In
a June 18, 2014 statement, the Department of Health and Human Services (HHS)
and the Health Resources and Services Administration (HRSA) announced their
intentions to continue allowing hospitals participating in the 340B program to
purchase “orphan drugs” (pharmaceuticals used to fight rare diseases or
conditions) at discounted rates so long as the pharmaceuticals are not being
used to treat the disease or condition that gave them their “orphan” status.
This move comes in spite of a May, 2014 U.S. District Court for the District of
Columbia decision holding that HHS does not have the requisite statutory
authority to issue a final legislative rule narrowing the exclusion of orphan
drugs from the 340B program.[1]
Under
the 340B program, drug manufacturers who participate in Medicaid must sell
“covered outpatient drugs” to critical access hospitals, free-standing cancer
hospitals, sole community hospitals, and rural referral centers at discounted
prices as set by the Centers for Medicare and Medicaid Services. However,
Section 7101 of the Affordable Care Act (ACA) bars hospitals covered under 340B
from receiving discounts on “a drug designated for a rare disease or
condition”. The rational for that policy
is that drugs with relatively small markets are unlikely to be very profitable;
discounting them further would decrease the drug manufacturers’ ability to earn
back the large amount of money necessary to research and develop orphan drugs.
However, some orphan drugs are also approved for conditions that are not rare.
HHS’ invalidated final legislative rule narrowed the ACA provision by mandating
that orphan drugs be sold to the qualifying hospitals at their discounted
prices, provided they were not being used for one of these “common” purposes.
HHS
asserts that while the District Court invalidated its orphan drug final
legislative rule, it did not invalidate its interpretation of federal law.
Accordingly, HHS has the option to issue an interpretive rule or an
interpretive guidance which would allow the agency to define statutory terms in
a way which would allow the continued discounting of orphan drugs prices. To
support its position, HHS pointed to Kelley v. U.S. Environmental Protection
Agency wherein the Court invalidated a legislative rule, but invited the
EPA to “try again” by issuing an interpretive rule.
HRSA
also issued a recent statement declaring that if manufacturers do not continue
to sell orphan drugs at the discounted rates, they will not only be required to
refund the hospitals and clinics, but their Pharmaceutical Pricing Agreements
(PPA) may be terminated by the government. PPAs are typically required by the
government if drug manufacturers desire to have their products covered by the
Medicaid programs.
Should
you have any questions regarding this matter, please do not hesitate to contact
Charles MacKelvie at cmackelvie@kdlegal.com or at (312)
235-1117
[1] Pharm. Research & Mfrs. of
Am. v. United States HHS, 2014 U.S. Dist. LEXIS 70894 (D.D.C. May 23, 2014)