Johnson & Johnson Abandons Rebate Scheme

Johnson & Johnson blinked. The company has dropped an illegal plan to turn the 340B Drug Discount Program into a rebate.

It was a bridge too far from its inception, but what really got the company’s attention was a stern warning from Health Resources and Services Administration chief Carole Johnson that J&J faced revocation of its Pharmaceutical Pricing Agreement. That’s the all-important contract that allows the company to sell into the lucrative Medicare and Medicaid markets in return for participating in 340B.

As well, Johnson & Johnson would have been referred to the HHS Office of Inspector General for civil monetary penalties – a double whammy that is truly unprecedented.

We applaud Administrator Johnson for pointing out the obvious. The drug industry has steadily – and illegally – been trying to kill the 340B Program by refusing to supply mandated discounts to contract pharmacies. That issue is currently in the courts, but no doubt many pharmaceutical companies were watching J&J’s recent actions.

We’re confident none of them will choose to follow suit.

Essential to the outcome was a strong letter from a bipartisan group of lawmakers to Health and Human Services Secretary Xavier Becerra decrying the plan. The authors included Representatives Abigail Spanberger (D-VA), Dusty Johnson (R-SD), Doris Matsui (D-CA),  Tracey Mann (R-KS) , Deborah Dingell (D-MI) and Robert Wittman (R-VA).

On August 15, the Biden administration announced that 10 drugs would now be negotiated by Medicare. A few days later, Johnson & Johnson raised the purchase price on two of these drugs, Xarelto and Stelara, for nonprofit hospitals in the 340B Drug Discount Program. Even worse, the company required the drugs to be discounted only through rebates. This action would have forced hospitals to buy medicines at a higher cost and then wait for industry determination of possible discounts later.

That’s NOT how Congress wrote the 340B program in 1992. The statute clearly states drug companies must provide discounted medications up front to nonprofit hospitals and clinics that serve high numbers of low-income patients and meet HRSA requirements.

In a Sept. 17 letter, HRSA administrator Carole Johnson informed Johnson & Johnson CEO Joaquin Duato the company was poised to break the law: “If J&J implements its rebate proposal without Secretarial approval, it will violate Section 340B(a)(1) of the Public Health Service (PHS) Act.” That authorization had not been granted. Even more important, Johnson reminded Duato that the rebate scheme could lead to the company losing its federal Pharmaceutical Pricing Agreement.

340B is a critical lifeline in low-income communities and helps fund behavioral health, substance abuse, maternal and child health, health screening, diabetes management, and patient transportation services. That’s in addition to no-cost and low-cost medications for underserved patients.

The program must be protected and we again thank Administrator Johnson for ably doing her job.