Johnson & Johnson takes 340B drug discount dispute to federal court

When Johnson & Johnson backed away from its proposal to change the way it delivers certain drugs under the 340B law, the company hinted that litigation could be its next step to bring about changes consistent with that allegedly countering rampant abuse of a program originally aimed at making drugs more accessible to underserved patients. The pharmaceutical giant has now taken the legal step.

J&J is suing the Department of Health and Human Services and the Health Resources Services Administration (HRSA), which administers the 340B program. In a 51-page lawsuit filed Tuesday in federal court, the pharmaceutical giant claims its plan to offer drugs under a discount plan was legally permissible and that HRSA's decision to the contrary was unlawful. The pharmaceutical giant is now asking the court for a legal decision.

Neither HHS nor HRSA responded to a message seeking comment on the lawsuit.

The 340B program allows eligible hospitals and clinics that serve low-income and underinsured patients to purchase outpatient medications. When the program was designed in 1992, a primary goal was to provide uninsured and underserved patients with access to essential medications at reduced costs. The medication was procured as part of a discount model. Health care facilities covered by the law purchased drugs at discounts that could be up to 50% or more of the list price.

J&J argues that the 340B program has been overtaken by for-profit companies, including pharmacy chains and pharmacy benefit managers, “who have exploited the program for profit.” Although the 340B program was created to increase access to medications, J&J argues that insured companies have turned the program into a revenue stream, making money by receiving full insurance reimbursement for drugs they purchase at discounted 340B bought prices. The pharmaceutical company also pointed out double discounts – it received the price of 340 billion for the same drug purchase, which also receives a Medicaid rebate.

“Simply put, what was intended to be a buy-low/sell-low program for vulnerable patients has become a buy-low/sell-high commercial business opportunity unrelated to its public health mission “J&J said in the complaint. “This is the opposite of how charity care should be funded: The 340B program incentivizes providing services to insured patients rather than to the vulnerable populations most in need of affordable care.”

To support its claims, J&J points to reports from government watchdog groups that affected companies benefit from discounted drugs but do not pass those discounts on to patients. The drugmaker also notes that HRSA audits have found that many affected companies were non-compliant with the 340B program. J&J said audits it wanted to conduct to uncover further abuses were blocked.

The controversy over the 340B program has been simmering for years. Things came to a head recently when J&J sent out a letter in August informing 340B participants that the pharmaceutical giant would be switching from markdowns to rebates in mid-October on two drugs, the blood thinner Xarelto and the plaque psoriasis drug Stelara. Under this discount plan, hospitals would be required to purchase these drugs at full price and later submit data to the company to receive a discount equal to the discounted price of B340.

The rebate proposal sparked opposition from hospital groups and lawmakers. In letters to J&J, HRSA Administrator Carole Johnson explained that the J&J rebate plan requires approval from the HHS Secretary under the 340B statute. Johnson's Sept. 27 letter said the company had not requested such approval. That letter also warned J&J that continuing with the rebate plan would result in termination of the company's drug pricing agreement and possible financial penalties.

In October, J&J halted its plan to implement rebates, saying HRSA's threat to end the company's participation in the 340B program would only harm patients. But J&J did not give up its position that changes to the program were necessary. In its lawsuit, J&J argues that it is fully justified in offering a discount program. The company says its statutes state that HRSA can only refer a company to a specific pricing mechanism if that company has entered into a drug pricing agreement with the agency. Because J&J's agreement contains no such instruction or requirement, the company represents that it has complete discretion to choose the pricing mechanism and that the mechanism it chooses is rebates.

J&J claims that moving to a rebate model would provide transparency and mitigate the double rebates that violate the 340B regulation. J&J also claims that rebates are the only mechanism known to it that would allow the company to meet its obligations under the Inflation Reduction Act (IRA). This law requires a drug manufacturer to offer covered entities either the maximum price of $340 trillion or the maximum fair price of the law, whichever is lower. J&J says a rebate model would allow the company to comply with the IRA ban on double rebates.

J&J filed the lawsuit in the U.S. District Court for the District of Columbia. The case number is 1:24-cv-3188.

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