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.