11/19/2024 – Third Lawsuit Is Filed Against HRSA for Blocking the Rebate Model

On November 14, 2024, Eli Lilly and Company (Lilly) filed a lawsuit against HHS and HRSA in the D.C. District Court to defend the rebate model Lilly proposed earlier this year. The lawsuit is Lilly’s response to HRSA’s letter unequivocally stating the illegality of the model. Two other lawsuits against the government – one by Kalderos and the other by Johnson & Johnson (J&J) – are already pending.

Covered entities and their allies in Congress are united in their opposition to the rebate model. Several covered entity groups – such as the AHA – sent HRSA letters opposing drug manufacturer’s proposed rebate models. Congresswoman Abigail Spanberger led a bipartisan effort urging HHS to prevent J&J from implementing a rebate model. The sign-on letter included 189 members of Congress and cited several covered entity groups’ denunciation of the rebate model.

The battle over the 340B rebate model is ultimately a struggle over control of which drugs qualify for 340B pricing. With the current up-front discount model, covered entities get to decide which drugs are 340B eligible by placing orders under their 340B purchase accounts. Implementation of the rebate model would shift control to manufacturers. They would gain the power to withhold payment of a rebate whenever they believe the sale of a drug at the 340B price would lead to diversion or a duplicate discount.

Lilly’s rebate model is more expansive than J&J’s, which applies to two J&J drugs, and would make the “340B price available to all eligible covered entities, for all Lilly products, through Kalderos’ Truzo™ platform.” Instead of receiving 340B pricing on drugs up front, the Lilly model would require covered entities to purchase Lilly’s drugs at the “usual market rate” and subsequently submit a claim for a rebate.

The Lilly complaint alleges that the 340B statute is silent as to the methods by which they may extend 340B prices to covered entities. It challenges the legality of HRSA’s position prohibiting Lilly from implementing the rebate model, alleging that HRSA’s position violates the federal Administrative Procedure Act because they claim it is “contrary to law and in excess of its statutory authority” and “arbitrary and capricious.” 340B covered entities counter that the rebate models are completely contrary to the statute and would financially and effectively eviscerate the 340B program by allowing manufacturers to have unilateral control over savings provided through the program. Further, 340B covered entity organizations strongly disagree that the statute could be interpreted to allow outright denials of 340B savings or that HRSA’s actions are in any way outside their authority or arbitrary or capricious under the APA.

The Powers 340B team will continue to monitor developments related to Lilly’s lawsuit and 340B rebate models.