HRSA’s 340B Orphan Drug Exclusion Rule is Briefed for its Third Judicial Review

By Jay W. Cormier & Alan M. Kirschenbaum –

The stage is set for yet another court ruling in the battle between the Health Resources and Services Administration (HRSA) and the Pharmaceutical Research and Manufacturers of America (PhRMA) over HRSA’s implementation of the 340B Orphan Drug Rule.  As we have related in prior posts (the most recent being here), HRSA asserts that the statutory orphan drug exclusion from the 340B drug discount program, under which certain 340B covered entities are not eligible for 340B pricing for orphan drugs, only applies to orphan drugs when used for the orphan-designated indications but not when used for other indications.  This position was first incorporated into a regulation issued pursuant to notice-and-comment rulemaking.  PhRMA successfully sued in the U.S. District Court for the District of Columbia, obtaining a ruling that HRSA was not authorized by statute to issue regulations in this area.  So, HRSA promulgated a second rule, which was virtually identical to the first, except that HRSA labeled it an “interpretive” rule.  PhRMA challenged the latter rule in the same proceeding, but the  Court agreed with HRSA that the second rule was a separate matter that required a new lawsuit.  PhRMA brought the new lawsuit last October. 

Both sides have now filed motions for summary judgment.  HRSA has argued that the court lacks jurisdiction to review the interpretive because it is not a final agency action.  According to HRSA, the new rule does not confer any rights or obligations, nor do legal consequences result from it.  HRSA states that no enforcement action can be taken under the new rule.  Rather, any legal action against a manufacturer for charging excessive prices for orphan drugs prescribed for non-orphan indications will flow from the statutory provisions rather than the new regulation.  HRSA claims that voluntary compliance with the new HRSA rule by a large number of orphan drug manufacturers “does not transform the interpretive rule into a binding rule.”

In its Opposition filed on February 25, PhRMA argues that the new rule, like any executive regulation, confers legal obligations on orphan drug manufacturers, and plainly sets forth HRSA’s interpretation of the statutory orphan drug exclusion — an interpretation that will be the basis for enforcement actions.  PhRMA further points out that, lest there be any doubt with respect to HRSA’s intention to enforce the new rule, the agency has sent letters to over 50 manufacturers ordering them to comply with the new rule and threatening enforcement for non-compliance, and has posted on its website a list a list of manufacturers who are allegedly noncompliant.

Hopefully, the Court will be persuaded that the rule is reviewable, and the merits of HRSA’s interpretation of the orphan drug exclusion will finally be adjudicated.  If not, manufacturers of orphan drugs with additional non-orphan indications will be faced with the unusual prospect of an agency taking action to enforce an interpretation that it insists is not legally binding.