Health Resources and Services Administration Enjoined from Implementing the 340B Dispute Resolution Rule

The United States District Court for the Southern District of Indiana issued an order on March 16, 2021, preliminarily enjoining the Department of Health and Human Services Health Resources and Services Administration (HRSA) from enforcing a final rule (the Final Rule) that sought to implement an administrative dispute resolution process for the 340B Drug Pricing Program (the ADR Process).

The rule establishing the ADR Process has a long and unusual history and was supposed to be finalized in 2010, 60 days after enactment of the Affordable Care Act. Arent Fox has followed the development of the ADR Process and has written about it here and here.

In issuing its order, the Court found that plaintiffs Eli Lilly and Company and Lilly USA soundly met the standard necessary to obtain a preliminary injunction. Of great importance was the fact that the Final Rule appeared procedurally invalid under the Administrative Procedures Act due to HRSA’s violation of notice and comment rulemaking requirements. The Court recounted the unusual history of the Final Rule in explaining its ruling:

• In 2010, as part of the Affordable Care Act, Congress directed HRSA to establish an ADR Process within 180 days.
• However, HRSA did not act on this directive until 2016, when it published a Notice of Proposed Rulemaking (NPRM).
• After closure of the required comment period, HRSA then removed the NPRM from the Unified Agenda of Federal Regulatory and Deregulatory Actions without any explanation.
• Four years after publishing the NPRM – and despite its removal from the Unified Agenda and contrary to comments made by representatives of the Health Resources Services Administration (HRSA) – a Final Rule was published on December 14, 2020.

The Court found that the plaintiffs would likely succeed in showing “that the actions taken by the agency in this case indicated to regulated entities that the NPRM on the ADR process had been withdrawn and no rulemaking was being considered, despite the fact that no notice of withdrawal was published in the Federal Register. Lacking an opportunity to engage in the comment process, Lilly’s rights and interests have been violated.”

There were pending ADR requests submitted by 340B Covered Entities against the plaintiffs related to the plaintiffs’ failure to sell covered outpatient drugs to the 340B Covered Entities’ contract pharmacy agents, an agency relationship HRSA had endorsed in guidance since 1996 but that is not recognized in statute or binding regulation. It’s important to note this is a preliminary injunction only, which means the Final Rule cannot be implemented by HRSA while the case precedes on the merits. Stay tuned!