This overview is excerpted from Manatt on Health, Manatt’s subscription service that provides in-depth insights and analysis focused on the legal, policy and market developments.

On July 24, two hospitals that participate in the Section 340B drug discount program—Oregon Health & Science University and Maine General Medical Center—filed separate lawsuits against the Health Resources and Services Administration (HRSA), alleging that HRSA had unlawfully authorized pharmaceutical manufacturer Johnson & Johnson (J&J) to conduct an audit of the hospitals’ 340B-related records. Manufacturer audits—although historically fairly infrequent—have become more significant since finalization of the new 340B Administrative Dispute Resolution (ADR) rule. That rule, which establishes a process for resolving disputes between 340B covered entities and drug manufacturers, requires manufacturers to audit covered entities prior to initiating an ADR complaint. 

HRSA issued manufacturer audit guidelines in 1996 that, among other things, set forth certain pre-conditions to a manufacturer audit, including that a manufacturer must first provide the covered entity with written notice of the alleged violation. The guidelines also provide that a manufacturer may only request HRSA approval for an audit if the issue is not resolved after at least 30 days of “good faith” negotiations between the parties.   

Both Oregon Health & Science University and Maine General Medical Center state that they never received a written statement from J&J regarding the alleged violation of 340B program requirements, and that HRSA’s approval of J&J’s requests to conduct the audits therefore violated HRSA’s 1996 guidelines and was unlawful. The hospitals are asking the court to block the proposed audits and require HRSA to comply with the 1996 guidelines. Both lawsuits were filed in the U.S. District Court for the District of Columbia.