J&J's bid to change pay model for Stelara, Xarelto slammed

A US government agency has hit back at a plan by Johnson & Johnson to change the way it pays discounts on drugs to hospitals participating in the 340B programme for healthcare systems serving vulnerable populations.

J&J has said it will now need upfront payment in full for its anticoagulant Xarelto (rivaroxaban) and immunology therapy Stelara (ustekinumab), with a rebate paid later, rather than the previous and widespread approach of offering discounts in advance.

Responding to an enquiry from the American Hospitals Association (AHA), the Health Resources and Services Administration (HRSA) moved quickly however to say that the new approach is "inconsistent" with laws governing the 340B programme and has not been approved by the Department of Health and Human Services (HHS).

"HRSA further informed the AHA that it will take appropriate action as warranted," said the organisation.

The 340B programme was set up more than 30 years ago as an extension to the Medicare drug rebate programme for outpatient drugs that applies to outpatient drugs purchased by certain hospital types, including disproportionate share hospitals (DSHs) that serve large groups of low-income and otherwise vulnerable people.

In return for access to Medicare programmes, manufacturers agree to a pharmaceutical pricing agreement (PPA) that includes front-end discounts to DSHs and certain other 'covered entities' like children's hospitals and rural referral centres.

Late last week, J&J said that the new approach for Xarelto and Stelara – both drugs subject to the first round of Medicare negotiations under the Inflation Reduction Act (IRA) with prices slashed 62% and 66%, respectively – would start from 15th October with hospitals having a six-month grace period to come into alignment.

Crucially, J&J has said it will need rebate claim data – presumably information to verify the 340B status of purchases – suggesting it will be looking for instances in which the patient definitions don't align with the scheme's parameters.

The pharma industry has been unhappy about what it has described as "leakage" under the 340B programme for many years – i.e. uses of medicines by covered entities that don't conform to 340B status and so are not entitled to the discounts, which are typically between 13% and 23%.

It also points to massive growth in the programme – from around $4 billion in 2014 to $30 billion in 2019 – as a sign that its use is going beyond the original remit of being used only for medicines distributed through safety net healthcare providers.

The debate about the role of the programme has become increasingly heated in recent years and also spilled over into the courts, with lawsuits (PDF) being fought between the HHS, drug manufacturers, and 340B hospitals, the latter claiming that without these discounts they would have to reduce care for patients and even lay off staff.

One point of contention is the rapid growth in contract pharmacies participating in the discount programme by distributing 340B drugs, a number which has swelled from just over a thousand to around 30,000 in the last 15 years or so, and measures by drugmakers to create "340B pricing restrictions" for their products, according to HHS.

In a statement (PDF), J&J said the changes "will significantly improve programme integrity while at the same time enabling covered entities to obtain the 340B price on eligible 340B sales," limited programme abuses and improving transparency.

Image by Mohamed Hassan from Pixabay