Phil Perry Retires: Impact on 340B Program Litigation and Regulation

Phil Perry's retirement from Latham & Watkins marks the end of a distinguished career in which he established a leading regulatory litigation practice within the healthcare and life sciences sectors. His team's success, particularly in 340B program litigation, has created a lasting impact on the firm.

The Centers for Medicare & Medicaid Services (CMS) has proposed a rule for the 2027 Outpatient Prospective Payment System (OPPS), open for public comment until August 2026. A key proposal involves reducing payments for drugs acquired through the 340B program to 33.4% below the Average Sales Price (ASP), with no add-on payments. This stems from a CMS survey finding hospitals reported acquisition costs significantly lower than both the ASP mean and median. For drugs without an ASP, the proposed payment rate would be set at Wholesale Acquisition Cost (WAC) minus 33.4%.

This change aims to reduce patient cost-sharing, redirecting savings to enhance non-drug service payments. Exemptions exist for certain healthcare facilities, including children's and rural hospitals. CMS suggests implementing modifiers on drug claims to differentiate 340B drug utilization from manufacturer rebate invoices under Medicare Part B.

Various stakeholders are actively discussing the final regulations under review by the Office of Management and Budget. The debate encompasses the potential impacts of the most favored nation (MFN) drug pricing policy on international markets. Despite MFN agreements being concluded with pharmaceutical companies, many details remain undisclosed, prompting further discussion.

Manufacturers are increasingly requesting 340B covered entities to provide claims-level data for all dispenses, spurring litigation initiated by a hospital challenging a manufacturer's policy. The Health Resources & Services Administration's (HRSA) 340B rebate proposal remains under OMB review, with stakeholders assessing the rebate model's implications.

Litigation against state-enacted 340B laws continues in various courts, while legislative discussions on potential program reforms remain ongoing. In related legal developments, the implementation of the Colorado Prescription Drug Affordability Board's Upper Payment Limit (UPL) has been postponed by a preliminary injunction following a manufacturer's challenge, pending further court rulings.