Yesterday, Johnson & Johnson Health Care System Inc. (J&J) stated in a letter to HRSA that it will halt implementation of its proposed rebate model, which was set to take effect on October 15. J&J’s decision to suspend implementation of the rebate model follows two letters sent earlier this month by HRSA, in which the agency threatened J&J with sanctions and termination of its pharmaceutical pricing agreement if it did not withdraw the proposal by today.  Such action by HRSA is unprecedented—while the Secretary of Health and Human Services has had the authority to terminate a manufacturer’s pharmaceutical pricing agreement since the creation of the 340B program, HRSA has never exercised, nor threatened to exercise it, until now.

In its letter, J&J emphasized that it continues to believe that the rebate model is permissible and described HRSA’s letters as “unwarranted threats of excessive and unlawful penalties.” The drug manufacturer cited the continued need for a rebate model to improve the “integrity of the 340B program” and to address “duplicate discounts and diversion.” J&J noted that it was forgoing implementation of the rebate model “pending resolution of these issues.” The letter’s tone indicates that J&J may be suspending, rather than abandoning, its efforts to implement a rebate model.

J&J’s rebate model is not the first attempt to use a rebate approach in the 340B program. In August of 2020, the drug discount platform Kalderos announced its rebate model, called “340B Pay”.  Kalderos sued HRSA because it never approved 340B Pay and that lawsuit is currently stayed. The parties have reported to the judge that they have been meeting to discuss disposition of the case and they are scheduled to submit a status report next month on the how they plan to proceed in the case.

The Powers 340B team will continue to monitor developments related to the rebate model.