Federal Court Rules That 340B Orphan Drug Rule Is Invalid

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On May 23, 2014, the United States District Court for the District of Columbia issued a decision invalidating a regulation addressing restrictions  on the purchase of orphan drugs through  the 340 B Drug Discount Program; the Court enjoined enforcement of the regulation.  The Court determined that the United States Department of Health and Human Services did not have (HHS) did not have rule making authority to issue the regulation. 

The regulation at issue, which became effective October 1, 2013, allowed rural referral centers (RRCs), sole community hospitals (SCHs), critical access hospitals (CAHs) and cancer hospitals to purchase organ drugs with 340B discounts when the drugs were being used for non-orphan designation.  HHS issued the regulation to clarify a provision in the 340B Statue that prohibits RRCs, SCHs, CAHs an cancer hospitals from purchasing “drugs designated…for a rare disease or condition” with 340B discounts. Federal law provides incentives to drug manufactures to develop drugs that are used to treat at least one rare disease or condition, or “orphan drugs”, although these drugs are usually also used to treat common illnesses. The reason they are deemed “orphan drugs” is because efforts to research , invest in and produce them would otherwise be abandoned if not for the incentives Congress has provided pharmaceutical manufacturers to do so.

The Pharmaceutical Research and Manufacturers Association of American (PhRMA), the plaintiff, argued that HHS did not have the authority to issue the regulation and that the language of the statutory prohibition restricted all 340B orphan drug  purchases, regardless of how the drug was being used.  The Court determined that Congress had not given HHS the broad rulemaking authority to issue prophylactic rules under the 340B Statute.  Instead, the Statue grants HHS the authority to issue rulemaking only with respect to : (1) the establishment of an administrative dispute resolution process; (2) the standards for calculating ceiling prices and (3) the imposition of civil monetary penalties.   Importantly, the Court did not state that HHS regulation contravened the language of the statutory orphan drug prohibition or that it was an unreasonable interpretation of that prohibition.  In setting June 13th date for HHS to submit supplemental briefs on the issue, the court left open the possibility that the regulation could be upheld an  interpretative rule.

It should be noted that HHS plans to issue 340B “mega-regs” in June to address the broad range of topics related to the 340B Program.  Many of the “meg-reg” topics are arguably outside the three areas that the Court identified are within HHS’ authority to issue regulations under the 340B Program.  

Three Hospital organizations filed amicus curiae briefs supporting the regulation.  They were the American Hospital Association, the Safety Net Hospitals for Pharmaceutical Access, American’s Essential Hospitals and the National Rural Health Association.

If you would like more information, please contact Charles F. MacKelvie.