In 2010, the Affordable Care Act (ACA) directed the Secretary of Health and Human Services to issue regulations to establish an administrative dispute resolution (ADR) process for certain claims between Section 340B covered entities and pharmaceutical manufacturers (e.g., claims of overcharging by manufacturers and claims of covered entities taking duplicative discounts or diverting Section 340B discounted product). The ACA directed the Secretary to issue such regulations within 180 days of the ACA’s enactment.

The Secretary had long failed to issue such regulations, leading to recent and ongoing Administrative Procedure Act (APA) litigation by covered entities challenging the Secretary’s failure to do so in connection with the ongoing controversy between covered entities and certain manufacturers over covered entities’ use of contract pharmacies.

On December 10, 2020, the Secretary released a pre-publication version of his ADR final rule, which will be published in the Federal Register on December 14 and go into effect on January 13, 2021—one week before President-Elect Biden’s inauguration. Among other things, the ADR final rule:

  • Establishes a new six-member “340B Administrative Dispute Resolution Board” comprised of officials drawn from within HHS, which will sit in three-member “Administrative Dispute Resolution Panels”;
  • Provides for the initiation of claims by covered entities or manufacturers against each other seeking “monetary damages” and/or equitable relief (e.g., injunctions), which are forms of relief that may exceed the authority provided by the underlying statute;
  • Draws from certain aspects of the Federal Rules of Civil Procedure, particularly those rules involving pleadings and summary judgment;
  • Establishes that decisions of the ADR Panel are precedential and constitute final agency action subject to judicial review; and
  • Establishes a three-year limitations period for covered claims.

Because the ADR final rule will go into effect before the upcoming inauguration, the Biden Administration will likely have to engage in additional notice-and-comment rulemaking if it wants to alter the final rule’s contents. Issuance of the ADR final rule will also likely moot ongoing APA claims challenging the Secretary’s failure to issue regulations. However, that litigation also includes other claims for declaratory and injunctive relief more specifically associated with the ongoing contract-pharmacy controversy.

In any event, the existence of a formal ADR process will likely lead to covered entities initiating claims in the 340B ADR Board against certain manufacturers arising from the contract-pharmacy controversy as well as other overcharge matters.