Penalties Delayed Again for Drugmakers That Charge Too Much

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By Bronwyn Mixter

A final rule from the Obama administration imposing penalties on drug companies for overcharging safety-net hospitals and other providers is being held off another nine months, at least.

July 1, 2018, is the new effective date for the Department of Health and Human Services rule, the agency said in a notice to be published Sept. 29 in the Federal Register. In August, the HHS asked for comments on the latest delay of the rule, which was issued under the 340B drug pricing program in January, shortly before the change in administrations. The effective date has already been delayed several times, and most recently the rule was set to take effect Oct. 1.

The rule (RIN:0906-AA89), on ceiling prices and civil monetary penalties for the 340B program, was published after a heated public debate over drug costs. Under the program, drug manufacturers provide outpatient drugs to covered entities, such as safety-net hospitals, at significantly reduced prices. The rule requires drug manufacturers to pay a penalty if they intentionally charge above what is known as the ceiling price, and says the penalty can’t exceed $5,000 for each instance of overcharging a covered entity.

Stephanie Trunk, a health-care attorney with Arent Fox LLP in Washington, told Bloomberg BNA in a Sept. 28 email drugmakers “have been particularly vocal that HRSA might not have authority to impose civil monetary penalties on manufacturers for failing to offer the 340B ceiling price without having a mechanism in place to validate calculated 340B ceiling prices and a process through which overpayment refunds could be facilitated.” HRSA, the Health Resources and Services Administration, is the part of the HHS that administers the 340B program.

Trunk said she wouldn’t be surprised “if HRSA withdrew the final rule entirely and went back to the drawing board considering stakeholder comments, particularly in light of the Trump Administration’s focus on reducing regulatory burdens for businesses.” Trunk represents pharmaceutical manufacturers and also is a Bloomberg BNA advisory board member.

Hospitals Object

Meanwhile, 340B Health, a group that represents nonprofit hospitals and health systems participating in the program, said in a Sept. 28 statement that it “strongly” objects to the delay.

The statutory deadline for the HHS to publish this rule was over seven years ago, the group said. “This has dragged on for too too long,” 340B Health President and Chief Executive Officer Ted Slafsky said.

Slafsky said drug manufacturers “often charge providers in the 340B program above what the law permits” and “this common-sense rule will make drug manufacturers think twice before overcharging 340B hospitals and clinics.”

The statement also said the group is “troubled” that the HHS indicated in the notice it intends to engage in additional rulemaking on this issue.

The 340B program gives safety-net providers relief from high drug prices and they rely on the saving to fund critical programs for low-income and rural patients, 340B Health said.

The American Hospital Association (AHA) also objects to the delay. In comments submitted to the HHS on the proposal to delay the final rule, the AHA said the rulemaking began seven years ago and “there have been extensive opportunities for stakeholders to provide feedback and for HRSA to consider such feedback.”

Further delay of the final rule isn’t “justified given the exhaustive development process that has occurred,” the AHA said.

Reason for Delay

The HHS said the delay will allow it to consider alternative and supplemental regulatory provisions and it also will allow sufficient time for additional rulemaking.

“Requiring manufacturers to make targeted and potentially costly changes to pricing systems and business procedures in order to comply with a rule that is under further consideration and for which substantive questions have been raised would be disruptive,” the HHS said.

Also, the HHS said a Jan. 20 executive order directs the agency and all other executive offices to delay the implementation of certain provisions in the Affordable Care Act. The final rule is based on changes made to the 340B program by the ACA, and the delay will allow the HHS to more fully consider the regulatory burdens of the final rule, the notice said.

Drugmakers Support Delay, Wants Changes

The Pharmaceutical Research and Manufacturers of America (PhRMA) said in comments to the HHS that it supports the delay. It said the HHS should “develop a new and less burdensome proposal that advances the 340B program’s purposes more effectively and consider additional comments before finalizing a revised regulation.”

PhRMA also said the HHS should eliminate the requirements that drug manufacturers must pay refunds to 340B covered entities without netting out amounts owed by the covered entity to the manufacturer.

The group said this is “an illegal and burdensome policy that forces manufacturers to pay more than they owe and that squarely conflicts with the 340B law.”

PhRMA also said the final rule subjects drugmakers to penalties for failing to make refunds to hospitals, but the HHS hasn’t yet established refund procedures. Members of PhRMA include AstraZeneca Pharmaceuticals LP, Bayer Corp., Merck & Co., and Novartis Pharmaceuticals Corp.

To contact the reporter on this story: Bronwyn Mixter in Washington at

To contact the editor responsible for this story: Brian Broderick at

For More Information

The Federal Register notice is at

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