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“PhRMA 2-0 in The Orphan Drug Wars”

To Be or Not to 340B By Alyce C. Katayama and Elizabeth R. Gebarski

U.S. Federal District Court Judge for the District of Columbia, Rudolph Contreras, ruled Wednesday, October 14, 2015 that manufacturers need not offer 340B discounts for orphan drugs sold to a specified group of covered entities (CEs), regardless of how the orphan drug is used.

To make a very long story short, in 2010, the Patient Protection and Affordable Care Act (PPACA) made several changes to the 340B Program. In part, it added several new CEs (e.g., children’s hospitals and critical access hospitals) and narrowed the categories of drugs to which a specified group of CEs would have access at 340B discount prices by creating the orphan drug exclusion. This specified group of CEs subject to the orphan drug exclusion include free-standing cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals.

The orphan drug exclusion (codified in section 340B(e) of the Public Health Service Act (PHSA)) provides that for this specified group of CEs, “the term ‘covered outpatient drug’ shall not include a drug designated . . . for a rare disease or condition.”

On July 23, 2013 the Department of Health and Human Services (HHS) published a Final Rule which interpreted this language. That Final Rule was challenged by Pharmaceutical Research and Manufacturers of America (PhRMA) and ultimately, in a 2014 decision,vacated by Judge Contreras. Almost exactly one year later, effective July 21, 2014, HHS tried again, issuing an almost identical interpretation as an Interpretive Rule that provided the following:

“For the affected entities within its scope, HHS interprets [the orphan drug exclusion] as excluding from the 340B Drug Pricing Program drugs that are transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the drug was designated under section 526 of the Federal Food, Drug, and Cosmetic Act (FFDCA). However, [the orphan drug exclusion] does not exclude from the 340B Program drugs that are transferred, prescribed, sold, or otherwise used for conditions or diseases other than for which the drug was designated [as an orphan drug].”

PhRMA again challenged HHS and filed suit a few months later, arguing that “[i]f Congress had intended to impose a use-based limitation on the orphan drug exclusion, it easily could have done so, just as it has done in other statutory orphan drug exemptions.” Judge Contreras agreed, writing

“Because the term ‘a drug designated . . . for a rare disease or condition’ in [the orphan drug exclusion], as construed with reference to related statutory provisions, unambiguously indicates that Congress intended to exclude all drugs carrying an orphan-designation from 340B Program eligibility for the newly added entities, the Court concludes that HHS’s Interpretive Rule is contrary to the plain language of the statute.”

As can be expected, reaction to this ruling is mixed. PhRMA indicated that it is “very pleased with the court’s decision.” On the other hand, 340B Health, a trade association representing 340B hospitals, indicated that “[w]e are deeply disappointed with the ruling. . . . This is a major setback for rural hospitals who are already struggling to keep their doors open. It will also make it harder for patients to get access to affordable medications close to home.”

Stay tuned to this blog to follow the legal developments regarding orphan drugs and other 340B sagas.