December 2, 2010—The AIDS Healthcare Foundation (AHF) has sued Bristol-Meyers Squibb (BMS) to recover the $124,000 it estimates it overpaid for 340B-discounted drugs during the first half of 2010 due to what it claims was the company's delay in reducing its prices as required by health care reform.
The suit, filed Nov. 24 in federal district court in Los Angeles, asserts that on or about July 1, BMS "implement[ed]" an Affordable Care Act (ACA) increase in the Medicaid unit rebate amount (URA) that, in turn, lowered its 340B ceiling prices. According to the foundation, which operates AIDS/HIV outpatient clinics and AIDS specialty pharmacies in California and Florida, the change came roughly a half-year later than Congress intended and it is thus entitled to reimbursement plus interest.
ACA changed the two factors that are used to determine 340B ceiling prices: average manufacturer price (AMP) and URA. A drug's 340B price generally is its AMP minus its URA or its best price in the private sector. Health care reform raised the minimum Medicaid rebate from 15.1 to 23.1 percent of AMP for most brand-name drugs effective Jan. 1, 2010. Drug companies, however, had until Nov. 30 to report their AMPs using new definitions spelled out in ACA and a follow-up law.
Higher URAs reduce 340B prices, and that is exactly what happened for much of 2010. The effect might be temporary, however, because health reform's rewriting of AMP could push prices higher. Those changes will begin to affect 340B prices early next year.
The $124,000 Question
The $124,000 question in the AIDS foundation's case again BMS is when, exactly, did reform's URA hike begin to affect 340B prices.
It customarily takes the Centers for Medicare and Medicaid Services (CMS) and the Office of Pharmacy Affairs (OPA) three to six months to translate changes in URAs or companies' reported AMPs into new 340B prices.
Tom Myers, the AIDS group's general counsel, said the usual lag time in establishing 340B prices has no bearing on health reform's 340B pricing mandates.
"Our reading of the law is that the new Medicaid rebate rate was effective as of Jan. 1 and therefore the implications for the 340B price kicked in as of Jan. 1," Myers said in an interview.
"Our argument is that Congress enacted a law setting a new price as of Jan. 1 and, regardless of what the custom or practice is, that was the intent of Congress in passing that law and decreasing that price is what matters," he explained.
A spokesperson for BMS said the company does not comment on pending litigation. "Bristol-Myers Squibb is committed to supporting access to our medicines and we continue to deliver on our commitments, including the provision of discounts to 340B covered entities such as the AIDS Healthcare Foundation," she said.
John D. Shakow, a partner in the King and Spalding law firm who represents many drug manufacturers, said the AIDS group's main argument lacks merit.
"The health reform statute did not change the Medicaid URA calculation method for the third and fourth quarters of 2009," he said. "It's these URAs that set the first and second quarter 2010 ceiling prices. Nor did the statute provide for any retroactive effect of changes in URA" on 340B ceiling prices during the first and second quarters of 2010.
"Absent any legislative support for its position, AHF is going to have a difficult time convincing a federal judge — or OPA for that matter — that almost 20 years of 340B pricing policy should be disregarded," Shakow continued.
Santa Clara Case Looms Large
For now, the foundation is seeking reimbursement from BMS solely on its own behalf and not for 340B providers nationwide. And although the AIDS group is suing only BMS at this time, it says it might also sue other manufacturers to recover alleged overcharges.
AHF, however, faces a big challenge even getting its argument against BMS heard. It is claiming it has the right to sue as an "intended beneficiary" of the 340B pricing agreement that the drug company entered into with the federal government. That's precisely the same argument at the heart of a major 340B case, Astra USA Inc. v. Santa Clara, now before the U.S. Supreme Court.
BMS and 12 other drug companies accused of overcharging California 340B providers in that case argue that no such right exists and their position is being backed by the U.S. departments of Justice and Health and Human Services, Pharmaceutical Research and Manufacturers of America (PhRMA), and the U.S. Chamber of Commerce. Groups representing 340B safety-net providers nationwide are drafting a friend-of-the-court brief supporting the California covered entities' position.
The Supreme Court will hear arguments in the Santa Clara case on Jan. 19 and is expected to hand down its decision by early July. If the High Court rules that the Santa Clara providers lack standing to sue, the cornerstone of AHF's case will be compromised.
The AHF case "will certainly be stayed until that question is resolved," said Shakow, one of the authors of PhRMA's friend-of-the-court brief in the Santa Clara lawsuit. "I expect the [Supreme] Court will find that covered entities cannot sue manufacturers to enforce the terms of the pharmaceutical pricing agreement, as AHF tries to do here."
In July, the federal district judge in the Santa Clara case found that BMS misled California 340B providers about why it was sending them checks for overcharges between 1998 and 2005, saying it did not explain the connection between the payments and the litigation. The judge invalidated legal releases that BMS required as a condition of repayment. The company also offset the overcharges with underpayments it says the providers made during the same timeframe. OPA officials say they warned the company that the offsets contravened longstanding agency policy.