A recent decision by the U.S District Court for the District of Columbia will exclude all drugs with an “orphan” designation from the 340B Drug Pricing Program for rural and cancer hospitals. The pharmaceutical industry may perceive the ruling that the Health Resources and Services Administration’s interpretive guidance is contrary to the plain language of the 340B statute as a victory, while patient advocates and providers express concern over access to critical medications for the sickest patients in the U.S. health care system.
The Health Resources and Services Administration (HRSA) within the Department of Health and Human Services’ (HHS) administers section 340B of the Public Health Service Act (PHSA). The 340B Program allows certain Covered Entities to purchase “covered outpatient drugs” from drug manufacturers at discounted prices. Under Section 340B, a drug manufacturer signs a pharmaceutical pricing agreement, it agrees not charge covered entities for covered outpatient drugs over calculated ceiling prices. As of January 1, 2015, there were 644 drug manufacturers participating in the 340B Program.
The Affordable Care Act (ACA) extended eligibility to participate in the 340B Program to critical access hospitals, sole community hospitals, rural referral centers and freestanding cancer hospitals. The ACA also added a provision (42 U.S.C. § 256b(e)) that specifically excluded from the definition of “covered outpatient drugs” orphan drugs. Orphan drug status is designated by the Food and Drug Administration (FDA) when a drug is used for certain rare diseases or conditions. As a result of this “orphan drug exclusion,” those newly eligible covered entities under the ACA were unable to purchase orphan drugs at the 340B price.
HRSA has since released an interpretive rule providing that qualified hospitals that track drugs by indication may purchase orphan drugs at 340B discounted prices if such drugs were to be used for non-orphan indications. Pharmaceutical Research and Manufacturers of America (PhRMA) brought suit challenging HRSA’s interpretation of the 340B Program.
In October 2015, the D.C. District Court rejected the HRSA’s Interpretive Rule as inconsistent with the 340B Program statute. The court first held that HHS’ interpretation could be challenged under the APA as a final agency action, as it imposed an immediate and significant practical burden on the regulated entities. The court then found that the FDA’s statutory interpretation did not deserve deference beyond its ability to persuade. The court concluded that the Interpretive Rule conflicted with the plain language of the 340B Program statute, and thus constituted an agency abuse of Agency discretion. The Court granted PhRMA’s motion for summary judgment against HRSA and, in effect, vacated HRSA’s interpretive rule.
Thus, the qualified covered entities will no longer be authorized to purchase orphan drugs at a 340B discounted price when used for non-orphan indications. Drug manufacturers that fail to make orphan drugs available to eligible 340B Covered Entities for non-orphan uses are no longer deemed in violation of the PHSA or subject to statutory penalties, refunds of overcharges, or termination of their Pharmaceutical Pricing Agreements.
This decision may be seen as a victory for the pharmaceutical industry and embolden parties seeking to challenge other changes proposed in the Omnibus Guidance that fail to properly interpret the 340B Program statute.
For assistance in navigating the drug pricing regulatory landscape, contact Frier Levitt.
