In a Letter Sent to Secretary of HHS Beccera, the Democrats and Republicans Underscored How Johnson & Johnson’s Move to Stop Offering Direct Discounts on Two Lifesaving Drugs Violates the Law

WASHINGTON, D.C. — U.S. Representatives Abigail Spanberger (D-VA-07), Dusty Johnson (R-SD-AL), Doris Matsui (D-CA-07), Rob Wittman (R-VA-01), Debbie Dingell (D-MI-06), and Tracey Mann (R-KS-01) on Friday led a group of 189 Democrats and Republicans in the U.S. House in urging the U.S. Department of Health and Human Services (HHS) to quickly prevent burdens on providers and patients caused by Johnson & Johnson (J&J)’s impending blatant violation of the federal 340B Drug Pricing Program.

On August 23, 2024, J&J announced that the company would be transitioning two drugs — STELARA and XARTELO — currently available at a direct discount under the 340B program to an unapproved rebate model starting on October 15, 2024. J&J intends to upend decades of federal law by stopping direct discounts for hospitals primarily serving low-income communities. This move would remove the direct discount received by safety-net providers on these prescription drugs, creating concerns about the impacts on care for patients in underserved communities who may no longer be able to afford the upfront cost of the drug without a direct discount. This egregious action violates the 340B statute and negates longstanding guidance from HHS’s Health Resources and Services Administration (HRSA).

In a letter sent to U.S. Secretary of Health and Human Services Xavier Becerra, Spanberger and her colleagues urged the Department to act swiftly to prevent the significant financial challenges and administrative burdens for safety-net hospitals and patients that would be caused by J&J’s transition to a rebate model, including pursuing available enforcement actions. Additionally, the lawmakers underscored how switching to a rebate model violates the 340B statuteand threatens access to care for the most vulnerable Americans.

“We write to express our concern over the Johnson & Johnson (J&J) plan to upend more than 30 years of federal law by delaying access to 340B discounts on pharmaceuticals for certain safety-net hospitals. J&J aims to impose new extra-statutory rules for hospitals to follow as a condition of accessing those discounts. This unapproved and unlawful change would have severe consequences for our nation’s safety net providers and the patients they serve,” wrote Spanberger and her colleagues. “We understand that J&J is moving forward with this proposal despite being told by the Health Resources & Services Administration (HRSA) that the company’s proposal is inconsistent with the 340B statute.”

The lawmakers continued, “Under the rebate model, these safety-net hospitals would be required to purchase drugs at the high sticker price of wholesale acquisition cost (WAC), instead of at the substantially lower 340B discount, and wait for an undetermined period to receive the 340B discount as a rebate. This model reduces resources available for patient care, undermining the core purpose of 340B.”

Experts and 340B-covered providers who support this bipartisan effort join in expressing concern over J&J’s plan to remove two drug discounts — including VCU Health System, UVA Health, the Virginia Society of Health-System Pharmacists, Valley Health, Riverside Health System, National Association of Community Health Centers, the Association of American Medical Colleges, the National Rural Health Association, Children’s Hospital Association, AIDS United, American Hospital Association, Advocates for Community Health, the Alliance of Safety-Net Hospitals, America’s Essential Hospitals, the American Society of Health-System Pharmacists, and 340B Health.

“UVA Health is grateful to Reps. Spanberger and Wittman and their colleagues for bringing the concerns of safety-net providers like UVA Health to the Department of Health and Human Services’ attention,” said Wendy Horton, PharmD, MBA, Chief Executive Officer, UVA Health University Medical Center. “Allowing manufacturers to move to a rebate model would undermine our ability to use 340B savings to support our most-vulnerable patients and their comprehensive care.”

“VCU Health is the Commonwealth’s largest safety net provider. The 340B program makes a real, tangible difference in our patients’ lives by allowing us to provide free or deeply discounted drugs and community programs to those with the most need,” said Marlon Levy, M.D., MBA, Interim Senior Vice President, VCU Health Sciences and CEO, VCU Health System. “Additionally, we pass along a direct savings to the Commonwealth from the care we provide to the Department of Corrections. The multimillion-dollar potential cost impact of the J&J proposal to the health system would place enormous risk to this state program from just these two drugs, as well as set dangerous precedents. We are grateful for Rep. Spanberger, Rep. Wittman, and others for their advocacy to protect our patients’ continued access to affordable prescriptions and community programs by preventing the burdens this change will create.”

“The Virginia Society of Health-System Pharmacists asks that J&J and all manufacturers participating in the 340B Drug Pricing Program honor the federal framework for prospective discounts. These attempts to hinder participation in the 340B Drug Pricing program will lead to reduction in efforts to provide access to needed healthcare resources and harm for our patients and the communities we serve,” said Lisa Hammond, PharmD, President, Virginia Society of Health-System Pharmacists. “In particular, DSH (disproportionate share hospitals) facilities care for the most disadvantaged patients in our state and nationwide. We strive every day to ensure we have the resources to care for our patients and communities and the 340B program is a vital component to those limited resources. We appreciate those in Congress and the federal departments who are working quickly to respond to this surprise change from J&J and we hope J&J reverses this policy.”

“For over 32 years, the 340B Drug Pricing Program has provided upfront discounted medications to safety net providers, allowing them to stretch increasingly scarce federal resources and reinvest in patient care. Replacing these critically needed discounts with unapproved rebates is a significant departure from the intent of the 340B statute, as recently noted by the Health Resources and Services Administration (HRSA) Administrator Carole Johnson,” said Kyu Rhee, MD, MPP, President and CEO, National Association of Community Health Centers. “We commend Reps. Spanberger and Johnson and their colleagues for their leadership and efforts to protect access to affordable drugs for millions of patients,”

“The Association of American Medical Colleges (AAMC) applauds Reps. Spanberger, Johnson, and over 160 bipartisan members of Congress for defending the 340B Drug Pricing Program,” said Danielle Turnipseed, Chief Public Policy Officer, Association of American Medical Colleges. “We know that 340B is a critical lifeline for safety-net teaching hospitals across the country, enabling them to continue to serve low-income and underserved populations. Unfortunately, Johnson & Johnson’s unilateral decision to reconfigure 340B as a rebate program represents a serious threat to 340B covered entities, and the patients and communities they serve. This letter is an important first step in holding pharmaceutical companies accountable to the original intent of 340B and sends a clear message that actions to subvert the program will not be tolerated.”

“The National Rural Health Association (NRHA) is pleased to see Rep. Spanberger’s leadership on the emerging issues of J&J’s 340B rebate model,” said Alan Morgan, Chief Executive Officer, National Rural Health Association. “NRHA is extremely concerned that this model is another threat to the 340B program that imposes significant financial and administrative burdens on rural safety-net hospitals. The 340B Program is a vital lifeline program for rural hospitals operating on thin financial margins. The funds saved through the 340B program help them continue to offer critical services, sustain key service lines, and keep doors open. NRHA applauds Rep. Spanberger for continually fighting against programmatic changes that undermine the 340B program.”

“Johnson & Johnson’s actions undermine the 340B program, putting the children and families treated at children’s hospitals at risk,” said Matthew Cook, President and CEO, Children’s Hospital Association. “We urge HHS to use all available enforcement tools to ensure the program continues to enable critical support for our nation’s children.”

“The 340B program is a lifeline for people living with and vulnerable to HIV,” said Carl Baloney, Jr., Vice President for Public Affairs and Chief Policy Officer, AIDS United. “The program allows them to access care and services by making it possible for HIV safety net providers to support communities that are often the most marginalized by our healthcare system. J&J’s announcement is one piece of a larger attack on the program, and we hope Secretary Becerra will heed the call to explore all possible levers the government can utilize to protect safety net providers and the communities who rely on them for lifesaving care.”

“The AHA thanks this bipartisan group of lawmakers for their strong leadership on 340B and for urging HHS to take action to stop Johnson & Johnson’s unlawful action to upend the 340B program for providers and the patients and communities they serve each day,” said Aimee Kuhlman, Vice President for Advocacy and Grassroots, American Hospital Association.

“Riverside Health System, based in Newport News, Virginia, strongly supports the efforts of Rep Spanberger and Rep Wittman regarding requested HRSA action on proposed J&J 340B rebate program,” said Cindy Williams, B.S. Pharm, FASHP, FVSHP, Vice President & Chief Pharmacy Officer, Riverside Health System.

“Advocates for Community Health (ACH) commends Reps. Spanberger (D-VA), Johnson (R-SD), Matsui (D-CA), Mann (R-KS), Dingell (D-MI), and Wittman (R-VA) for leading this timely letter to the Department of Health and Human Services about Johnson & Johnson’s troubling plan,” said Amanda Pears Kelly, Chief Executive Officer, Advocates for Community Health. “The 340B program is already being steadily eroded by the actions of industry, and if manufacturers are permitted to proceed, grow, and replicate this illegal model, we will no longer be able to recognize the program that health centers rely on. ACH strongly supports the 340B program because it enables health centers and other safety net providers to serve more patients, provide more services to those most in need, and to achieve better health outcomes. We are deeply grateful to the signers of this letter for their efforts to protect this important resource.”

“The 340B drug discount program allows safety-net hospitals – those serving the most Medicaid patients – to stretch their limited resources and provide more care for their communities. Patients who have multiple social drivers of health often require more health care resources than other patients and the ability of safety-net hospitals to purchase prescription drugs at a discounted price is a critical tool for providing the care their communities deserve,” said Ellen Kugler, Director, Alliance of Safety-Net Hospitals. “The Alliance of Safety-Net Hospitals is grateful to Reps. Spanberger (D-VA), Johnson (R-SD), Matsui (D-CA), Mann (R-KS), Dingell (D-MI), Wittman (R-VA), and all the co-signers of this letter to Secretary Becerra for their leadership in protecting the 340B program from industry efforts to weaken its efficacy.”

“We thank Reps. Spanberger, Johnson, Matsui, Mann, Dingell, and Wittman for their leadership to protect the 340B program by denouncing Johnson & Johnson’s illegal rebate plan,” said Bruce Siegel, MD, MPH, President & CEO, America’s Essential Hospitals. “The drug company’s inexcusable actions threaten the ability of hospitals at the heart of our safety net to afford lifesaving medications for patients in need.”

“We applaud the bipartisan group of representatives that signed Rep. Spanberger’s letter to hold manufacturers accountable for attempting to circumvent the clear legislative language of the 340B Drug Pricing Program by turning it into a rebate program,” said Tom Kraus, Vice President of Government Relations, American Society of Health-System Pharmacists.

“340B Health applauds the members of Congress who have taken a strong, bipartisan stand against Johnson & Johnson’s harmful rebate tactics that threaten the integrity of 340B, violate the law, and impose significant financial burdens on safety-net hospitals,” said Maureen Testoni, President & CEO, 340B Health. “Their letter to HHS highlights how critical it is to maintain upfront discounts as the statute requires, ensuring that safety-net hospitals can continue to access the vital resources they need to care for at-risk patients and vulnerable communities. We urge HHS to act quickly to protect 340B.”

Click here to read their letter, and the full text is below.

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Dear Secretary Becerra,

We write to express our concern over the Johnson & Johnson (J&J) plan to upend more than 30 years of federal law by delaying access to 340B discounts on pharmaceuticals for certain safety-net hospitals. J&J aims to impose new extra-statutory rules for hospitals to follow as a condition of accessing those discounts. This unapproved and unlawful change would have severe consequences for our nation’s safety net providers and the patients they serve. We understand that J&J is moving forward with this proposal despite being told by the Health Resources & Services Administration (HRSA) that the company’s proposal is inconsistent with the 340B statute. We urge you to protect safety-net hospitals by taking immediate action to prevent J&J from moving forward with this devastating change to 340B.

On August 23, 2024, J&J announced its intent to cease providing upfront 340B discounts on the price of drugs, instead instituting a back-end rebate model for hospitals that participate in 340B as disproportionate share (DSH) hospitals, the largest category of 340B covered entities. Despite the lack of legal authority and existing infrastructure that would be necessary to impose it, this policy will go into effect on October 15, 2024.

Under the rebate model, these safety-net hospitals would be required to purchase drugs at the high sticker price of wholesale acquisition cost (WAC), instead of at the substantially lower 340B discount, and wait for an undetermined period to receive the 340B discount as a rebate. This model reduces resources available for patient care, undermining the core purpose of 340B. 340B DSH hospitals provide high levels of care to patients with low incomes and are responsible for 75% of all hospital care to Medicaid patients and 60% of uncompensated care. 340B savings enables hospitals to expand access to necessary services that improve patient care, subsidize many essential services that operate at a loss, and support community health initiatives.

Congress intended 340B to provide financial resources to the nation’s safety-net hospitals that serve a disproportionate share of patients with low incomes as well as those living in rural areas. A rebate model would severely undermine that purpose. As HRSA has stated, it is not in compliance with the law and the Department of Health and Human Services (HHS) should act quickly to prevent the financial impact and burden this change would create for safety-net hospitals across the country.

A rebate model would create significant financial challenges for safety-net hospitals, which already are operating under much lower operating margins than non-340B hospitals. J&J’s announcement states that rebate payment would be received within 10 days after the claim is “validated.” Without any description of what it means to validate a claim, and no timeframe provided for that validation, hospitals could be carrying that high cost for months to the sole benefit of J&J. Many hospitals also would be forced to hire new full-time employees to develop new purchasing arrangements as well as to monitor, validate, and reconcile the rebates. Moreover, there is no existing infrastructure for accumulating and sharing the data that J&J would require for hospital rebate claims.

Medicaid programs throughout the country would also be impacted by this proposal. More than 35 state Medicaid fee-for-service (FFS) programs require covered entities to bill 340B drugs at actual acquisition cost (AAC), which is based on the invoice price paid for that category of drugs. Under J&J’s rebate model, the invoice price would be the high WAC price, depriving states of upfront savings and requiring an entirely new infrastructure or process for reconciling payments if a J&J rebate is received.

The 340B statute requires manufacturers to offer a discounted price on the “purchase” of drugs. Providers must comply with rules governing to whom the drugs are dispensed and other requirements that HRSA oversees. J&J’s proposed rebate model violates the statute by requiring providers to purchase drugs at WAC and submit data to the manufacturer for “validation.” Instead, J&J’s rebate model hijacks HRSA’s oversight role and delays the benefit of the 340B price until some undetermined date. This approach is to the manufacturer’s financial benefit because the company retains those sums for a longer time.

The rebate approach also runs contrary to longstanding HRSA program guidance that distinguishes rebates and retroactive discounts from upfront 340B discounts. In the more than 30-year history of 340B, HRSA has permitted rebates in only one limited circumstance to accommodate state AIDS drug assistance programs (ADAPs). Many ADAPs reimbursed pharmacies for drugs rather than purchasing them directly and therefore were unable to access a 340B discount at the point of purchase. Also, while a recent decision by the U.S. Court of Appeals for the D.C. Circuit found manufacturers could impose some conditions on 340B providers’ ability to access discounts, it was clear that “onerous” conditions may violate the 340B statute.

The 340B program was created to serve our most vulnerable neighbors. J&J actions threaten both the integrity and effectiveness of the program. With these concerns in mind, we respectfully request the following information.

1. What enforcement tools can HHS leverage to ensure that J&J, and other companies who attempt to use an unapproved rebate model, remain compliant with 340B statutory requirements?

1. Will HRSA consider imposing civil monetary penalties against J&J for overcharging disproportionate share hospitals by denying direct discounts on the purchase of 340B drugs and instead offering unapproved rebates?

2. What oversight, if any, would HRSA have into J&J’s rebate model, including ensuring that covered drugs are not denied and that discounts are repaid to covered entities in a timely manner without facing unnecessary administrative or financial burden?

3. Have any other manufacturers ever sought guidance from HHS regarding the use of a rebate model for covered entities? How has HHS approached these inquiries?

We appreciate HHS’s continued efforts to support 340B, and we look forward to partnering with you to ensure 340B continues to enable hospitals to meet their communities’ needs. Thank you for your prompt consideration of these important matters.

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BACKGROUND

The 340B Drug Pricing Program was enacted by Congress in 1992 with bipartisan support and is overseen by HHS. The program requires that pharmaceutical companies give safety-net and rural healthcare providers discounts on their drugs, in exchange for having their drugs covered by Medicaid.

The program has a demonstrated record of protecting patients who are low-income, live in underserved communities, or suffer from serious chronic illnesses from the threat of skyrocketing prices for the drugs they depend on the most.

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