HRSA Releases 340B Administrative Dispute Resolution Final Rule

The Rule purports to establish an administrative process that HRSA states is intended to resolve (1) claims by 340B-covered entities that they have been “overcharged” for covered outpatient drugs by manufacturers, including claims that a manufacturer has limited the covered entity’s ability to purchase covered outpatient drugs at or below the 340B ceiling price, and (2) claims by manufacturers, after a manufacturer has conducted an audit as authorized by section 340B(a)(5)(C) of the Public Health Service Act (PHSA), that a covered entity has violated the prohibition on diversion or duplicate discounts.
Under the Rule, the 340B ADR process includes the following elements, among others:

1. HRSA states that the ADR process is not intended to replace “good faith efforts” between manufacturers and covered entities “to attempt to resolve disputes,” “but should be considered a last resort in the event good faith efforts to resolve disputes have failed.”
2. The HHS Secretary will establish a 340B Administrative Dispute Resolution Board (Board) consisting of at least six members appointed by the Secretary, with equal numbers representing HRSA, the Centers for Medicare & Medicaid Services (CMS), and the HHS Office of the General Counsel (OGC).
3. The HRSA Administrator will create three-member Administrative Dispute Resolution Panels (340B ADR Panels) by selecting panelists from the Board. Each 340B ADR Panel will contain one member each from HRSA, CMS, and OGC as well as a nonvoting, ex officio representative from the HRSA Office of Pharmacy Affairs to assist the Panel.
4. The Rule requires that HRSA and CMS Board members “shall have relevant expertise and experience in drug pricing or drug distribution” and that OGC Board members “shall have expertise and experience in handling complex litigation.”
5. Under the Rule, ADR claims can be brought by either a covered entity or a manufacturer, but a manufacturer must first conduct an audit of a covered entity before a manufacturer can initiate a claim. A number of commenters stated that HRSA’s 1996 guidelines regarding manufacturer audits of covered entities must be revised before the ADR process can be established and implemented, but HRSA has not revised those manufacturer audit guidelines; instead, HRSA asserts in the Rule that updated manufacturer audit guidelines are not needed to finalize the ADR process.
6. The Rule requires that a claim be brought within three years of the alleged violation and supported by sufficient documentation. HRSA states, however, that the three-year time limit “would be subject to normal rules governing statutes of limitations that are not jurisdictional, including the doctrine of equitable tolling.”
7. Two or more covered entities may jointly file claims against the same manufacturer, and two or more manufacturers may request to consolidate claims brought against the same covered entity. Covered entity organizations or associations also may file joint claims on behalf of their members against the same manufacturer, but the Rule does not permit consolidated claims filed on behalf of manufacturers by their membership associations or organizations.
8. The 340B ADR Panel may permit a covered entity “limited discovery to obtain such information and documents as may be relevant to demonstrate the merits of a claim” and also will take into account any party’s request for further information and “may request additional information from either party.”
9. The 340B ADR Panel’s decision must reflect a majority of panel members but need not be unanimous.
10. At the conclusion of the ADR process, the 340B ADR Panel “will submitthe final agency decision to all parties, and to HRSA for appropriate action regarding refunds, penalties, removal, or referral to appropriate Federal authorities.”
11. The decision resulting from the 340B ADR process “constitutes a final agency decision” that may be appealed in federal district court. The Rule states that the final agency decision “is precedential and binding on the parties involved unless invalidated by an order of a court of competent jurisdiction.” The statute provides that “[t]he administrative resolution of a claim or claims under the[se] regulations ... shall be a final agency decision and shall be binding upon the parties involved, unless invalidated by an order of a court of competent jurisdiction,” but the statute does not state that ADR decisions will have precedential effect. 

The Rule differs from the proposed rule in a number of ways. For example:

1. The Rule expressly states that 340B ADR Panels can consider issues such as “whether an individual qualifies as a patient for 340B Program purposes and claims that a covered entity is not eligible for the 340B Program.” Similarly, the Rule states that a 340B ADR Panel “charged with resolving the dispute may find it necessary to resolve related issues such as whether someone is a ‘patient’ or whether a pharmacy is part of a ‘covered entity.’ ” This may be a reference to the argument that a number of manufacturers have raised that contract pharmacies are not part of a covered entity and, as a consequence, are not entitled to receive 340B-discounted products.
2. The Rule establishes a minimum threshold of $25,000 for a 340B ADR Panel to have jurisdiction over a claim (or, where equitable relief is sought, the claim must be likely to have a value of more than $25,000 in the 12-month period after the 340B ADR Panel’s final agency decision). The proposed rule lacked a minimum claim threshold.
3. The Rule states that “[t]he ADR process will be governed, to the extent applicable, by the Federal Rules of Civil Procedure [(FRCP)] and Federal Rules of Evidence [(FRE)], unless the parties agree otherwise and the 340B ADR Panel concurs.” The Rule also specifies that the 340B ADR Panel will “use a ‘preponderance of the evidence’ standard when making its determinations.” The proposed rule did not cross-reference the FRCP or FRE as the default ground rules governing the ADR process nor specify a standard of review.
4. The Rule contemplates that there “may be instances where portions of the ADR process may need to be conducted by telephone or video conference, or through other means” that allow an “opportunity to present evidence live in front of the 340B ADR Panel.” Under the proposed rule, 340B ADR Panels would have relied exclusively on a paper record when deciding disputes.

HRSA states that this Rule “will replace the 340B Program’s guidelines on the informal dispute resolution process developed to resolve disputes between covered entities and manufacturers, which were published on December 12, 1996.” The December 1996 guidance document included the 340B program informal dispute resolution process guidelines and the guidelines for manufacturer audits of covered entities; as noted above, however, HRSA states in the Rule that updated manufacturer audit guidelines are not needed to finalize the ADR process.