Legal Update

340B Update – Contract Pharmacy Litigation and State Laws to Related Pharmacies and PBMs
by Issie Karan, Karan Legal Group

Since 2020, more than 38 manufacturers have announced policies to restrict access to 340B pricing for drugs ordered by a covered entity to be shipped to a contract pharmacy location for dispensing, most commonly only allowing one contract pharmacy relationship and reporting for claims data. Thus far, manufacturers have exempted HTCs from these restrictions. However, hospitals and federally qualified health centers have lost significant funding.

Because of these changes, lawsuits and new state laws have proliferated. Multiple manufacturers sued the government regarding the allowability of contract pharmacy restrictions and received favorable rulings on appeal (in the 3rd and DC Circuits) and await a decision in the Seventh Circuit. If the Circuits split, the issue could be appealed to the Supreme Court (SCOTUS).

States also have gotten into the mix with new laws responding to manufacturers’ conditions. Generally, these state laws prohibit drugmaker restrictions on contract pharmacies, require Pharmacy Benefit Managers (PBMs) to offer fair payment and network participation to covered entities, and or require reporting. Arkansas received a favorable ruling on its PBM law (8th Cir.) and has moved to enforcement. However, Oklahoma awaits the results of an appeal from the 10th Circuit’s determination that aspects of their Patient’s Right to Pharmacy Choice Act are preempted by the federal Employee Retirement Income Security Act of 1974. On May 10, 2024, Oklahoma Insurance Department filed a petition for a writ of certiorari to SCOTUS which should have an outcome on in the next month. Additionally, 31 attorneys general from 31 states filed an amicus curiae brief. As a reminder, in Rutledge (2020), SCOTUS ruled that an Arkansas law regulating PBMs’ drug reimbursement rates were not preempted by ERISA. So SCOTUS may have a strong incentive to affirm their earlier precedence on ERISA preemption.

What do HTCs need to know? PBMs continue to be at the center of public discourse regarding access to treatments and preferred pharmacies and rising drug costs, driving action by lawmakers and the courts at the state and federal level to ensure patient access. These legislative reforms could sweep up 340B reform and impact HTC operations. Please continue to remain engaged on 340B advocacy and law changes at the state and federal level and keep reading the newsletter for updates!

HHS Adopts Changes to the Uniform Grants Guidance
by Issie Karan, Karan Legal Group & Michael B. Glomb, Feldesman Leifer

HHS released an interim final rule for comment which proposes to repeal HHS’ existing regulations governing the administration of HHS financial assistance awards (i.e., federal grants), at 45 Part 75, as of October 1, 2025, and adopt the Office of Management and Budget’s (OMB’s) codification of the federal grant rules at 2 CFR Part 200 (with some HHS-specific policies codified at Part 300). The government characterizes this change as non-substantive.

The Hemophilia Alliance suggests that all member HTCs check-in with their in-house compliance, offices of sponsored programs, and others who oversee your participation in government grants to update them about the changes described below.

The final rule indicates that HHS will accept comments on only part of the rule, specifically, the plan and timeline for adopting the 2 CFR Part 200 & 300. HHS will not respond to comments regarding the content of Uniform Grants Guidance (UGG) as they indicate that these are not new requirements for federal grantees. Comments are due November 1, 2024. Given that HHS will only consider comments on the process for implementation, and not the substance of the UGG itself, the Alliance does not anticipate submitting comments.

Additionally, the final rule includes policies which already went into effect on October 1, 2024, mainly updating the dollar amounts that trigger an audit or different classification of an expense. The provisions already in effect include the following:

• Micro-purchase and simplified acquisition thresholds, 2 CFR 200.320;
• Closeout process, 2 CFR 200.344;
• Subaward threshold for modified total direct cost calculation, 2 CFR 200.1 modified total direct cost;
• Equipment threshold, 2 CFR 200.1, 2 CFR 200.313(e);
• Supplies threshold, 2 CFR 200.1, 2 CFR 200.314(a);
• Fixed amount subaward threshold, 2 CFR 200.333;
• De minimis indirect cost rate, 2 CFR 200.414(f); and
• Audit threshold, 2 CFR 200.501.

Today and increasingly over the next year, HTCs likely can anticipate seeing new references to the Uniform Grant Guidance used by the government and in grant instruments. The Hemophilia Alliance will begin to transition to the updated references. Again, we recommend that HTCs check-in with their in-house compliance, offices of sponsored programs, and others who utilize the UGG about the changes.

HTC Frequently Asked Compliance Questions: October 2024

As part of the benefits of being a member in the Hemophilia Alliance, Hemophilia Treatment Centers (HTCs) can seek advice from the legal team about compliance and understanding the many rules which govern how HTCs operate. We highlight the themes of these conversations in our newsletter articles, but we will begin to compile these questions and host them on the Alliance website. As it makes sense, we will highlight some of these FAQs in future newsletters, including the question below which came up at the Fall Members Meeting. So, stay tuned for more exciting updates!

Question: Are rebates and/or discounts included in the definition “Program Income” under the Uniform Grants Guidance?

Short Answer: Rebates do not fall under the definition of “program income” but do constitute “applicable credits” which offset or reduce expenditures under the grant, and such credits must be credited to the Federal award. Meaning, rebates and discounts should reduce costs under the Federal award, leading to a proportional increase in program income.

Long Answer: There’s No Such Thing as a Free Lunch

Hemophilia Treatment Centers (HTCs) have asked whether rebates are considered “program income” under the Uniform Grants Guidance (UGG). Although rebates are excluded from the definition of program income, rebates constitute “applicable credits” under the UGG. Meaning, HTCs must utilize rebates to offset expenses accrued because of grant activities and appropriately account for their use. Given the confusion, the Hemophilia Alliance provides relevant legal citations below.

The UGG defines “Program Income” as:

“[G]ross income earned by the non-Federal entity that is directly generated by a supported activity or earned as a result of the Federal award during the period of performance except as provided in § 75.307(f). (See Period of performance.) Program income includes but is not limited to income from fees for services performed, the use or rental or real or personal property acquired under Federal awards, the sale of commodities or items fabricated under a Federal award, license fees and royalties on patents and copyrights, and principal and interest on loans made with Federal award funds. Interest earned on advances of Federal funds is not program income. Except as otherwise provided in Federal statutes, regulations, or the terms and conditions of the Federal award, program income does not include rebates, credits, discounts, and interest earned on any of them. 45 C.F.R. §75.2 and with similar references at 2 C.F.R. 200.1 effective for HHS grantees 10/1/25.

The text emphasized above may mislead HTCs into thinking that rebates can be treated as unrestricted funds. However, the UGG has more to say about reductions in costs under federal grant awards.

“Applicable credits refer to those receipts or reduction-of-expenditure-type transactions that offset or reduce expense items allocable to the Federal award as direct or indirect (F&A) costs. Examples of such transactions are: Purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the non-Federal entity relate to allowable costs, they must be credited to the Federal award either as a cost reduction or cash refund, as appropriate.” 42 C.F.R. §75.406(a) and with similar references at 2 C.F.R. 200.406 effective for HHS grantees 10/1/25.

We advise HTCs to seek advice from legal, accounting, and compliance experts about rebate funds. However, the Hemophilia Alliance team is also available to answer questions.