J&J Sues HHS to Implement Drug Discount Rebate Plan Changes

Johnson & Johnson Health Care Systems Inc. (J&J) is suing the U.S. Department of Health and Human Services (HHS) and the Health Resources and Services Administration (HRSA), challenging the agencies’ opposition to its proposed changes to the federal 340B Drug Pricing Program.
J&J wants to implement a “Transparency Rebate Model” that would allow the company to verify that discounted drugs are actually purchased and dispensed by eligible health care providers.
This model focuses on two of J&J’s medications: Stelara, used to treat conditions such as psoriasis and Crohn’s disease, and Xarelto, a blood thinner.
The rebate model would apply to disproportionate share hospitals (DSHs), which serve a large number of low-income patients and are major participants in the 340B program.
According to the complaint, J&J believes this rebate model is legally allowed and follows standard industry practices.
The 340B Program was established by Congress in 1992 to help vulnerable patients get affordable medications.
However, J&J argues that the program has drifted from its original purpose and is now being “abused by entities it was never intended to benefit,” according to the complaint. The company points out that a lack of transparency means the discounts might not always reach the patients who need them most.
“340B Program sales have grown by 129% since 2018—more than 3X the growth rate for non-340B sales, with little oversight,” J&J noted in its statement. The company cites government data indicating that rapid growth can lead to “diversion or duplicate discounts,” practices prohibited by the 340B law.
Despite J&J’s intentions, HRSA has opposed the rebate model. In letters sent in August and September, the agency stated that the proposed model would violate the 340B statute and threatened penalties, including large fines and termination of J&J’s agreement to participate in federal health programs.
According to the complaint, HRSA said that without the agency’s approval, proceeding with the rebate model would be unlawful.
Facing these threats, J&J has temporarily halted the implementation of the rebate model, which was scheduled to start on Oct. 15.
“On September 30, 2024 J&J notified HRSA that, because of HRSA’s threats to terminate J&J’s PPA, J&J had no choice but to forgo implementation of the Rebate Model pending resolution of these issues,” the complaint states.
J&J contends that HRSA’s stance is “arbitrary and capricious and contrary to law.” The company argues that the 340B statute allows for different methods, including rebates, to provide discounted pricing to eligible providers.
The complaint notes that the law requires that manufacturers and HHS agree that “the amount required to be paid (taking into account any rebate or discount, as provided by the Secretary) to the manufacturer for covered outpatient drugs … [will] not exceed” the maximum price set by the program.
In its statement, J&J expressed a commitment to continue working with HRSA and others to find solutions.
“While this legal action is pending, we will continue to engage with the HRSA and other stakeholders to explore solutions aimed at improving transparency and program integrity to better serve vulnerable patients tomorrow and in years to come,” the company stated.
The company asserts that its rebate model will not change which transactions are eligible for discounts or the amount of the discount offered.
HHS did not respond to a request for comment regarding the lawsuit.