Johnson & Johnson looks to make a big change in how hospitals obtain 340B price discounts (updated-2)

Note: This article was most recently updated Oct. 1 with information on Johnson & Johnson’s change of plans regarding a proposed 340B rebate program. See that update below.

A leading drug manufacturer opened a new chapter in the fight with hospitals over the 340B Drug Pricing Program, requiring the use of a rebate program to receive discounts.

Following manufacturer efforts over the last several years to limit the discounts available to providers through contract pharmacies, Johnson & Johnson announced it would offer 340B discounts on its frequently utilized Stelara and Xarelto drugs only in the form of post-purchase rebates beginning Oct. 15.

When the policy takes effect, hospitals potentially will have to pay full price for the drugs before submitting a rebate request and relevant data through the Beacon platform. Data will include additional medical claims elements beyond what providers already have to submit, along with purchasing data.

The request will need to be sent within 45 days of dispensing the drug.

“If a DSH [disproportionate share hospital] covered entity dispenses or administers Stelara or Xarelto shortly after purchase and submits timely rebate claim data, the DSH covered entity should be able to obtain 340B rebates on these units before payment is due to wholesalers on the underlying purchase,” J&J wrote in its notice, which has been sent to customers but not posted publicly.

J&J will offer a grace period, allowing providers to exceed the deadline and still receive a rebate for drugs dispensed through March 10, 2025.

“In effect, this grace period will provide DSH covered entities with more than six months to prepare to obtain the 340B discount through the rebate model,” J&J wrote.

The company said it is “deeply committed” to the 340B program and is implementing the change to “improve program integrity while at the same time enabling covered entities to obtain the 340B price on eligible 340B sales.”

Big concerns for providers

Not surprisingly, hospital advocates have a different take. The federal agency with oversight of the program apparently agrees with them.

The American Hospital Association (AHA) stated it had contacted the Health Resources and Services Administration (HRSA) after J&J announced the policy. HRSA said it would inform J&J that the plan disregards the 340B statute, which requires discounts to be applied up front, and would take appropriate action if necessary, according to the AHA. As of Tuesday, HRSA had not posted any such correspondence.

The provider advocacy group 340B Health likewise wrote to HRSA, noting that J&J’s plan violates the 340B statute and sets up a situation where discounts can be denied “based on the manufacturer’s, and not HRSA’s, determination regarding compliance.”

That letter also states, “Rather than saving on covered outpatient drug costs at the time of purchase, 340B hospitals will be forced to incur higher carrying costs for these drugs, essentially floating revenue to drug manufacturers, until the manufacturer approves and remits rebate payments. Purchasing at these higher amounts essentially increases the price of the drugs above the 340B purchase price and reduces the hospitals’ resources available for other patient care.”

“Many smaller covered entities that already are operating on razor-thin margins would be unable to handle these upfront costs,” 340B Health also wrote.

There is anxiety that other manufacturers will implement a similar policy, as was the case after the first contract-pharmacy restrictions were rolled out in 2021.

“It seems likely that J&J’s rebate model is a test case that manufacturers may seek to expand to other products and other [nonhospital] covered entities if the policy goes unchallenged,” the American Society of Health-System Pharmacists said in a statement.

A look at the big picture

HRSA also backed providers in the dispute over contract pharmacy discounts, spurring manufacturers to take their argument to litigation. Rulings have been mixed at the district-court level, with the two appellate decisions issued thus far both favoring manufacturers. The second opinion was published in May by the Court of Appeals for the District of Columbia Circuit.

In its recent letter to HRSA, 340B Health notes that although the D.C. Circuit Court said manufacturers have leeway to impose conditions on the availability of discounts, as they did with the contract-pharmacy provisions, the court also said other restrictions still might constitute a violation by effectively raising the 340B price or imposing undue burdens on providers.

The J&J announcement does not mention the Medicare negotiated prices announced for the two drugs in question, but Stelara and Xarelto both were on the list of 10 Part D drugs that will have reduced prices starting in 2026. Both drugs will be priced at amounts more than 60% lower than their projected non-negotiated price (the drugs are manufactured by Janssen, the pharmaceutical arm of J&J). Janssen was a party to a New Jersey-based federal lawsuit challenging the price negotiations and did not prevail. The case is under appeal.

A new administrative dispute resolution process for 340B was sketched out in a 2024 final rule. The rebate policy most likely would not be subject to dispute resolution if J&J defies HRSA’s pending guidance and implements the policy. The manufacturer could say it intended to provide discounts after hospitals completed the additional steps, meaning hospitals would not have a viable claim of an overcharge.

Sept. 18 update

HRSA posted a Sept. 17 letter to J&J that amounted to a cease-and-desist notice with respect to the 340B rebate proposal.

“HRSA expects J&J to cease implementation of its rebate proposal immediately and to inform HRSA no later than September 30, 2024, in order to provide adequate notice to covered entities,” the letter states.

The plan would violate the 340B statute, the letter states. If J&J moves forward to implement the proposal, possible consequences include termination of the company’s authorization to participate in 340B, along with civil monetary penalties.

When HRSA sided with providers in a dispute with manufacturers over contract-pharmacy discounts in 2021, manufacturers took their arguments to federal court and have had success at the appellate level (see the preceding section of this article). It remains to be seen whether the concept of a rebate model is enough of an incentive to pursue litigation.

J&J’s initial response to the HRSA letter struck a relatively conciliatory tone. The Wall Street Journal had a brief writeup that included a statement from the company saying it “will continue to constructively engage with HRSA on the 340B program to identify solutions that help modernize the program for a more sustainable future.”

Oct. 1 update

On Sept. 30, Johnson & Johnson sent HRSA a letter in which it protested the agency’s opposition to the 340B rebate plan but agreed to refrain from implementing any such change.

HRSA had sent a Sept. 27 letter in which it demanded that J&J formally cease plans to implement the rebate program or face the prospect of being blocked from participating in 340B and of being referred for an investigation by the HHS Office of Inspector General.

In its letter, J&J said federal law permits utilization of a 340B rebate mechanism and that such an option would be in the interest of the 340B program from a program-integrity standpoint, specifically with respect to flagging discounts that are duplicated between 340B and Medicaid. But J&J will halt its plans to move forward with the rebate model, with the company saying it is looking out for the interests of patients who rely on 340B drugs.

Providers lauded the development and credited HRSA for its quick and steadfast opposition to the rebate plan.

J&J’s decision to stand down “shows how swift and firm federal action and vigorous advocacy by essential hospitals can stop harmful drug industry behaviors that would put our healthcare safety net at risk,” America’s Essential Hospitals said in a written statement that commended not only HRSA but also members of Congress who supported providers’ position.