Non-Designated Uses of Orphan Drugs – To 340B or Not to 340B?

By Jay Cormier & Alan Kirschenbaum –

The Patient Protection and Affordable Care Act made extensive changes to the 340B drug discount program, which we have previously described.  Among other things, the statute expanded the categories of covered entities entitled to purchase drugs at the statutory ceiling price.  It also provided an exemption from the ceiling price for designated orphan drugs when purchased by certain of these covered entities (the so-called “orphan drug exclusion”). 

For readers not familiar with the 340B Program, section 340B of the Public Health Services Act requires drug manufacturers, as a condition of Medicaid and Medicare Part B coverage of their product, to sell outpatient drugs to “covered entities” at a price no greater than a statutory ceiling price.  Congress’ intent was to provide outpatient prescription drug assistance to vulnerable uninsured patients.  The list of covered entities, as expanded by the Affordable Care Act, includes certain federally subsidized clinics and certain safety net hospitals, including disproportionate share hospitals, children’s hospitals, certain free-standing cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals. 

The orphan drug exclusion in the Affordable Care Act provides that a drug eligible for 340B pricing “shall not include a drug designated by the Secretary under [section 526 of the Federal Food, Drug, and Cosmetic Act] for a rare disease or condition.”  42 U.S.C. § 256b(e).  This exception applies to cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals. 

In late July, the Health Resources and Services Administration ("HRSA") issued a final implementing rule, codified at 42 C.F.R. § 10.21, providing that the orphan drug exclusion applies only to orphan drugs that are “transferred, prescribed, sold, or otherwise used for the rare condition or disease for which that orphan drug was designated.”  76 Fed. Reg. 44,016 (Jul. 23, 2013) (see our previous post regarding the proposed rule).

As threatened in their comments on the proposed rule, the Pharmaceutical Research and Manufacturers of America ("PhRMA") has filed a complaint and application for a preliminary injunction in the U.S. District Court for the District of Columbia, with supporting memorandum, claiming that HRSA’s orphan drug rule violates the Administrative Procedures Act ("APA").  Specifically, PhRMA alleges that (1) HRSA did not have the authority to promulgate the final rule, and (2), even if HRSA did have such authority, the final rule conflicts with the plain statutory language of the Affordable Care Act, which, according to PhRMA, exempts all uses of designated orphan drugs from the ceiling price, not just those used for the orphan indication.  PhRMA is seeking a declaration that HRSA violated the APA, a preliminary injunction, and an order invalidating and enjoining the enforcement of the final rule.

Will PhRMA prevail on the merits of this case?  That is the question.  We will be following this case during the coming months and will provide you with updates.

The case is Pharmaceutical Research and Manufacturers of America v. US Department of Health and Human Services, et al., Civil Action No. 1:13-cv-01501 (D.D.C.).