Johnson & Johnson Challenges Government Drug Pricing Dispute Over Two Drugs

Johnson & Johnson JNJ has filed a lawsuit against a U.S. government agency over a contentious disagreement about payment methods.

What Happened: The legal spat stems from the federal 340B Drug Pricing Program, which provides discounted medications to hospitals serving vulnerable patients.

The pharmaceutical giant argues that the program has strayed from its original intent and has become dominated by well-funded hospitals and for-profit entities. This includes large pharmacy chains and pharmacy benefit managers, leading to abuses that undermine patient benefits.

Also Read: Medicare Costs For Johnson & Johnson’s Psoriasis Drug Stelara Double When Obtained at Pharmacies

The 340B Program was established in 1992. It was designed to support low-income and uninsured patients by enabling certain healthcare providers to purchase outpatient drugs at reduced prices.

Manufacturers must enter a Pharmaceutical Pricing Agreement (PPA) with the Department of Health and Human Services (HHS) to sell drugs at discounted rates. This allows them to qualify for Medicare and Medicaid reimbursements.

However, Johnson & Johnson contends that the program, now the second-largest federal drug initiative after Medicare, has been exploited by entities not intended initially as beneficiaries, sidelining patients.

In August 2024, Johnson & Johnson proposed a new rebate-based pricing model in response to growing concerns over program integrity.

This model would shift from upfront discounts to rebates issued upon verification of purchase and dispense data, aimed at curbing duplicate discounting and improving transparency.

Initially, the rebate model would apply only to two of Johnson & Johnson’s drugs and to disproportionate share hospitals (DSH)—large, resource-rich hospitals that, despite comprising less than 10% of covered entities, account for nearly 78% of 340B purchases.

Why It Matters: Johnson & Johnson points to findings from audits conducted by the Health Resources and Services Administration (HRSA), which revealed significant non-compliance by covered entities, including unauthorized use of 340B-priced drugs and duplicate discounts.

From 2012 to 2019, HRSA audits found hundreds of violations involving diversion of drugs and overlapping Medicaid rebates.

Johnson & Johnson’s attempts to audit covered entities also met resistance, with several refusing to produce records despite statutory obligations, further highlighting program abuses.

However, HRSA resisted the plan, threatening to terminate Johnson & Johnson’s PPA and impose significant penalties. This prompted the company to suspend the model’s implementation, citing HRSA’s “severe and disproportionate” sanctions. Johnson & Johnson argues that HRSA’s stance contradicts statutory provisions and the agency’s stated goals for program transparency.

Johnson & Johnson’s lawsuit seeks a declaration that HRSA’s attempts to block the rebate model are unlawful and an injunction to prevent enforcement actions related to the proposed model.

The company emphasizes that program abuses will continue without adjustments like its rebate plan at the expense of the patients it was meant to serve.

Price Action: Johnson & Johnson stock is down 0.37% at $152.08 during the premarket session at last check Wednesday.

Read Next:

• Cisco And LTIMindtree Join Forces To Fortify Hybrid Work Security with Cutting-Edge Solutions