Manufacturers: The Government Wants to Use 340B to Oversee and Publish Your Specialty Channel Strategy

Attention, proles! The Health Resources and Services Administration (HRSA) has released its long-awaited Omnibus Guidance for the 340B Drug Pricing Program.

The guidance brings some much-needed clarity to the definition of an eligible patient. Its focus on duplicate discounts and diversion is welcome, as is the requirement that covered entities audit and monitor contract pharmacies.

Unfortunately, HRSA has granted itself intrusive oversight for what it calls “limited distribution plans.” Under the guise of auditing manufacturer compliance, HRSA is asserting novel and impractical review and approval authority over manufacturers' channel strategies.

And as I describe below, every manufacturer is expected to have its channel strategies reviewed and then published by the U.S. Department of Health and Human Services (HHS). Watch out!

FROM THE MINISTRY OF PLENTY

Here is the troubling text regarding a manufacturer's "Obligation To Offer 340B Prices to Covered Entities," from Part F(4)(c):

”(c) Limited distribution plan. A manufacturer using a specialty pharmacy or a restricted distribution network, or needing to limit distribution due to potential or actual shortages, is expected to notify HHS in writing prior to implementation of such limited distribution plan. HHS may publish plans on the 340B Web site. HHS will work with manufacturers if there are concerns regarding the plan prior to making public. A manufacturer’s limited distribution plan is expected to include each of the following components:

(1) An explanation of the product’s limited supply or special distribution requirements and the rationale for restricted distribution among all purchasers;

(2) An assurance that the manufacturers will impose these restrictions equally on both 340B covered entities and non-340B purchasers;

(3) Specific details of the drug distribution plan, including a mechanism that allocates sales to both covered entities and non-340B purchasers with no previous purchase history of the restricted drug;

(4) The dates the alternative distribution begins and concludes; and

(5) A plan for notification of wholesalers and 340B covered entities of the restricted plan.”

Here’s my Newspeak translation:

• A manufacturer must notify HHS of its “limited distribution plans” in writing before (?) the product’s launch.

• A manufacturer must provide five detailed information components in its plan submission.

• HHS will conduct some sort of review or assessment, over an unspecified timeframe, and come to some sort of conclusion.

• HHS may then publish the manufacturer’s strategies and plans on its web site

What could go wrong?

DOUBLETHINK, DOUBLECHANNEL

When the guidance discusses “limited distribution,” it initially notes that “certain manufacturers may use a restricted network of certified specialty pharmacies.” (page 52312) Later, it uses the phrasing “specialty pharmacy or restricted distribution model.” (page 52321)

This language suggests that HRSA and HHS lack a clear understanding of current channels for specialty products. Therefore, it’s not clear which circumstances would trigger the proposed notification and review requirement.

What’s more, the guidance doesn’t clearly distinguish (or even acknowledge) differences between the fundamental concepts of dispensing and distribution:

• Dispensing—In a limited dispensing network arrangement, the manufacturer specifies the particular pharmacies that are eligible to dispense its product to a patient. This approach can be contrasted to an open dispensing network arrangement, in which the manufacturer sells products to a pharmaceutical wholesaler, which can sell the product to any of a wholesaler’s pharmacy customers. For example, many specialty products are only available from a manufacturer-authorized network of specialty pharmacies.

• Distribution—In a limited distribution network arrangement, the manufacturer specifies the particular wholesale distributors that are eligible to distribute its product to a provider. For example, many manufacturers establish relationships with an authorized set of distributors.
  
  In some cases, a manufacturer may specify different distributors for different provider types. Amgen is a provocative example, because it maintains a distinct network of distributors (not pharmacies) for 340B-eligible vs. non-340B eligible purchases of Neulasta. HRSA “approved” this plan with a non-public letter, as I describe in With a Top Secret Letter, HRSA Blesses Amgen’s New 340B Distribution Plan and HRSA’s Secret Letter about Amgen’s 340B Neulasta Distribution Strategy. 

Even if we concede that HHS has the authority to review and oversee a manufacturer’s channel strategy, it’s not clear which type of “limited” arrangement would trigger the notification and publication requirement established in the omnibus guidance.

Two more departures from goodthink:

• Distribution of prescription drugs is specifically defined by U.S. federal regulations. The Drug Quality and Security Act (DQSA) was signed into law by President Obama on November 27, 2013. Title II of DQSA, the Drug Supply Chain Security Act (DSCSA), defines wholesale distribution as “the distribution of a drug…to a person other than a consumer or patient.” The DSCSA definition does not include dispensing. Has HRSA read this law?

• The guidance uses the terms “specialty pharmacy” and “specialty pharmacies,” but neglects to include definitions. Just my $0.02, but “Ignorance is strength” is not helpful for compliance.

DOUBLEPLUSUNGOOD

It may seem reasonable for HRSA to inquire when it has legitimate concerns about a manufacturer’s strategy. But here are some other practical and conceptual problems with its guidance:

• Product launch activities (including the contracting required to establish unique dispensing and distribution relationships) are time sensitive. How far in advance is the manufacturer required to notify HHS? How quickly (if at all) will HHS review any proposed plans? What happens if HHS has concerns or issues?

• Manufacturers devote significant time and resources to developing commercial and channel strategies for their products. In my experience, these activities and decisions are always considered highly confidential, especially prior to a product’s launch. At what point will a manufacturer’s plans be published? Will they be available to competitors and the marketplace?

• This type of commercial business review is unprecedented. Does HHS have the authority to stop a manufacturer’s product launch due to its “concerns” with the channel strategy? What are the penalties? (Room 101, perhaps?) Is there an appeals process? What if a manufacturer doesn’t comply? Does this subregulatory guidance represent a law, a regulation, or something else?

Careful readers will note the guidance’s strategic use of the passive tense, such as “A manufacturer’s limited distribution plan is expected to include…” Expected by whom? The Thought Police?

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Don’t file this post in your memory hole. Instead, we are permitted to submit comments and other potential thoughtcrimes to HHS on or before October 27, 2015. Good luck, comrade.