HHS Refuses to Adopt District Court Decision on 340B Orphan Drugs

click here to learn more...
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)