ADR Process Background

Congress directed the Department of Health and Human Services (HHS) to create a 340B ADR process in 2010, as part of the ACA. HRSA issued an advanced notice of proposed rulemaking (ANPR) in 2010 soliciting feedback on an ADR process and then issued a notice of proposed rulemaking in 2016. In August 2017, HHS appeared to indicate on the Office of Management and Budget (OMB) website the withdrawal of the proposed rule. In the preamble to the final rule, HRSA indicates that the proposed rule was not withdrawn and was merely paused as part of the Trump Administration's freeze of regulatory actions put forward under the prior administration. HRSA took no further public actions to implement the ADR process until sending a final rule to OMB for review in November 2020.

ADR Process Review of Disputed Claims

The ADR process will allow covered entities to file claims alleging overcharges for covered outpatient drugs, including allegations that a manufacturer has limited the covered entity's ability to purchase covered outpatient drugs at or below the 340B ceiling price. Manufacturers will be able to file claims alleging covered entity violations of the prohibitions against diversion or duplicate discounts, but only after a manufacturer has conducted an audit of a covered entity.

Although the ADR process will limit manufacturer claims to those alleging diversion or duplicate discounts, HRSA indicates that review of such claims may evaluate issues that appear "ancillary," such as whether an individual is a 340B-eligible patient and whether a covered entity is eligible to participate in the 340B program.

Covered entities will be able to file joint claims with other covered entities or have associations file claims on their behalf. Manufacturers will be able to file joint claims but will not be able to have associations file on their behalf. Claims will be reviewed only if the damages sought exceed $25,000 or where the value of the relief sought would amount to more than $25,000 over the course of a year following the Panel's decision. Claims must be filed within three years of the date of the alleged violation.

Creation of an ADR Board and ADR Panels

HHS will create an ADR Board consisting of at least six members appointed by the Secretary of HHS, with equal numbers from HRSA, CMS, and the HHS Office of the General Counsel. HRSA will select three members of the ADR Board to comprise an ADR Panel to review claims filed under the ADR Process.

An ADR Panel may request information from the parties and may allow covered entities to conduct discovery to obtain information and documents to support their claim. The Panel will conduct a proceeding, which may be by video conference, in-person, or through other means. Unless otherwise agreed to, the ADR process will use the Federal Rules of Civil Procedure and Federal Rules of Evidence.

The Panel will review the evidence, determine if a violation has occurred, and issue its findings in a decision. The Panel will submit the decision to HRSA and may recommend enforcement action, including refunds, penalties, removal from the program, or referral to Federal authorities such as the Office of Inspector General, which could assess civil monetary penalties against manufacturers for 340B overcharges. The decision will be considered a "final agency action," which would allow the decision to be challenged in federal court.

Impact of ADR Panel Decisions on HRSA Policy

Panel decisions not overturned by a court will be binding on the parties involved and will set precedent for all 340B stakeholders. Although Panel decisions will not be directly binding on parties not named in the dispute, decisions will be "precedential," meaning that all stakeholders could look to ADR Panel decisions to inform compliance decisions and could rely on ADR Panel decisions to make arguments on the basis of those decisions. HRSA indicates that ADR Panel decisions will be made public so that all stakeholders will be informed of the decisions.

Timeline and Implications for Covered Entities

In recent months, covered entities have filed lawsuits requesting that courts order HHS to implement the ADR process, in part to provide covered entities with a mechanism to challenge recent manufacturer denials of 340B pricing for drugs dispensed through contract pharmacies. Although HHS has now moved forward with finalizing the ADR process, likely making such claims in litigation moot, the ADR process is not expected to provide an immediate mechanism for 340B stakeholders to initiate claims.

The effective date of the final rule is January 13, 2021, and HHS will need to select staff to serve on the ADR Board, from which ADR Panels could be created. Once the ADR process is implemented, covered entities (or associations on their behalf) would need to file claims to be reviewed by an ADR Panel. After a Panel issues a decision, the Panel would make recommendations to HRSA for enforcement action. It is also not clear how the incoming Biden administration will handle the final regulation and whether the new administration will move forward with its implementation.

Meanwhile, covered entity lawsuits have also requested courts to order HHS to take enforcement action against manufacturers that do not provide 340B pricing for drugs dispensed through contract pharmacies.

To the extent that 340B stakeholders take part in the ADR process, future ADR Panel decisions could have implications for HRSA policy and compliance expectations of both covered entities and manufacturers. Published ADR Panel decisions, along with enforcement actions taken by HRSA based on the recommendations of ADR Panels, could inform stakeholders of HSRA policy and compliance expectations.