Johnson & Johnson Faces Scrutiny from HRSA Over Proposed 340B Program Rebate Model

On August 23, 2024, Johnson & Johnson Health Care Systems Inc. (JJHCS) announced to the Disproportionate Share Hospital (DSH) Covered Entities that it was updating its discount policy on Stelara and Xarelto to a rebate model.

The 340B program allows DSH entities to purchase eligible drugs at discounted rates up-front and prescribe themto individuals with income levels below the federal poverty line. Under this proposed rebate model, these entities would purchase Stelara and Xarelto at their wholesale acquisition cost (WAC), and once prescribed, apply for the 340B discount through JJHCS’ Beacon platform. This application would require purchase data to be provided, including the invoice detail, wholesale provider, and claim data, including the date of service, prescription detail, and National Provider Identifier ID. Beacon would then validate this data to confirm 340B eligibility and issue a rebate to approved claims to cover the difference between the WAC and traditional 340B discounted prices.

JJHCS announced this rebate model would take effect on October 15, 2024, and offered a grace period through March 10, 2025, before requiring DSH entities to submit applications within 45 days of the date of service. JJHCS believed this new model was necessary to prevent abuse of the 340B program, but the proposal faced scrutiny from the government and healthcare organizations.

One day prior to J&J’s official proposal release, 340B Health, a nonprofit organization comprised of 340B public and private hospitals, sponsored a letter to the Health Resources and Services Administration (HRSA) criticizing the proposal. 340B Health argued that the 340B statute prohibits manufacturers from achieving 340B compliance through rebate programs. Additionally, the proposal allows the manufacturer an opportunity to deny post-sale rebates and creates additional up-front costs to DSH entities already operating on tight margins. On September 17, HRSA issued a warning to J&J Chairman and Chief Executive Officer Joaquin Duato, stating this proposal did not comply with the 340B program and had not received approval from the Secretary of the Department of Health and Human Services. HRSA contended that requiring DSH entities to purchase drugs at WAC prices exceeds the maximum pricing allowed under 340B and that the rebate model did not satisfy the requirements of the “replenishment” processes outlined in the 340B statute. HRSA called on J&J to halt the implementation of this model and to provide notice by September 30, 2024, noting it would no longer proceed with the rebate model to avoid any potential penalties.

If J&J proceeded with this model, it would face fines of around $7,000 per infraction and termination of its pharmaceutical pricing agreement with the government. Losing this agreement would remove J&J’s manufactured drugs from being covered under Medicare and Medicaid, resulting in losing access to millions of patients across the country. On September 30, J&J COO of North America Innovative Medicines, Scott White, notified HRSA that J&J would officially forgo its rebate model, stating, “Due to HRSA’s unwarranted threats of excessive and unlawful penalties, J&J has no choice but to forgo implementation of the Rebate Model pending resolution of these issues.” J&J maintains that the rebate model complies with 340B and is necessary to limit abuses of the program, primarily duplicate discount claims, which have been uncovered in HRSA-approved audits of DSH entities. J&J plans to continue meetings with HRSA to discuss the proposal, and Congress has the momentum to require more transparency in the 340B program.

Author: Anthony Whelan, CPA | [email protected]