New Challenge to 340B Rule Regarding Orphan Drugs


In Depth

On October 9, 2014, Pharmaceutical Research and Manufacturers of America (PhRMA) filed a complaint (the October 9 Complaint) against the U.S. Department of Health and Human Services (HHS), the Health Resources and Services Administration (HRSA) and each body’s respective secretary in the U.S. District Court for the District of Columbia (the Court). PhRMA is seeking declaratory and injunctive relief to prevent HHS from re-issuing a rule related to the 340B Federal Drug Pricing Program (340B Program)’s so-called “orphan drug exclusion.” The October 9 Complaint follows the Court’s earlier decision from May 23, 2014, in which the Court vacated a rule previously issued by HHS related to the orphan drug exclusion (for further discussion of the Court’s earlier decision, see previously published On the Subject).

The 340B Program allows participating providers (Covered Entities) to purchase “covered outpatient drugs” from manufacturers at discounted prices. The Affordable Care Act (ACA) expanded the definition of Covered Entity to include four additional types of hospitals: critical access hospitals, sole community hospitals, rural referral centers and freestanding cancer hospitals (collectively, ACA-eligible hospitals). The ACA also added a provision (codified at 42 U.S.C. § 256b(e)), applicable only to the ACA-eligible hospitals, specifically excluding from the definition of “covered outpatient drugs,” certain drugs designated by the Food and Drug Administration for a rare disease or condition (also known as orphan drugs).

Following the ACA, HHS issued a rule after a formal notice-and-comment rulemaking process, interpreting the orphan drug exclusion (the Rule). The Rule stated that an orphan drug would only be excluded from the definition of “covered outpatient drug” where the orphan drug was being used for the rare disease or condition for which the drug received its orphan designation. As a result of the Rule, the ACA-eligible hospitals were able to purchase orphan drugs at 340B prices where such orphan drugs were to be used for non-orphan indications. The Rule also provided that HHS would bring enforcement actions against manufacturers that failed to offer orphan drugs at 340B prices pursuant to the Rule.

As noted above, on May 23, 2014, the Court issued a decision in Pharmaceutical Research and Manufacturers of America v. United States Department of Health and Human Services, et al., vacating the Rule. The Court determined that, by issuing a notice and comment (or legislative) rule, HHS had exceeded the scope of its congressionally delegated rulemaking authority. In its opinion, the Court mentioned that HHS may be able to re-issue the Rule as an interpretive rule. On July 23, 2014, HHS issued an interpretive rule (the July 23 Rule), which re-stated its position that orphan drugs, if used for non-orphan indications, are not excluded from the definition of “covered outpatient drug” and, thus, must be offered to all Covered Entities at 340B prices.

Through the October 9 Complaint, PhRMA asks the Court to invalidate the July 23 Rule as inconsistent with 42 U.S.C. § 256b(e). PhRMA argues that the language used in the statute specifically exempts from the definition of “covered outpatient drugs,” those drugs that have been designated as orphan drugs, regardless of the condition for which the drug is prescribed. PhRMA’s argument focuses on the distinction between a drug’s orphan designation and the marketing approval for different uses (orphan or non-orphan) of such orphan-designated drugs. PhRMA argues that the designation applies to the drug molecule itself, irrespective of how such drug is to be used. Therefore, according to PhRMA, the language of 42 U.S.C. § 256b(e) excludes all orphan drugs, regardless of use, from the definition of “covered outpatient drug,” as applied to the ACA-eligible hospitals. Finally, PhRMA argues that the re-issued, interpretive rule has the same legal effects as the initial legislative rule that was vacated by the Court in its May 23 decision.

Should the Court rule in favor of PhRMA and invalidate the July 23 Rule, the four newly eligible types of hospitals will be unable to purchase orphan drugs at discounted, 340B prices, irrespective of the indication for which the hospital seeks to use such drugs.