we, we can , uh,

18:52

perhaps be a little bit more expansive in

18:54

terms of our definition of patient. Well, okay,

18:57

HRSA could change its policy at some point , um,

18:59

merely because the Genesis decision

19:01

came down in favor of a

19:04

broader understanding of patient that

19:06

only really applies to Genesis , but

19:09

nominally also to providers in South

19:12

Carolina. Uh, but other entities

19:14

, uh, can look at that and say, well, maybe there's

19:16

, uh, some room there. And you do that , um,

19:19

with, with , uh, a forethought with

19:21

understanding what those risks are and

19:24

a decision as to whether or not you're

19:26

willing to challenge , uh, an adverse

19:28

audit because HRSA could decide

19:31

tomorrow it's gonna start looking for this , um,

19:34

all the way up through court, where as you'll,

19:36

you'll recognize there's already favorable

19:38

precedent, but you do that with knowledge

19:40

as to all the , the potential

19:42

consequences. At the

19:44

same time, as Julie said, data

19:47

is really important. You need to be focused on

19:49

what your data is showing because

19:51

the manufacturers certainly understand what

19:54

your data is showing. And so you also

19:56

have to decide whether or not you're willing

19:58

to, to put yourself out there , uh,

20:01

in terms of your relationship with the manufacturers

20:04

who are going to say, Hey, are you a, a

20:06

good steward of the three 40 B program?

20:09

Uh, because we're looking at this, our

20:11

velocity reports, and we're seeing that, you know, that

20:13

there's utilization here that you doesn't

20:15

make any sense. And so you have

20:17

to decide whether or not you're willing to take

20:19

on those discussions, recognizing

20:22

that this is really going to be a, a,

20:24

a two-way street where you're talking pretty

20:27

much directly with the manufacturer, and HRSA

20:29

is gonna pretty much stay on the sidelines. Data,

20:32

of course, is also incredibly important if

20:34

, uh, the sustain act moves

20:36

forward because the data requirements

20:38

there are , unlike any data requirements,

20:41

any covered entity has ever had

20:43

to, to , um, gather , uh,

20:46

in , and it could cost a ton of money, and

20:48

there may be a ton of assumptions and exactly

20:51

how do we expect that CVS and Walgreens

20:53

are gonna react when , uh, they're

20:55

being asked to furnish data regarding

20:57

their reimbursement that they would

20:59

consider to be proprietary. And so there

21:02

are not just necessarily opportunities

21:05

to assess how we are gathering data

21:07

at the moment, but whether or not

21:09

, uh, we need to talk to the

21:12

gang of six about , uh, trying to

21:14

carve back that legislation to

21:16

something that is going to make more sense , uh,

21:19

in light of the , um, in light of

21:21

existing infrastructure , uh, and

21:24

cost , in keeping in mind that, that the

21:26

purpose here is not to set up a new , uh,

21:29

gravy train for consultants, but

21:31

really this is about , uh, uh,

21:33

extending scarce resources , uh,

21:35

for safety net providers. So

21:38

those are some thoughts in terms of what else

21:40

people should be thinking about proactively

21:42

, uh, as they, as they

21:44

continue to work through the new environment.

21:47

Those are really great. Those are really great points,

21:49

Andy, and you, you mentioned kind of that, that

21:51

risk-based consideration. Just

21:54

a really good segue into , um,

21:56

audits, HRSA audits.

21:58

So you know, now that we're done

22:01

with COVID-19 from a public health emergency

22:04

standpoint anyway, we know that HRSA's

22:06

kind of back, back to work business as usual

22:08

with their program audit. The

22:11

Baz group has been awarded , um, a another

22:13

five year contract to continue serving as

22:16

that auditor for covered entities for

22:18

hrsa. What types of things

22:20

are we seeing from a findings perspective?

22:23

What types of trends , um, are

22:25

you noticing in your work, Andy, with , um,

22:27

covered entities that are going through those audits?

22:30

Sure. The, the audits are so

22:32

different now from the way they used to be. Um,

22:34

you know, if you practice in the world of three 40

22:37

B, which Jolie and I have

22:39

been doing for, for decades at this point,

22:41

<laugh> practicing together for

22:44

, in this area for decades, actually , um,

22:47

uh, the, the, the , the , the audits

22:49

used to be with an innuendo.

22:51

You used to only be as

22:53

smart preparing for an audit as to

22:56

what the last three audits were , um,

22:58

because that's the only way you knew what, what they were gonna

23:00

focus on here. There was no rulemaking,

23:03

there was no announcement as to here's

23:05

what our findings are in detail for

23:08

everyone to see. It was, Hey, this is

23:10

what BLL group thought was appro appropriate

23:12

here. This is what they thought was appropriate there.

23:15

Now these audits are focusing

23:17

less on diversion because

23:19

HRSA understands that they're on on

23:21

weak , uh, uh, uh, territory

23:23

when they start to talk about diversion in

23:26

light of the Genesis case, which has

23:28

been percolating since 2018. Um,

23:31

but they're doing more in terms of trying

23:33

to avoid duplicate discounting, meaning

23:36

that they're trying to avoid instances where Medicaid

23:38

, uh, drug rebates are paid

23:40

on the same utilization , uh, as

23:43

three 40 B pricing. Uh, and

23:45

they're also doing more in terms of figuring

23:47

out if you've registered every child site

23:49

exactly the way that HRSA wants,

23:51

including down to going down to the epic

23:53

department, which is , uh,

23:56

incredibly detailed and has nothing

23:58

to do with any purpose in

24:00

the statute, but it's one of

24:02

those few areas that HRSA has not yet been

24:05

challenged on. Now, if that case I

24:07

mentioned earlier, that's challenging

24:09

HRSA's ability to, to require that

24:11

child sites be listed on the cost report

24:13

, uh, or that even child

24:16

sites seem to exist at all is successfully

24:18

challenged, we maybe we'll see that all

24:20

, all that HRSA's even gonna have to carve

24:22

back , uh, regulating even there. Uh,

24:25

but in the short term , uh, those seem to be

24:27

the areas that HRSA is focusing on, that

24:30

could change in a heartbeat. Um, but

24:32

, uh, but at least for right now, that is

24:34

, uh, that is what, what HRSA's focused on. Uh,

24:37

HRSA's already become aware of

24:40

many of, of covered entities that

24:42

are engaged in alternate distribution

24:44

models , um, where they accept

24:47

a delivery of, of drug purchased

24:49

under three 40 B and they ship it

24:51

to contract pharmacies that's not

24:53

even yet resulting in any findings. And

24:56

so we'll have to just see if any of that ever

24:58

makes its way to HRSA's

25:00

, uh, radar and results and

25:02

findings as well. But right now

25:04

it seems like , uh, the, the three 40

25:07

B program is evolving

25:09

in terms of how it's being implemented far

25:11

faster , uh, than , uh, than hrsa

25:15

uh, is, is auditing. Uh, and

25:17

partly that's because the courts are, are

25:20

slapping HRSA down each and

25:22

every way. And so we, we may very well

25:24

be in a situation where some of that never comes

25:26

to light until there might be a change in the legislation.

25:29

So

25:31

Thanks, Sandy , that's super helpful and, and

25:33

hopefully , um, helpful for our listeners

25:36

as well . Um , Andy Jolie,

25:38

thank you both so much for your time and your insights

25:41

. This has been, this has been great. I hope

25:43

everyone has a great day.

25:51

Thank you for listening. If you enjoy

25:53

this episode, be sure to subscribe to

25:56

a HLA speaking of health law wherever

25:58

you get your podcasts. To

26:00

learn more about a HLA and the educational

26:03

resources available to the health law community,

26:05

visit American health law.org.